On the stitch figma thing.
On the one hand, massive market overreaction to a proof of concept give me an effing break.
On the other hand, on the agenda this week, anthropic are they eating open ai's lunch?
When it comes to enterprise, jeff bezos seats a hundred billion dollars for his latest project, basex at two trillion, after tara fab, the debrief on grock's 20 billion deal to Nvidia and much, much more.
If you're a software product and you don't think AI is going to disrupt not just how you build but what you build, then you actually probably want to actively short it.
I think every VC is stressed right now.
Let's be honest, who the hell is gonna buy them if they don't IPO?
I just worry.
There's some ratio of potential acquirers divided by unicorns and I think we're at the lowest ratio of our careers.
I just don't believe the hyperscalers are gonna buy these companies.
Basically, it's win or die.
Ready to go?
Guys, it is so good to be back.
We had a lot of shit go down this week.
I think there's a couple of places we could start.
To the arbiter of economic justice and revelations, which is Ramp, who revealed recently with, I think they're about 05 to 1 of US GDP transactions, or whatever it is that Eric used as the statement to validate themselves.
RAMP data suggested that Anthropic now caps is 73% of all spending among companies buying AI tools.
10 weeks ago, it was 50-50 with OpenAI.
Early December, it was 60-40 in OpenAI's favor.
Are we seeing anthropic runaway with the enterprise lunch, so to speak?
Just to start with the facts, They actually said 73% of new spending, right?
And what it is, and the same graph shows, OpenAI is still actually ahead of Anthropic in terms of total spend.
But the marginal buyer in the last six weeks eight, ten weeks has massively shifted, which is obviously the most leading indicator.
You know, people in the market today for a new AI, went 70% on Tropic.
So, just in the interest of being precise, yes, it's a claim from Ramp.
I thought the OpenAI response of the snarky comment about extrapolating from a lemonade stand was just a bad look right.
First of all, it kind of doesn't really understand statistics.
I would argue Ramp is probably a pretty accurate statistical reflection of especially digital company spend in the US.
I think they have got a pretty diversified customer base and they probably have decent data and they've got good data scientists.
So OpenAI trying to be snark I think was a mistake.
I think it does represent the facts, which is, in the last three months there's been a shift in the zeitgeist.
And I do believe that the marginal user, the marginal person opting for AI today, or even people switching today, the switchers are moving towards Claude and they're moving away from OpenAI.
Doesn't mean it's the end of the world, but Sometimes the first thing you got to do when dealing with a problem is to face the hard facts in the face.
And I think the data was good and the conclusion is real.
If Anthropic now is maybe a 22 billion run rate, that the revenue does tie to these two conclusions too certainly isn't inconsistent with it.
Right?
The only thing i might say i don't want to spend all our time.
I think it's possible.
They're both right, like open, ai and ramp are both right, and what i mean is, in some ways, this felt to me like the cursor debate, because if we walk into our portfolio companies, barely anyone's using cursor today in my own portfolio and people said it on Twitter too like cursor's dead, no one's using it.
They've all moved to Claude code.
And I would say in that ecosystem, it's true.
And maybe if a lot of ramp state is still biased toward tech, they might see this same trend.
I mean Claude has.
If you just look at why everything's accelerated since December, it is Opus 4, 5 and after, it is crystal clear.
As soon as Opus came out, it was another step function that was under discussed.
Everyone's PRs exploded, everything got better.
But for the normal world, they live in chat GBT.
So I don't wanna say for sure that the cursor experience isn't happening here.
So my point is they both could be right.
They both could be right.
But it's certainly everything, what I don't like is how OpenAI is acting wounded to Rory's point.
I don't like it.
When we started this pod, OpenAI seemed invincible no matter what Anthropic did.
It seemed utterly, and everything you can just smell this era, this air of desperation.
Oh, we're gonna keep headcount flat to manage costs too.
We're doubling headcount to.
We're going really deep on agentic commerce to.
We're basically canceling and Walmart says it doesn't work.
It feels very inconsistent.
And when I thought about this, the one thing that I love about Anthropic is it's very consistent about its ICP and goals.
That has been very consistent.
We know what it stands for.
We know what it's trying to do.
Yeah.
It launches new features.
I mean, it's got its new like open.
This next version of open clot launched yesterday as we record this.
But you know what's coming with with with caught an anthropic opening.
I'm getting whiplash from everything.
And the Debbie downer ism uh Going to.
Last week we talked about the air invincibility at GTC and Nvidia.
It doesn't smell like that at OpenAI today, does it?
It's just like a downer to be around.
And I don't want to try their products.
Because of it, honestly, to Rory's point, I actually don't want to try their new products.
And I, and I literally last night I'm, I'm DMing with our chief AF.
So we're trying the new Claude app that just launched, but it ain't going to happen.
I don't want to hang out with Debbie Downers.
If we just kind of put that into strategic takeaways in terms of that pivot.
Now Sora is getting folded into ChatGPT rather than being a standalone app.
Hardware ambitions are being deprioritized and they're really kind of trying to consolidate efforts.
Stopped having such a diverse product set.
Also to your point on headcount.
They now plan to nearly double headcount to 8000 by the end of the year, having said before that they were actually going to keep it flat.
Is there a question?
No, I just want people to understand the context rather than You know what it feels like to me in all seriousness.
It feels like the.
It felt like when we started this podcast quite a while ago, but not a year ago.
I don't think that OpenAI was an exception to the rule.
You could have massive founder turnover.
You could have massive management team turnover.
You could have unusual a high, like the amount of drama with kicking sam altman out and then bringing him back in a dysfunctional board, and like it seemed to be the exception that made the rule that if you had so much momentum in a concert like you could overcome it.
Now i feel like the downside is rearing its mind of inconsistency.
This inconsistency is damaging the company today in spades.
We can see the downstream impacts of that massive turmoil.
Yeah.
And I'm going to come in here and try and say something positive, but start by pointing out, if we do go back to those first ten podcasts, they announced the hardware deal with Johnny.
If you recollect, I was like, this will never ship.
I said at the time and I actually said right when he was on a high that I don't envy Sam, because the press only has two stories.
We love you.
We hate you.
And once they've written, we love you.
There's only one story left.
So they're just moving through the to-do list.
We've done that.
We love you, Sam.
Now we hate you, Sam.
Right.
And he has brought it on.
You know you spend a year talking to the Prince of fill in the blank, the president of France, instead of staying at home and shipping product.
Eventually, things get to focused right.
So, But things are never as good as as bad as they seem.
That's just one of my rules.
It was never as good as people taught a year ago.
They still have to your point, Jason, they still own the consumer business.
Right.
And you know there's, And so job one is figuring out how to monetize that and make that a great ass business.
You know, it's hard to believe that there isn't something.
The advertising efforts seem to be struggling now, but that's job one to figure out.
And then you write job two is to figure out enterprise in particular coding.
I mean, they're doing finally the right stuff, you know, perhaps a year, year and a half later.
But it's still clear to me that if you just take a big deep breath and you are running that organization, focus on the two or three things, get a little more sensible on your financial trajectory you still have a comfortable chance to be the winner, in other words, to exit two, three years from now as the largest market cap standalone financial model player right.
You blow it for another year and you won't.
You know, what's interesting is there's sort of two things going on here that I see in the data right.
If you look at open routers data, it has exploded since the start of the year.
So what that is saying is folks are aggressively switching between models for cost and output, especially cost.
Like that's saying there are a large set of customers who are optimizing when to use Kimi and when to use haiku and when to use mini and that model has exploded right.
And we can see it in a lot of our more mature customers.
I mean, companies that are trying to optimize their spend.
On the other hand, so much of us have said listen, I mean Claude Sonnet and Opus, since 45 and 46 are so good.
I want to stick there.
If you're not deep into coding or vibe coding, you don't see how much better it is in the last 90 days.
And I have no desire to screw around when something hooks it.
It's so good.
And so I wanna build all my scaffolding.
I wanna build my apps.
I wanna build my AI agents about something that isn't just good, but now is epically good.
And so you'd really there are a lot of even with the open router data, like I think.
What I mean is there's these two things happening.
On the one hand, the soft costs are very low to pick a different model, But on the other hand, there are high soft costs for managing the outputs and QAing it and qualifying it and making it great.
And I don't want to do anything except Sondit and Opus now.
I don't want to spend any time on it.
It's not worth the soft costs.
And I think that's where the panic is.
They can smell that they're losing, that even as cost-sensitive customers will rotate through the cheapest possible thing.
I think it's true and I think it speaks to the.
You know you have these discussions, you know, do you want to be first to market or do you want to be second?
And you know more and you don't.
You know pioneers get hours in the back and all those cliches.
But I think the real truth is, if you are first to a market with the right product, you do, you grab that early mind share and market share and then it's theirs to lose and just contrast the two markets.
It's pretty clear the two potential mega markets here are the consumer market, where OpenAI grabbed Mindshare with ChatGPT and despite they haven't monetized it yet.
No one's really taken that away from them at scale.
And then the other mega market is not just enterprise, but with enterprise coding.
And you're right, Jason, the scary thing is Today, maybe six, 12 months ago, it was up for grabs.
Today, your description is right.
It's half up for grabs.
People are starting to lock in.
And if OpenAI allows cloud to become the default for another year and the perceived best for another year.
I don't think you get to show up after a whole bunch of people have made enterprise decisions and say Oh, now we finally got our shit together.
We're good, too.
Now, I promise.
Please pick me.
Right.
There is a moment there was a tide in the affairs of man, as Shakespeare says.
Right.
This has been the last six months of Coding locking, right?
Just the recognition that coding is the mother load app within the enterprise spend.
And you're right.
If you let Claude run away with that for another six or 12 months, you've probably sacrificed value that you'll never get back.
Let me just give you one small example, because the models are so much better since December.
So since then, we've built an AI VP of marketing and an AI VP of customer success for real.
And they're really, really good.
But here's the meta point.
Our AP VMware marketing defines every day, every single marketing activity.
It wakes up in the morning and gives us Slack updates.
It runs our weekly team meetings.
Our AP VP of success.
We have like 200 sponsors for SaaS and all the humans would quit because it was too much work.
It does it 24 seven and the sponsors love it, okay?
Now here, so these are great.
It runs on 4.7 and maybe a little bit of Opus.
There is no way we're going to switch the model.
This is dialed in.
It works.
Now we're going to have to deal with QA.
When it goes to 48 and 51 there's a little bit of qa and it does change, but my god, there's no.
These apps which we rely on every day, there's no way we're going to switch them to codex, because it took us weeks to dial it in and you have to train it and you have to do it and that now that they're great when there's a certain level.
I'm not saying that other folks won't, but that is a lock-in, since the latest models that I think deserve a code red.
We will not invest the time after we've done it because they're so good, the models today.
So that's a risk.
I would have a code red on this.
I agree.
And again, just donning my economics of industry hat, you're an individual enterprise, right?
Maybe if you were a SaaS vendor of these products to a thousand enterprises, you might have a big enough engineering team where you might be what you are six, 12 months from now to evaluate new models.
But you're right, you've built a business that worked for you, right?
And you're right, unless they're extorting you on token costs.
It ain't broke, so you ain't going to want to fix it six months from now.
I agree.
And that's why, just like on the consumer side, every time you lock in muscle memory.
I mean I'm using Claude all the time now in core, but I will admit, when I'm doing my random research for this thing, I still go to chat GPT.
I'm used to it.
I got a lot of stuff in there.
Every time you lock in behaviors like that and let them settle in for six, 12 months, you're just yeah, you're losing lifetime value.
That's nontrivial.
There are applications that we just stick to B2B and AI for a while.
There are applications that are very sensitive to token costs.
Even things like support are super sensitive because they're using so many tokens.
But I got to tell you there are so many applications like the ones I described that were not that sensitive to token costs.
If you use $200, $400, $2,000, $10,000 of tokens for a month, for these, it just doesn't matter.
And so there's the open router world where costs are super sensitive, but there are plenty of applications that will deliver epic value on these LLMs where it's not worth it.
You want to reduce my token costs from $2,000 a month to 1500?
Leave me alone.
Leave your Kimmys and all these.
I don't care.
Like, I got 99 problems.
This isn't on one of them, right?
And there are going to be more of those apps than we think.
You're exactly right.
One of the things I've been thinking about for our software apps investments is just having this mental model of what's the token spend as a percentage of revenue.
And you're exactly right, Jules.
Jason, there's a ton of really interesting apps that, for 5 7, 8 of revenue on tokens, are building huge value which, my sense at least, is very different than the coding apps, where you might be at 40 or 50.
And if you're at 5 of revenue and you're growing really quickly, you got a lot of better things to be doing with your life than over optimizing the models.
And I think, you know, and if you get around, you might use some open source.
Yeah, exactly.
Maybe even more, maybe even 20%.
I think that metric I've actually meant to do this work.
And if someone has done it out there on Internet land, I'd love to see it.
Just looking at a couple of hundred AI apps and just literally looking at the AI token spend as a percentage of revenue across them all.
I'd love to know what the pattern is, because I totally see very different percentages depending on the token intensity.
SpaceX, TerraFab, Potentially $2 trillion.
We're reaching new heights.
We started off at $1.2 trillion, $1.5 trillion.
Now, tariff up and the $2 trillion number is being mentioned.
Roy, why don't we start with some context from you?
You're the best at providing succinct context.
I mean the big picture context is that Elon made an announcement that they're going to build a fab, effectively build the equivalent, I think almost 70 of the value of all of TSMC right in the US near the Gigafactory.
Because across the chip need for Tesla and the perceived and the potential chip need.
I'm picking my words carefully for SpaceX to the extent that they build data centers in space.
He doesn't think TSMC will be able to make enough chips to support his needs and therefore continuing a pattern of vertical integration which they've had for extended period of time they're going to build a fab right not just any fab but the most advanced modern fab on the planet for probably capex cost of 25 billion right that's the announcement So I can, and it's not clear the ownership by the way, but it's, I think the usage, the idea, I saw some numbers like 20%, it's kind of some kind of joint Tesla, SpaceX venture, 20% of the volume in the end will go to Tesla, 80% will go to SpaceX and data centers.
So that's the story.
The second piece of context is, Harry, you said SpaceX now being talked about at $2 trillion.
Let's be clear what you're saying about that, because I'm going to push back strong.
Polymarket said the probability of SpaceX being worth 2 trillion on the IPO went up to 50 60 from a lower number.
And that's what Harry is attributing information signal to.
I would point out that Tesla stock didn't move.
So if this really is, even if it's 80 SpaceX, 20 Tesla in the market, nobody blinked where actually significant money is changing hands.
So I am significantly more skeptical that six months from now, people are going to attribute another 400 billion of value to a statement that i'm going to build a fab unless they, unless they, unless they saw your math the 80, 20 and really thought of all the value going to spacex right.
So again it's back to the same eternal Elon discussion.
At every point in time, with every one of these companies, you have things he's already done that you can value on a revenue, multiple things that have been announced already in process, and there are various stages of doneness.
And in that case, you have to assign a probability to getting it done.
And if the probability is 100%, then announcing a fab means you're worth a fab.
If the probability is 1%, then announcing a fab means you're worth 1% of the fab, right?
And everybody gets to pick their percentage in that continuum.
Right now, clearly, I mean, TSMC itself is just over a trillion in market cap.
It's like basically saying if it really popped up by 400 billion of value.
It's like basically saying TSMC has spent 30 years building the most modern fabs out there.
You've announced that you're going to do the same.
You do have customers for those chips in the main.
So I'm going to give you a 50% probability. you're getting it done.
It's a pretty high Elon attributed probability number.
Do you think that's unfair?
I wouldn't bet against it.
I always struggle to describe this.
He is the person who's achieved more than anything else entrepreneurially in the world today.
Period full stop on hard engineering problems far beyond any piece of software.
Is it rational to say that if anyone can do it, he can?
Yes, because he'd done it two or three times with cars, with rockets.
Not irrational from that perspective.
You still have to say, is his record on timing of being right about when things happen and when they come a little more spotty right.
I mean, I actually just went into chat GPT and said make me a chronological list of every prediction from Elon about full self-driving.
And then I did another one.
Make me a chronological prediction of every prediction from Elon about when Starship will be flying and will be able to reach.
It's a long line if it's going to happen three years from now in the case of FSD.
With the caveat that we're dealing with the most accomplished entrepreneur of at least the last 30 years, maybe one of the top two or three ever.
You still have to say, his record of predicting timeliness on terms of these things is somewhat it takes a lot longer than you think, upfront.
And you got to figure out as an investor, how you factor that into the valuation.
And everyone's entitled.
The beautiful thing about markets is everybody gets to play their own way, right?
I'll tell you what was interesting to me.
I watched yesterday on YouTube.
They had a Jay Leno where he was the first one to test the new Tesla Semi.
Okay.
And the team from Tesla came over, Franz, the head designer and the head PM for Tesla Semi.
And they were talking about it and they were talking about energy.
And the designer said yeah, we strongly believe across all of Tesla.
The future is fusion.
It is fusion to power our trucks.
It's just.
We believe the fusion's from the sun.
There's no point in doing it on earth and we will soon power all of our semis through fusion.
And this isn't.
This is a thoughtful lead designer saying this vision that has been there and they believe it.
I think it's a great story that can happen, that we're going to build more power than I guess exists in the world today.
And 80% of it's going to space.
80% of these chips that come out of this are going to space to power fusion.
You can mock that or say it's going to take nine more years than we thought, but it does create a pretty powerful vision for the IPO and beyond and beyond.
I mean that's pretty.
Now you see it all coming together for SpaceX for real for the first time, rather than we've got Internet satellites and spaceships, like it sort of made sense.
But when we're harnessing the entire sun, because it's pretty doable, because we've built a lot of it already um, starting to sound cheap at two trillion, who else can harness the sun?
Just to push back a little.
In one word i i, you know, because i i i, i think it does all make directional sense, but i just gonna call you on the word mark because i didn't mark.
Yeah, i was very excited.
I think you've just got to look.
Someone can be 10x more accomplished than you right, as an entrepreneur and a human being.
But when you're investing money, you're still entitled to say what probability do I say ascribe to that 10x more accomplished person being able to do the next thing?
And therefore you have to look at this and say for how long will this be supported by a future statement and when will it be worth something on 20 times free cash flow.
But you know why it's interesting?
If you really believe in DCF and free cash flow for real in the public markets.
And I still get confused.
If Starlink really has 53 profit margins and is wildly profitable, the fact that this extends the Starlink vision five orders of magnitude, it's actually a reason to say hey, if I believe in this at all, my DCF has gone up.
How much, I don't know.
It's gone up because Starlink is so profitable at scale. jaw droppingly profitable, right?
And two comments.
First of all, big picture, you are correct.
The reason Elon can do it and no one else can is he's going to articulate these big step function stories where one investor in one of many of his companies pointed out to is a great point he made of this.
They're not like software companies that incrementally grow every year.
They're kind of step function technical challenges that you accomplish maybe every five or seven years and then you harvest on that while you're building the next step function challenge.
And then that gives the next lift.
And I mean, I think Starship is a great example of that.
You had the, hey, I launch rockets and all I do is get government contracts.
And then you're like, no, I launched rockets and now I have a cellular service for remote cellular.
And now the next turn of the crank is maybe, if I can get Starship working, you can have cellular for everywhere and data centers in space.
So you are right.
These are big, chunky visions, each of which, if realized, gives you an extra pick a number 100 billion, 200 billion, 300 billion of net present value of thing.
But you just got, so I agree.
No one else can tell the story and no one else is credible to tell those stories.
You've still got to go back to what's the probability of happening?
When does it happen?
And what's your cost of capital between now and there?
Right.
And I would just argue if you're being, if you're, if you're the classic optimistic analyst, Wall Street analyst, you can probably justify the two Harry's two trillion valuation by saying the odds that this occurs are 80.
But but We're ascribing only a 30% chance it happens on time.
There's an 80% chance.
And within five years, it achieved similar profit margins to Starlink.
And you roll it all back and you can justify $2 billion over $1.X trillion, right?
I think you could do it on a spreadsheet.
And that bet will be available to you and have at it.
Well, in the week of bold 100 billion bets, and why the fuck are we doing seed stage stock investing, Jason?
Jeff Bezos seeks $100 billion to buy an AI transform manufacturer.
Wall Street Journal wrote this one Jeff Bezos raising 100 billion manufacturing transformation fund and acquire companies across semiconductors, space defense, eject AI into their operations and make them much more efficient.
He's apparently been touring Singapore and the Middle East to charm some sovereign wealth funds to give him the money.
How did we think about this?
Again, it was another week of I feel irrelevant at early stage.
I think it's a great classic Indian Creek Island investment.
So you're sitting in Miami in your couple hundred million dollar home.
I love you, Jason.
You've got Jassy and team running the hard business.
You don't have to do that that much.
Luckily, they're doing the hard work.
And now I get to think big.
I get to think big at Carbone or on the yacht.
And I don't want to go small anymore.
And I've already done it.
I've already built Amazon.
So you know what I want to do?
I'm going to remake some industries.
I was with my friends at Pure Vita getting our smoothies.
And we're all going to remake industries.
And this is the Indian Creek Island bet.
And I get it.
Right.
You don't want to screw around anymore on a billionaire's bunker.
You just don't want to.
Do you think he'll be able to raise $100 billion?
He could just sell stock.
If he wants 100 billion, he can get it himself.
So I'm sure he'll get some significant slug of capital.
Mean, it's hard, i mean, i don't know, 100 billion, i yeah it's so out of my pay grade.
But the only problem is softbank seems tapped out.
They're hitting their debt limits.
They just announced this week right, that they're flashing above their covenants so um, but i i don't think he would announce it if there wasn't a re that he didn't believe he could do it right.
So you got you gotta.
You gotta announce a decent probability.
I want to come back to what you said, jay's.
I thought that was actually very insightful.
The indian creek comment, right.
And i you you do see this of you know i did it the hard way.
I'm now 50, i'm 60, i'm not 22 anymore.
I've got more money and less time, so i'd like to insert myself further along in the value creation process.
To make it happen.
Quicker is the logic.
You're right, because i was reflecting back.
AI is this cool new technology that could transform all loads of industries.
Just like 20, 30 years ago, the internet was this cool new technology that could transform a whole load of different industries.
When Jeff Bezos was starting out, there was three different plays you could make.
You could say, Internet's going to transform retail.
Let's focus on retail.
I should build software and sell it to retailers so they can kind of move on to the Internet, build Shopify.
Right.
The second thing you could do is say, hey, the Internet is going to transform retail.
I should buy Walmart, because I'll kick ass and I'll make them become an internet company, and I'll do it that way.
Or the third you can do is to say, I'm going to do the hard thing for the most amount of money.
I'm going to transform retail myself by building a full stack retail.
I'm going to call it Amazon and I'm just going to kill everyone.
The last one was, it turns out, the $2 trillion opportunity from zero.
Your IRR is from effectively no money and you make a couple of trillion bucks from a value creation perspective.
Shopify roughly a couple of hundred billion dollars.
Agreed, because that's the best e-commerce technology provider.
And you know, to be fair to Walmart, if you had half a trillion dollars lying around at the time, you could have scored a double, because it finally adopted the Internet.
And you know you make a 2X on a lot of money.
And you make half a trillion bucks because now Walmart's got a market cap plus or minus of a trillion dollars and they're very much a winner in the Internet age.
And I was just thinking those were the three games that you play.
And back when you're 25 and you have incredible drive.
You don't have half a half a trillion dollars lying around.
You do Amazon.
But you're exactly right.
If you're an Indian Creek and you're like Oh, I don't have 25 years of you know working out of a desk, I'm like a two acts on.
You know taking 100 billion and buying a bunch of companies and you know injecting AI into them like I could have injected internet into Walmart.
Maybe that's the play.
It's inherently less disruptive and more financial engineering than doing either of the Shopify play or the Amazon play.
So yeah, I agree.
I like the framing of the.
It's what you do when you have too much money to want to Do it the hard way.
If you talk to billionaires today that aren't pulling their hairs out because they're running public SaaS companies OK, the vibe is similar.
They want to do something huge in AI right now.
They don't necessarily want to run it themselves.
They don't want to be CEO again, right?
But they're very motivated to do one of these plays.
So we're going to see a bunch of these plays.
It's what everybody wants to do.
It's logical.
It's logical from from from from billionaire.
Yes, it's logical.
I love seeing Sergey Brin rock up to a random hackathon in Miami.
I'm not sure if you guys saw Yeah.
But in Miami he came out at the end and was a judge or whatever standing on ceremony of a very grassroots hackathon in a random part of Miami.
Maybe the only place left in the country hospitable to billionaires.
So we're going to watch it accelerate.
Oh, my God.
The oppressed. species of billionaire.
No no, I do think You know when I think about this, the New York QSBS and other stuff.
We don't have to do it.
What I do think, when you saw Sergey there, right?
And he didn't even move to the billionaire bunker.
He moved to a different part of Miami Beach.
But...
I do think what we're missing is, I think that it is the only place, may become the only place in the US over the next couple of years that is welcoming billionaires.
Texas does, but austin even doesn't.
Austin does not, austin has mixed views, but say what you will, and then i know it's.
I mean, you know florida, welcome.
I mean look, i mean it's terrible, the only fans guy.
I mean very very, very controversial subject matter, but where did he live?
Pompano beach florida, okay.
Florida said be a billionaire here, okay.
And so we're underestimating, it's not just taxes.
With the Sergey, it is you may only feel comfortable if you're Bezos or Sergey in Miami soon.
Why would you feel comfortable in California or Washington and New York?
Seriously, why would you feel comfortable?
Maybe Utah.
I would feel you just don't want to be attacked constantly.
No human being wants to feel that way.
You want to go where people will let you just be yourself and raise $100 billion or do whatever.
Like, leave me alone.
Let me live.
And that's what I think people are missing with the golden goose.
They're making billionaires uncomfortable.
And it's not just the money.
It's being uncomfortable.
That's Sergey, he's.
He's gone.
He ain't coming back, except for staff meetings and hackathons in mountain view.
He's gone.
I'll tell you yesterday i i'm here in utah and i saw ryan smith yesterday.
I love him right.
Founder of qualtrics.
Okay, people love ryan and he took his money and bought the jazz as well as hockey team and he had a rough first year with the jazz because he traded some top players, but They love him here.
They love Ryan here.
And I don't think in the Bay Area anyone, people are vilified.
The billionaires are vilified.
Why would you stay?
And it's only going to accelerate.
So here's the thing.
It's hard to predict the outcome, right?
I really don't think adding QSBS to New York is going to lead to the exodus that the people wanted to do.
We can talk about why, but they did it in California.
That alone didn't work.
But when you are uncomfortable living somewhere, you leave, and it is.
Ryan smith is beloved here in provo, where i am today, and sam altman is vilified and dario gets a pass, maybe because he gave away 80 percent, but um, it's who wants to live?
Who the hell wants to live where you're vilified?
Who the hell wants to live there?
Could put Sam some slack.
He apparently has no open AI to give away.
Howard Marks left.
I mean, he's old, but he did leave.
You want to be where you're comfortable.
Speaking of the world hating billionaires, Grok announced essentially the debrief on the 20 billion deal to Nvidia.
Less than $100 million in ARR on being acquired.
Jonathan the founder is going to make about 950 million after what will be a double taxation, showing it's quite a costly thing taxes in terms of the IP and team acqui-hires that we've seen.
And then Chamath also reportedly made 950 million, to which he responded on Twitter.
He made much, much more.
How do we think about the analysis of this breakdown?
I think there's three different things you said we'd talk about and I think you should break them apart.
One is how often do you see this kind of sub-100 million ARR revenue businesses going for this kind of value?
Then the second thing is, what was the structure and why does it result in double taxation?
And then maybe the third thing is, why does poor Chamath need to tell us he's rich all the time?
It's okay, we believe you're rich.
You may have made other people poor, but we stipulate that you are rich, and even you are smart.
You did a great deal here.
Let it go, poor guy.
Therapy will help.
But let's go back to the first one.
The first question you asked in the notes, which you always ignore when it comes to the show, is when do you see this transaction price?
As if revenue doesn't matter.
That was the question, right?
When does someone pay 20 billion for 100 million in revenue?
And I was thinking about that.
It's easy.
The answer is when the value to the acquirer is so high and they have the market cap to do it.
And NVIDIA with a $5 trillion market cap can pay $20 billion for something that's valuable.
And there is another good example I thought of at scale, because it happens a lot at small scale.
There are loads of tech MA where some shitty little company is doing less than a million in revenue and someone buys it for 100 million, which is 100 200x revenue multiple.
But we don't make a noise about it because it's just so small.
And the reason they're doing that is because they can run it through their channel and they can convert that million in revenue into 20 30, 40 million very quickly.
Or it has strategic value to them, right?
The number of times it happens at 20 billion is low, but WhatsApp is the other great example of that.
Facebook paid $16 billion for WhatsApp and it didn't have a dime of revenue, right?
And it was a great deal and it's still a great deal.
So it does happen, but there's only a few number of buyers who can afford to do that grok one.
You know they just announced at gdc last week that it's going into production.
So that's different.
Okay that, and i'll tell you what i find interesting in general for venture.
So look, they had 100 million in revenue, they proved the concept, they prove it sort of works.
And jensen said within a year we can get this into production.
Um, that that's worth billions right, and so It illustrates how weird MA is so weird.
This deal probably was a multiple of the last round.
The last round was at 6.9 billion.
This is less common these days, but classically rounds would be two to three X the last of a growth round.
That has collapsed for some reasons recently, but my first startup was acquired for exactly three X a round.
Literally.
Our acquirer downloaded our certificate of incorporation, found our per share price and showed up unsolicited with an offer 3x.
That's what I think happened here.
What is so weird though, is that it's a reminder that so much of MA, one way or another, is focused on revenue multiples, either directly or potentially, and then they're just abandoned after the.
They're just you're worth 102 X ARR, and then we fire the sales and marketing team after the deal closes and roll it up into our core product.
It's an odd thing.
Necessary, but odd, right?
There's so many weird ways they are valued.
Agreed.
Yes, and it's a weird thing because there's often this huge gap between what you worked standalone might be 2 or 3 billion, what you worked to acquire might be 20 billion, and it's a question of how does that 17 billion of value get allocated?
And obviously sometimes the buyer is trying to grind you down to $1 more than your standalone value.
And then sometimes, like in this case, they're like Hey, we will pay you a fair amount of what it's worth to us, which is way more than your worth on a standalone basis, but kind of segueing to the next thing.
In return for that, you're going to use this structure, which is wildly tax inefficient, but it's the only way for us to get this thing done quickly and without government review.
Which is the next thing to say here, which is the point.
The other point you're trying to make is is that you know the CEO.
I mean, no one's going to cry for someone who made 950 million, and they're not even a billionaire, so no one will hate them.
So that's great.
I mean, it's actually a win.
Good.
Another 50 million and Jason The pitchforks would be out.
But these transactions are very capital and tax inefficient because what happens is the company sells the assets to Nvidia books a gain because the assets were in the books at sub a billion and now they're getting sold for 20 billion.
So you have to pay tax at the company level on that.
And then you dividend or redeem the money out and individual investors have to pay tax on the gain.
So it's fairly inefficient.
So you're probably wasting plus or minus 4 or 5 billion on a 20 billion transaction because of double taxation.
And it's probably, to the founder, Jonathan, it's roughly 60% effective tax rate.
And and you can't hold Nvidia stock.
You're cashed out.
Like there's a lot of it.
There's so many inefficiencies in this deal.
One, you don't even get the IP, right?
You don't you don't get the company, you don't get anything.
And it's a 60% tax rate to the founders and no ability to roll over the stock.
Avoiding antitrust, is it worth it?
Probably for the $950 million.
But man, this has got to be the most inefficient thing ever convoluted to avoid antitrust.
It's so expensive. pointing out it's just quite terrifying from a government perspective.
You now have a process whereby the government makes the rules that enforces the antitrust and the government
And basically, you've got two choices.
It would appear you either lobby extensively at the highest levels of administration and you get a waiver from the top down for that Wall Street Journal article this week, which was pretty good.
And option B is you do it this way and then you pay double taxation and the government wins either way.
You know, wire me the money and I'll let you off or wire me the money after it closes.
But wire me the money either way.
You know, it's a really perverse incentive.
I mean whoever comes in today antitrust division next time and says I think we should clean up the rules and make it much more transparent.
It's probably going to cost the government 20 30 billion bucks in terms of some combination of kickback and tax avoidance.
There you go.
I have to say I do like it.
Jonathan was in the desert and the dark for many years.
He is a founder, who's been a real, respectfully cockroach, who's gone through the hard times, who's gone through the criticism.
He's also just a good dude.
I like him a lot.
It's nice to see good people win.
Just like Chamath.
Another good guy who's been through the wilderness and has now got his 950 million.
So I'm sure that's the point you're trying to make, Howie.
Much more.
He needs money, Roy.
He could.
He could.
He can now buy some more Laura Piana.
Roy, you brilliantly said to me, you know, that's great.
But what about me?
I owe.
I own stock in Amazon and I own stock in Figma.
Google launches Stitch, Figma tumbles.
Figma tumbles is an understatement.
I saw a tweet it was actually an announcement that someone posted and Sequoia were buying 35 million bucks of Figma stock.
And I was like fuck, if Sequoia and Andrew are buying 35 million bucks, I'll put in some of my money.
That's a good sign for me.
I'm down 22%.
Yeah.
22%.
Yeah.
Yeah, it's 21.66 a share.
I remember look, when it was at 108 and you asked me what I thought it'd be, I said 35 and I was wrong.
You laughed at me because I was so pessimistic and I was wrong.
It's 21.
Wow.
No, it's... Does this have a floor?
Of course it has a floor.
I mean, stop.
You know, like, again, it's...
It has a floor based on its cash flow, which is strong.
It has a floor which is growth rate of that cash flow.
The third element is the probability of disruption.
The tricky thing about the equity business in the short term is everybody gets to speculate on that probability of disruption.
So you take the cash flows and then if you love the story, you apply uplift.
See Elon for details.
You take the cash flow and then you buy it.
And if you're really scared about the story, you apply terror down lift, which is what's going on here.
Now, in the end, you said, in the end, if the business is worth it, it will grow and it will generate the cash.
And they'll get to do what the Palantir guy does, which I so love, which is every earnings call.
He basically slams all the haters and says basically, fuck you, I'm making money.
And you all were wrong.
Until, in the short term, the market gets to and moan and have its opinion, but the floor doesn't come because the market changes its mind.
Maybe it will, maybe it won't, but that's not in your control.
If you're running figma, the floor comes.
If you execute, you demonstrate that you've been able to adopt, you know, to an AI, AI first world, you generate the growth, you generate the cash flows and eventually it'll turn.
But that's why it takes.
That's why drawdowns are shitty.
That's why drawdowns are hard.
Well, on the Stitch Figma thing, I mean, I've used Stitch, of course, as you would imagine.
I think most folks that chimed in on this never used it.
I'm confident, 98%.
To say that for those that don't know, Stitch is what for those that don't know?
It is a new design tool that Google launched.
And the bar at Google to launch a new AI tool is pretty low.
They try a lot of stuff and they abandon almost all of it because then they focus on a few core products.
So you literally cannot take it seriously when google launches a product because you have no idea whether they will stick to it.
They launched a sona, is it sona?
Sorry, i keep getting this wrong.
Harry, the the audio one, right?
What's the one source?
The the audio one?
Oh, Suno.
Yeah, so Google launched a Suno competitor.
It's cool, but it's not nearly as good.
It doesn't really work.
And will they keep with it for five years?
I'll bet you dollars to donuts they don't, because it's not core, OK?
I used Stitch.
I've used all of Google's design products.
I think the odds that they decide to build a Figma competitor from this for a decade approach zero.
So on the one hand, massive market overreaction to a proof of concept.
Give me an effing break if I'm Sequoia or whatever.
On the other hand, The markets are saying, we are extremely worried about disruption.
We are extremely worried about disruption.
You better prove to us Figma, Atlassian, Salesforce, you are ahead of disruption and not behind it.
And the market said, we don't believe it.
And I agree with the markets here, because Figma Make is one of the worst products I've used in the last six months.
But Stitch on its own, at least it's better than Make.
At least it can take context from a website and not hallucinate.
But the market should be like...
Show me the money.
Again, where is Figma's 300 million of revenue from disrupting, Replit and Lovable, like we talked before?
And so if you haven't delivered like Palantir or started to deliver like Salesforce, the markets are going to freaking panic that Your revenue is not that durable.
This is what I think at all.
Like, I didn't get the 2026 panic for a long time.
I was slow.
Now I get it.
The markets are rationally saying we no longer believe this revenue is particularly durable old SaaS people.
PE doesn't believe it.
Qualtrics couldn't finish its debt offering this week.
Salesforce barely got its debt done.
And why?
It's not that they think that Figma is a bad company.
They just don't believe this revenue is going to last a decade anymore.
They don't believe it.
You're going to see more and more of these panics for anyone not accelerating.
They're just going to panic every time it happens.
Jason, we just released a show with the CRO of Figma and I asked him how are you seeing AI implemented into your sales teams?
And he said, honestly, we don't really have that ability and we haven't done it yet.
Oh, and we're hiring lot more in sales.
By the way, we're not reducing head count at all, that we're not seeing that.
Uh and oh, by the way, we're not seeing seat pricing change at all.
How do you feel when you hear that?
Because you're just, you're just serving that one.
Ironically harry ironically, that one does not worry me as much as the product.
Okay, i will tell you what i've learned You formally on the other 20 VC me informally.
I know I've talked to, I know, a lot of the CROs and CMOs at leading AI companies.
The ones I'm close to are pretty good, but I also see tons of folks I called recycled mediocre.
They're folks that bombed out of old B2B companies that barely did anything there.
But because they have the right logo, got hired to assume they're all over the hot AI companies.
So many recycled mediocre.
And they're going to hire 250 reps and not train them.
And they're going to build infographics.
But the products are so strong and the demand is so strong, it doesn't effing matter.
So if Figma Make was so great and their AI product was doing 500 million, You could sell it with folks fresh out of a non-technical junior college.
It'd be fine, right?
So my point is even though I talk a lot about AI go-to-market agents and I believe they're great and they work they don't fix product market fit.
Sales tools.
Sales does not fit product market fit and we're seeing broken, we're seeing decaying product market fit.
That's why the market panicked on Figma.
They're seeing hints, just hints of decaying product market fit in the AI era and you should panic.
Yeah, I just pile in on that, because I actually have these conversations with my companies all the time.
I actually I didn't think I totally agree with what Jason said.
It's like when my companies come and say hey, you've got this, but we want to talk about AI, and they say well hey, look at us, we're using AI and go to market.
Or they say, look at us, we're using AI to build engineering.
I'm like, that's great, but nobody gives a rat's ass.
That's like jacks to open.
That's not solving the core problem.
Unless you're making something like cars where it doesn't matter, it's just back office efficiency.
If you're a software company, The number one question is how does AI change the end product you deliver your customers?
That's what's going to determine success or failure.
So I thought I was wrong.
I'd have guessed you'd have piled on to that guy and kind of bludgeoned him while he was down because I thought how he'd served you up a softball, for you to say Hey, the idiot is not using AI.
And I'd have argued with you, but I think you nailed it.
Look, you could be using AI well or badly and go to market.
You can be using AI well or badly in engineering.
It will catch up with you over time if you're not using it well.
But that's not what's driving 30%, 40% price declines.
What's driving that is exactly what Jason said, is the market.
Look at this and say, there's disruption risk here.
I don't know the terminal value here.
I don't I'm just nervous.
So I got to be paid for that risk.
And it didn't take my softball, did he, Roy?
No, no, no.
Normally he's disciplined.
But Rory's got the important point.
There's good.
There's you got to have the right eye.
Your company is going to decline.
Listen, I'm sure the Figma guy is great but honestly, if I interviewed a CRO today and didn't have any AI agents that he or she had brought in to our last podcast, I would recommend to the CEO don't hire her or him, okay.
For sure.
But what I think this was, would I be much more worried than if I talked to a CTO and the new CTO they wanted to hire didn't really believe in using agenda coding?
Then I would ask for my money back.
Can I have all of my investment back in one X?
You can keep your markup.
Just give me my 5 million back.
I'm going to go one level more than that.
Is that you're right not using AI to go to market, bad not using AI to build product?
Maybe I want my money back.
But if you're a software product and you don't think AI is going to disrupt not just how you build but what you build, then you actually probably want to actively short it.
Like, for example, they're not doing that.
But if Figma or Salesforce or someone was to say I don't think AI is relevant for our customer base and they don't want to use AI in design.
If someone was to take that pain, you'd be like, oh my God, you're just going to be, you know, just left behind.
Yeah, and that's why Figma's insensitivity to how mediocre make is really worries me.
I wouldn't care if Dylan or the team said, listen, make isn't good enough, but give me time.
Give me six months.
It's going to be great.
But saying this product that is the worst vibe coding tool that is used in the last six months, the fact that there is no public awareness that this is an issue really worries me.
Jason, can you help me understand that?
Because Dylan is a good CEO.
Excellent CEO.
I don't know for sure.
But I think everyone at scale has a trap, which is your installed base is a trap.
It is an opportunity to trap.
It is the greatest thing in the world to sell your agentic product to.
To sell agent force to is the 44 billion of ARR.
It's the greatest opportunity because you don't have to earn that base, right?
But it is also 50 years of debt, 50 years of features, 50 years of offline integrations, non-agentic gaps.
They want 50 years of Endless work and if you're not careful it will consume 98 of your resources.
Is that install base right?
They need so much attention.
And I do think literally Make is the only vibe coding product that I have used, where you say Build me a website for 20VC.
Use 20VC.com as a template.
And it can't go to 20VC.com and pull the context to make the website.
Now, Replit couldn't do this in June of 2025.
Lovable couldn't.
But anybody can do it today, right?
Including, you know, who could do it pretty good was...
Stitch.
Stitch got the context right of the design projects, I get it.
And that just shows to me whoever's running it doesn't care about these use cases.
They just don't care.
It has fallen behind.
And my guess is there's a small team on this. they're still growing, what, 35%, right?
I mean, this is one of the best out there.
But here's the trap.
And we all have portfolio companies like this.
The trap of earning that 35 can imperil your agentic growth.
It can consume more than 100 of all the product and engineering and CS resources.
You have right.
Even Michael Cannon-Brooks, when he was on the show, he alluded to it, right?
And then they did the layoffs.
He's like I gotta get these resources because otherwise Jira and Confluent and everyone's gonna suck it all up and I have no people.
Super interesting, it's a trap.
It's a trap.
And think of some of your portfolio companies at scale north of 100 million.
They don't describe it this way, but you know it's a trap, especially when they have a mediocre like vp, presented at the board meeting and the mediocre vp is like i just i want to do it but i don't have the people.
I need another 700 people to build that.
You know like oh you, It is so hard to say.
I'll allocate to the new thing first and allocate the residual to the old thing.
And you're right.
The instinctive is to say I'll deal with the old thing and then I'll find some people for the new.
You're right, it's a mind shift.
That's an interesting point.
And I don't want to overstate the intercom example just because it's enough already.
But if you want to use it a case study, it does illustrate what you have to do.
And Owen was clear, we let our core business go into partial decline.
It's very hard for, almost impossible for a public company though.
It's lucky being private, because you gotta have a lot of guts to say we're gonna let a one point something billion dollar design business decline a little bit so we can build our agentic product.
It's tough when you're public, right?
But it's what you gotta do.
Figma is at 21 today, 12 billion market cap.
Would you buy it today?
No.
I don't see any evidence of these agentic investments working.
I would rather miss out on the bounce right off the hard deck, then invest in something that may fall below it.
The reason is there's too much change.
My God, there's so much change.
It's so fast.
Make would have been a great product in August of 2025.
It's just not today.
The problem with the band sign it's a first world problem is, say you buy at 21, the concerns are overdone.
You're back up to 24, 25, 26.
So you've made some decent money. but you sell it, you get ordinary income, blah, blah, blah.
Net of taxes, risk adjusted, is it worth it?
The only way you buy is and I'm not saying I have the answer to this When you buy stocks because you want to hold them for five or 10 years, you just do better, especially tax adjusted, than when you buy things because you think there's a short-term bounce right.
I personally think that almost all of this stuff is overdone.
And there probably will be 5%, 10%, 20% bounces across a number of these companies.
But to want to buy it, I haven't done the work that Jason's done.
But he is right.
You only should buy things if you think five years from now, there'll be a winner in the future.
I think it's totally plausible.
Figma could be.
But Jason, until you've used the product, until you've seen what they do, I wouldn't make that decision, especially at scale.
Well, here's the tough thing.
If Figma's clear, you just had them on.
Harry, are they materially charging for their Gentic products?
Are they monetizing it?
No, they're not even really charging.
Look at your portfolio.
Why the hell would you not charge for your AI product today?
Why the hell, when Anthropix doing 22 billion in the blink of an eye, when people are lining up out the door to buy agentic legal products and healthcare products and open evidence, why would you charge almost nothing for your AI product?
Why?
It's not good enough.
Literally, I was with a founder this last week who used Make and got very far with it.
If nothing else existed, it would be amazing.
If this was 14 months ago and they built their own LLM and they could do this on their own, our jaws would drop right.
But it's not.
If it's not good enough to charge for, it doesn't count.
You're not an AI company if you can't charge for it.
Very few public companies can effectively monetize AI, and that's why they're all in terminal decline.
Almost all of them at the moment are in terminal decline.
Will they pull it back?
I'm not going to buy their stocks until they do.
I don't see any point.
For the record, that's an excellent test.
Yeah.
Even Figma can't charge for it.
It's a very, very bad sign going into the middle of 2026.
It's a terrible sign.
Terrible sign.
I'm naive here, so forgive me for this.
Are Notion charging for it?
You've spoken before about Notion's brilliance in the integration of their AI capabilities.
Are Notion charging additional for that AI capability, or is it just a superior product?
Well, first, if I said I thought it was truly brilliant, I misspoke.
I use Notion all the time.
I think that they're good.
I don't think it changes the game in a way other products do.
But the simple answer to your question is they have been able, look, they're not public, right?
But if you combine what they've said with their pricing page and their announcements of acceleration and the fact that they have effectively doubled ARPU from it, here's a way to look at an SMB product today.
Is your ARPU 50% or higher than it was pre-AI?
It's a really simple test.
Can you drive ARPU up 50% or more?
It's very different at Salesforce or ServiceNow.
It appears that Notion has done that, in which case they passed the test, right?
But I want to see 50% or more ARPU growth due to AI, or it's just a feature.
It's just a feature like an integration.
Great, hard work, good job, guys.
Let's have beers, but it doesn't count.
Yeah, I mean, reacceleration is the aggregate test, to your point two weeks ago, Jason, right?
Something's got to be going, I mean, that's been sticking with me too.
Something's got to be going better across the marketing KPIs.
It can be charging for your A product, it can be reacceleration, it can be ACV, but something has got to be working and getting traction, Otherwise you are falling behind, because the first players are delivering utility to our customers and that's manifesting in those customers giving them money.
So if you if you can't make the same phenomenon happen one way or the other, you're falling behind.
Well, obviously the market rejected Microsoft co-pilot products as things they didn't want to pay more for right.
That's the example of stumbling.
Notion with AI is 20 bucks a month.
The basic is 10.
If everything ties and private companies have an incentive to be honest.
But polish the numbers a little bit right.
See for our conversation.
Yeah, but assuming there's a at least a substantial amount of truth in what they've said, then it's.
Then it's working right.
They're able to charge 20 a month for their agentic product, not because they they splashed an ai label on it, but because it's so much better that it is worth it to talk to your docs, to have to have stuff flow into your database autonomously.
It's worth 20 bucks And I suspect we're going to find this.
I don't love the pricing.
I suspect, as the year goes on, we're going to see the same thing at Slack, because most folks haven't used it.
We're on it.
The AI version of Slack for certain use cases is so much better.
I don't love that they're not just charging another four bucks a month, but I wouldn't be surprised if it's like Notion like they're able to do it right.
Speaking of Figma, I'm going to go a little bit off piste here, but I think it's worthy.
Jason, we were on Twitter about it earlier, joking.
Mamoon announced raising the new KP funds a billion dollars for the early two and a half billion for the growth.
Growth seems small.
I mentioned meeting him.
Seems small.
I mentioned meeting him for the first time at SAS to Jason, if you'll believe it 10, 11 years ago in a side room.
Kind enough to give me time.
My takeaway is honestly, you can't do early and you're going to kill me, Rory with less than a billion if you're going to compete to lead ace.
And my reasoning for that is A is now a 30 to 40 million.
And if you want to lead them, you need to be able to write 25 to $30 million checks.
I think you need 20 across a firm.
So if you need 20, $30 million checks, you're at 600 million.
I would argue that your fund scale is as small as it could be to lead A's today.
I don't entirely disagree in the sense that it's a $900 million fund.
You're exactly right.
The math of what you throw out is correct.
Series A's, you're writing an average of a $20 million check.
Our reserves I don't even think 20 is enough these days.
Let me just an average.
If you hustle, if you find some deals where it's a little off the beaten track I've written A's where we've gotten 20 ownership of 12 or 15.
It's not all, but let's just go at your average, Harry, because rather than arguing that Right?
It's 50% reserves.
Over like six or seven funds, we've been 50% reserve.
So you end up with $30 million in the average deal.
Then the last comment is a portfolio concentration versus diversification question.
I think given the higher time to exits, you probably tend to be nearer to 30 than 20.
So yes, I think there's a certain smaller scale required to play meaningfully in the Series A business.
Yes.
Rory, can I ask you, you've got 720 of investable.
You can't have a reserves of 50-50.
720?
No, I didn't say 50-50.
You didn't pay attention, Harry.
Because there's two ways of expressing reserves.
It's a simple math.
Let me help you.
One way is expressing it as a percentage of original capital.
In other words, if I put in 20, do I reserve 10?
That's 50% of initial capital.
Mathematically that's the same as saying two-thirds of the money goes in in the first check and one-third goes in in the.
You're right, I'm not reserving 50 of the total amount.
Do you understand me?
Those are literally just... Now I do with that clarification.
Thank you for clarifying that.
I think I used the prepositions correctly the first time as well, but okay, it's good to be clarified.
But to be fair to you, people do express it both ways, and sometimes precision is important.
I always think of it as the amount of money you've put in and then the amount of money you have in your back pocket to defend that money.
If you need to expand on that position, if you want to,
So I always think first check.
And what it says is and this is another insight unlike for seed, where you also have a big fund for that kind of series a game, the series a is not for us, especially for firm.
That just has, you know, checks for a's and b's, and of this size, it's not an option value on putting a ton of money in later.
Most of your value is made on that first check right, whereas these folks who have seed or even a funds where their real plan is to put 200 million in at the b or c when it's working right.
To some extent the a is an option value but just Just as for Jason, the C check is the check.
For us, the A or B, because we're roughly about half and half, is the check.
You're not saying, oh, I'll put in a little now and write more later.
That's not the way the game can be played.
Rory, are you finding it increasingly uncomfortable with the expansion of Series A rounds because our checks are getting stretched bigger and bigger and it's ruining our math?
It is somewhat uncomfortable, but I think you have to find the deals where that's not the case or decide in some cases to reach.
But both sides of the challenge out there.
You know there may be some deals that are too capital intensive and you decide I don't want to do that because I'm just not getting paid for that risk.
But you're right.
I looked at this math just last week.
The average round that we play in has crept up.
Not just the amount we do, but the average round that we play in has crept up over the last year, year and a half.
So yes, it's not, I would say, to the acute level of oh my God, we're perfectly happy with the checks we're writing and the round sizes.
But yes, there are times especially, for example you know we haven't done any at scale of the kind of the Neo Lab C checks where you're just so outclassed with your 30 or 40 million check it's barely worth playing.
How big is the Hummingbird Fund they just announced?
It's 800.
800.
What was their – where have they grown their fund size from over time?
From doing inception, investing
It's 200, 300 of I think initial capital.
It's the same fund they always had but adding a growth fund to a rounding error, right?
And then didn't Baldur didn't lead the seed in Revolut?
And then who did they just do at a billion this week?
It's just, it's the game.
The game is, it does change.
We were really good at doing Revolut at four.
Now billion dollar rounds are a good entry point for us.
It's just a lot of change, isn't it?
Yes.
Look, we track it on aggregate, right?
Versus our 2010 checks, you're probably up roughly 2x in terms of the valuation.
And I think that's significantly lower than the industry as a whole.
His points hard to argue with, which is if you want to own 15 of a company or whatever your target number is and deal sizes have inflated, there's a basic math you have to do right with reserves and that math is in many cases, highly stressed in the market today.
It's just like.
It's a fact.
Like You know, you used to solve it was very easy to solve your fund size before right.
It was 60 million per partner for seed, maybe 100 for A or B, and then it would go up a bit.
The math was so simple that all these funds were.
But That math just is broken today and it creates interesting
I don't find it super interesting, but it is a little bit broken, right?
And so if you're Gary Tan, you say the $100 billion outcomes make it irrelevant.
And I don't know how they work, but I was just looking and I was writing something up on Wiz and Cyber Starts owned 4 at exit.
So I don't know whether that's dilution or his model back then, but the model still works for a seed fund at 4 of 30, some odd billion.
But I think we're going to see more and more of those. dilution in time.
We'll see more and more seed investments eroded to 3%, 4%.
I'm just doing one example.
They'll be eroded.
And if the exits are north of $10 billion, it's okay for a seed fund.
But it's tough.
I don't have the answers.
I just think the old math was easy.
We need to do 15 to 20 investments per fund.
15 million the average check size and you could roll up into fund sizes that didn't make you fall out of your chair.
At the risk of being a dick, the math is easy four times, because math is independent.
You just don't like the answer, right?
Multiplying a pre-money of 50 is no harder than multiplying a pre-money of 20.
I think the math inherently creates more risk, unless the outcomes are massively higher.
We are levering up our risk. to Harry's point, we're levering up our risk.
I totally agree.
I was just being a mild little jerk because I'm thinking I'm getting grumpy.
It's not that the math is complex.
It's just that the consequences are unpleasant.
And it's what you say.
Everyone, look, we said it over and over again.
Everyone's pushed out on the risk continuum.
It does feel like times are changing faster than fund sizes are able to adapt in a way that they haven't done in previous cycles.
Our normalization of billion-dollar-plus rounds, hundred-billion-dollar-plus raising.
I think that's one part.
So much quicker than funds.
I think that's actually true.
That's actually a good reflection.
The pace of change, because I've lived through 95 to 99, the run up and the billion dollar funds.
And I also lived through unwinding, watching all the funds being unwound in, or two, remember and then you know obviously 2007, that on one, this and even 2021.
This feels faster than that.
Right, the action on the table and the need to play at a highlight yes, i think, which is why I think every VC is stressed right now.
No matter how successful you are, no matter how well your last deal, a deal that you did three years ago is doing.
Everyone wrestling with doing deals now is grumpy, stressed and feeling the pressure.
But I think there's one risk that is under-discussed.
Okay.
All this fun math can lead to concentration risk or ownership risk, at least for a smaller fund.
I have to deal with concentration risk or ownership risk.
That's a simple trade off.
That's my maths, right?
Agreed.
The one that we are just ignoring because times are so good on paper is who the hell is going to buy these companies if they don't IPO.
Replit, Legora, Harvey, Lovell.
How much is Lovellville worth in the last round?
$8 billion?
6.7.
Okay, let's be honest.
Who the hell is going to buy them if they don't IPO?
You really think Google's going to buy them for $32 billion?
It could, look, don't get me wrong.
It could happen.
And acquisitions are not up, right?
Dollars are up.
So I just my point.
That is under discussed is we are doing these post billion dollar deals like candy And at least in the bubble of 21 there were PE exits.
There were many exits out there.
We have outstripped any current ability for these companies to have any exit.
So you are going all in on the IPO. and not without any worry rhyme or reason and i think so many folks sub-anthropic are going to get their arses burned because they'll end up in the dead zone they'll have great companies without great IPOs and zero M&A opportunities.
And I'm not saying don't do it.
I want my markups on paper.
I got to do an LP announcement this week.
I want my TVPI and my IRR to look good, but it's also terrible.
It's terrible to raise north of a billion.
It's terrible because you just they're just, you know, Salesforce and Amazon.
I mean Grok is great, but a lot of this stuff is not Grok.
I agree with everything you're saying, and what's hard about you saying it is that the strategy that has worked has been precisely the strategy of doing those rounds above a billion and getting the round beyond it.
But you're right, it's all predicated on being able to exit these companies in an IPO.
And I will say just to remind you you can imagine a world of IPOs where some of these companies exit, But if the last rounds don't have a block, it's not necessarily going to be above the last rounds.
There are some awesome AI applications companies where you kind of go.
I totally see how that's worth 5 billion in three years, based on fundamentals.
And right now it's valued at 10.
And three years from now, I could contemplate it going public at $5 billion.
And you kind of go that last one, the 10, is going to have to convert and take 050 on the dollars, unless it has a meaningful block, in which case it will get more of the company.
Yeah, for sure.
I just worry.
There's some ratio or you can name it, but there's some ratio of potential acquirers divided by unicorns.
And I think we're at the lowest ratio of our careers.
Yeah, no, absolutely.
The lowest ratio of potential acquirers divided by unicorn, unicorn plus up to decacorn.
They're just not there.
We've lost all of PE, and Nvidia isn't buying 100 companies.
Microsoft is not buying 100 companies.
So what is the subsequent thought then, Jason?
Sell aggressively into secondary markets which are more liquid than ever, probably for early stage investors.
Sure sell, while the that's the hopping lesson.
I know you love to talk about it, harry.
Maybe that's the lesson.
Um, i don't think it is.
Can i just push?
I don't want, actually i'm gonna.
I don't want to use the hopping example because then people will, because i actually think i'm going to make it a more interesting discussion, because when you do hop in, people go.
Well, my company's not hopping, No pun intended.
I think you're saying, even for your fucking great companies excuse my language, great companies where you know in the end they're not going to be hopping, they're not going to be vanishing in a puff of blue smoke you're still right which is?
Those last rounds might be at prices you'll never see again.
And what should you do as a seed investor?
I mean, what would you do if a company where you invested at 50 you thought it was worth it could be an MA at 2 billion at some point in time and suddenly you get around at 5 billion of new money and there's a secondary opportunity?
You're a starter for 10.
What do you advise?
Yeah.
And listen.
Maybe just as we're now okay with down IPOs, like we're okay, it's just mathematically true.
Yeah, we are.
Maybe we'll all be chill with down.
MAs and all these folks raising at 9 and 10 can sell for one or two in a few years and everyone will be happy.
I'm just not so sure that they will.
But I'm more worried there's just not going to be a lot of acquisitions.
They're very specific.
They're very specific to either we're desperately behind on AI or we need to jump forward years.
That is a very narrow subset versus making sure accountant software at 5 billion is better for accountants.
I believe that's a great market.
I just don't believe the hyperscalers are going to buy these companies.
No.
Yes, because by definition at the app layer, you're not getting the hyperscalers.
And the odd thing is actually I just realized this for the first time the odd thing is, because of this story of eat the work, The TAM is meant to be larger.
That's the whole point of these applications.
And I believe it.
But Jason, to your point.
What it means is you are definitionally.
Therefore, the new company is larger in terms of value then the old company you're replacing, which means the old company can't afford to buy you.
Yeah, no chance.
If you're Harvey and you're worth 10 billion and West it's not really worth more.
But if you know the old practice management law software is only worth 2 billion, they're not going to buy you.
Right.
You've got it's basically it's win or die.
To your point.
I think you're exactly right because, Because these TAMs are bigger, when the TAM becomes bigger, the new company gets marked up and has potential to be a bigger outcome.
But what it means is, once it gets marked to that bigger outcome via late stage round, it precludes the prior generation buying in.
If I was running one of those prior generation companies, if I was the system of record.
What you need to be doing is buying that not marked up 500 million valuation company and getting something out there.
No matter how hard you try, as the old generation legal software company, you can't afford Harvey at 10 billion.
It doesn't matter what you want.
You can't afford to buy them and they can't afford to sell to you.
I think you're exactly right, Jason.
I just wish listen.
Even if IPO markets are barely functional, they're open, but they're barely functioning.
If the M&A markets were on fire, I'd be good with everything.
If we were turning around and these companies were being bought for 10 billion cash each week, I'd be like this is awesome, man.
But it does worry me that it's so easy to get a nine billion dollar valuation.
It's so much easier to get a nine billion dollar valuation than a billion dollar exit, which should be terrifying.
If you're the people giving a nine billion dollar valuation, i mean you got to play the game on the field, but uh, well you actually, for the record, sometimes you can stick your money in your pocket and not play the game on the field, but that's okay.
But you're playing the game on the field, Rory.
Part of it and the bits I haven't played have been you know, we haven't done deals at a billion dollars.
We kept it in at 100 to 300, 400 million dollar pre-money valuation.
And right now, that's been the wrong play, just to put it out there, right?
I mean look, I give all credit to, for example Spark, the Yasmin there at Spark who broke all the rules and said 4 billion for a pre-revenue company on Entropic, that's paid off right.
I think it'll be interesting to see.
Did you vote for Matt Murphy at Manly?
Absolutely, Matt did it too, totally, yeah.
So my point is, some of the late-stage bets have paid off.
On average, I think it's a tough...
I share the concern.
So to your question about playing the game on the field we're playing part of the game on the field, but we're a bit scared of certain parts of the valuation curve.
I think that will probably across the cycle be the right decision.
I'm not sure, in the last year or two it's been the right decision, which is always a challenging thing about valuation
I shouldn't be so honest, but I fuck it will be at the end of the day here.
My biggest regret with our Series A fund is not being more elastic, disregarding the Series A mandate and just saying I'm going to leverage the brand and the assets that I have arrogantly forgive me for that to get into super hot companies like your Eleven Labs, your Liguras, your You Name It's your Lovables much earlier and being a momentum investor in a hot environment.
I'm going to paraphrase what you said is I have the right.
My current plan is to write 20 million checks in series A investments where I get 10 to 20 ownership right.
And I can write 20 of those checks.
In retrospect you're saying I should have taken five of those checks, the full 20, not a bitty check but a full ticket.
Or maybe even double down and use a two ticketer and done some deal at a billion pre or two billion pre, because those deals with momentum had even more momentum.
The interesting question is If your mandate because I wrestle with this a lot, so I know it's an interesting question is if your mandate is to do 20 series A's where you get 10 to 20 ownership and you stick to your knitting and you do your due right, should you have taken five of those slots and used same check size or maybe even a larger check size and done Cs, Ds and Es at 1 billion 2 billion pre, and got two markups already right?
And the truth is, in some cases, not only will you get markups, but you will get returns commensurate with Series A, but at much lower risk.
And Entropic will be the definitive version of that forever.
Not actually the rounds Spark and Menlo did first because that really was risky, but kind of the rounds at 14 and 60 billion were risk-adjusted freaking awesome.
I wonder.
Now back to your point.
I wonder will all of those rounds in those other AI apps companies be as good?
For precisely the reason you articulated, which is that maybe the TAM doesn't support that exit.
But right now, Harry's right.
Lovable at six.
Maybe you could have done it at one or two.
You'd have a 3x step up with no hassle, no fear, no early stage.
The sweet spot of investing.
I mean, it's something you said, Harry, and it was true, but tautological.
I wish I'd been...
You said, I wish I'd been a momentum player in a rising market.
The definition of a momentum strategy is it only works in a rising market, right?
But yes, in the market we've been in for the last three years, it's hard to distinguish momentum players from very shrewd players.
Both of them have worked out really well.
That's the kind of step back for me.
I don't think shrewd players have, actually.
That's my point.
I think shrewd players have appeared disciplined, remained temporally diverse like me and you are, Rory remained with our high ownership targets.
And you've had players abscond with AUMs like never before, pay insane prices and get fast markups.
And in a lot of cases, DPI buys you an insane price.
Brutal commentary, then maybe you and I aren't shrewd.
Look in the mirror.
Very possibly.
And that's the self-reflective question, as I introspect, which Marc Andreessen doesn't do, clearly.
Yeah, yeah, yeah.
Introspection here, please.
No, that's the ultimate question.
Look, the truth is that is the question everyone wrestles with.
When do you stick with your strategy and when do you break it?
And what's a good reason to break it?
Absolutely.
No, we all agonize with that.
And that's why Jason, I said The kind of trivial breaking it just to be silly isn't that interesting.
But sometimes breaking it could be the right strategy, and that's the hard one.
There we go.
Okay.
Boys, it has been a pleasure.
Thank you so much, as always.
Jesus, that was quick.
We ran out of time.
