The Twenty Minute VCAnthropic Buys Compute From Elon & Commits $200BN to Google | Cerebras IPO | Ramp Raises at $40BN
EVERY SPOKEN WORD
85 min read · 16,601 words- 0:00 – 1:25
Intro
- JLJason Lemkin
Are there really enough developers in all of the solar system to keep Anthropic on the unprecedented growth path we had this year?
- HSHarry Stebbings
Kicking us off this week, Anthropic partners with SpaceX, plus they commit $200 billion to Google over five years. Cerebras IPO is 20X oversubscribed. Ramp eyes a $40 billion valuation on their new fundraise. And finally, AppLovin, HubSpot, Cloudflare post banging numbers, but the Street doesn't necessarily share the optimism. What is going on?
- JLJason Lemkin
There are categories of software where if they don't have a reason to exist in an agentic world, they will go into a terminal state of decay. If you're not accelerating, you're gonna be destroyed, right? And at a minimum, you've got to raise guidance. ZoomInfo's growth was stolen from it from Clay and friends, and it's a brutal case study.
- RORory O’Driscoll
Give me 30% growth. Give me profits. Give me a story that's got some future in it, and I'll get you back to five times. I'll never give you 20 times again. I won't fall for that one this time. There you go. Ain't capitalism great?
- HSHarry Stebbings
Ready to go? [upbeat music] We are back. I am so looking forward to this one. As always, we're gonna start with this week in Anthropic. I think, I think I'm gonna be really unfair, actually, and just go off on one, because Rory loves it when we go spontaneous.
- 1:25 – 6:55
Anthropic freezes secondary sales, requiring board approval for all transfers
- HSHarry Stebbings
So Anthropic have come out in the last 12 to 18 hours and said, "Nope, all sales of secondaries and SPVs need to be approved by the board," and basically brings into question the legitimacy of the transactions that we've seen and will be able to get out of moving forwards. This is a very big deal, actually, and we're seeing it impact their price in secondary markets significantly, $200 to $400 billion reportedly. Guys, how did we analyze this as an announcement from Anthropic?
- RORory O’Driscoll
In one sense, not surprising. Companies like to keep control of their cap table, and they'd probably lost a little bit of control. And stepping back, because the SPV word's a little misleading. There's a lot of different ways shares change hands, and a lot of different ways SPVs are used, so let's distinguish them. One is sometimes an SPV is when a venture firm has a big allocation, can't take it all up, so it forms a special purpose vehicle, and that company invests directly in Anthropic, maybe raises money from the venture firm's LPs, and the SPV appears on the cap table. Nothing wrong, nothing to see here. But that's not what we're talking about here. What we're talking about here is secondary sales of Anthropic shares. Sa- outright sales, we'll come to that in a second, are transfer ec- of economic value. In other words, I own shares in Anthropic. I'm an early employee. For whatever reason, I couldn't access the, the company structure tender offer, and I decide to do something outside of that. So I, the first thing I do is I try and sell directly to Jason. He's willing to buy. I'm willing to sell. But Anthropic says, "We're not gonna m- affect that transfer. We have rights to approve transfers. We're just not approving this," right? And I don't know what they've been doing in the past, but that's what they say they're gonna do going forward. In other words, they have the right to say yes or no, which makes sense. It's not unusual. But the real thing that's going on, and this is where it gets interesting, is what I could also do is say to Jason, "Hey, Jason, I can't sell you my Anthropic shares, because they won't let me. But I contract with you that whatever I get for my Anthropic shares later, I will transfer that value to you, and I will structure a document that says, you know, I owe you contractually all the money there is that ever comes from that share," right? So now Jason thinks he doesn't have the shares, but he kind of has the economic right to the shares, so he's money good. And there's two problems with that. The first is probably the Anthropic documents say, "Rory, not only can you not sell your shares, you can't s- transfer beneficial ownership to those shares to Jason." So I may not be able to do this. So Anthropic, Anthropic could say, "Hey, we don't agree to that," and that's fine, though. But the funny thing is Jason and Rory might still have their contract, because I promised Jason something. Just because Anthropic says they don't agree to it doesn't mean Jason and Rory can't contract. But the tricky thing for poor Jason two years later when we go public is he doesn't have any structure. He can't go back to Anthropic and say, "My shares are in the cap table. I'm good. I can just sell." He has... All he has is a commitment from Rory, and Rory turned out to be a liar and a cheat, and he never owned those shares, or he owned them, but he sold them to someone else as well. And it's just gonna get really messy at that level as individuals start trying to enforce contracts, not against Anthropic, because they're not in the loop, but against other investors who sold. So there's gonna be a lot of losses at that level, and I think Anthropic is just trying to distance itself from that and probably also worried that if there's been a lot of transfers, you know, I saw someone suggest that even though they say they don't allow these, you get into all sorts of equitable remedies. In other words, the courts start saying, "Hey, dude, you knew this was going on forever. You kind of acquiesced to it, so maybe you are involved in this mess," and they don't want to be involved in this mess. So totally makes sense as you get ready for an IPO. You're like, "I've been a little s- sloppy here. Time to tighten up." And then the real thing is we'll see the second order impact.
- JLJason Lemkin
To me, listen, maybe I'm missing something. To me, this story seems like a nothing burger made up on social media. Let me tell you why. First of all, all companies have had this for a long time. Most of our portfolio companies have the same provisions in it. It, this has gotten more and more locked down over my investing career, right? It used to be the lawyers wouldn't put this stuff in in default, and then maybe four or five years ago, every set of charter documents say, "No transfer without the board permission," just like Anthropic and OpenAI, okay? So n- nothing new. Two, Anthropic last year warned Memo, one of its best investors, and others, "Enough with the SPVs," they said publicly. "Enough with the damn SPVs." This isn't new. They said, "Stop the SPVs. If you want to invest, you have to invest directly," okay? They were clear on this last year. I think this is Anthropic just saying, "This is still happening." They named a bunch of entities in their, which you never see. They named, like, five hedge funds or something and saying, "These guys are bad actors." So I think they're just... I think no one was listening to them is the problem. They banned it. They, they were clear. The, one of their lead investors, you know, greatest in- one of the greatest venture investors of all time, they told them to stop SPV, and they told everybody, and there's so much greed in AI, people wouldn't listen, and so they named actors. And I think the interesting thing to me-Is when folks don't listen. I don't think they listened to the company last year. So then you have to go public on the megaphone and make sure everyone hears, "Hey, these are bad actors and, and, and don't do it." Because people, people were... They're so greedy, they take the risk anyway. The triple-layered, quadruple-layered 202020 SPVs just sh- this is the, this is the hottest year of the, of
- 6:55 – 12:21
Why Anthropic is buying capacity from Elon Musk
- JLJason Lemkin
the, of the century.
- HSHarry Stebbings
We're gonna discuss the next big deal of the day, which is Anthropic's deal with Elon. We've said before about Dario's difficulty in his job in terms of forecasting CapEx requirements. Rory, do you wanna just provide some context into the deal with Elon and what it basically means?
- RORory O’Driscoll
Just shows, you know, needs must when the devil drives, as they say. You know, I mean, let's be v- E- Elon in the past has said, you know, horrible things about Anthropic.
- HSHarry Stebbings
[laughs]
- RORory O’Driscoll
They're evil, they're woke, they're anti-white, they're anti-Chinese. It's been, you know, as recently as three months ago. And suddenly he wakes up one morning with excess capacity, and Dario wakes up one morning with a need for capacity, and Elon ends up in trial with OpenAI. So kind of the enemy of my enemy is my friend, and here we are, right? It's a s- totally sensible deal. I mean, it says a lot about both markets. It says this is a market consolidating, and even though they will deny it till the day they die, what this is, is xAI/SpaceX/Grok basically saying, "We're not going to be right now a leading edge model contender. Grok is not growing like OpenAI and Anthropic is, and we're going to be... And we're gonna effectively switch from being a net demander, a net buyer of CapEx because we're trying to build Grok, to being a net seller, 'cause we're not gonna be able to build Grok." I believe the data center was 11% utilized, right? So this is the market consolidating. The stronger players have the capital to buy more CapEx. And in the context of this, you know, Grok is a weaker player, and they very wisely are opting to stop, for now at least, the dream, and instead take probably $4 or $5 million a year, which is a big slug, right, um, of revenue. I mean, s- depending on the estimates, 3 to 5 billion a year of revenue, which f- you know, for an asset that was losing money. And, you know, for context, the total SpaceX, um, revenue runway, it's around 20 billion. So this is like a 15% revenue lift from something that, you know, a couple of months back looked like a money pit. So the combination of this and Cursor, I think they've taken xAI from a $250 billion, which is what they paid for it in SpaceX stock, which is astonishing, from kind of a, "Ha, why are you doing this?" to, "Okay, I get it. It's at least prof- notionally pro forma profitable and has some kind of existence," right? But it's not a competitor anymore to Anthropic and OpenAI, and trying to pretend it is is different. So it's, you've got your own little CoreWeave. Congratulations.
- JLJason Lemkin
You know, I, I, we talked about this a couple weeks ago, and I said some- you know, I, I usually don't s- use these kind of lines, but I said something like this w- wouldn't be hard to imagine. Because like Samsung does it with Apple, they compete and sell them components.
- RORory O’Driscoll
Do I. Yeah.
- JLJason Lemkin
And we talked about this. They said, "No, you're ridiculous." So, yeah, they just, they would sell it to each other, right? The, actually, the most obvious candidate now is, is SpaceX, because they've got to have different BUs, right? So, so you've got how... I can't even keep track. You've got the rocket guys, you've got the Starlink guys, and now you've got xAI, which is two things mashed together, right? And they each have their own P&Ls, BUs, and responsibilities. And if I'm stressed and I'm running this xAI Twitter thing, and I can get another 4 to 5 billion into Rory, it n- does- it not, doesn't just make sense for the IPO, it makes sense for me. It just selfishly makes sense for me. So I don't think, I th- I don't think the deal is as surprising. Um, it's a reminder to like, you know, keep meeting with your part- with your competitors. This is a classic Saster post. Always meet with the CEOs of your competitors. You never know where it's... It's never a bad idea to have lunch once or twice a year with your competitors. It's never a bad idea, 'cause this is one of those deals. Um, and two, the more interesting thing to me is, my Go- you know, this, this, it changes so quickly. Just a couple weeks ago, it's like, well, Anthropic can't launch Mythos because it doesn't have enough, uh, capacity. And now Anthropic, I hate the f- the 5D, 8D chess metaphor, but now it's gonna... It's, it's figured out a way to have more capacity than OpenAI. Like, it's pretty epic, like, to just Hoover up anything that's available on planet Earth, and possibly orbiting soon enough. Um, but it will Hoover up everything available, right? CoreWeave, xAI, anything, right? It'll probably buy capacity from OpenAI if Sam lets them, uh, for some reason.
- RORory O’Driscoll
You know, capitalism works, and assets should get reallocated to the person who can create the most value from them. And, you know, right now, use it... Yeah, right now Anthropic can turn that CapEx into the most amount of money the quickest, and Grok could not. So I agree.
- JLJason Lemkin
The person who is in charge of making the P&L work for the data centers is sure glad to get an extra 3 to 4 billion to make his math work and not get fired by Elon. Pretty happy. [laughs]
- RORory O’Driscoll
It will be fun, by the way, to watch the SpaceX roadshow, 'cause someone's gonna have to pro forma out, "Well, this is what we owned a year ago. Then late last year, we bought xAI, so bear with me. We dropped all this stuff in here. That's what it is today, and we have a whole quarter of combined revenue. Oh, and by the way, we then sold all that capacity, and that should hit next quarter, so you got to pro forma that in. And then the quarter after that, we're gonna drop in Cursor," which hopefully Colossus II will be online then, and you got to pro forma that in. So basically, Mr. IPO Investor, you're buying a $15 billion runway company today, and it'll be a $23 billion runway company in two quarters with two totally different businesses on top. That's why the bankers are gonna earn a couple of hundred million dollars. But it will be a... It won't just be an extend the model and grow 20% Q on Q kind of analysis
- 12:21 – 16:03
Anthropic's massive $200B revenue commit to Google
- RORory O’Driscoll
here.
- HSHarry Stebbings
They also did a deal committing 200 billion to Google over, I believe it was a five-year period. To your point, Jason, on Samsung and selling it to partners, ultimate sign of a circular economy, ultimate sign of Google's superiority in that positioning, owning both Gemini and then TPUs and, buntly, where they sit selling now to Anthropic.Anything of note there?
- JLJason Lemkin
To some extent at places like Google, it's like, okay, like obviously we want to win, we want Gemini to win, we want to beat everywhere. We're not, but we're not strong everywhere. We're not. But, um, let the best model win. Like, we're gonna win, but we- we're okay with winning, with, with internal competition by selling capacity to Anthropic as well. Like, it's okay, like, it's okay at their scale, um, to let the best buyer of these different things win, as long as... I mean, they don't have infinite capacity, but it's not necessarily a bad way to keep everybody on your toes to have a little bit of the competition inside of you. It's not a bad, necessarily a bad thing.
- RORory O’Driscoll
It is interesting though. I mean, I think there's a c- there's a couple of things with it. One is, you know, I think now the Anthropic rev commit is about 40% of Google's total future backlog, right? So it underlines quite how heavily dependent the hyperscalers are on these two privately held companies, which are effectively, you know, providing them all those revenues. And you are Jason, yeah, I mean, reminder everyone, Google has Gemini, which in theory is a direct competitor of OpenAI and Anthropic, and this is Google giving, a separate part of Google giving Anthropic the compute they need to grow. And I think, you are, in one sense, you are win- win both ways. I'm sure at the margin you'd prefer at Google to be the winner of the model company, 'cause I think in, and I could be wrong, I think in the end the value will accrete mainly to the model providers and everyone down the stack that's selling to them, even though they're all making out like bandits today, starting with the memory guys all the way up to the hyperscalers. Over time, that's not the obviously differentiated place, and I could be wrong on that. Maybe CapEx and the ability to invest hundreds of bill- millions of dollars in a data center is in fact the moat itself. But over the long term, if I'm Google, I'm like, "I'm happy that I'm doing $200 million, billion dollars of revenue with Anthropic," no more than Microsoft is happy they're doing $200 billion of revenue with OpenAI. But deep in your heart you should be saying to yourself, "God, I really wish Gemini was so busy that they needed $200 billion of compute." And in Microsoft case, "I really wish I even had a model that was worth a damn," which I don't, right? Because all you're doing is you're enabling, with your balance sheet, the two most exciting next generation tech companies who, you know, are gonna draft on your balance sheet air cover and become huge.
- JLJason Lemkin
It's for sure that, I mean, there's a trade-off. You're enabling your competitor, right? It's just, it was interesting, the Wall Street Journal today published the market shares in the enterprise for OpenAI, Claude, Gemini, and Groq. Groq is a rounding error going to the prior conversation, right? It's not making any progress. Um, but everything is so multimodal that it said Gemini went from 27 to 40% market share, I think in the last nine months, and Claude went from 21 to 48, okay? And obviously OpenAI actually only went down a little bit. They don't sum to 100 because you're multimodal, right? But if Gemini's gone from 27 to 40 and Claude, as we know, has gone from 21 to 48, now Google's got both pieces. It's got its own winner going to 40 and 50 and 60% of the enterprise, and it's got a large share of this f- this other leader, 48%. There, there's worse ways to s- to solve to revenue growth than having both, both, both the fastest growing players yourself [laughs] and your competitor. You get a piece of each.
- 16:03 – 27:46
Goldman Sachs predicts a 24x surge in token consumption driven by agents
- HSHarry Stebbings
Jason, I, I, I was so intrigued to hear your thoughts on this, uh, Goldman piece, where they essentially summarize saying agents will push tokens consumption up 24x by 2030. Again, our job is to kind of invest on the back of this and invest in companies that provide these services.
- JLJason Lemkin
Yeah.
- HSHarry Stebbings
When you heard that, and living as you do with the company structure that you do today, do you agree with that? Do you think that is enough? Do you think it's underplaying it, overplaying it? How do you respond to that?
- JLJason Lemkin
Well, I, I wish I had the fluency in, in numbers that Rory has, but 24x sounds, I, I, I know I, I highlighted this once, it sounds just way too low.
- RORory O’Driscoll
Agreed.
- JLJason Lemkin
The theme of the re- of a lot of the rest of the year, it's just taking off now, the theme of a lot of the rest of the year is parallel agents. Now, we don't need parallel agents in everything. We don't need 100 SDRs hitting up our 1,000 potential customers every minute. Like you run out [laughs] . There are definitely plenty of workflows that do not need 10, 20, 100 parallel agents. But the, you don't need 1,000, uh, flights going to the Bahamas for your vacation. But workflows that can benefit from parallel agents, it's just kicking off inside of these LLMs and their models. And so not only is does 24x sound alike, what if we have 10 agents? That's 250x, right? And more. And, um, and then we also forget how under-penetrated the enterprises are, are... It's so early outside of tech, right? So I don't see why it's not 250x, but I, I got to put it on a better spreadsheet. But I, I think we're underestimating the potential impact of parallel agents. It's still, still most of us live in a sequential world. We fire up something, Claude, Claude Code, ChatGPT, it doesn't matter, and we're, we're kind of at the human interface where we're doing things sequentially because that's how our brains work, but it's also how, how the LLMs have worked. But now that they can natively run parallel agents, um, w- we just get these superpowers we didn't have a couple months ago, right? And what these parallel agents are doing, if you haven't seen any of it in action, is they'll, even better, because, like, for things like coding, they'll go out and, and do 10 different versions of the same feature or of the same iteration, and then they'll dec- then the, the LLM will decide which is the best of the 10. It can present you the two or three best options, and you can approve it. So why build a feature once if you can build it 10 times, have the LLM decide which of the two to three expressions of the feature is the best, and then you pick the best combination of the expression, right? And so you can see hints of it, like in image generation. You know, you use some im- image generation, sometimes you get four images, right? But what if you were b- I mean, in real-time blending the best of all of these, um, with much more complicated workflows. So it's, 24x just sounds, um, it, it sounds conservative. I think that is why Anthropic's right to buy every, every, every TPU, GPU, every Ce- Cerebras chip-12-inch chip they can buy. [laughs]
- RORory O’Driscoll
Yeah, and I, and I think the token count is always a mis- because I mean, I mean, I've tried to do these numbers, Jason, and it's just so hard 'cause, and, you know, I saw the summary of the Goldman report. I haven't read the detail, and I really want to 'cause I was trying to think through the same stuff myself. But, like, what do you, what do you know? Every 18 months, you know, the raw performance of the chip gets, you know, roughly 3X faster. Then on top of that, other optimizations, how they run LLMs, how they do all the quantiza- all the other clever stuff that, you know, you can read about and try and understand gets, you know, to 3X. So you're probably roughly 10X-ing the number of tokens per unit of money every couple of years, right? So you, you have that, right? So, you know, so if you weren't using more tokens, right, [laughs] ironically the total revenue would be going way down 'cause, you know, it used to... You know, if you only needed a million tokens and it cost you, you know, five, you know, I mean, you see it in the prices. They're down 10X. If, if it cost you five bucks now, um, for the same number of tokens at the same efficiency, it would be way, way, way cheaper, right? But then what you have on the other side of th- things just getting better, right? So you use more of them to get to a better result. But what you see, as Jason said, is the to- what I looked at, the token count is... Maybe the way to say it is this: the token count to support a chat two or three years ago when J- you know, you're interacting with, you know, an LLM is, whatever it is, is X. It's 10X that now to do some kind of simple co-work analysis, and it's 10X that again if you're doing coding, and it's 10X that again if you're doing kind of parallel work and kinda where these agents are going. So you're just gonna see token util- the cost per token's gonna go way down, and the tokenization, the, the value, the use of those tokens is gonna way up. And then the question is, you know, you're de- the interesting thing is you're dealing with two numbers, one on each side, that's moving an order of magnitude every 18 months, and trying to forecast where the net multiplicative effect of that comes out is hard. I mean, you know, that, that, that's what you're trying to do, and you... I wouldn't fool myself into saying that you can be wildly accurate on that. You can get the rough direction, but it's hard to say, you know, "I know exactly how this is coming out."
- JLJason Lemkin
There's a little bit of a growing counterargument that's growing here when you talk to some of the best CTOs and engineering leaders that we don't need as many tokens as we think, and if you talk to folks that didn't just get their team the last quarter or so to get going, right, on, on Claude 4.7, but have been deep in this for a while, right, that are multiple releases into their whole team being AI-pilled. You know, there is a theme that, like, we j- we actually don't need this much code. We don't need this many lines of code. It is too much. We cannot process all of it, and this is just a lot of token maxing that is just unnecessary to deliver what the end customer needs. And we're all learning. We're all excited about these tools. They work, and people are running, they're, they're running Claude Code and Codex e- eight, 10 hours a day, but it's not necessary, guys. You're producing too much code that's never gonna be committed to production. You're wasting your energy. And there is this, there's the token ma- there's, like, the whole, from the press, the whole token maxing at, at, at Amazon where people are pretending to work because they have quotas, but this is different. This is some of the smartest people saying, "The folks that need this, this many Claude coding, these are the mediocre web heads, web developers that don't know what they're doing, okay? These, these are, like, a little bit better than Lemkin." [laughs]
- RORory O’Driscoll
How, how, how do you think about that, then, with respect to your Mike Cannon-Brooks at Atlassian saying, "Hey, our demand for new software, new products, new features is infinite, and so we will continuously need labor supply of great developers, and we will continuously need more tokens because the demand for new technology and new products is infinite"?
- JLJason Lemkin
Yeah, but can the a- the question is can the average Atlassian engineer really effectively consume $10,000, $20,000 a month of tokens and be productive, okay? And there is a growing micro backlash that, that the best, the best developers and engineers now don't need $20,000 a month necessarily, and that this is going to fade, and we're not gonna go back to, to handcrafting code, right? But that this is, we don't need to be, to be running Claude Code 10 hours a day. This is a bad way to ship, uh, enterprise-grade software. This is a great way to b- to ship hacks and proof of concepts and impress my boss, but does this, is this really, is this really, do we really need this many lines of code a day? Do we really need it?
- RORory O’Driscoll
Yeah. Th- there's a, there's a lot to unpack. I'm a little tentative 'cause it's more my infra colleagues doing this, but I've been talking to them about wrestling with this question, so I just wanna pick this apart, Jason, 'cause there's a lot to do. One is this whole idea of, you know, monitoring people's token consumption and what impact that has. There's an economic concept, it was actually an LSE professor, Goodha- Goodhart's law, which basically says whenever you monitor a variable, you actually change the causal relationship of that variable. So once, and which is a way of saying, if you say to people, "I'm going to monitor your token production and how much you use," you will in fact distort the result, and that's what Jason's hinting at. And I think we saw it for either Amazon or Meta or one of those, where employees are internally just burning tokens on stupid tasks, which is easy to do, just to make sure they, quote-unquote, "make their quota." To assess the market size for these companies at a highest level on topic, you do have to have some mental model of how much LLM spend, which, uh, for which token is a tricky but meaningful proxy it is going to be relative to salary, and that's one of those macro numbers I'm kinda trying to figure out all the time. Does the average developer spend 2% of their salary dollars on to- on tokens? Is it 5%? Is it 10%? It's a huge number and it's a very important number. But the odd thing is the more these big companies target their employees based on it, the more likely the employees are to distort the outcome, 'cause that's the first big picture comment, is that... And I agree, I think there's a ton of that shit going on. And to some extent when people find that out, and I think they will, I think there is going to be a push to get more grip on cost, 'cause there has to be. Because if you think back to December when Anthropic was at $9 billion run rate, by definition, very few of those CIOs had in their budget, "Oh, by the way, you're gonna spend 10X that next year," right? And it's a big sum of money. Someone's gonna have to find $50 or $60 billionOf budget across, you know, US corporates, and that's real money. And what that means is there's gonna start being some kind of pressure on where is this money being spent, even if they still wanna kind of AI max concept it. So I agree with Jason. So on that I agreed, right? The thing that I don't know enough about, and I'm just gonna ask you 'cause you said it, is there's this backlog. Do the, quote, "best engineers" not need as much tokens? I hear you, but I've two, two questions on that, and they're questions that I ask my infra guys where I don't have the answer. The first is I've heard them articulate a perspective that actually says it's the opposite. The very best engineers can in fact manage, you know, because they have the conceptual vision of what they're trying to build. They can act- they can be more productive with these tools, and the less productive you are, the, the more you're getting yield loss in the sense of you're using tokens that aren't turning into effective code.
- JLJason Lemkin
Yeah, but I think both, but I think both are right. I think they really are becoming 100X engineers, right? Let them use whatever they want, right? Give them all the tools in the world. The, the concern is that, you know, the, there's kind of a snarky term, web devs, there's others, um, folks, uh, uh, one or two steps above me or the mediocre folks on your team that just aren't that good, okay? They're web devs. They're consuming massive amount of tokens for relatively low amount of productivity gains, right? Uh, and, and it's not, it's not all performative like the Amazon thing. Some of it is attempting to keep up. But they need so many tokens to contribute so little value, right? It's, it's 100, 100,000 line of code where some folks have made up on Twitter, do you really need 100,000 lines of code to run a blog? Well, maybe you don't, right? And, and, and, and, and, uh, maybe you don't.
- RORory O’Driscoll
Which is why, Jason, you're right. Which is why the question I'm always asking the rest of my team, and I don't know the answer to, is what is the objective? How do you think about measuring this? I mean, you're right. It's not, li- lines of code is a dumb measure 'cause this stuff, this stuff grinds out lines of code. You know, you need some kind of conceptual effective lines of code, and I haven't found anyone... Uh, we, in fact, we just surveyed, I think, 30 of our VPs of eng to try and understand, you know, what's going on in terms of spend. And, you know, they're all spending a lot. They all think they're gonna spend more. But you're right, I didn't get clarity on the what is the heuristic for success, and there has to be one over time.
- JLJason Lemkin
Yeah. Well, but, but it's just hard to know what the ratio of, like, web devs and, and, and token trashers is to 10X or 100X engineers, right? Um, and th- that, this, it just goes to the qu- like, I'm not smart enough to answer the question. It goes to the question we asked before. Are, are, are, are there really enough developers in all of the solar system to keep Anthropic on the unprecedented growth path we have this year? Probably. But a counterargument is these web devs and trash tokens and, uh, we, like, we're gonna, this is gonna play itself out. We're not gonna, in a year from now, we're not gonna be wasting tokens on mediocre web developers playing with stuff, and we're gonna clamp down on it because it's a huge waste. Um, we're gonna give the S-tier guys all they want, the 100X, but that's always been true.
- 27:46 – 37:10
Will AI labs eat the app layer? The threat to Legal and CX verticals
- HSHarry Stebbings
Probably there is, and then also Anthropic released 10 financial agent templates, killing a load of YC companies in the process doing them. Uh, in a couple of weeks they are scheduled to come out with a legal product which will challenge Harvey and Nagora apparently in a very meaningful way. And so there probably isn't enough developers to satisfy the insatiable market cap increase, but there is when they take legal, and there is then when they move into financial analysis, uh, financial modeling, and everything in between.
- JLJason Lemkin
It might be. And look, I don't, I don't wanna go too far. I just, I, it, it... We're still trying to see. We talked on the show about, uh, Claude Design, whether it was a killer, right? It isn't a killer yet, right? I just don't... It's hard to predict some of this stuff. Listen, there have been many YC and other startups that have been destroyed by a Claude feature, right? I've invested in one or two. Being able to innovate faster than, than Anthropic is tough, okay? It's pretty effin'... This is not classic slow company, slow pace, right? Having said that, who... I mean, boy, if I'm a lawyer billing $2,000 an hour and doing this, I, I, I don't wanna take a risk. Like, i-it's not that I'm not gonna ask Anthropic and ChatGPT my questions. I'm gonna ask questions too in addition to Harvey, Lagora, or other tools, right? But man, I, I don't know. I don't wanna take any risk that this is not have the level of domain investment in anything that is close to regulated or has other... I mean, we, we, you know, you can't... It's an, uh... People already got the memo, The Wall Street Journal. You can't submit briefs to a court with hallucinations in it. Everyone gets that's a problem now. [laughs]
- RORory O’Driscoll
The question, are, are these guys gonna take away, um, everyone's horiz- um, vertical business? And I, I don't know. I mean, I, you know, I, I think it's what Jason said, is that I think the model companies have a lot to do building their models, building broad horizontal harnesses, building products like CoWork, right? It's not clear to me that they, that they'll be able to have the time and the focus to do all these specific verticals. Nor should they.
- HSHarry Stebbings
I agree, but I think there are some very core verticals like customer support, like legal, like financial modeling and accounting, where they are mega and very, very clearly winnable for Anthropic.
- JLJason Lemkin
I don't think there's any chance that Anthropic's gonna do applications in CX. And actually, and I, and I could be wrong. I will bet you a lot of money they're not going to go all the way in legal at the app- app... Like, that, that's why Design was interesting. It was an application, okay? Now, l- uh, what, what does Harvey cost on average? $150,000 a year per law firm? Okay. Like, I don't wanna roll that into my $200 a month I'm paying for Claude if there's any risk. It's just not worth it, right? It is just not worth it, right? I need a solution. I need it to do everything. I need it to integrate with DocuSign. I need it to, to prepare the brief properly. I need it to review it a different way. It's just not worth... I, I, this is not a career where saving a few pennies is worth it outside of the low end of the market. You, the ma- the low end of... Maybe the ambulance chasers do use Claude, right? That's fine. But I don't... And I, I... So I, I may be wrong next weekBut I'm not confident that, that these verticals are gonna put the resources to build an application. That's the thing. They're not gonna build a CX application. They're not gonna rebuild Decagon or Sierra or Fin or Gorgeous or any of these other... It's not that they won't build chunks of it. It's not that they won't take away... It's not that, like, uh, OpenAI hasn't taken away pieces of ElevenLabs or other pieces of other folks, but the app- but we haven't seen them commit to building applications. That's different. If the LLM can express what an application does, that's where the YC companies get killed because all of a sudden you don't need an application. It just works in the prompt, right? That will kill a h- a thousand start- it already has. It's killed one or two of mine that are on, like, one is on its third version because it was super innovative a year ago, and then just, it, it, it is built into Claude today.
- RORory O’Driscoll
Step back here. This is not the first time you've faced this question. If you look at every single platform, there is a dominant compute level provider, and the million-dollar question is how much of the apps layer they take over, right? I mean, let's just do two obvious ones. Microsoft in the '90s, they dominated com- yeah, they were the operating system, so they dominated broad horizontal, um, off- you know, application software for the consumer and the individual knowledge worker, the Office Suite. I think CoWork could be like the Office Suite, right? And they dominated networking at the kind of infrastructure layer, not, you know, like just connecting things, but there was hundreds of application software companies on top of that, Siebel, Vantiv, Scopus, Cloudfy, Barn, SAP, that said, "We run on top of Microsoft. We build specifically for this vertical or this horizontal use case." And Microsoft tried. They bought Great Plains. They never really made it happen. Fast-forward a decade later, hang on, Amazon, right? Same kind of question. Does AWS eat everything, right? And I know lots of brilliant investors who passed on Snowflake, which is even, not even an app. It was a infrastructure level player, 'cause they said, "Oh my God, Microsoft Redshift, um, Amazon Redshift is just gonna eat their lunch. It's not gonna be a thing." And it turns out it was a $50 billion thing, right? So my point is you ha- you have to have some approach to thinking about this, but you have to face this question every compute revolution, and this is just the latest turn of the crank, right? And to me, kind of the default is the Microsoft outcome, which is broad horizontal c- the equivalent of broad horizontal compute is now broad horizontal intelligence, and that's gonna be provided maybe not by the monopoly like Microsoft, but the oligopoly of Anthropic, OpenAI, and maybe Gemini. Probably the kind of knowledge tool Microsoft will regret to their dying day why they let, you know, slipped on this and let, you know, Claude, CoWork be there, take their lunch, but that's their problem, not mine. But at the app layer, I'm kind of with Jason. I think all of these individual apps, especially, and this is a key point, especially to take legal. If all you're gonna do is mark up a document for an individual user, I think there is an argument that an individual user might get a scale from Claude and they'll be fine, right? But most of these companies are selling coordinated workflows across an enterprise, and I think once you get to that point, I'm with Jason. I think the, you know, Lagora, the Harvey rep if you're selling to Am Law, GCAI, which is ours, if you're selling to corporates, you're gonna want both the relationship, you're gonna want the ability to customize it to what you want. There's just gonna be a whole bunch of work that's just better done by a focused firm. I mean, I think history's on our side. That's the way it shapes out.
- JLJason Lemkin
Well, I would just, I just offer two thoughts maybe. One, this is more OpenAI than Anthropic. You know, Sam did hire Fidji to be the CEO of applications, and there no longer is a CEO of applications. Now she's CEO of AGI. So that, that is really walking back. Now, you, you could say it's a little bit different, but just think about hiring a CEO of application and say, "You know what? That's not a business we wanna be in." Claude not seeming, Anthropic not seeming to invest 100, 500 people in design, right? Which they could. And so that could change next week, but right now neither of them seem to see applications. Now, paradigms do shift. They're also going to Rory's point of the low-end redlining or whatever. That could get more powerful. I'll give you an ex- a different example. It's not the same, but I don't think in a year we're gonna need tra- any traditional marketing automation software. It's too dated. It doesn't work for agents. Marketing... There are categories of software where if they don't have a, a reason to exist in an agentic world, they will go into a terminal state of decay, okay? Agents do not need HubSpot or Marketo or Salesforce co- or any of these marketing automation tools 'cause they, they have no need, need to hand compose an email in a third-party template. And so I'm not saying that would happen in legal, but you could see if they don't keep up ahead of it and the paradigm changes, it c- it, you can become obsolete over time.
- RORory O’Driscoll
There's two separate dynamics. One is the, does new software get eaten by new models? In other words, Harvey Lagora eaten by, uh, Anthropic. You're referencing something different, which is does old software get eaten by agents, either Claude agents or new agents, right?
- JLJason Lemkin
Yeah, but new software can get old too.
- RORory O’Driscoll
Yeah, well, well, yeah, so you're conflating the two, but yes, agreed, it can. But I just think they're different questions, right? And I'm just trying to-
- JLJason Lemkin
I just think the rate of decay might accelerate in the agentic era. That's what I was... That's, that's the connection I didn't make. It used to take a decade. Now it could be 18 months, and if you talk to folks, senior folks at Lovable and Replit, you will hear they are well aware of this. They do not want to be Clauded out of existence. They think about it every day that they have to stay ahead of it because they're closer to the core, right? And so I just think stuff gets old much faster [laughs] than it used to.
- RORory O’Driscoll
The evolutionary pressure from a model that's underneath you, an intelligent model that's underneath you, a company building that intelligent model to not Anthropic, well, for instance, is, you're right, Jason, more powerful than the pressure of a, you know, an operating system or a, you know, compute system like AWS. So I do agree with you. Every day th- every day you wake up aslovable a Replit where the model provider underneath you is doing more of your shit. You are- y- you can't-- If you could, if you could miss, if you could be behind by a year competing with Redshift, you can't be behind by a week competing with these guys
- 37:10 – 41:47
SaaS public markets: HubSpot tanks 18% while Monday.com finds its footing
- HSHarry Stebbings
I'm gonna bring some semblance of structure to this. Jason, you said HubSpot. We had some public market, uh, activity. We had HubSpot crash 20% despite decent and consistent growth. We had AppLovin at a seven billion run rate, stock crashed, and then Cloudflare beats and then lays off 20% of its base. Um, what one do you wanna pick on first there, guys?
- JLJason Lemkin
Maybe it's not as, uh, exciting as the Anthropic wars. I just thought that the, the slight contrast that was interesting was Monday versus HubSpot, okay? So they're both decelerating. Um, they come out with a quarter, um, and Monday trades up after being maybe the most beaten down stock out there, right? Trades up, I think, 20% and HubSpot down 18%, right? And what's the difference? Um, they're actually not much further than each other on their agentic journey, which is early, which is, [laughs] you know, Monday's in production and HubSpot's sort of in pro- But I mean, they're pretty early. All Monday did that I can tell was for the next quarter, they're still decelerating, but at least they raised the guidance for real, right? HubSpot couldn't do it. HubSpot lowered their guidance. So if you're not accelerating, you're gonna be destroyed, right? And at a minimum, you've gotta, you've gotta raise guidance, right? Even if you're not accelerating like Monday, you've got to at least raise your guidance to get, to get some breath, because at least it says, I think it says this, right? When Monday says, "Hey, we're raising our guidance next quarter," at least it says we're not going to zero, right? We're not being destroyed by AI if you're raising your guidance. But I think even though the SaaS apocalypse is behind us, uh, I think for many there is still a worry the terminal value is zero. I don't think that fear has gone away. If you're, if, if you keep decelerating, it-- while budget is accelerating everywhere around you. It's not that everyone's decelerating. The budget is accelerating and you are decelerating. It's not a-- Those aren't two good lines to cross o- They're, they're not crossing [laughs] over each other. So, um, but at least it's nice we see some, some bounces off the, uh, off the hard deck.
- RORory O’Driscoll
And I agree. I think it was a super interesting quarter. Lots of different people reported, did different things. Some of them cut expenses, some of them had decent quarters. And the stocks, you know, we had all sorts of weird movements. I mean, Cloudflare, you know, had a good, really good quarter. I think mid-30s growth. I, I sh- I, I meant, yes. Laid off a bunch of its base, stock went down. You know, um, y- y- you had HubSpot. Decent quarter for the record here. You know, decent growth. Stock went down. Um, uh, you had Monday early on a little bit better. Um, Bill.com, one where I used to be on the board of, you know, unfortunately also had to lay off a bunch of people. Stock bounced up and partly 'cause of a buyback. So, you know, you kinda look at all this and go, "What's going on?" And I think there's really two things. And Jason's done a really good job of articulating the important one, which is where are you stru- where's your business structurally? Are you getting better or worse in your business? Is AI messing with your head? Is AI... Are you accelerating? Are you on that, a- as Jason said, the, think about Monday and HubSpot, are you on the agentic journey, right? I think one of the things that happened, interestingly enough, to definitely Cloudflare and possibly to HubSpot is a little bit of the, "Oh my God, you're cutting 20% of your costs," which had been perceived as a net positive. Now there's a little bit of a, "Huh, Cloudflare, you're a good company. WTF?" You know, what's going on, right? A little bit of uncertainty, right? You know, what's going on with that? But if, if the first big bucket is that whole kind of what's going on in your business, then separately, this is gonna sound really Captain Obvious, as Jason would say, the second half of this is you just gotta look at price, right? In other words, if you have a muddled quarter and your stock's already at the bottom, you might get a bounce, right? If you have a tricky story and your stock is like, you know, Cloudflare or AppLovin, I think AppLovin was-- and the two of those were among the two highest valued companies, right? You know, if you're going 30, 40 per- cent, 30% in the case of, um, Cloudflare, but you have a story that's even a little bit messy, people are like, "You know, I might be okay with this at 4 times. I ain't okay with this at 15 times." So so, and I, and sometimes you forget that. There's both the strategic journey, and then there's the how is price dealing with that. And I think what you saw in the case of AppLovin and Cloudflare is it turns out high-priced stocks at the start of a paradigm shift, no matter how amazing the quarter is, are just vulnerable to disruption. Whereas at, when you're trading like Monday, poor Monday was at, like, under two times revenues with a bunch of cash. You're like, pretty much anything you do other than burn the fucking company
- 41:47 – 46:31
Growth theft: How Clay is commoditizing ZoomInfo's data business
- RORory O’Driscoll
down, the stock goes up. Excuse my language.
- HSHarry Stebbings
It, it was, it was basically priced at nothing, 'cause at, at one point it was basically, like, almost one and a half as cash.
- RORory O’Driscoll
Yeah, and, and that's basically just saying, you know, just any positive momentum, you will get rewarded. And it's like, it's, as I say, it is very much Captain Obvious, but price is the vector. And we forget about this often on the private side because you're not really dealing with price on a day-to-day basis. But on the public side, that's how it works.
- JLJason Lemkin
I think the bru- the most brutal one, and I, and I, I, I love Henry, but the most brutal one that maybe was under-discussed was ZoomInfo, right? And the reason I bring it up is ZoomInfo also tanked when, um, you know, they were growing 1% now, and I think they guided to some, some revenue d- negative revenue growth going forward, is the reason it's just a tough one is ZoomInfo just won the pre-AI, uh, game of, of it's sales intelligence, data on your customers, even just basic stuff, emails, phone numbers. It just, it just won that stuff. And then agent- like, really Clay and others, you know, they're, they're, th- in some ways they're pre four or five, right? They're not, they're not epic products in some ways, right? We use Clay. We love it, but I wouldn't say it's epic. I would just say it's, it's LLM infused. It's AI infused. But that's just a one-to-one loss of dollarsOkay, whatever. What's Clay doing? 200 million? 300 million, right? Something like that. I mean, it's hard to say. So Zoom- ZoomInfo's doing a, a, a billion something, right? That's, that's AI taking all of ZoomInfo's growth away from it. All, all of it. And, and so I only bring it up as a tough case study of how e- even if you're treading ground, you can turn around, and these, these AI... And they're not all Harvey and the Goras. Just these kids can just take all your growth from you. I think ZoomInfo's growth was stolen from it from Clay and friends, and it's a brutal case study. It, it's a brutal case study.
- RORory O’Driscoll
Agreed. And for the record, it, it wasn't... I don't think... I mean, I think the Clay story's amazing, and it's much less to me a kind of AI first story. I mean, it's even simpler than that. They built a waterfall product that allowed them to optimize among multiple different data providers and allowed RevOps to, you know, kind of waterfall a bunch of different data providers and pick the best. And what that means is instead of being ZoomInfo being the only game in town, you can compare and contrast five or six data providers. Data then becomes a commodity, and you, like, your business is commodified. Then on top of that, they've done, I agree, a much better job than any... 'Cause they're really to some extent a pre-LLM company, much better job of building Clay agents and having an AI story. So the funny thing is it's a, it's a pre-AI company at its core initial value proposition that morphed brilliantly. And you're right, it sucked all the value out of the data providers. So yeah, those guys need to figure out how to become relevant in an agent first world pretty damn quick.
- HSHarry Stebbings
What happens to a ZoomInfo growing at 1% a year?
- RORory O’Driscoll
Nothing stays growing at 1% a year in the public markets for a long period of time.
- HSHarry Stebbings
Well, it gets bought by PE. Does it take private? Um-
- RORory O’Driscoll
You know, bought by PE. I, I most, I resist that thing 'cause it's such a lazy man's approach. 'Cause the implicit assumption is, you know, no matter what happens, you can get bought by PE, and yeah, w- that mightn't be true going forward. Though I, again, contradicting myself, price... A friend of mine used to say, "A price clears all markets." There's a price at which PE will buy something like that and say, "We'll do the hard things for two years to fix it." Just mightn't be a particularly compelling price. What's it... I don't know what it's trading at now.
- JLJason Lemkin
It's trading at one times revenue with 35% adjusted operating income. It's trading at one time revenue.
- RORory O’Driscoll
And, uh, wait, we'll get PE. Yes. [laughs] Yes. Cancel that comment.
- JLJason Lemkin
One times revenue with 35% adjusted o- That, that is a classic, uh, take private if you can put the... I mean, y- you'd have a hard time finding someone, I think, better than Henry, but that, that's the counterargument, right? But, um, if you, on paper, that's the classic take private, right? Trading at one times revenue, 30% adjusted operating income, right? Uh, reasonably stable. Not adding customers, but reasonably s- you know, it's net, net neutral on customer growth. Um-
- RORory O’Driscoll
Or even we'd, we just said it two minutes ago vis-à-vis Monday. Get your a- get your... I mean, it's to your point. Get your act together for two quarters. Get a small amount of kind of AI-enabled growth, and you prob- You know, you won't ever go back to 30 times or whatever absurd number you were trading at in '21, but it doesn't take a lot to get you to two times, and that doubles your stock, to state the banal, right? Um, y- yeah. They're not... I mean, the big picture comment is this. The market is not asking these old school, $500 to $1 billion revenue SaaS companies, you know, to become, to become the next Anthropic and double, treble, and 10X every quarter. They're just saying, "Give me 30% growth. Give me profits. Give me a story that's got some future in it, and I'll get you back to five times. I'll never give you 20 times again. I won't fall for that one this time. But I'll give you five or six times run rates, right? Provided you have the growth, provided you have the rule of and the profits." That's, that's
- 46:31 – 52:10
Cerebras prices IPO at $150–$160 with a $48B market cap
- RORory O’Driscoll
what you can do.
- HSHarry Stebbings
Now, when this goes live, Cerebras will be going public.
- RORory O’Driscoll
Great.
- HSHarry Stebbings
This is one of the most hot... This is one of the most hotly anticipated IPOs of the year. Um, in terms of oversubscription, 20X oversubscribed. They've bumped the range from a starting of 115 to 125. It's now 150 to 160. Offering will raise $4.8 billion, valuing the company at $48 billion, fully diluted. How do we think this IPO's gonna go? And we've spoken before about Andrew being fantastic. H- how, how's this gonna play out, guys?
- RORory O’Driscoll
Look, it's gonna go great. The fact that they've raised the range, which you only do when you're highly confident, especially that much, that you've got a killer IPO on your hands. There's no more new information. It's gonna go out, and it's gonna trade amazingly, right? Now, entirely separate question, how's it gonna do two years from now? That's a business question. But the technicals, look, I'm not a, a banker, but-
- HSHarry Stebbings
When you say it's gonna go out, it's gonna trade amazingly, comparably to a Figma, which had incredible powerful, like-
- RORory O’Driscoll
Yeah. You know, I... Let's put it this way. I think what the bankers would say in the boardroom when the pricing committee starts giving them shit, "Are we leaving money on the table?" What they'll say is something like this: "We believe at this price we'll have that nice 20% pop. Everyone will be happy. I know we should hate the pop. Thank you, Bill. But a perfect... They're probably trying to get that perfect IPO." Can it run away from them totally? Can you have a Figma phenomenon where retail piles in? Entirely possible. Nothing excites the mind like some of this I- AI stuff. It, it, it fires the public imagination. There's a dirt of opportunities to play. It's entirely possible that you have a whole host of kind of retail demand that you can't forecast, and in the short term, it runs away from you. But reminder, when you, when Figma popped to 100 when it priced at 35, I think I said, "I think it's, you know, worth 35, 40." And now it's actually significantly below that. So you can't control the weirdness of retail. And as we've discussed, it's impossible... I mean, it's impossible to try. And frankly, it's also impossible to let it drive the narrative, right? I think I really feel for Figma in that their narrative is this, "Well, you were at 100, now you're down 80%." No, you're not. You were priced at 35, and now you're at 20. It still sucks, but it's not 80%, right? Same thing here. Who the hell knows, will it do the normal pop, or will it do something crazy? But fundamentally, it's gonna go out, price well, trade to the upside, 'cause otherwise these bankers would've been manifestlyIncompetent to do that raise, and they're not manifestly incompetent. They're smart dudes.
- JLJason Lemkin
Well, look, I, I, of course, I agree with Rory. When it, when, when they, when they, when they raise this much, they, like, there's no question it is so... that people are gonna buy, they're gonna buy into the first day, so you're gonna get, you should get a pop. Uh, it, I, the, maybe there's examples where the, the, the, the, the range is raised this high and all that where it doesn't happen historically, but in my limited experience, you're alwa- I mean, it's just, it's almost built into the system, right? Um, but I, I mean, we just have to see. The, listen, it's a fun one to watch because on the one hand, demand for inference is infinite, right? It's great. On the one hand, they've got support from OpenAI and Amazon and everyone, which they didn't have when they tried to IPO last time. Right timing, right partners, um, right, uh, seeming backlog, right? Commitments. But it's competitive, right? And everyone's gonna buy every, every solution. Um, and it, and if, if, if NVIDIA Groq is better and they can get the chips, they'll use it. So it's, it's hard to predict when there's this much e- explosion of... a- and, and when there's also hedging happening. There's also hedging. There's hedging for capacity, there's hedging for, for performance, right? Um, and, um, so I just think this one is, um... it's impossible to predict, but it's a great derivative IP. It's great to IPO before Anthropic and OpenAI IPO too. It's a great time because I get, I get into that zeitgeist. Um, it's more interesting than CoreWeave, which is a data center, right? This is, this is real technology that is fueling inference, but it's so damn early to really know how it's gonna go. Like, this is not two years of massive, uh, Cerebras chips used in production in data centers proving a massive competitive advantage. It's, it's early, so how the hell do we know where it's gonna be in two years? How the hell do we know? I might take my profits. I just might take my profits.
- RORory O’Driscoll
Hard to argue with that, and, you know, because, you know, when they went to go out, and even now, the historical revenue is very much concentrated on a couple of customers from the UAE, United Arab Emirates, right? What they ha- what they're leaning into here going forward is the, uh, contract from OpenAI and a less kind of fully fleshed out contract from Amazon. So you're right, Jason, you are leaning into a future that's not like the past. So to that extent, you got a lot of risk going on here. Yet at the same time, you know, their story, and you read the, the CEO letter, founder's letter, it's great. I mean, what they're selling is speed, right? What they're selling is their inference can be faster than anyone else. And I love the tagline in the thing, you know, like, yeah, yeah, how much would you have to... I think it's something like, how much would you have to be paid to have a slower internet? And you just don't. You, once, once you see speed, you don't like to go back. And, you know, one of, actually one of my companies, Taavus, was mentioned in deep in the IPO 'cause we use them for our inference 'cause we have these, you know, kind of AI humans, and you need real-time responsiveness. And there's, I think there is a focused market for that kind of real-time blazingly fast inference that, you know, they can maybe have that market over the medium. And that is the medium-term
- 52:10 – 58:05
Real Venture Capital: Celebrating the early bets by Foundation and Benchmark
- RORory O’Driscoll
bet.
- HSHarry Stebbings
If they are the first really reasonable competitive alternative to NVIDIA solutions, and NVIDIA are five and a half trillion dollar company, just roll with me-
- RORory O’Driscoll
Yeah
- HSHarry Stebbings
... being priced at 48, if you take a five to 10-year potential view.
- RORory O’Driscoll
Agreed. Now-
- JLJason Lemkin
That, that passes the Monday partner meeting test.
- RORory O’Driscoll
Absolutely.
- HSHarry Stebbings
Doesn't it? Yeah.
- JLJason Lemkin
[laughs]
- HSHarry Stebbings
Thank you, Jason. I'm gl- you, well, that's why we're partners.
- JLJason Lemkin
We, we could put 10% of the fund in. Uh, yeah-
- HSHarry Stebbings
Yeah
- JLJason Lemkin
... Cathie and Ark are, should be into this deal. It makes perfect sense, right?
- HSHarry Stebbings
Sure.
- JLJason Lemkin
You can't ar- argue with the upside.
- RORory O’Driscoll
We're losing you there, but yes, agreed. I think that is the s- the soundbite in a nutshell, Harry. It's like the other guys are worth 5 trillion. You are one of the only ways to ha- you have an at bat to them. Are you worth 1% of that? You know, if your probability of making it is 10%, you know, and you get that, y- your, your expected value's positive. It, it's still, you know, ri- risky way to make a buck, but I totally see how you get there. And, you know, just to step back-
- HSHarry Stebbings
We don't do risky ways to make a buck, Rory, so that's fine. [laughs]
- RORory O’Driscoll
Yeah, no, I hear you. That's my point. But yeah, I mean, just against, just, just to say it, you know, great achievement. I mean, these guys started, I think, 2016. It wasn't obvious then. You know, the-
- HSHarry Stebbings
No, the fucking nu-
- JLJason Lemkin
You know, I will say the one thing I thought on that to 2000-
- HSHarry Stebbings
... the nuts achievement, sorry, Jason, is the 20, uh, what, what is it, sorry? They have 20% ownership, sorry, Benchmark.
- RORory O’Driscoll
No, they don't. Uh, you just w- because, you see, Harry, you just listen to Twitter. But if you go and you actually look up the S1, they have 8 or 9% ownership, right? 'Cause I do these things. 'Cause every VC reads an S1 the same way. You read the front page, you figure out what it does, and then you type on the in- push on the index, and then you go to ownership, shareholder ownership. And Foundation, Benchmark, and Eclipse all have the incredible 8 or 9% ownership. To hold onto that after eight or nine years in a wildly capital-intensive business, that even in their own S1 said, "Oh my God, we were early in '21, '22," you know, I just think it's an amazing achievement. I just, huge credit to Steve, to Eric, to all those guys. I mean, Susan-
- HSHarry Stebbings
Just be fair on Eric, that's a four and a half billion dollar gain on a $500 million fund.
- RORory O’Driscoll
Totally. That's quite the point. You don't need 20% to do it. No, it's an amazing result.
- JLJason Lemkin
It is. I gotta tell you though, I mean, great-
- HSHarry Stebbings
I'm glad someone does the research. [laughs]
- JLJason Lemkin
Good to Benchmark. When I, when I, when I looked at Cerebras, this is 20VC, the show, right? I would say for the first time in a long time, I was kind of jealous of Foundation because they did the hard work. They, Steve and the team incubated this company. You saw on Twitter the barbecue, okay? Not only was it not obvious, this isn't even after it gets the kudos and why Komoder or Foundation socializes the deal. And this is what VCs are supposed to do, right? And, but no one does this in venture. No one goes out and, and, and finds this really smart guy, plays tennis with him for a year, works the deal, seeds it, incubates it, and then does it even in a crazy category that didn't even totally make sense in 2016. And then wherever this thing ends up trading has a $40 billion IPO. I mean, this is what-This is actual venture capital. My job is to do what Steven team did. I'm je- I'm jealous. This only... I can't think of another VC I'm jealous... And I put this in quotes. I'm not literally jealous, but, uh, this is the j- this is the job of early stage investing, is what Foundation did. This is not using Marc Andreessen's brand to muscle into the B. [laughs]
- RORory O’Driscoll
Well, I, you know, without throwing shade on the others, I... Watch this. You see, I, I, my therapy's working. I, I, I tend to take things positively now. You, I, rather than being jealous, I'm gonna say I'm impressed. And, you know, good job, Fund- good job, all of them. I'm not gonna diss Eclipse or Fund- They all did great. It's, it, it, it's, it's what w- it's what the industry is meant to do. You know? It's kinda innovation the industry should be supporting. And that applies all the way up the stack to B, to C. You know, the round for Metric is all that. It's exactly what should be happening, and I agree. Great credit to Steve. I can't play tennis, so I'm not gonna be able to make it.
- JLJason Lemkin
It might not have been te- I think it was tennis. Maybe I'm making up the story, but it's cons- directionally correct. It might've been another activity like that, right? [laughs]
- RORory O’Driscoll
Yeah. Okay. Something with less ball. Yeah.
- 58:05 – 1:09:15
Ramp's valuation vs the Chapter 7 collapse of e-commerce card Parker
- JLJason Lemkin
type of outcome.
- HSHarry Stebbings
We have Ramp eyes $40 billion valuation. Parker, an alternative fintech company, files Chapter 7. And Gusto passes a billion. Which one do you wanna take?
- RORory O’Driscoll
So let's start with the company killing it. I think that, I think the distinction between the two is, is that Ramp is a broadly horizontal corporate business card. And as we've discussed many times, the actual economics on cards are good, but they're not amazing, right? You know, you get this interchange revenue, but you have to give a lot of it back to the customer, so your contribution margins are only okay. And the only way to make that business better is you gotta add a lot of software and a lot of functionality, and Ramp are doing a truly amazing job of doing that. You know, you, you start doing ACH payments, you start to... They just announced something super interesting yesterday in the market we like, which is kinda a- agents on top of their system to automate your purchasing, right? So you're in s- a mid-sized business. Now you can have the Ramp agent, Jason will be so happy to hear they've got agents, is go out and try and optimize your spend, and reach out to your suppliers and, you know, beat the crap out of them on price. That's a market we like independently, but that's a good ad for Ramp. So, but the zoom out comment is Ramp was in a broadly horizontal market with a lot of running room to add, and the other guys were in a very constrained market with a lot of margin pressure. So to some extent, not surprising at all. I don't know. Sorry, Jason, I went off there. But I love those agents. You should check 'em out. They're like, that's exactly the kind of thing you should be doing on top of your pur- They, they will pass the Jason Lemkin acceleration test.
- JLJason Lemkin
Yeah. I, I'm ex- I, you know, certainly we're gonna rebuild our financial stack after SaaStr Annual, and, and w- w- we will move from Brex to Ramp if it is the most agent-friendly. And automating procurement is a huge bonus. Like, I, we just take the humans out of it. Just have the agents negotiate procurement. We've all had enough of it. Just like Delve solved SOC 2, I want an instant solution to procurement without this moronic back and forth, the games, the politics, the fake, the fake contracts, the procurement cuts back 10% to get their slice, so you have to overprice the deal. I'm waiting. I'm saying this a little positionally. This is a problem agents, uh, at least the next generation of agents, uh, could solve. But I'm, I'm gonna see. I'm gonna, I'm gonna leave, I'm gonna just either stay or leave Brex in a month or two based on which is, which has the best agents.
- RORory O’Driscoll
Now, the separate issue is, you just gotta put it out there, it's a billion in revenue trading, and it weighs money at 40 billion.
- JLJason Lemkin
That's where I get confused a little bit.
- RORory O’Driscoll
Yeah. And exa- again, it's back to my comment earlier, which is, you know, it's, again, as I say, I apologize for saying something so obvious, is you have to, you, you have, you have your discussion on the strategic dynamics of the business, and then separately you have price. I mean, I think Ramp's, on the strategic things they're doing, is just amazing. 40X runway revenues when the com traded at six, uh, in terms of Brex, even albeit on a lower growth rate, is a pretty healthy valuation.
- JLJason Lemkin
I do wonder a lot some valuations, whether there is that scrutiny of revenue quality and revenue multiples. I mean, we're all just addicted to growth, right? So we, we all pay the same multiples almost regardless of what gross margins or anything are today, and maybe it's fine
- HSHarry Stebbings
Would you buy Ramp at 40?
- RORory O’Driscoll
Probably not. I mean, I haven't seen the growth rate, which is the only thing that matters. I just, I just think there's a gravitational pull to... The amazing thing about these fintech businesses, the biggest thing they have is some of them can be just enormous. Stripe, you know, Revolut, Nubank in Brazil, because you're selling to consumers or SMBs, and everyone does this. You know, fintech, everyone, everyone does finance. Everyone has a payables division. Everyone has a corporate credit card, right? So they're big-ass businesses, but they trade like there's no magic, you know, kind of AI premium. They trade, you know, just like Amex, but adjusted for growth. So I think whenever you get wildly far away from a revenue multiple, you really have to be certain. You know, two or three years further growth and you've grown into it. I mean, if you double and double again. You know, that's where... I mean, maybe the way to think about it, Harry, is how many t- how many years growth do you have to get before you're trading at kind of a normal multiple? So if you go one, two, four, eight. I mean, it takes probably two and a half years of growth until you're at the Brex multiple. That's pretty scary. That's the outer edge of terrifying. If you're leaning in a year, you're like, "Yeah, whatever. It's gonna double. I'm fine." If it, you know, um, if you're really, if you're, if you're underwriting two and a half years of doubling to get to the Brex multiple, that's pretty scary.
- HSHarry Stebbings
I agree.
- RORory O’Driscoll
I mean, you have the protection of preference, and it's, it's the same investors who did the prior round. So to some extent, they're probably saying across the investment, you know, uh, they need the fuel. I got my return. It'll all be good. They're gonna make out like bandits here. I mean, because the big aha was 2022 at 5 billion, that looks like a pretty damn good deal now.
- HSHarry Stebbings
The other cool IPO, which isn't on schedule, but it's just Lime announcing that they're prepping to IPO. Um, did you see this, Lime Bikes? Um-
- RORory O’Driscoll
I did. I, I did. I, I had that feeling of, "Oh my God, they're alive." And-
- HSHarry Stebbings
Oh my God. I mean, if you come to London, they're alive, and they dominate the city in, in large parts. Um, but I mean, that is a hard business that's been through its turnaround of the day. Um, incredible journey there. Important to say. Like, shout-out of the week for me, Lime announcing IPO. Good, healthy business.
- RORory O’Driscoll
I'm l-
- HSHarry Stebbings
Awesome to see.
- RORory O’Driscoll
I, yeah, I will be interested to see the numbers. And again, it's back to good on you, entrepreneur. Well done.
- HSHarry Stebbings
Totally. Totally agree there. Um, boys, uh, should we do some more... Actually, one final thing before. Uh, Musk versus Altman. Um, we gotta do it. Come on. It's, it's that moment of the week. Uh, Brockman says Musk wanted a for-profit. Um, uh, we had Ilya today come out and say that he's, I think, worth $7 billion. What do we need to know in the Musk versus Altman trial of the century?
- RORory O’Driscoll
I mean, first of all, we're gonna, we're gonna know a lot more than we need to know. In the sense of, as is the nature of these trials, a whole bunch of stuff that's a, you know, marginally extraneous will come out just because that's the nature of the beast. Like, it, you know. Um, in the end, you know, a reminder here, it's not, it's a jury. Jury's advisory. Judge decides. You saw some really nice profiles. I was actually checking out the judge. Texas judge, Gonzalez. I can't remember the first name. Yeah, seems super tough and hard-nosed. She's driving here. She's making the decision. So it won't, you know, all this noise will just, you know, fritter away. It'll be fun for the headlines. She'll make a decision on the legals. You know, my gut continues to be that even though everyone will look crappy, that, you know, OpenAI get, g- escape with their deal intact, right? Would be my gut.
- HSHarry Stebbings
Jason, help us out. SaaStr this year, who will be the best speaker? Money on. You do, you do reviews on your audience.
- JLJason Lemkin
Yeah.
- HSHarry Stebbings
Who's gonna be the most popular speaker?
- JLJason Lemkin
I, you know, I, uh, you know, it, it's, I don't think there's any popular... We barely have any speakers this year, Harry, because I think podcasting has kind of destroyed the whole need for a speaker. So we have a lot of workshops. We have people, five coding, showing you how to build things, you know, but we don't need any, we don't... Why would I, why would I go see, uh, Andrew when, uh, when he was on 20VC and was better from Cerebras? Like, so we don't, we have no firesides and no speak... Now, I mean, it's gonna be great, but, like, when I have Amjad from Repl who was on 20VC, we're gonna walk through my agents and what they said and why they built and why, why it is, right? Because, you know, I'm gonna have Tyrell here, who is the father, the Blade Runner father of my agents, but we're not gonna, we're not talking about h- how, how, how comp- you know, because podcasts are better, right? Um, so-
- HSHarry Stebbings
No, they're way better. I, I wanna see-
- JLJason Lemkin
Yeah. So we don't have any speakers-
- HSHarry Stebbings
And maybe the agents make them better
- JLJason Lemkin
... we don't have any speakers this year. So we're gonna have, we're gonna have everyone showing how they built the agents. We're gonna have Rubrik demoing their agents. We're gonna have Andrew from Klaviyo, the CEO, demoing his agents. Everyone's gonna demo what they built, why they built. AMA, that stuff you don't get on, uh, an average podcast. So I'll have to see. But we won't do, we'll never do, uh, unless I'm forced to. I mean, if, if, you know, I do it for Sam Altman, but otherwise we're, I'm not gonna do, there's, the f- firesides are dead and speakers are dead. There's just no point when podcasts are better.
- RORory O’Driscoll
For what it's worth, that's super insightful.
- JLJason Lemkin
Yeah.
- 1:09:15 – 1:18:55
Success and Sacrifice: Is mental health the price of building a $20B company?
- HSHarry Stebbings
Uh, the important round, which was very popular, rage bait but real. I upset people because MrBeast basically posted saying that the sacrifice of mental health was essentially required to have the success level that he's had, um, in terms of commitment. Um, and the willingness to suffer for long periods of time is what separates those that are successful from those that aren't. Um, paraphrasing, but very close. Um, and I agreed with that. And I said I 100% would not have achieved what I have without sacrificing large parts of my health, um, and commitment. Um, I got a lot of pushback. Do you think that is rage bait, or do you think that is real when you look at the $20 billion-plus founders that we need? Can you have the success without sacrificing mental health?
- RORory O’Driscoll
It's very hard to have the success without sacrifice, right? And your real meaningful sacrifice, you know, time, alternative uses of your life. Sometimes in the case of brutal competition people, in fact, their family life, their loved ones, marriages end up in divorce. You know, it's really hard to do something really intensely, and most of these things require real intensity, right? So I do think that part's probably true and... However, I, I, I think at the point in time when you're getting into mental health, you probably actually owe it to yourself to try and find some way to not tilt over to the point of making bad decisions, right? So, uh, so I kind of... I think it requires sacrifice, it requires an intensity, but I don't... I, I find myself, when I get to that point of being wholly stressed and kinda spread thin, I don't make good decisions. So you actually owe it to yourself to, at that point, pull back a little. You actually aren't that useful when you're on tilt, Harry, right? So I don't know if that makes it rage bait or not bait. You know, maybe true but not worth rage would be probably my advice. Don't rage.
- JLJason Lemkin
I'll, I'll give you a different learning. This was one of the first Sastre posts I ever wrote right when I got out of Adobe, and I, it took me a while there to realize this. When I, when I sold my first startup, I sold it after, for $50 million after 12 and a half months, which today would be more money. There's been inflation. And it was great. Okay, it was so hard, my first startup. I was building implantable batteries from nano materials. It had never been done before. We had customer concentration. I had to close $6 million. My VCs pulled my term sheet. I had to do payroll myself. I had to take a, a full recourse loan against my house to get the round done. It was just everything that happened, okay? Everything that could happen. I would do, I would do day trips across the globe. I would do, I would fly to any airport in the world, do a meeting in the airport, and fly back the same... I mean, uh, uh, unsustainable stuff. But we, we bounced back after a week after we sold the company, right? It was 12 and a half months. I, I was given a two-week package to stay, and I, I was okay in a month, right? The second time it was five years, which is not long now, but for me... And what I realized after the next one was my brain was permanently rewired. I was no longer the same human being. The level of intensity to almost going bankrupt multiple times, to dealing with those issues, to saving the deals, to going through GFC and having to turn 100K customer to 500K so we could survive and make payroll when no one wa- everyone wanted to cut the deals in GFC. Going through all that drama, I was, I could not go back. I could not. My brain would not allow me to go back. So yeah, there's a rage bait element, but it's not... Some of it is doing the 996 and working all the hours you're talking about, Harry. But I think what founders understand that have been doing it for more than five years, four to five years I think is the break point, and you have been, Harry, is you're changed. And it's not as simple as mental health. It's not... Vacation doesn't do it anymore. It's not enough. It's not enough to go for a run on the beach. It's not enough to take up, to b- start buying watches, um, or to, to even to buy a yacht. It's not enough. You're, like, you're a different person. And to, if you wanna win, you have to commit to being a different person. You're not gonna be that happy-go-lucky person where you got into YC and you got your $2 million and it was great and it was really fun and you told your friends and you went to the hackathons and it seemed really hard. But you know what?That first year, it's just, it's just fun and games, okay? And you have... You will be a different person. You can never go back. You o- often can't even talk with non-founders for real anymore. Founders stick together. They're in WhatsApp groups. They're chats. You're all changed. It's not just a peer group. You're not the same people. You're not the same people. You're not the same person when I met you, Harry. And so I think that's, that's the meta issue, and, you know, seeing a shrink is great. I'm all for mental health, right? But it's not gonna change the fact that you're changed after five years, four to five years. And... But I don't think it happens in a year. I, I, I was ha- as hard as that first year was, man, I was back to runs and cruising, and I was never gonna do another startup again. I'd made a couple million. That was enough. Life was good. Uh, checked the box. [laughs] Owned a house.
- HSHarry Stebbings
One of my favorite quotes ever on a show is Daniel Dines from UiPath, who said, "A lot of people think they want to be me, but I promise you, when the lights go out at the end of the day, it's very lonely in my head."
- JLJason Lemkin
And then ask the next one, "Are you the same person you even were when you started this journey?" He's gonna say, "No, I'm not. I'm just... I'm... I've been re-" Well, your brain has been rewired, though. The brain has been rewired. 'Cause I watched your AppLovin one with that guy, so effing intense, right? So good, right?
- HSHarry Stebbings
He is intense.
- JLJason Lemkin
Yeah. But I-
- HSHarry Stebbings
Oh
- JLJason Lemkin
... I could see... One, one of the things I thought when I watched that one is his brain's been rewired. The things he's saying make total sense to me after my journey, right? And make... But they don't make sense to most people. That was the point of your tweet. But what he was saying, most people wouldn't get it because they haven't been... Their brains have not been rewired for the level of intensity it takes to succeed. It's not just the hours. It's, it's the intensity that is like nothing else. It is like nothing else.
- HSHarry Stebbings
Jason, do you know what it shows like that, though? Sorry, Rory. And do, do you know what it shows like that, though? And find it hard to invest in other founders. 'Cause I, like, I'm very lucky. I interview people like that for a living.
- JLJason Lemkin
Yeah. Yeah, and every time you cut a corner, every time you invest in a founder that's really nice and really hardworking, a really good guy, you never make any m- any real money.
- HSHarry Stebbings
A- and, like, a- and that Adam-
- JLJason Lemkin
You never make any real money
- HSHarry Stebbings
... that, that intensity... Okay, hard question: Do you see that intensity in your portfolio?
- JLJason Lemkin
In your winners, you do. Because a- a- also, any normal human will sell for 50 million after a year or 200 million or a billion. Any normal human will sell. It is idiotic to not sell. You don't wanna do Cerberus. You wanna do Groq, as we talked about. What... It just, just makes no sense to be Daniel Dines after 20 years. So [laughs] the, uh, the... It's all self-selecting. You've gotta be Daniel or crazier to, to, to do this journey. And, um, and, uh, you know, there were, there was a, there was a brief period where you could do it 35 hours a week in late 2020 and early 2021, but it, it's gone now, right? When the world was... Products were static and-
- RORory O’Driscoll
What he's basically saying, and I, I t- I'm violently agreeing with you. If, if, if only intensity... If it takes intensity to be successful, it's no surprise that all successful people are intense. I mean, it, it, it is to some extent. You... And the part of that that resonates with me, Jason, you're right, is that good companies get offers along the way, and if you're not intense, you'll take them. Right? So maybe-
- JLJason Lemkin
That's why I tell all founders to take the offer. I tell all founders to take it. The opposite of VCs. Take it. It's, it's... It is an intensity test, and if they push back and say, "No, a billion is not enough," great. Then, then go for it. But if they're not sure, you, you may not make it anyway. You may not have that level of, of Harry's tweet to do it. So take the billion or the 50 million or the 200 million, as long as it's three X or more of what you raised, and go enjoy your life, man, 'cause Daniel's not happy, and the AppLovin guy's not happy.
- RORory O’Driscoll
I, I just wanna say one thing, though. Like, I, um, I find myself violently agreeing with you on the kind of rewire than the intensity side, right? I do still think that you still have to find a way in that maelstrom to keep perspective, and I see it myself, and I see it in CEOs. When you, when you're working so hard and you don't have any way to clear your head, you actually can become ineffective and a weaker decision-maker.
- HSHarry Stebbings
Adam does surfing now.
- RORory O’Driscoll
I was gonna say that. Yeah, actually, I saw, uh, interesting... A- Admiral, I'm gonna pronounce his name, S- S- Strad- Stavridis. Uh, what... I'm mispronouncing it. The guy, he was commander-in-chief NATO. He was speaking at a, at a Cambridge Associates event recently, and, you know, someone asked him the obvious, you know, three l- lessons for life, you know, as a senior leader. And they were expecting, you know, some kind of, um, you know, you know, hire good people, the, the usual cliches. And his first comment was, "You gotta stay healthy," 'cause if you're not at some level vaguely healthy and functioning in terms of sleep, in terms of thing, you just won't be able to cope with the pressure and the intensity. It was a super interesting comment from a guy who, remember, has been commander-in-chief NATO. My point is merely when you disappear into your own head to the point where you're not making good decisions, you will not maximize value for yourself. I know what I'm s- you know, it's hard to articulate, but I'm sure there's times when you're just not thinking straight and just making sure that you have whatever coping mechanisms to avoid doing that. It's a little like... It's about... I don't drink much now, but the day after you've had a lot of alcohol and you're slightly hungover, you make horrible decisions 'cause you're all jittery, right? And that's one of the many reasons why I don't drink now.
- HSHarry Stebbings
The reason I love about rage bait but real is around is two out of two, you guys have both agreed that it's real, not rage bait. I'm like, "Yeah, I feel vindicated."
- RORory O’Driscoll
Oh, I, I... No, I have... Both times I've actually agreed it's real and it's rage bait, 'cause it's something that annoys everyone, perhaps 'cause there's an element of truth in it. So yeah-
- HSHarry Stebbings
Yeah, yeah
- RORory O’Driscoll
... you can-
- HSHarry Stebbings
Oh, the, the work from home Friday brigade were pissed off with me about work from home Friday.
- RORory O’Driscoll
None of them have figured out, Harry, that you do it because you enjoy the rage.
- HSHarry Stebbings
[laughs]
- RORory O’Driscoll
You know? That's what-
- HSHarry Stebbings
[laughs]
- RORory O’Driscoll
... the problem here. Okay.
Episode duration: 1:19:05
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