Anthropic Raises $30B from Microsoft & NVIDIA & NVIDIA’s Core Business Faces TPU Threat

1. 0:00 – 1:05

   Intro

   1. RORory O’Driscoll0:00

      The PE on NVIDIA, to give that soundbite that I love, it's lower than the PE on Costco, right?

   2. JLJason Lemkin0:05

      I don't care about your talk. I don't want to hear about your pilot. I want to smell that your team is in hyper-aggressive mode. If it is, I think you can come back. I do not think you can push your team too hard. I think you should push them as hard as the business needs to go, and if they leave, it's great. Salesforce could be the next Google. It could be in 18 to 24 months, we could be like, "Oh my God, Asian Force crushed it. All these startups, we didn't need them because Asian Force is so good."

   3. RORory O’Driscoll0:30

      The great American tech Mag Seven suck more of the world's profit dollars out of the rest of humanity. Go team.

   4. JLJason Lemkin0:37

      Ready to go?

   5. HSHarry Stebbings0:38

      [rock music] My word, we get to do it in person.

   6. JLJason Lemkin0:51

      It is very exciting to be at the new upgraded 20VC Studios. It's exciting here.

   7. HSHarry Stebbings0:56

      I, I mean, thank you. Um, um, Rory, we miss you. It's not the same without you here, but thank you for joining us.

   8. RORory O’Driscoll1:02

      You're welcome. You'll survive.

   9. HSHarry Stebbings1:03

      Uh, you know what? We will,

2. 1:05 – 9:57

   Anthropic's $30BN Investment from Microsoft & NVIDIA

   1. HSHarry Stebbings1:05

      but we want to start with the news of the day. Anthropic's mega AI deal. So Anthropic secured up to $15 billion from Microsoft and NVIDIA, pushing valuation to $350 billion, with commitments for $30 billion in Azure Compute. You can see I'm learning from prior episodes in setting the context. Let's start there. How did we analyze that? How do we break that down?

   2. JLJason Lemkin1:32

      It was pretty funny watching Twitter this week, where like a week ago, they were like, "OpenAI is dominant." Three days ago, it was like, "Gemini 3 Pro is..." Mark Benioff's like, "I've- I'll never go back to ChatGPT again," and today it's, uh, it's- it's- it's Claude 4.5 has killed, crushed everything. My point is, like, there's just no stability, right? There's no stability in seed investing. It, there's no stability in Anthropic, so my, my meta learning, which I wouldn't have even had a couple weeks ago, is more power to them because I think you need infinite capital when there's no stability. Like, you need infinite capital. I just, it's just so funny. I mean [laughs] literally three days ago [laughs] it wa- it was, uh, Gemini, and, and today it's, it's Anthropic. What'll it be next week?

   3. RORory O’Driscoll2:15

      Yeah. I mean, I, I, I might argue that the stability of the, the commentator's stability might be a lot weaker than the stability of the actual market share of the, of the incumbents. It's-

   4. JLJason Lemkin2:24

      Yeah

   5. RORory O’Driscoll2:25

      ... yes. [laughs] In other words, a lot of pe- you know, we, we kind of run from goodwill to goodwill on opinions. But there was a bunch of stuff in it, but in the announcement. I mean, first of all, you glossed over the key fact. It was from Microsoft. This was the NVIDIA-Microsoft commitment to Anthropic, and then Microsoft was the, you know, wa- wa- was, you know, in a, i- i- in a monogamous relationship with OpenAI, and then OpenAI wanted an open marriage, and Microsoft said, "Well, if you want an open marriage, I want one too," right?

   6. JLJason Lemkin2:54

      Yep.

   7. RORory O’Driscoll2:55

      So this was probably inevitable in the context of that, right? So that's probably the first big piece of news from it, which is it's the Microsoft-NVID- And then the structure of the deal, it's the usual thing. You know, you get $15 billion, you promise to spend $30 billion. Yeah, s- that structure we've seen before. And then the other interesting thing, kinda you didn't mention it, but in the same announcement, I think, Anthropic also said they're gonna break ground on a physical data center. So that's another one of the model companies saying it's not enough to rely on compute from your service providers, be it Azure, be it AWS. They also are looking at doing physical data centers themselves. So it's what you said, Jason. It's another chapter in the infinite capital and everybody's sleeping with everybody war.

   8. JLJason Lemkin3:41

      Have we just decided we d- just don't care about round-trip revenue? Like many things in this era, we've just given up caring. There's so many things we used to care about in the past, and now, now we just want to get rich with AI. We don't care.

   9. RORory O’Driscoll3:52

      In a bull market, nobody cares about everything, and then in a bear market, everybody discovers why you were meant to care, right? And now we're in the don't care part of this, the trade.

   10. JLJason Lemkin4:00

       Don't care. [laughs]

   11. RORory O’Driscoll4:00

       Right? And you know, prov- and again, as we said before, provided it works, it's all fine, right? And for what it's worth, if you're a chip provider and you had to stick some money in one model provider, th- th- this one feels like a pretty good bet. Zooming out, of all the round-tripping deals, I would argue a Microsoft, Anthropic, NVIDIA deal probably has better principles and upside than most. I mean, some of the other round-tripping deals look like they're already, you know, a bit shaky.

   12. HSHarry Stebbings4:28

       Totally get you there. You said about kind of the importance of verticalization in terms of the data center play that's added onto that deal. I think another very important bit of news was Google trained Gemini 3. Obviously, people were very impressed with the quality of Gemini 3, Benioff included.

   13. JLJason Lemkin4:41

       Yeah.

   14. HSHarry Stebbings4:41

       Um, uh, saying that it's trained on its own TPUs, uh, their own chips, for people that aren't aware of TPUs. Uh, Elon's A- AI company, X AI, developing its own AI inference chips. Question of verticalization, as we said there with owning the data center layer, does everyone now need to own the chip layer as well, as we see more and more with TPUs, with Elon? Is that the next phase of verticalization?

   15. JLJason Lemkin5:08

       As you guys know, I use Replit two hours a day, a little less on my London trip. No, but it is, but it's good to learn, right? I'm in the top 1% of users. Lovable's great too. You know, they added Gemini 3 Pro the day it came out, as did every- everybody, right? Um, I instantly used it. It was great. It actually wasn't so much better, okay? That what everyone said is it's better for design. Lovable said it, Replit, everyone said it. I would say it was 20% better for design. But that wasn't the interesting part, is I used it. It worked great. And then in my next prompt, I roll, I rolled back to Claude. It was fine. So not only are there different models, but abstracting a couple layers above, we're switching between TPUs and models, and I don't care. And I'm not saying these aren't huge issues, but the idea that NVIDIA is unstoppable because of the software and hardware connection, because we have to have GPUs. I, I know there's a lot of truth to that, but literally as an end user, I went right back and forth between today, no, no issue. TPUs, GPUs, LLMs, all in the space of 60 seconds [laughs] or maybe three minutes.

   16. RORory O’Driscoll6:04

       I think I want to build a little bit on that. I mean, I think-And let's just, let's just talk about TPUs first of all, not, right, at, uh, kinda the chip level. The big picture question is, you're asking is, does every large integ-- vertical integrated company have to do their own chips versus buying from NVIDIA? And the reason you pose that question is Google obviously has their own TP-- has their own TPUs, which is an internal chip, which I believe for what they do is faster, right? I think the interesting thing here is, yeah, what you gotta do is separate ninety percent by customer count of NVIDIA's customers. You know, if you're spending a million, two million, five million, ten million with NVIDIA, it's in the noise, and you're not gonna design them out and build your own chip. That would be madness. The odd thing about the NVIDIA business, unlike most other businesses, is four or five of their customers account for eighty percent of the revenue, something like that, seventy, eighty percent. Uh, looking at the other side, if you're spending, like Google is spending ninety billion this year on CapEx. You-- Rough rule of thumb is around forty percent of the total dollars are on compute. So they, if they were buying NVIDIA chips, they'd be spending, you know, what's that? Thirty-six billion dollars on compute, on, literally just on chips. If you're spending thirty-six billion dollars, and then that thirty-six billion dollars is, you know, knowing NVIDIA, it's seventy-five percent plus gross margins, which means you're handing NVIDIA, if you were buying all that from NVIDIA, you're handing them north of twenty billion dollars a year of profit at the margin. At that point, you say to yourself, "Well, you know, it's hard to build a chip, and if I were spending ten million, I wouldn't bother. It's probably gonna cost me," you know, back when se-venture guys did chips, it was two hundred million bucks to get to a chip. Probably today it's a billion. But if you're spending twenty bi-- if you're giving someone twenty billion dollars of profit a year, and you can say to yourself, "Maybe I can invest a billion, maybe a billion a year for five years, get a compelling chip," you gotta look at that. And the, the reason all that makes sense is just how concentrated the customers are, right? And it's the old rule. The more customers you have, the easier it is to charge them a little more and the harder it is for them to take your margin back. Like, when Intel was winning in the CPU wars, they had, you know, pick a number, a hundred billion customer-- a hundred million customers, 'cause we're all customers. We all gave 'em two hundred bucks for our Pentium. Nobody cared, right? In this case, NVIDIA has five or six customers that are spending the vast bulk of the revenue with NVIDIA. They're making seventy-five percent gross margins. So every one of those big customers should be saying, "It's damn hard to build a semiconductor." I probably t-- a little bit disagree with J-- one point Jason made. I don't think that it's easy to build a TPU that can also be rolled out to everyone with all the CUDA support that NVIDIA has. But even if it's just used internally, first of all, and I can save that twenty billion dollars of profit, hell, I gotta look at that if I'm, if I'm Google. I gotta look at that if I'm Amazon. I definitely gotta look at that if I'm Tesla. So yeah, I think that's an interesting medium-term pressure point on the NVIDIA profitability story. It's not gonna-- it's not overnight, and it's not gonna make sense for most people. You have to be pretty damn smart technically to ship a comparable chip. But it, in a world where you only have six customers that matter, having one of them say, "I got a better product myself," is a significant event.

   17. JLJason Lemkin9:29

       If, especially if I'm OpenAI, which is burning even more money than Anthropic, right? I, I've gotta be thinking, "Man, if, if, if I'm waiting for the-- If I could cut two-thirds of the cost of my compute, think about my business. I go from one of the biggest cash hemorrhaging businesses of all time to a profitable business." Maybe two-thirds isn't quite the number, but I'd be relentless about... Now, I mean, the, the bar keeps going up. We talk about it. But, but ultimately, if I can cut, if I, if I can cut twenty billion, thirty billion, all of it, it's a, it's a big deal.

3. 9:57 – 21:27

   NVIDIA's Customer Concentration: Bull or Bear

   1. HSHarry Stebbings9:58

      I replay what we've just said in the last five minutes. It is the most obvious threat to NVIDIA's business. What are NVIDIA thinking about this internally? Jensen must see this very clearly. How does he respond, and how do they protect their business in the wake of being so concentrated and losing those customers?

   2. RORory O’Driscoll10:16

      Yeah. First of all, there's a reason why they sponsor the CoreWeaves and the next generation of Neoclouds, 'cause they're like, "Those guys ain't gonna build their own chip." So, you know, a simple, humble twenty billion market cap company does not have the capacity to build their own chip. So it suits them to have the market for, you know, cloud compute and AI be a little more diversified than concentrated. So anything that can make that happen is in their favor. To some extent, that's all they can do. They don't have a ton of leverage over Google, and obviously now Google is starting to talk about selling those TPUs to others. So it's a threat. And now what they would say, and they would be correct, is for most users, because they have such dominance, such validation of the CUDA software layer, for most customers, it's gonna be too much brain death to switch from the cheap, you know, the GPU you know and love to something new, right? 'Cause there's probably significant activation energy, right? And that's gonna be true for most customers. The long tail of NVIDIA customers aren't gonna do it. But you're right, Harry. The threat is all you have to do is peel off one or two of those big margin cows, and you're done. Now, the funny thing is, the only thing that perhaps, and this will be interesting to watch, that perhaps protects them is the biggest potential alternative customers for the Google TPU are Google's sworn enemies. You know, they should... You know, Microsoft, Amazon, maybe OpenAI to the extent they wanted the data centers, would be the obvious next places to go, 'cause they're the other people who are doing so much compute that it would be worth their while to try and digest TPUs. So that'll be... And that's interesting from Google's game theory perspective. Do they do that, take the capital, or do they continue to just keep it in-house and have a structural cost advantage? Don't have the answer there, but it's outside NVIDIA's control. I think, Harry, I, I rambled a little, but to your point, it is to some extentThere's only so much you can do if you only have five customers and one of them wants to diversify away from you.

   3. HSHarry Stebbings12:14

      It's the core risk of Macau, of Surge, of Turing, of all of these data providers being that they have all two customers that are more than fifty percent-

   4. RORory O’Driscoll12:23

      Right

   5. HSHarry Stebbings12:23

      ... of their revenue for all of them. And the bet that you're taking or the risk that you're willing to underwrite there is that actually it's not a core function of Meta or Amazon or Microsoft, and they won't go after the data acquisition market themselves because they can just spend the money with them and it's good enough.

   6. JLJason Lemkin12:37

      I actually think going to the opening of the show, I, I actually think we're just ignoring the risk because the, the NVIDIA's numbers are just too good.

   7. RORory O’Driscoll12:44

      [sighs] Psycho.

   8. JLJason Lemkin12:45

      No, that's what we're all doing. We're ignoring it. This is, this is systemic risk. We've all... You know, I mean, I mean, back in the day, Uber losing-- uh, Twilio losing Uber as a customer, twelve percent of its revenue gone. This would be much bigger. Um, but when the numbers are there, we're just ignoring it. We're just ignoring it. You're, you're-- you don't wish you invested in NVIDIA five years ago? [laughs] I mean, of course-

   9. HSHarry Stebbings13:04

      Totally

   10. JLJason Lemkin13:05

       ... of course you do. [laughs] You gotta play the game on the field. Even public market investors have to play the game on the field, right?

   11. HSHarry Stebbings13:09

       So do you think NVIDIA is overvalued today?

   12. JLJason Lemkin13:12

       I mean, no. The amount of compu... I mean, I... What did, what did the-- Google's head of, um, infrastructure say this week? They need-- Google needs a thousand times more compute in five years than it has today.

   13. HSHarry Stebbings13:22

       A thousand X in four to five years.

   14. JLJason Lemkin13:23

       Yeah. It's difficult to believe NVIDIA won't be a leader in that time. So o-- I, I mean, oversimplifying where all the chips will go and Blackwell will go, that's a lot of growth to invest in. [laughs] A thousand X on compute, if not chips. A thousand X, right? That's better than most SaaS companies right now. I don't know many, many SaaS companies predicting a thousand X growth at scale. [laughs]

   15. RORory O’Driscoll13:43

       But Ha-Harry, so lots of different... I wanna take that apart, but I, I actually wanna go back to the first question you asked, the kind of, you know, customer concentration, because I often think it's interesting for people who listen, you know, to get a sense of, you know, not just in the public markets, but how we all think of it as investors, 'cause you're absolutely right, Harry. The big question on all the, and data labeling is a good example, any, any of the AI compute co-attach bets was there's only four or five customers here, right? And, you know, the logic you had to use was in the hypergrowth period, your customers, be it OpenAI or someone else, isn't gonna have time to optimize for efficiency. They're gonna be running fast. And in that period of time, you know, you can create huge value, and we saw Scale AI created huge value. And then you're right, the fear would be when things slow down and people start moving from optimizing effectiveness to optimizing efficiency, then those businesses get tough. And as an investor, you're always tempted to do them. I mean, I, I was-- I will admit, I was scared of the data labeling companies, and I was wrong. There was a period of a couple of years where they clearly worked and worked really well. The interesting thing will be they-- will they continue to work for the next, you know, three to four years if, in fact, you know, dollars get a little more scarce? I mean, how do you j-- I mean, how do you guys, two guys think about those kind of, you know, whenever... How do you think about investing a company that logically only has four or five big customers?

   16. HSHarry Stebbings15:07

       Specifically on the data labeling market, this is one where I've interviewed the founders of Turing, Scale, Macau, Invisible. I've pretty much interviewed all of them. Surge. Um, and the one thing that made me actually feel incredibly comfortable investing in the category was understanding the specialized data requirements-

   17. RORory O’Driscoll15:23

       Yes

   18. HSHarry Stebbings15:23

       ... that the large providers need. I hadn't quite thought about the very verticalized data requirements, whether it's surgical data, whether it's bookkeeping, accounting data, that all of these different players are going so deep into, and it's so specific and in some cases strange and weird that the large customers are never gonna churn or pull away from them because they are so verticalized. And when I got comfortable with that, I was like, "Oh, I'm okay to take this risk and underwrite it because I don't think they're gonna churn."

   19. RORory O’Driscoll15:54

       That, that, that's super helpful and insightful, Harry. Yeah, 'cause you're right. If you only have a small number of customers, then you know at some point they're gonna optimize. So then you get into you have to have something they can't optimize around. And then after-- if you have that, then the last skill you need, uh, to have-- the, the next skill you need to have as a CEO is an ability to play extremely good poker. 'Cause, you know, you gotta look them in the eye and say, "I know that your twenty million dollar contract is my biggest contract, but I also know that my data is your most important data." So, and you're right, there's drama, there's tension, but you're right. You, you wouldn't wanna be doing a commodity la- data labeling play when they start to get to efficiency. ASML that sells primarily to TSMC is the same dynamic. You know, one seller, one buyer to a rounding error, and it's manage-- it's not like you can't build businesses in that space, but you have to have something really unique to avoid them pounding you all over. The kinda deciding factor, the swing vote in favor of taking the risk in those kind of deals is the speed at which the underlying market is moving will dictate... I-it's kind of the get out of jail free card that says, yeah. It-- 'cause in theory, you know, you could say you've only got three customers, they will grind you down. But if they've just got other shit to do for the next five years growing the business, they never get around to it, right? It's interesting. So I think that's to some extent what's happened in the last four or five years, both in the data lab-- and then zooming out the NVIDIA business at a higher level. Yes, maybe in some logical world, maybe all of Microsoft, Amazon, and Google should already have had their own TPU equivalent because they should've known to do this, but there's bigger fish to fry for a long time. And, you know, in a run fast world, if you're NVIDIA and you're saying, "But I have the product now, it's ready to ship," you wanna get your compute rolling, you can, you know, y-you can make money for a long time even in a concentrated market. It's only when it slows down. And that's why if I l- I look back on the data labeling thing, Harry, is the earlier you are with the more hypergrowth you have ahead of you, the easier it is to be undifferentiated. And by the time the growth slows down, you better either be differentiated or as, as [laughs] , as, as Jason was, you better be exited.

   20. JLJason Lemkin18:01

       Well, I'll tell you, just listen, this is-- it's a-- all that matters is growth today, right? I mean, even Palantir is extremely concentrated at its scale compared to what we're used to. It's, it's, it's, it's part of the AI world.

   21. RORory O’Driscoll18:11

       But the, the wonderful thing about the-

   22. JLJason Lemkin18:13

       Alteryx has triple-digit customers, doesn't it?

   23. RORory O’Driscoll18:14

       I wanna go back though to the NVIDIA overvalued question. I phrase it differently. I mean, it gets to the same thing. It's like, if you look at today's revenue, it's not overvalued. The PE on NVIDIA, as, to, to give that soundbite that I love, it's lower than the PE on Costco. And it was... You know, we, we talked last week about the earnings before they came out, and we recognized it was an odd time 'cause the show had come out after. But it all played out exactly what we thought, which was there was no surprise on the earnings 'cause all the hyperscalers had announced the quarter be- a week, a month beforehand, and they'd all said, "Right now we are buying more stuff. We are CapEx, we are constrained by capacity." So there was actually no data in the NVIDIA earning, earnings, right, of any significance. The question is, the valuation of NVIDIA is effectively a function of the end demand for compute, right? So if you wanna figure, as long as the demand continues roughly where it is today, NVIDIA is far less aggressively priced, as I say, than Costco or than Cisco in, in '99, right, on a PE basis. The question, so effectively is NVIDIA ov- overvalued question really translates to is the demand for compute as it manifests in '25, '26 a steady state demand or is it a cyclical peak and, you know, two, three years from now we're not gonna be spending $90 billion? That's the primary question. You're right, the secondary question is the whole TPU and substitute question, but I would argue the first one is the primary one. As long as the hyperscalers and the model provider, model companies continue to invest massively aggressively in compute, then with the exception of the substitute risk, NVIDIA's business is safe. So you're really saying, at the margin what you're saying is, is Microsoft gonna increase another 30% next year? Is Anthropic gonna invest in compute? And right now all those answers to those questions are yes. I mean, you know, kind of my takeaway on the recent kinda, uh, uh, you can't call them convulsions when things only move by 5%, is not some kind of great correction. It's more the market's doing a pretty decent job of saying, all you companies that are investing, who's doing it well? Google, you can invest more. Your stock goes up. Who's doing it badly? Oracle, you, your stock goes down. And the market is doing what, you know, markets are meant to do, which is send a signal, right? And right now the signal it's not sending is, "Oh my God, don't invest in anything," which obviously would be catastrophic for NVIDIA and for all of us 'cause it's 7% of everyone's S&P. The market's sending a signal that says, those of you that have good businesses investing are doing just fine. Go team. Go Google. Go Microsoft. And those of you that are a bit out there on the risk continuum probably should be thinking about that.

   24. HSHarry Stebbings20:47

       As a Duolingo shareholder, I'm feeling the pain.

   25. RORory O’Driscoll20:50

       Yeah. It's been brutal, 70%.

   26. HSHarry Stebbings20:52

       Brutal.

   27. JLJason Lemkin20:54

       You know, it's funny on the hyperscale, uh, uh, hyperscalers presaging NVIDIA, right? You're right. There shouldn't be any surprise because they've already said what's happening. I mean, I remember my first fund I had a, a hedge fund invest. The only reason they invested was to get that data from the portfolio. Like, if you have a portfolio company with direct linear exposure to NVIDIA, you will know in real time how NVIDIA's gonna be doing. [laughs] If you have one-to-one exposure, that was his only goal. Basically, I'll give you infinite money. I just want exposure to public companies through your startups. [laughs]

   28. HSHarry Stebbings21:24

       I love that.

   29. JLJason Lemkin21:25

       Yeah.

   30. HSHarry Stebbings21:25

       Before we move on, I do just wanna talk-

4. 21:27 – 35:25

   Google vs. OpenAI: Sam Altman's "War Mode" Memo

   1. JLJason Lemkin21:27

      I mean, it is an interesting question

   2. HSHarry Stebbings21:28

      ... Rory, you said the word threat a couple of minutes ago. Before we move on from this kind of core debate on the core incumbents, Sam Altman, um, did a memo internally within OpenAI, and he said that we were in war mode against Google regarding their increasing, uh, capabilities and the increasing competition in the space. Does this incitement of war mode ever work, and how did we feel about Sam catalyzing the troops into this proactive state?

   3. JLJason Lemkin21:59

      I, I don't, I've never seen it work. I want, if folks have, doing this, we've got, you know, all, all the, all the leading public companies say this, "We've gotta work harder. We're in war mode. It's AI." I, and, and listen, I just have always wondered, who are they talking to? Who are they talking to? I mean, I b- there must be a handful of folks that it works on, but, um, I, I, who, who really care, cares enough to go into war mode? They're already working as hard as they wanna be. I, I've just wondered, it's not to Wall Street is the message, I don't think, right? Um, is it to let VPs know they're gonna get fired? I just, uh, it's just something as, that CEOs wanna say, right? They wanna tell folks it's time. We've gotta step up. I've just almost never seen anybody react to that.

   4. RORory O’Driscoll22:42

      War mode as a metaphor for rallying the troops, I don't know if it works or not. I, I always find it a little odd. I'm like, d- have you been in peace mode until now? Did you just suddenly discover there was a war, right? It, it, it raises all sorts of weird questions. I also, for what it's worth, you know, don't love the metaphor. You know, um, w- let's be honest, we're a bunch of, you know, you know, pampered West Coast elite-y, um, computer people. If you want a war, the US Marines are still taking applicants, and you, you can have a real war. Otherwise, save the metaphor for someone who cares, right? So I'm not a fan of the war mode thing, right? Whether it works or not, in my view, is independent of the metaphor. So maybe the better question is, to Jason's point, is forget the metaphor, forget the war, forget the work harder 'cause you're all working hard. What exactly are you gonna do today that you weren't doing yesterday? That would be an interesting question.

   5. JLJason Lemkin23:30

      Well, I will say across every professional experience I've had from startup to scale-up to VP at a Fortune 500 tech company, you, nothing happens when you're not in hyper-aggressive mode. Nothing happens. You, you think it does and you get releases out, but it's only when you find a way to get the... You can call it war mode, but nothing happens when you're not in hyper-aggressive mode. It seems like it happens, but just keeping up with the release, with the TPU schedule, with the bug fixes, with the patches. I mean, if you've ever worked in a, in a tech company, especially a software company, just fixing, just fixing the bugs could take all yearLike, we can't do it, Rory. I know you wanna launch that feature, but we have 12 years of technical debt. What about the OAuth doesn't work? Well, you get, you get endless excuses from the team, okay? Because it's true. Because you have decades of technical debt and 100 features, and you just promised a big customer you'd have this feature that still hasn't come out, and now numb nuts Lemkin or Stebbings wants us [chuckles] to do even more. So, so you can't get anything done unless you're in hyper aggressive mode, like mobile for Facebook. I just don't know if telling the troops, uh, works. Uh, it is-- I've, I've never seen it work. But you do gotta go into hyper aggressive mode, because I think what he's saying is if we, if we evolve at our current pace, we're gonna fall behind. It's just that simple. That's what he's saying, we're gonna fall behind. And I really think when you look at-- When I meet with startups, especially when you, when you invest later, 'cause your money's already in, right? When they're not in hyper aggressive mode, I don't wanna say I lose confidence in case anyone's watching, any [laughs] ... But I lose confidence 'cause you're just not gonna get anywhere. I need to see, especially today, when folks are falling behind in AI, right? When you have companies at scale falling behind, I don't care about your talk, I don't wanna hear about your pilot, I wanna smell that your team is in hyper aggressive mode. If it is, I think you can come back.

   6. RORory O’Driscoll25:14

      What are s-

   7. JLJason Lemkin25:14

      If I don't smell it, you have no chance, right?

   8. RORory O’Driscoll25:16

      What are signs or smells that suggest hyper aggressive to you? Founders will be listening to this going-

   9. JLJason Lemkin25:22

      You fee- the management team-- There's a tension in the management team to move faster. Every single person in the management team says, "We are shipping product faster. I am selling harder. I am getting on the road more. I am generating more leads." Every single person on your management team is sweating it and, and they're executing faster. You can just see. They come to your board meeting, they come to whatever, and there is velocity in every area. We just don't s- You-- How many often times do you truly see velocity increase in a board meeting? Not that common, right? That's hyper aggressive mode. Everyone is online on this. Somehow, this is makes a great CEO. This is very hard for a CEO to do. Everything is in d- is anti-inertia. Everything slows down, even in an early stage startup, right? And then when you come in and everyone's sweating and they're like, you know, "We, we shipped twice the story points, twice the software as last quarter, and we're still falling behind, and I'm pissed." But, uh, these days in, in the area of great job, I just don't see it enough, and, uh, that's what you need. You need to make your team hyper aggressive. It is an unnatural state.

   10. RORory O’Driscoll26:21

       If I push y-

   11. JLJason Lemkin26:22

       It is unnatural

   12. RORory O’Driscoll26:23

       ... if I push you both, who will win the consumer? Is it OpenAI and the app rollout that they are clearly going to do over the next few years, or will Google retain the consumer, the search layer, and the app layer that they have today?

   13. JLJason Lemkin26:37

       I, I'm gonna maybe be, be trite, but I think Sergey brought back hyper aggressiveness to Google. He's clear in the interviews. He, he, he c- you know, he just totally say, "I came in, we weren't even allowed to use our own tools. [chuckles] We weren't allowed to use our own coding tools. We weren't allowed to use our own chips." He's like, "I got rid of that in a week. I heard arguments, I got rid of it in a week." That's what you need. Sergey had to come-- As great as the leadership is, I think Sergey had to come back and make it hyper aggressive. So I don't think it was the only point, but, but you need that. You need that. And I just, uh, most of the startups that I see that aren't founder-run are unable to get back to hyper aggressive mode. They're just, it is impossible for them. I'm not saying it hasn't happened with Satya and, and, and... But look at our por- how many folks in your portfolio without a founder can switch into hyper aggressive mode? I-

   14. RORory O’Driscoll27:18

       So you're saying Google?

   15. JLJason Lemkin27:21

       Over, I have to, this is a 20VC advocate between the two-

   16. RORory O’Driscoll27:23

       Yeah. This is a will Google retain the consumer-

   17. JLJason Lemkin27:26

       Yes

   18. RORory O’Driscoll27:26

       ... with the app suite that they have, or will OpenAI continue to eat more and more and more of Google's core business and we will see a much more shared landscape?

   19. JLJason Lemkin27:34

       Well, listen, I think the same thing most people on X do. I think the Google products are great. I use it every day. I use AI. In fact, I don't even care whether I use AI Overviews or ChatGPT or Anthropic, but I'm, I actually prefer AI Overviews 'cause I don't have to leave Google. That, that's a great product. I mean, um, I mean, we're, uh, so is Gemini 3 Pro. These are great products. There's no re- you're not giving me any reason to leave. [chuckles] They're great. They're truly great software.

   20. RORory O’Driscoll28:00

       I, I, I want-- I'll answer this question and I actually do wanna come back to the leadership thing 'cause I wanna chat a little bit about that and maybe learn something. But going back to the first question, the Google question, if you listen to the overwatch stuff a while ago, you know, Google, you know, six, nine months ago, it's like, "Oh my God, Google's dead." That was all overwatch. G- obviously executed really well in cloud and the model, and fundamentally, the core search business has not declined nearly as much. There was an interview, interview with, I think, I can't remember the woman's name, the, the s- the head of search in The Wall Street Journal, and she, um, talked about how search, yes, some clicks are g- but search volume is going up as people ask more questions. So it was i- i- it's clear that the decline of search isn't gonna be precipitous. That's my clear takeaway from that.

   21. JLJason Lemkin28:47

       We got that one wrong.

   22. RORory O’Driscoll28:48

       Exactly. Got that one wrong, and they're gonna be able to get some search. At the same time, I do believe there has emerged a new and separate consumer category of, you know, paid subscription for advanced AI, and I think ChatGPT is a good position in that place. I mean, they have, what, 800 million users, 5% of them are paying. I, I, I don't see all those users, quote-unquote, going back to Google. I think they've carved their niche, big niche in the attention economy and, you know, m- I, I don't see it as an either/or, even if the search business slows down growth. I, I think Goog- I think ChatGPT can charge, can build a defensible large, enormously large consumer business to a minor extent to the extent of Google and to a more macro extent to the, you know, a few dollars from everyone, right? I mean, I do think the advertising dollars, you know, we're getting close to the point where the digital advertising spend across Google, Facebook, and Amazon, even before ChatGPT exists, is getting a very-- is becoming a super high percentage of the total ad spend. So if ChatGPT is gonna get their share of that, either we're gonna have to grow the pie overall, um, or, you know, someone's gonna have to lose a little bit. So it's, net/net, I don't think it's an either/or. I think Google's proven, you know, reports of their death are greatly exaggerated, but I don't think it just... I, I mean, I, I saw in the memo, uh, leaked in the memo that Altman made a reference to growthFalling to 5% in a year or two. And obviously, the therapists call that catastrophizing, when you c- postulate something that's so awful. Like, this company's growing, you know, north of 500% year on year. If it went to 5% year on year, that would be the single most catastrophic growth decline in history. So, but in terms of likely outcomes, independent of the human dynamic, the likely outcome for me is ChatGPT continues to build this compelling consumer product, can command differentiated market, while at the same time Google Search does not, quote-unquote, go to zero. The pie expands. You know, the great American technoc- [laughs] tech Mag 7 suck more of the world's profit dollars out of the rest of humanity. Go team.

   23. HSHarry Stebbings30:58

       Okay. Well, speaking of expanding pies, do you, do you want to add anything or am I-

   24. JLJason Lemkin31:02

       No, no. Let's get, let's hit pie.

   25. HSHarry Stebbings31:05

       [laughs] S- speaking of expanding pies.

   26. RORory O’Driscoll31:08

       I did, I, I, I'm gonna go back. What I did like, I mean, I did, the leadership thing, 'cause I just say I, I... For me, because I'm not a good rah-rah type leader, I'm actually was interested in Jason's com- and I'm reflecting on it, 'cause I tend to be more the step back person, which I think is why I'd be a mediocre CEO and I'm okay as an investor. It was a great question. What are the signs you know? As an investor, wh- when do I look at my companies and go, "God, this guy's running hot," right? And I've been thinking about it. It's a, it's a super question. And it's generally when at least once or twice a year I think to myself, are you, Mr. CEO, and I have one or two in mind, are you pushing your team too hard? Even though I don't love the war metaphor mode, you are correct. It's only the wildly intense ones, the wildly driven ones, that really have excellence, and I'm reflecting on my very best excellent companies, and every once in a while the CEO would just lose his shit and he'd go... Because he or she would be just so exasperated by the lack of progress and the drive they felt to win, that you'd have that tension. And the bigger the team, the more people you have, the more simply you have to communicate, and therefore you probably use simpler m- metaphors, and therefore you probably have to go for some kind of, "It's a war, we gotta win," 'cause that's what it takes to motivate 5,000 people and point them in the one direction.

   27. JLJason Lemkin32:28

       Well, I don't know if it's the five. Thinking on it, you know, I actually don't think... You, you said you sometimes advise your CEOs to, to go easier on your team. I don't think you have to go easier on anyone great ever. Everyone great, every great leader, every great VP executive is going just, and they're rare. They're rare. They're going just as hard or in some ways harder than the CEO. The CEO's job is harder. A lot of executives don't get how hard it is to be at the top, but in their own domain, right, CTO, CRO, they are going harder than the CEO. And so if this was 2021, people, everyone would say I'm being toxic saying this. It's not, okay? We're going to 2026. I do not think you can push your team too hard. I think you should push them as hard as the business needs to go, and if they leave, it's great. It's terrific, because they're not gonna get you there. And maybe that's what Sam's doing. He's saying to his, there is complacency has set in. People, everyone's getting to sell 20 million at a time. Turnover is high, and it worked for a while, and now the competition is up. And I, maybe he's talking to 20 people and he's saying, "I need you guys to go even harder," and maybe half will leave and half will, will do it. I think that may be the whole message. But I honestly think to founders, my number one bit of advice is do not go easy on your team. Love them, back them up, don't pick at them, don't... Back where they're good, let them run where they're good, but push them even harder. The best ones will always step. They might cry or lose it for a couple days, but they will step up.

   28. RORory O’Driscoll33:53

       Generally, in your best companies, you're exactly right. Some people crash out 'cause they just can't take it. And my point is, how do you know the motor is running at, you know, at full speed? The answer is you hear an occasional gear grind, and your job as a board member is to check in on the gear grind and go, "Oh, okay, I can live with that gear grind. It's okay." Right? They're doing the right thing.

   29. JLJason Lemkin34:11

       Let them all go for 2026. Let them go.

   30. HSHarry Stebbings34:13

       Yeah.
5. 35:25 – 45:45

   Sierra Hits $100M ARR: Justify $10BN Price?

   1. JLJason Lemkin35:25

      top competitor.

   2. HSHarry Stebbings35:26

      We said about War Mode, there is no category more competitive today, it would seem, than the customer service, customer support market. Sierra, uh, Brad Taylor, formerly co-CEO of Salesforce, started Sierra, reached 100 million ARR within two years, it announced over the last week. Um, the last round was at $10 billion. It raised 350 by Green Oaks in September. Um, it's 100X ARR as of today. How do we analyze this very fast scaling to 100 in ARR? Does it justify the price paid? And does it show that customer support is gonna be so much of a bigger market than any of us previously thought?

   3. JLJason Lemkin36:06

      Well, I'll tell you what I can tell you from the s- from the street, hav-having a lot of investment in this space. Um, it's not a criticism of Sierra or Decacon or others, but the whole category, the enterprise side of it, is massively overselling what they can deliver today. Now, so did Replit and Lovable at the start of this year. They-- everyone, Replit, Lovable, Microsoft, everyone said, "Give us one line, and we will build you Salesforce," okay? That is closer, much closer to truth today than it was w- in the, in the, in the early year, it bordered on fraud. Now it's becoming reality. Uh, so many folks I know have bought next-generation AI support tools and have not deployed them at all or barely deployed them, or there's no AI working. And so it's not that it can't happen. It, like, it will... Like, I believe in it, and there's few categories AI can disrupt more than support. But I will tell you, if you dig deeper, you'll find a lot of deployments haven't even happened or are half there or are untrained or broken. So it's a lot of getting CAOs and others excited. It's a lot... And this is as oversold today as vibe coding was earlier this year. But I'm not saying it won't catch up. I'm not being cynical. I've just... Man, it's oversold.

   4. RORory O’Driscoll37:13

      It is clear that, yeah, support alongside coding is one of the two largest and most obvious market for LLM. So this is kind of an... This is big, huge category that can totally work, right? So you start with that. Brett Taylor is obviously wildly talented, and Sierra has a great name, especially at the high end. I actually think the category is working, and, you know, I literally did a reference call with someone, a-and they said, "Look, we evaluated Sierra, we evaluated all these other names." And, you know, before LLMs, and we-- I had an investment in a company that was pre-LLM customer support, our resolution rate was around twenty-three percent. In other words, we could solve twenty-three percent of calls, maybe up to thirty. With LLMs, with these new modern things, you can solve sixty percent, which means on a number of call basis, you can significantly reduce your customer support. So I think there is some meaningful value there. I'm sure at times it's overstated, but th- if this isn't the market for LLMs in the enterprise, then nothing is, right? So let's leave that to one side. The real question I, I think is, you know, how does the math work from here? Like it's, you know, it's a hundred million, and it's trading at ten billion and what would it take? And I just kind of laid it out in my head. It's like you went from ten million to a hundred million in the last year, so you 10X'd. So say you 5X next year, that's five hundred. 3X the year after, one and a half billion. 2X the year after, three billion. Uh, you know, grow fif-

   5. JLJason Lemkin38:38

      Wait, wait, do we have to get to three billion ARR again? [laughs] Slow down.

   6. RORory O’Driscoll38:40

      Yeah. Hang on. Yeah.

   7. JLJason Lemkin38:41

      I'll, uh, what year?

   8. RORory O’Driscoll38:41

      And then you, and then you go four and a half billion and then five. So over the next five years, right? You've got a 10X, 5X, 3X, 2X, fifty percent growth, and then slow down a little to twenty percent growth, and you're at five billion in five years. For context, um, Service Cloud today, which is the largest cloud within Salesforce, is eight billion. So, you know, you're, you're, you're getting five billion out of that marketplace. At that point, you know, if you're valued at the Salesforce multiple of five or six times, you know, you're worth twenty-five billion, so it's a two and a half X. What it highlights is the amount of growth you have to underwrite to make the math work, right? So then you zoom out a level. It's something we said last week that I believe. When you're dealing with hyper-growth markets, it's all about the TAM. And if you-- The, the, the crude math I just did, which is if this company grows faster than any other enterprise software companies, in five years, it's doing five billion dollars, which passes the sanity test of Service Cloud doing eight today, right? What that says to me is, if all you are is a next-generation software play, you're probably not gonna get that growth because that would have to come dollar for dollar from Service Cloud. It goes back to what Jason says. The only way this math works is if you eat a huge slug of the labor, and because you eat the labor, instead of the, you know, twenty billion dollar software market for services, you eat the two hundred billion dollar a year services market for customer support agents.

   9. JLJason Lemkin40:04

      It's gotta go from a hundred million ARR to a billion to justify the valuation on its face, right? It's gotta go a hundred to a billion a year. Will, will that happen? Can you even deploy in the enterprise at that pace, right? Versus self-serve. We-we'll see, right? But, uh, we'll see if they go from a hundred now to a billion at the end of next year. Should we-- We can make a cal sheet maybe.

   10. HSHarry Stebbings40:23

       Has any company done a hundred million to a billion?

   11. RORory O’Driscoll40:26

       Well, I think, yes, Anthropic. Easy.

   12. HSHarry Stebbings40:29

       Yeah. Cursor and Anthropic.

   13. RORory O’Driscoll40:32

       What?

   14. HSHarry Stebbings40:33

       Cursor would be one.

   15. JLJason Lemkin40:34

       Yeah. How much, but how much of that revenue is self-serve too? There's a certain amount of human capital you also-

   16. RORory O’Driscoll40:39

       Agreed

   17. JLJason Lemkin40:39

       ... need to deliver this amount of revenue in the enterprise, right? 'Cause let me tell you, if Brett Taylor walks into a Fortune five hundred company and says, "Give me ten million dollars, and I can replace half your support team," look, trust me, he will not leave that... He will leave the building with a ten million dollar contract. Marc Benioff was great at this too. He would go in back in the day when, when, when E-enterprise SaaS was booming, he would go to a big company, he would say, "What's your number one problem, Harry?" And Harry would say, "Well, I can't get this website and this e-commerce..." And, and Marc would say, "Just give me ten million dollars, and I will get this for you." That was the price, and he was magical at it, and Brett's gonna be even better, even though Marc's the best there ever is, 'cause he was the CTO of Facebook [chuckles] and the co-CEO of Salesforce. He's got... There's no one got a better package than Brett, so he can get ten million dollar checks, but can he get a hundred next year and deliver training and FDEs? It'll just be interesting to watch, right? It's a lot to deliver.

   18. RORory O’Driscoll41:27

       I think, Jason, you're exactly right. Going from a hundred to a billion on an API business is very different than going from a hundred million to a billion in a business where each ten million dollar contract is a huge amount of change management in a large corporation in America. And I think the physics of diffusing this technology into the enterprise will be the rate limiter on how fast this company can grow. It won't be raw demand, it won't be the talent of the CEO, it won't be the product. It will literally be, can you really roll out, you know, what is it, a hundred ten million dollar customers or, you know, a thousand one million dollar customers in a year, where each one of them has their own special sauce, their own dynamics, their own integrations? I think there's a physics to how fast you can grow in enterprise software, even with huge demand, when this amount of change management has to happen. So I think that would be the rate limiter here.Right? Nothing else

   19. JLJason Lemkin42:22

       If people haven't sold to the enterprise, they might not realize how true... I mean, literally, I think if Brett Taylor could sell 10 million to anybody

   20. RORory O’Driscoll42:29

       Agree

   21. JLJason Lemkin42:29

       It, it's not just that he's so smart or charismatic, it's that literally enterprises are complex to change. They're looking for the best person in the world that can solve their problems. Like, "What's my big problem?" And if you can dramatically increase the KPIs and support for me, and Brett is the guy, I will give you the 10 million bucks. It's not... For you and me, it'd be hard to get $10 million. Okay, well, you and I might have to start with a 10K contract or 100K, but literally, I'm not being facetious, Brett can get multiple $10 million checks. So as goofy as this sounds, as, and I know this sounds goofy, and this is with total respect, the 100 million almost to me isn't impressive. It's not impressive because I think he can will it out of the ether with his background. A billion next year with 1,000 FDEs somehow he's gotta go hire and deploy that, that to me was magic. Like, that will be magic because they will give him $100 million. He might even be able to walk into one of the biggest Fortune 50 companies and get 100 million contract from one like Palantir. They would give it to Brett. If he promised the moon, they would give him 100 million bucks

   22. RORory O’Driscoll43:27

       I think the, the ZoomOut comment you're right about, and it's something you kind of learn as you see a lot of enterprise software over time is this: Big companies and big leaders have big problems, and there's only a small number of people they can take their problems to. And if you look at large technology companies over the last 40 or 50 years, the ones that become dominant in an enterprise wave are the ones who have, who have one way or the other project to the CEOs and CIOs of the largest companies in America, "If you have a problem in this sector, we will make it go away." Like Cisco, they started off with routers, but over the next 10 or 15 years, they bought pretty much anything you needed for the network. And I think when, you know, Chambers was running this thing, the big-picture value proposition was, "Hey, Mr. CIO, if you have any networking problems, we'll just buy whatever we need and make it go away. Therefore, you can safely give me 50 or 100 million bucks." IBM back in the day, same thing. And you're right, Jason, I think someone as talented as Brett Taylor in the new world of AI can do what I think C-suite tried to do and failed, Palantir is doing, which is walk into a CEO and say, "Dude, you told your board that a top two initiative for 2026 is make XYZ corporation AI-enabled, and I can help you with that. Give me a $20 million check." I absolutely agree. I think that is a thing, and it's frustrating 'cause all the little peop- the little companies who are, you know, run by ordinary folks can't do that. But that's the magic of being a successful proven enterprise leader for 20 years, right? So I agree. I think you can access that kind of business, and it's a very powerful positioning. I think it's all about the physics

   23. HSHarry Stebbings45:02

       To me, the assumption you have to make as an investor with this goes back to a very wise statement that you said, Rory, many shows ago, which I think to you literally every single day, which is the bet within AI is will we see the transition from human labor to software spend? And if we see that and we see costs, uh, uh, call centers go and all of the, you know, call center costs go, then it will go to these players, and then we have $100 billion Sierra

   24. RORory O’Driscoll45:27

       The question is, as is always the case when something is obviously true, valuation expands to recreate risk. In other words, and there's a point at which, you know, you do any of these deals all day, every day, right? The real question is, at 100 times one way revenues, can you make the math work? And that, I think, is

6. 45:45 – 54:16

   Implementation is the Biggest Barrier to Enterprise AI Growth

   1. RORory O’Driscoll45:45

      a lot harder

   2. HSHarry Stebbings45:46

      Are you ready for an uncomfortable question for Rory? And he can throw it back on me when we move to Lovable.

   3. JLJason Lemkin45:50

      Okay

   4. HSHarry Stebbings45:50

      You mentioned Intercom there, Intercom doing, say, 300, 400 million in revenue at two and a half... You don't need to comment on these numbers, but two and a half billion, three billion in, you know, price versus Sierra doing 100 million at a $10 billion price, but the growth rates are wildly different. How do you think about which one you'd rather be in?

   5. RORory O’Driscoll46:14

      I think both can make a ton of money, and I think I'm very happy with my bet in that company. I think they've done a- an amazing job in a way that very few SaaS companies have of transitioning to an AI-first world, and the growth rate of their AI product is frankly comparable to Sierra's without kind of revealing details that the company should choose to reveal. So I'm not sitting here... In fact, I feel, frankly, broadly speaking, pretty smart as having got some very nice AI growth rate alongside an existing SaaS business at a very attractive price. So I feel pretty damn good here. Thank you. And I think, but I think the, the meta point is all these companies can do well. Uh, multiple companies c- not all. That's a stupid statement, Rory. Not all of them can do well, but there will be more than one winner as this market segment

   6. JLJason Lemkin46:57

      I will say m- at a higher level, um, not- nothing against this bet, but man, today, having to support an installed base versus getting to invest just in AI native customers, it's a drag. It is a drag. It is a drag. And I was literally with a portfolio company. It's got 45 million of AI revenue growing about 100%. Okay, now listen, that's not, uh, level, but it's pretty good, okay? And then it's got 50 million of pre-AI revenue growing zero [laughs] , okay? So what do you... And, and the problem is they are, and I think this is probably true at Fin and Intercom, they are inexorably linked, but they're not the same product. It's, it's, it kinda sucks. We may change our mind in a year and say, "My God, that install base was the greatest thing ever to leverage for AI." But right now, man, it feels like a drag to have to have a couple thousand pre-AI customers to make happy. It feels like a drag. [laughs]

   7. RORory O’Driscoll47:48

      Uh, re-recording my profound opposition to that. I disagree, and I'll tell you why. I actually think every incumbent in these markets has one huge advantage and one huge disadvantage, and I'm gonna say it clearly. I think the advantage is the customer base and the data structures and the access to the data on your existing, uh, w- what the company's doing because I think for something like sales or customer support, the truth is it's gonna be a combo package for a long time to come, some automation and then some human agents, and being able to move seamlessly between them both has huge advantages, right? I think the disadvantage that every large existing incumbent has is they can't get out of their own fricking wayRight? And therefore, they can't leverage the asset they have while at the same time embracing the AI technology, and I think that's frankly something that Intercom did really well, right? It's really hard-

   8. JLJason Lemkin48:38

      Well, I think it's more subtle than that

   9. RORory O’Driscoll48:39

      ... and I think-

   10. JLJason Lemkin48:39

       But I hear your point. I- in theory, it's an asset, right? In theory, it's great to have an install base, all of its data, rather than an AI comp- new AI company hoping to have that data, all that, in theory. The problem isn't that. That is an asset, and that's why I might change my mind i- i- in 12 months. The problem is, um, all the technical debt, all the feature debt, all the features you've promised those 1,000 customers, those 5,000 customers that don't give a rat's ass about your shiny new AI feature. The fact you have to keep them happy, okay, and not let them deteriorate, that can consume the majority of your engineering development time. It really can. I'd love to hear Eoghan's... He's very o- I'd like to hear his honest thoughts. I suspect what they did at Intercom, you would know better than me, I suspect they did what you have to do, which is you, you, they don't get so much. [laughs] The old customers ju- no matter, because there's only so many engineers, 100, 500, 1,050. If you, the, your existing customers can consume all of your story points and all of your engineering time, all of it, you have 10 years of debt. And if you're a new AI company, you don't have the data, it's a huge negative, don't get me wrong, but the ability to run, that's... When we talk, when VCs talk about endlessly about how native AI customers are better, I wanna gag with a spoon. But I think they're m- sometimes they're better 'cause they're four really smart people. Sometimes they're just better 'cause they don't have 1,000 complaining customers to support. I'm just saying right now I feel like it's a liability, but in a year I may think it's the greatest thing. Like looking at Agentforce, right now it's early, right? But we mi- Salesforce could be the next Google. It could be in 18 to 24 months, we could be like, "Oh my God, Agentforce crushed it. We-- all these startups, we didn't need them because Agentforce is so good." I know it sounds crazy, right? I may change my mind, but right now my s- the startups I've invested in with large install bases, I feel like it's, uh, frigging cement shoes.

   11. RORory O’Driscoll50:25

       But again, I would disagree. I think that the great advantage... Like, you made a comment on you have a company that has $45 million of AI revenue and then a whole bunch of customers who don't care about the AI revenue at all, and that was the revealing sentence.

   12. JLJason Lemkin50:37

       Yeah.

   13. RORory O’Driscoll50:37

       I think, I don't think that's the experience you're seeing in some of these cases where when you have an obvious... Anyone who is running a customer support organization knows they're gonna be embracing AI, right? And a successful company goes in and says, "We're gonna help you on that journey." It's unimaginable to me to think of a customer support executive who's running their business and saying, "No, I'm not gonna do any of this AI stuff. I just really like paying people in the Philippines to answer phones."

   14. JLJason Lemkin51:01

       But the, the, the, the debt is, is real, right? And how much you can do for them is real. I mean, I did an interview for G2 with the CEO of Zendesk, and he, they, every customer has AI at Zendesk. I'm not an expert in Zendesk, but he was very direct 'cause they're private now, he's right. But the base version of Zendesk, which you get with AI, it's about 20% automated. That's about as well as you can do without training, okay? And to get this thin level of experience or better, or Decagon or Sierra, you gotta train the thing for a month or three weeks with FDEs and the rest. And so it's, um, it's not that they both don't benefit, it's just, um, I think it's an asset and a hindrance. I think if we look at some of our fastest-growing companies, they don't have, they don't have cement shoes. I'm not sa- Intercom is the exception to the rule, but they just don't have cement shoes, right?

   15. RORory O’Driscoll51:45

       I agree. I think it takes, frankly, I think really excellent management and a certain, going back to the, oh God, I can't believe it, going back to the war mode comment, which again, I didn't love, but I'm changing my mind. It takes a lot of le- product leadership and clarity of vision to make it happen, right? And I think-

   16. JLJason Lemkin52:01

       Yeah

   17. RORory O’Driscoll52:01

       ... you're seeing in Benioff trying to figure out how to do that, right? It's the bigger the organization, the harder it is. I think the team at Intercom's done a really nice job of doing that, right? It's hard.

   18. JLJason Lemkin52:09

       Well, let me put it differently. Intercom did it. Let's stipulate Eoghan did it, and it's great. This is why I think most of our unicorns will fail, because you've gotta be as good or better than Eoghan to make this transition. Most of them are gonna fail. When I look at so many of these B2B unicorns, they just, it's so hard to do both. It's so hard. I've got $200 million ARR, Rory. I'm growing 20%. I know I have to do AI, but I just, I can barely get the team to do what I'm doing. Unless you have this aggressiveness, war mode, great CO, there's just no way you can do both. There's no... Your typical PE company can barely get a release out a year.

   19. RORory O’Driscoll52:46

       Agreed. I think there's two things that stop you, and I think, as is usual, when you and I talk, Jason, you emphasize one and I emphasize the other, which is okay, right? There, the two challenges you typically have is, one, I call it the management challenge, which is what you emphasize, or you got all this old stuff, you gotta do this new... It's hard to do, it's hard to do both, so you just gotta be a good manager. But then the second thing I would argue, the predecessor thing is, there's gotta be some obvious linkage between the two, right? If you've got this SaaS company in the old world that does X and there's no obvious X plus AI equivalent, you're just on an island and then deciding, "Oh, I'm gonna do something new in SaaS," you're, it's screwed. You're screwed, right? If all you have is, "I have customers who might wanna buy SaaS in the future, or AI in the future, and they buy SaaS today," you're screwed. The only time you have even a chance to do it is when both kind of organically go together. I'll give you another example of that. I think Gong is a very interesting company that was, you know, pre-GPT AI, right, call recording, and I think they're doing a decent job of navigating that terrain and adding all the LLM stuff on top. But it's not because they're management geniuses. Maybe they are. It's more fundamentally because there was an obvious path from here to there, right? In some other areas where the SaaS thing doesn't have an AI equivalent, you're on an island, and then you're right, there's nothing you can do. You could be God's gift to management and you're screwed, right? And you know, I'm trying to think of examples of that without throwing anyone under the bus. But there are deals where you look and you just go, "Hmm, I'm not sure we need you in this AI first world, baby," and that's not good.

7. 54:16 – 1:05:17

   Lovable Hits $200M ARR & Rumoured $6BN Round

   1. HSHarry Stebbings54:16

      You said the fastest-growing companies and how it's tied to kind of AI-native customers. One that's really tied to this, like Sierra hit revenue milestone, does it justify price? Lovable hit four, $200 million in ARR, 2X what it was in just four months. Rumored $6.3 billion round in terms of new price valuation being $6.3 billion. Is that justified when you see the growth rate hitting $200 million in ARR for Lovable?

   2. JLJason Lemkin54:44

      I don't know, but I, I will tell you for folks that are critics, um, I don't have the numbers right. I can tell you this is like an old SaaStr lesson I really think we have to do in the age of AI. You've gotta segment your customer base. Um, so what I mean is I, I assume at the low end the churn approaches 50% or higher, okay? Um, w- the Menlo, the one Menlo just did in music. What's it called? We use-

   3. RORory O’Driscoll55:05

      Sunoh

   4. JLJason Lemkin55:05

      ... Sunoh, right? They just said they have- they only retained 20% of their customers in a year at the level. But I just did a, a presentation at Replit that showed all my apps at all hands, and when I was there they closed a pretty large seven-figure deal when I was there, okay? So my- the point is there's no way that's gonna churn [laughs] as a multi-year seven-figure deal, it, uh, anything less than a couple years mathematically is it? So like you've gotta... What I would almost wanna do is take Lovable and Replit and segment them and say, "Listen, there's a high end here that's probably got 140 to 160% ARR. I'm pretty confident of it. There's a classic mid-pack that my guess is with upsells and stuff is, is approaching 100% retention. And then there's a, a, the part at the bottom is worse than we're used to. It may have 40% retention or 30%, but that's not unprecedented. Like almost every mobile subscription app has like, we know from RevenueCat, has like 20 or 30% retention. So I just think I would almost wanna put a s- not only seg- bar chart mine, but almost draw a black line through the bottom if I were... and, and just call that marketing spend. Like that bottom is just marketers. They're just folks to get the word out. They, and they're all over social media and I'm betting in the, the next two, right? The 100% and the 160% ARR. And even if that's half of Lovable's it's, it's, it's, I think it's a decent, uh, bet, right? And I also, that's why I also think as these guys grow their ARR will go up and the churn will go down just because for classic enterprise reasons those big customers are gonna be stickier. They're just gonna be stickier.

   5. HSHarry Stebbings56:29

      I'm just always thinking about the opportunity cost of cash and where I put my money to make the most money. To Rory's brilliant-

   6. JLJason Lemkin56:34

      You're a trader

   7. HSHarry Stebbings56:34

      ... To Rory's Brit- Shut up.

   8. JLJason Lemkin56:35

      [laughs]

   9. HSHarry Stebbings56:36

      To Rory's brilliant point on Harry, that's great but what about me? It's now worth more than Wix. 2 billion in ARR. Admittedly the growth rate for Wix is 14% year on year-

   10. JLJason Lemkin56:46

       Yeah

   11. HSHarry Stebbings56:46

       ... but they have Base44 which is growing very, very fast. D- j- just announced it hit 50 million in ARR. So y- you have to believe that either Wix is very undervalued or Lovable is very overvalued.

   12. JLJason Lemkin56:58

       It's a tough one. You know what the tough part is for all public company leaders, it shows you're not getting credit for checking the AI box. Hooray to Wix you g- you went from nothing to 50 million in vibe coding. If you were a, if, if that, if that means you're a this percent of Wix or I mean of Replit level you should be worth a couple extra billion. The market's saying, "No, it's not enough. You're, you're, as a public company you're being judged as a public company. You're not being judged as Sierra." It's tough because every public company is out there hustling their AI story and if you look at, I'm not sure it's working at all. I, I think it's necessary but not sufficient to get w- you need to be Palantir. That's what the public markets want and they're saying Wix ain't Palantir. It's not e- 50 million's not enough. Show me 500 million.

   13. RORory O’Driscoll57:38

       But I, I would, I, I, I would caveat that all you can conclude is right now the public markets aren't giving it full credit which is different than saying the strategy is right or wrong. I mean as we just discussed everyone's dumping on Google nine months ago and now the stock's up two point something X, right? Is that, yeah, markets are fickle things. They, you know, change their mind. I mean the question is, is it the right strategy for Wix? Do you have to add some kind... If you're in the website buildings business which is what they have been it seems almost inevitable you have to add this otherwise you're not relevant. Agreed? That's kind of step one. And then the question is, so directionally they're doing the right thing. Let's start with that, right? And then you can measure how well they're doing it in terms of adoption, what percentage of their customers are using this product. Is it out on the side and just a game or is it a core part of their product? You know, measuring kind of with industrial logic not financial logic how well they're doing. And then you can start saying how do you compare that bet to the Lovable bet, right? And then that's the way you have to do it. It's, it's a $2 billion business versus a $200 million business. It's probably got better churn retention but only a small percentage of it is AI and then on the other hand you have Lovable it's all AI but you have massive churn. You know, it could well be that the public markets are undervaluing one and the private markets are overvaluing the other, right? In the end it'll true up based on... In the short term, you know it's the old cliche, in the fort- in the short term markets are a voting machine and in the long term they're a weighing machine. If Wix pulls off their strategy they'll get valued for it in the end ditto Lovable. If they don't, i- if, you know it, it's the Jason comment, if they don't, if you can't overcome the inertia, if you just tick the AI box but don't actually make it core to what you're doing then you wait fast forward five years and it'll be Lovable is the king of website generation and who was Wix? They didn't make it through the, the turn. But, but I think that's in the end how it'll be. Inter remarks are just inter remarks.

   14. JLJason Lemkin59:34

       It's just a reminder s- to founders and everybody two, 2 billion ARR growing 14% as we, as we do this Harry and I the market cap 5.24 billion.

   15. RORory O’Driscoll59:43

       For Wix.

   16. JLJason Lemkin59:44

       Yeah. So generally once you descend into low growth, uh, and that's different for public companies than private companies, you're worth, I mean if you're worth anything you might be worth nothing as a startup, you're worth in the 3 to 5X ARR range and this isn't even that. This is, this is, this is less than three. And so it's a, it's just, it's a tough... I just think man it's this, you know I, I just got back before this I, I was over at one of our joint LPs at Horsley Bridge and we were talking about the pulse and I'm like man it's the best of time and ever in startups but man going public [laughs] and IPOing it's tough out there. And this is two and a half times revenue for Wix. It's just, I'm not saying it's worth more on a DCF basis or whatever, Rory can help me there, but i- it's brutal to be worth less than 3X ARR, right? And SEMrush just go- I mean you look oh my God it got acquired for what Adobe for 1.9-

   17. RORory O’Driscoll1:00:33

       1.9. 1.9

   18. JLJason Lemkin1:00:33

       ... Yeah that was, that was three times revenue with a 50% premium or 100% premium. I think 100% premium right? It doubled. That's with a massive premium because O- O- Adobe paid up. It's, now that's a bootstrap company so it's a fun story butBrutal. It's just, it's a reminder to founders that are hiding or thinks, or, or they, they got the 2023 message that all that matters is getting profitable. Like, it's just a brutal world when growth slows. It's a brutal world. And even if you inject AI, and even if you add Base44, Rory's right, it may be a great story in 2027, right? You can draw the math, but it's not a magical solution today. It's brutal, and it's brutal across our portfolios that have, have, have a, a little bit of AI that hasn't led to lovable growth. It's brutal.

   19. RORory O’Driscoll1:01:13

       'Cause they're- what are they doing? I mean, Wix is doing about two billion a year, and it's 50 million of, um, ba-bum, ba-bum, uh-

   20. JLJason Lemkin1:01:22

       Base44

   21. RORory O’Driscoll1:01:23

       ... Base44. Thank you very much. So yeah, it's 2% of revenue. At 2% of revenue, it's, you know, it's to a rounding error discard. I, I mean, 'cause the odd thing is y- at that point, you discard. Now, the interesting thing is if they could upsell 10, 15% of their business to that, where they're adding two, 300 million, you're right, Jason, the multiple for companies doing 10 or 15% is pitiful. The multiple for public companies doing north of 25 is compelling, right?

   22. JLJason Lemkin1:01:45

       Yeah, it could double if they, if they do 250 next year, right? It could double their market cap. Yeah, more than double-

   23. RORory O’Driscoll1:01:49

       Yeah, more than double your market cap. They have to be saying to themselves, "Can I drive 15% penetration of this AI product across my customer base? And if I can make that happen, it's great."

   24. JLJason Lemkin1:01:59

       Yeah, let's be clear to our public traders, Harry. If Base44 really can ape Lovable and Replit, everyone should pile into Wix because all things being equal, the multiple should radically inflate. If it can do 250 million, and this is ARR, I guess this isn't GAAP, but if it can do 250 million of ARR next year, that's massive over growing 14% of two billion, right? It's massive. You should pile, you should put as much of the 401 [k] into Wix as you can. This is the great, the great un- un- undiscovered public company.

   25. RORory O’Driscoll1:02:28

       It is unless the public markets continue to not give you credit for it, as they've not given you credit for the zero to 50 in Base44 that you've just done.

   26. JLJason Lemkin1:02:36

       No, no. We're always making the point that you go into the interim tier, okay? If you look at multiples, you go from the three to 4X tier, and then actually in the public companies, you get a really good deal if you're in the middle tier, and if you're in the top tier, like Rubrik and Palantir, you get the, the deal that Cliff from Canva wanted. He wanted that deal because it's better than the private market. But I think that middle one is still around, uh, eight to t- 12X ARR, this middle group of like in the 20s, right? So getting above 20 as a public company, it's like, it, it's easier said than done, but it's so worth it. Like, you should buy anything you can to get yourself into the 20s. Anything you can.

   27. RORory O’Driscoll1:03:10

       I, I, I agree, 'cause Harry, I just reject the whole give you credit. I mean, in the short term, as again, again, in the short term, maybe the public markets, quote-unquote, "Don't give you credit," but I dislike that expression 'cause it implies that it's some merit thing. In the end, everyone's just a set of discounted future cash flows. If you point the revenue line up and the P&L line goes up with it, in the end, the market will re-weight you and give you value. I just believe... 'Cause that's just the way capitalism works, right?

   28. HSHarry Stebbings1:03:34

       But, but sorry, if you, if you look at something like Palantir, which is detached from rationality and detached from a DCF-

   29. RORory O’Driscoll1:03:40

       Yes

   30. HSHarry Stebbings1:03:40

       ... model, then it proves you wrong.
8. 1:05:17 – 1:18:30

   Is LLM Search Optimisation (GEO) Selling Snake Oil? What AI is a Fraud vs Real?

   1. RORory O’Driscoll1:05:17

      And it's funny, you mentioned Semrush there, which for the listeners, is a company that does search engine optimization. It's a bootstrap company, been around a long time, was public. Pretty much was sleepy company, and Adobe just recently bought them for, you know, what was it? About two billion, Jason, right? Yeah, 1.9 billion. And my guess is, [chuckles] and it's funny, it's top of mind, my guess is that was because there's this whole new emerging market now for LLM, um, you know, quick- oh my gosh, my brain. Answer engine optimization.

   2. JLJason Lemkin1:05:50

      GEO. Yeah, that's the reason they bought it.

   3. RORory O’Driscoll1:05:51

      GEO.

   4. JLJason Lemkin1:05:51

      Yeah, that's-

   5. RORory O’Driscoll1:05:51

      Yeah, yeah. Exactly. Answer and, um, basically optimizing your, your equivalent of your search results but on LLMs, which I think is a great market and one we've looked at. And clearly Adobe said, "Let's buy the old school player and, um, you know, maybe allow us to parlay entry into that new market," which was just super interesting. I, I remember thinking that 'cause I'd been looking at that market and hadn't ultimately been able to get an investment done, and I remember thinking, "Hmm, if I was a public investor, I'd look at Semrush, I'd buy one of those GEO products, and I'd try and do the same trick of jamming it through the channel and at, you know, at two times runway revenues, it wouldn't take a lot to make a pop." But lo and behold, Adobe got there first and said, "No, we'll take that."

   6. JLJason Lemkin1:06:34

      Well, the interesting thing is what they said was publicly, they, they didn't buy it as a, a, to, to jam it through the channel. They bought it because it was the number one thing the customers were asking them for.

   7. RORory O’Driscoll1:06:42

      Yes. Agreed.

   8. JLJason Lemkin1:06:42

      And I, you know, when I, I obviously-

   9. RORory O’Driscoll1:06:43

      Which is a polite way of saying the same thing

   10. JLJason Lemkin1:06:45

       ... for those that don't VP in Adobe, remember, the marketing cloud is a huge amount of revenue, and their typical customer is not a 20 VC portfolio company startup. It's a pretty mature CMO, okay? That is trusting Adobe to execute their marketing strategy, and they're worried about LLMs and GM. They don't know what to do. I act- I know Harry's invested in it, and I love Harry. I actually think this is a horrible category.

   11. RORory O’Driscoll1:07:06

       I know.

   12. JLJason Lemkin1:07:06

       But, but the demand at this moment, it, it's just like a lot of things now. I need an SDR. I need a GEO solution. So the demand is off the charts. So Adobe needed a solution today-And they bought what they could get, right?

   13. HSHarry Stebbings1:07:19

       But I, I think it's a horrible category too.

   14. JLJason Lemkin1:07:21

       Okay, you agree with me?

   15. HSHarry Stebbings1:07:22

       I, I am actually totally with you. My, my bet is, this, this company, Peak, is a complete founder bet, and to be fair, the traction's insane. I mean, it's like 15X in three or four months.

   16. JLJason Lemkin1:07:32

       Yeah, the demand is off the charts, right?

   17. HSHarry Stebbings1:07:33

       So demand is off the charts. But what you're seeing is, like, the commoditization of the pure discovery and analysis segment, 'cause there's really two segments. There's discovery and analysis, where you rank, and then there's, like, hey, what you should do as a result, how you can improve it, and then-

   18. JLJason Lemkin1:07:46

       Yeah

   19. HSHarry Stebbings1:07:46

       ... we'll do that for you. And you're seeing the commoditization where you've seen Spencer at Amplitude release their product, which now is the same.

   20. JLJason Lemkin1:07:53

       Yeah, they vibed it.

   21. HSHarry Stebbings1:07:54

       And so my question to you actually, Rory, which is weird given that I'm an investor in this [chuckles] , but me and Jason are agreed, why do you not think we're gonna see the commoditization of this ca- category, and why do you like it?

   22. RORory O’Driscoll1:08:06

       I think com- I'll tell you why. I think commoditization is a s- is, with all due respect, not a useful word, right? I mean, you know, uh, 'cause it's an implied statement of wrong, badness, economic badness about it. And as I remind peop- you know, oil is a commodity, but as the movie Landmine tells, as the film series Landmine tells me, we make 3 billion of profit every damn day making oil, right? So I don't think commoditization conveys something. I think what is... I like that market because I think what you see in markets that really work are a wedge product that has high urgency to spend, right? Which means in the near term you get explosive growth, and then over the medium term there's ob- there, there's a, there's a set of do- e- e- expansion opportunities beyond the original point product that allows you to grow with your customers and expand, and I think that's exactly the case here. Discovery up front is the core need, and you know, you've got a bunch of companies like Profound and Evertune and all those guys doing that. And then you're gonna add on over time content generation and all it takes to make sure you show up, and I think there's just a lot to be built on top, right?

   23. JLJason Lemkin1:09:12

       Well, I'll tell you, listen, for what it's worth, uh, this is, this is the whole... And what, sorry, what's your portfolio company called?

   24. HSHarry Stebbings1:09:18

       Peak.ai.

   25. JLJason Lemkin1:09:18

       Peak I love. It's an exception to the rule. I view the pro- what, what I... There is a category of snake oil AI, of which GEO is one of them, okay? And I'll tell you why it's snake oil, and it's gonna die in '26 or '27. I'll tell you why it's snake oil. Just, just bear with me, okay? So listen, SaaStr itself, we're multi- we're not as big as 20VC, but we're multi-channel. We have a lot going on. I get about 5 million to our blog, okay? About 5 million views a year from SEO, okay? Our traffic is up 50% this year and our SEO is down 8%, okay? So I've tried all the tools. I don't have time. I don't have a team like Harry's. My team is all agents now. Like, it's shrunk, okay? But I care enough about SEO that I'll try the tools, right? If, if I, if especially if it's self-serve. Nothing's frigging actionable. Nothing's act- nothing's usefu- useful to me. Now, when I was at Adobe and I would sit in these meetings and the marketers would come in and they'd be like, "Well, let me tell you how we did this year," week at Adobe. We had seven trillion impressions on Facebook. And like, when it was just, like, performative metrics, I get why everyone's gonna buy a GE tool, okay? I get why you can sell 50 million, 100 million of this, because you need to walk into the meeting and show what's going on. I cannot find a single thing that is actionable. Put more things on Reddit doesn't help me, okay? Uh, an AI tool to write content. I have 10,000 pieces of content. Your crappy AI content is not gonna... I'm not saying, and I know maybe I'm an extreme example, but I literally, I've tried all the tools that let me. I literally cannot find one thing that's actionable. I'll tell you the really bad sign with this category, okay, with AI. If you have to put in your credit card immediately. This is a bad sign. A terrible sign today. If your AI is good, okay, and you don't need FTEs and, like, a massive army, let me try, let me, give me a few credits, okay? Let me, uh, I f- what's the music one again? So- Sona?

   26. HSHarry Stebbings1:11:06

       S- Suno.

   27. JLJason Lemkin1:11:06

       We use it all at SaaStr, I forgot. So I went to use it again today. I forgot I use it. They gave me another 50 credits and I upgraded. But I did three songs for free. How come I can't GEO for free if it's so great?

   28. RORory O’Driscoll1:11:16

       I disagree on Ev-

   29. JLJason Lemkin1:11:17

       How come I can't GEO for free?

   30. RORory O’Driscoll1:11:18

       I disagree on every-
9. 1:18:30 – 1:27:26

   Figma Market Cap: Is the IPO Market F****** for 2026

   1. HSHarry Stebbings1:18:30

      Final one before we do a would you rather, Rory, 'cause I know you love that. Um, where do we wanna go? We've got Figma, obviously IPO price and where they are now. Oracle down 40%. Um, we can do Calshi's new round. Any preference there?

   2. JLJason Lemkin1:18:46

      We can talk about, Fi- Figma's definitely, maybe we should talk about it. I just feel like it's a Debbie Downer.

   3. HSHarry Stebbings1:18:51

      [laughs]

   4. JLJason Lemkin1:18:51

      I mean, it was like, I mean, it was, Figma IPO was so exciting, right? It was just, everyone was captivated by it, um, almost beyond what it deserved, right? Almost at a consumer level, almost at a Google or, or Facebook level. And to be a broken IPO, at least for a while, it just, it's just a bummer for, for, for, we ta- I, I know we talked about it a little bit last week, for just the feeling that liquidity was back and IPO was back. It's just a bummer. Maybe Bill Gurley thinks it's great because they got a good deal, but a s- a super active IPO market is great for everyone from VC down to founder. It's just a big plus.Having a meh IPO market is not gonna help any of us

   5. RORory O’Driscoll1:19:27

      I don't think it's meh. I mean, I think, look, I, I would argue that it goes back to what I said earlier, voting versus a weighing machine, right? The professionals all looked at the stock and said we should transact at thirty-five, which is roughly the same valuation Adobe offered two years ago, which totally makes sense. You generally bid forward a year or two in an M&A. And then all the retail madness took over, and it was worth- it was valued at a hundred and something. And now over time, yeah, the voting stops and the weighing begins, and now it's pretty much priced exactly what they thought it was worth six months ago. I would argue it, you know, in the end, the markets are efficient. And it's a great outcome. Lighten up, everybody. It's $17 billion, $18 billion market cap for an awesome company. Yeah, you're right. The process has been a bit of a Debbie Downer, to your point, Jason, but the intrinsic... Again, intrinsic valuation wins out in the end. Capitalism works.

   6. JLJason Lemkin1:20:16

      It is. It is a reminder, though, if you, if you turn down a deal, you better want it to go public because it's not just down from Adobe. You've got to take in dilution and time value of money, right? I tried to write it up on SaaStr. I think it's like 30% or 40% lower than Adobe deal adjusted for time dilution and risk, 30% to 40% lower. So you better... When you say no, you better... And granted, d- they didn't say no, [laughs] they said yes.

   7. RORory O’Driscoll1:20:39

      They said yes, and yes, and yes. Yeah.

   8. JLJason Lemkin1:20:41

      So, so who knows what the, what really, what really [laughs] is going through everybody's minds. But, but just, uh, you know, it's just, it's just, um, it's just, it's just tough to not be above that, that, that number. And, you know, we, we've already forgotten about Wiz. It seems like three generations ago, right? But we... And it seems, you know, it seems almost quaint compared to Cursor, but may- maybe it ends up being one of the greatest, you know, deals, smartest deals of all time, right? That's-

   9. RORory O’Driscoll1:21:07

      To be clear, you're talking about their, the Wiz decision to sell for $32 billion, which deal is still pending, but it's got US reg-

   10. JLJason Lemkin1:21:15

       Still pending, yeah

   11. RORory O’Driscoll1:21:15

       It's got US regulatory clearance now, unlike poor Figma, who didn't. Or in- indeed much worse, poor little iRobot's, uh, Roomba, who didn't get clearance and then pretty much went bankrupt because they couldn't sell their company. So yes, antitrust has had an invidious influence.

   12. JLJason Lemkin1:21:31

       It just would be nice if everyone could IPO next year that needs to IPO. And I'm not being facetious. It would be nice if the market was overheated, if it didn't quite make sense, if Figma was trading at twice its IPO price, and it could actually lift some folks that were a layer below Figma. You know, it would be nice if folks at two hundred growing 30% that are still in that second tier nominally, right, that we talked about right there, it'd be nice if they could calmly IPO next year with, with o- with over-demand IPOs, oversubscribed IPOs, and just free up liquidity in our portfolios. I'm not being facetious. It would be great if the, if, if we just had a little more froth in the market. It would be very helpful.

   13. RORory O’Driscoll1:22:07

       Do you think we are gonna see any opening of the IPO markets next year?

   14. JLJason Lemkin1:22:11

       I don't think we're gonna see it. I don't think we earned it this year. I don't think we earned it. I don't think, I don't think we have so many... Y- you're better than Figma. You're better than Netskope. It's a high bar.

   15. RORory O’Driscoll1:22:22

       In IPOs, it tends to be Pavlovian. People do things when the f- the last thing they did felt good. And Jason's right, is that these IPOs don't feel good, so it won't be easy to have more. Now, the way you make things easy is price. I mean, price is one way to make things easy. The other is the kind of companies that go public. So, you know, if the overall equity markets stay roughly okay, then there's lots of companies that can choose to go public if they want to because they're above the bar. The question is will they want to, and that's more a function of, you know, individual company decisions than whether they want to or not. But I'm with you, Jason. It would be great. A more wide open window would be good for many, on many different dimensions.

   16. JLJason Lemkin1:23:05

       I just feel like in venture, we're acting as if these liquidity windows are way open. Um, and I get challenged, but I don't see it. I don't see the IPO market way open. I don't see billion-dollar M&A deals from PE firms and everyone happening every week. The, the limited visibility I have on billion-dollar M&A in my portfolio or with friends, it's happening, but it's stressful. No one's sitting there just writing, throwing billion-dollar chips into the middle of the table because it's the age of AI, like in some ways they did in 2021, right? So it, it is, there is more stress in liquidity in the system than we think with these OpenAI and Stripe secondaries. I think there's... And it's just a bummer we didn't de-stress it this year, but that's our job. We, you know... I mean, we still have our fees. We still have our fees to get us through these rough patches, right? [laughs]

   17. RORory O’Driscoll1:23:48

       But I, I'm not gonna let that happen. No. I mean, look-

   18. JLJason Lemkin1:23:51

       [laughs]

   19. RORory O’Driscoll1:23:52

       I, I, I-

   20. JLJason Lemkin1:23:52

       We don't take fees

   21. RORory O’Driscoll1:23:53

       ... you know-

   22. JLJason Lemkin1:23:54

       We don't take fees

   23. RORory O’Driscoll1:23:54

       It's good. It's success only at 20VC, right?

   24. JLJason Lemkin1:23:57

       Yeah, yeah. We're, we're, we're-

   25. RORory O’Driscoll1:23:57

       It's, we're a zero thirty fund. We go big on the carry-

   26. JLJason Lemkin1:24:00

       Rory's the same

   27. RORory O’Driscoll1:24:00

       ... but there are no-

   28. JLJason Lemkin1:24:00

       Rory told, Rory told me they, they don't do fees either, so I just followed him

   29. RORory O’Driscoll1:24:03

       It seems dated, doesn't it?

   30. JLJason Lemkin1:24:05

       Yeah. Yeah, yeah. No fees.
10. 1:27:26 – 1:32:13

    Quick-Fire Round

    1. RORory O’Driscoll1:27:26

       in a tough place.

    2. HSHarry Stebbings1:27:27

       Okay, we're gonna do a quick fire.

    3. RORory O’Driscoll1:27:28

       Okay.

    4. HSHarry Stebbings1:27:29

       Rory, this is your favorite. Would you rather? Yeah? Okay.

    5. RORory O’Driscoll1:27:32

       Yeah.

    6. HSHarry Stebbings1:27:32

       Would you rather be in Wix or would you rather be in Lovable?

    7. RORory O’Driscoll1:27:36

       Um, from a vent- Uh, that's a, that's a good question.

    8. HSHarry Stebbings1:27:41

       This is from a make money perspective.

    9. RORory O’Driscoll1:27:43

       I'll go with Lovable at the margin. Um, you know, I, I, I, b- both companies are interesting. The, I don't have clarity on how Wix's Vibe code product does roll out across the rest of the organization. If I had clarity on that, I would take Wix all day every day, 'cause I think you can make a 4 or 5X that would be liquid, but I don't have a thesis on it. I mean, y- y- you cited my Intercom investment. I had a clear thesis there. I don't have it in Wix. If I spent the time, maybe I would. But in the absence of data, you know, it's, it's the presumed guilty, uh, presumed innocent. In the absence of data to the contrary, the prior is that the AI first company has the edge in terms of growth. So I'll go with Lovable at the margin, but I'm a bit nervous at 6 billion, just to be clear. A bit.

    10. JLJason Lemkin1:28:29

        Well, my... So listen, I watched your interview with the Base44 guy. He's pretty good. I mean, we knew he was good, right?

    11. RORory O’Driscoll1:28:34

        Did you think it was good?

    12. JLJason Lemkin1:28:35

        Yeah, he's pretty good. Yeah. I m- I feel like I know this space pretty well now. Listen, of course he's a founder. He, I mean, he should know all this stuff, but his fluidity in the space and his knowledge of where it's gonna go and how to play it, like pretty impressive. So here is my question, Harry, to you. And, and, and is he gonna stay? If he's gonna stay for, 'cause it feel, felt like he's gonna stay, okay? But if he's really gonna stay 24 months, I'm going Wix, just on financial engineering. Nothing against Lovable. If he's gonna stay. If he's gonna leave, I'm putting my money in Lovable if I have to pick. But he's gonna stay on the bat.

    13. RORory O’Driscoll1:29:04

        Unwa- unwavering that May all will stay?

    14. JLJason Lemkin1:29:07

        Yeah, so I'm not sure I'm gonna do it. But if you promise me he'll stay for 24 months, I'll, I'll go in on... Because that arbitrage to that second bucket is so palpable, but he's gotta stay.

    15. RORory O’Driscoll1:29:16

        Yeah.

    16. JLJason Lemkin1:29:17

        He's really good. I didn't know when they bought it. I've used, I've used Base44, but he's, he's, he's-

    17. RORory O’Driscoll1:29:21

        Yeah

    18. JLJason Lemkin1:29:22

        ... he's S tier. S tier.

    19. RORory O’Driscoll1:29:23

        I- i- if I was on his comp committee, I've done this with some of my existing companies, I would have that guy on an accelerated equity grant program based on upsell of the new AI product across the existing customer base that would make him wildly wealthy. Double or treble his already hit if he got that penetration up to 20%. And if he's as good as you say, that's, 'cause that's the mission here. If you can get penetration of this product up to 20%, you go in a, you go and, you probably jump two buckets, Jason. You probably jump to the 25 bucket.

    20. JLJason Lemkin1:29:53

        Yeah. The problem is he could probably raise it a billion now on a new startup. That's the problem. So you gotta compete with that. Now, that's not liquid, right? But how do you, if you're running Wix, how do you compete with the fact that, I mean, listen, he, he, in a sense, he sold really cheap, right? Looking back on it. At the time, it seemed like a, in internet time, at the internet time, it seemed like a fair deal, right?

    21. HSHarry Stebbings1:30:11

        It, it di- it did. The only thing I'll say, and I'm not sharing anything 'cause I don't know anything.

    22. JLJason Lemkin1:30:15

        Yeah.

    23. HSHarry Stebbings1:30:15

        I do know from him directly that there is a variable package.

    24. JLJason Lemkin1:30:19

        Yeah.

    25. HSHarry Stebbings1:30:19

        And so he unwaveringly has upside if he hits metrics that are not-

    26. JLJason Lemkin1:30:23

        But instead of starting over, in the old days, like 24 months ago, a guy like him would start over, and instead of raising it 10 pre, he'd raise it 50 pre for his next company or 60. Now he can raise it a billion pre for his next startup, and I'm not saying it's liquid, but it's, it, it's a siren call for an aggre-

    27. RORory O’Driscoll1:30:38

        You know-

    28. JLJason Lemkin1:30:38

        He's aggressive. A billion? Yeah, and they'll, we'll give you 150 to start from Andreessen. [laughs]

    29. RORory O’Driscoll1:30:44

        Keep going. I've got one minute.

    30. JLJason Lemkin1:30:46

        It's a tough one to say no to if you're ambitious. It's a tough one to say no to. 100, 150 million to start Base45.

Episode duration: 1:32:23