Anthropic Raises $45B but Falls Short on Compute & Thoma Bravo Hand Back Medallia Keys to Creditors

1. 0:00 – 1:28

   Intro

   1. RORory O’Driscoll0:00

      It's entirely plausible that 10 super big exits cover the entire nut from the LP perspective, such that it's still a good business.

   2. HSHarry Stebbings0:07

      So what's on the agenda this week? $45 billion poured into Anthropic from the hyperscalers. Next, China blocks Meta's $2 billion acquisition of Manus. And then finally, Thoma Bravo hands over the keys to Medallia to creditors. 5.1 billion of equity wiped out. What is the future of this stage of private equity?

   3. JLJason Lemkin0:29

      It's a whole new world where I think OpenAI is even more competitive again.

   4. RORory O’Driscoll0:32

      The dirty little secret of venture, again, is how much of your money you make in that one year in 10 when everybody buys the dream.

   5. JLJason Lemkin0:38

      More and more the agent is going to choose what models and just what vendors we use. It's possible you look back and see that as the first disconnect from compute equals revenue.

   6. RORory O’Driscoll0:46

      They didn't way over-lever it, they just way overpaid for it. You can't service 2 billion-plus of debt on a one billion low-growth company with a pre-AI story that has to transform to AI.

   7. HSHarry Stebbings0:56

      [clicks tongue] Ready to go? [upbeat music] Boys, we are back. It is another week of Harry asks questions, Rory continuously puts them down as being terribly phrased and useless, and then Jason provides the actual wisdom and value. But, uh [laughs] -

   8. RORory O’Driscoll1:20

      Rory's turning on me.

   9. HSHarry Stebbings1:21

      [laughs] Don't worry, Rory, I, I love you, dude. [laughs] Sorry. Feeling spicy. I just came from an LP meeting. Um,

2. 1:28 – 7:20

   OpenAI Misses Growth Targets: Is This a Real Problem?

   1. HSHarry Stebbings1:28

      I wanted to start with, uh, OpenAI missing numbers, specifically across user growth and revenues were the two obviously matched its missed numbers on. It's led to CoreWeave dropping and Oracle dropping, I think 5 and 7% respectively. Is this being made too big a deal of, or is this justified in terms of the response that we're seeing? How do we analyze this?

   2. RORory O’Driscoll1:51

      It feels a little overdone and a little over late, in the sense of it feels like, you know, overdone in the sense of it accurately reflects what happened last year, which is, you know, if you take a... zoom out, if you think of the two big-picture jobs here, you know, you got two jobs when you run on... You gotta build great models, and you gotta buy enough compute to be able to run them, right? And there's no doubt in the back half of last year, OpenAI failed at the first part of that job. They didn't build great models, and as a result, their traction relative to, uh, Anthropic's declined markedly. Their market share declined markedly, right? And that's probably the shoe that's dropping now. If you look at the model that they ship with, I think a 5.5, reviews of the coding say it's pretty damn good and arguably better than the current Anthropic model. So I think to some extent this is a, this is a drop- this is a late-dropping shoe on facts that were probably knowable three, four months ago if you were paying attention to the traction. And the funny thing is, in the super-connected Twitter AI universe, in fact Anthropic is the guy that's getting the slamming right now. There's a whole bunch of, "Oh, Claude can't keep up, can't support the users, and the current Codex model is better." So this feels a little like old news that maybe is news to The Wall Street Journal, but probably isn't news to anyone paying more attention.

   3. JLJason Lemkin3:11

      This is ba- look- looking backwards, right? This is looking backwards a lens, uh, into last year, and, um, it confirms what we knew, right? Anthropic, obviously the, the, the rate of growth was incredible, and some of that was market share, right? It wasn't all AI, some of it was market share, and it stole market share. And, uh, Elon was clear about this, that Anthropic had, quote, "something special in coding," which underestimates how much of the overall growth in the market coding was, right? Um, and, uh, I think OpenAI acknowledged it by double-coding red and sh- and getting Codex better. I would... I have just two thoughts. One, as crazy as it sounds, I think this is also yesterday's war. But I think going forward we're gonna... it... more and more the agent is going to choose what models and just what vendors we use. Do we use, do we use Canva or do we use native, uh, AI-based, uh, generation tools like Fall? And the agents are gonna choose which LLM we use, okay? And, uh, just like everyone from Dario down has said there's gonna be more and more agents doing coding, the agents are gonna make the decision on everything. And I would say as a consumer of LLM, forget about coding, which is the number one by, by dollars, right? As workflows expand to do everything, as agents do more, they will pick the LLM, and I see no competitive advantage to Claude for most workflows. It is so good. OpenAI, uh, whether it's Codex, Phi-3 was just state-of-the-art of the models. It's so good for my workflows that I think the advantage that humans get out of Claude and Claude Code, which is huge, right? This was a story last year. Humans shipping code, shipping products, build- Like, we got an advantage. We were- We got more superpowers from Claude and Claude Code. I'm not sure our agents are gonna get the same advantages. They may get just as many advantages from OpenAI, and I already see that with our agents, our AI VP of Marketing, AI VP of Customer Success, our applications. They're font- They love, they love OpenAI. They love it. So I think this is another benefit that is ephemeral as agents take over more and more of the workflows of our lives. And we're gonna look back at last year as this transition era where most workflows were managed by humans, and 20- late 2026 into 2027 is most workflows are gonna be managed by AI Agents. Not AI, agents working autonomously. Not crazy open claws blowing up our Mac Minis, but running everything. And I think this is, this is where OpenAI is very well-positioned. The agents will pick what they want, and it's not about what makes humans better. And our agents like OpenAI, and that's why I'm on... One of the many reasons I've come back to Team Sam and Team OpenAI is not because I care, because my agents like OpenAI. [laughs] They like the API. They love it, so I, I gotta follow my agents. Just like you gotta back your team of humans in the old days, like 2024, today I have to back my team of agents. If they pick OpenAI, I'm [laughs] I gotta be on the team. [laughs] I'm not exaggerating. It's a radical change that we're... Most folks are just, are just in the, still in the human-led AI world they're not seeing yet

   4. RORory O’Driscoll6:06

      I mean, congrat- w- we're off-piste already, but I'm going with it. I'm gonna paraphrase, and then I'll have two questions. What you're basically saying is, in a world where agents pick the models, you don't have this human anchoring bias for my favorite agent, and thus it becomes more of a every day is a new day kind of market, right?

   5. JLJason Lemkin6:23

      Yeah.

   6. RORory O’Driscoll6:23

      What that means is-

   7. JLJason Lemkin6:24

      They have very different perspectives on what vendors to pick

   8. RORory O’Driscoll6:26

      ... Yeah, agreed, and presumably have better perspective. So the interesting thing about that, so ob- the obvious question, what does that mean for the large AI companies? And so I have a couple of questions.

   9. JLJason Lemkin6:35

      Yeah.

   10. RORory O’Driscoll6:35

       One is, if the choice is between... So if the choice is between OpenAI, Claude, and Gemini, then it's still a nice cozy little oligopoly. To get in the game where you can be chosen by an agent between it, do you still think it's just the state-of-the-art foundation models who are gonna be relevant here?

   11. JLJason Lemkin6:53

       Well, listen, I think it will change. It's fun. Over, over the weekend, um, my 99-6 project was I built an, an agentic API grader, where we w- I just had Claude, OpenAI, and Gemini together take the top 120 APIs and grade which ones they thought were the best, which tools they thought. ElevenLabs, um, everything on down. Interestingly, Stripe got the highest grade. It got the only A+, uh, which is, which is a reason to go long on Stripe. I did not think Stripe would come out on the top.

3. 7:20 – 18:45

   The Rise of AI Agents: Why Humans No Longer Pick Models

   1. JLJason Lemkin7:20

      My Captain Obvious learning, and you'll see, see the same thing if you just ask Claude what to use, very biased toward the leaders. Now, they, now, very biased toward momentum. They're not gonna recommend Marketo for your agent to do marketing automation, okay? In fact, it mocked Marketo, Outreach, and SalesLoft as tools useless to agents, okay, this API grader. They said there is no place in the... An agent will never send an email through Outreach, SalesLoft, or Marketo because it will just craft and send a better email itself and said these are worthless products in the age of agents. Um, but they are very... If you had to do a two by two, they want market leaders that are, that are innovative. That's who the agents pick. So I think for now, a three by three is Gemini, OpenAI, and Anthropic, right? In fact, the order is Anthropic, Open... And so the grader, it graded Anthropic just above OpenAI, and then Gemini was just down here. So it, it wa- it was interesting. That's what all of them wanted to pick, and I think that's, uh, that's the world we're going into. And, and the old guard are gonna be bypassed or, or, or, or useless. So that's why to, to your point, I think this is an interesting story, but it's a whole new story in- as the agents pick. It's a whole new world where I think OpenAI is even more competitive again.

   2. RORory O’Driscoll8:25

      So let's go with that. So, so my mental model remains it's a three-way oligopoly, just like cloud is a three-way oligopoly with, you know, Google Cloud, Amazon, and Azure, right? What you're saying here is... Which is fine. Got it. And then the other question that I'd be curious to get your thoughts on is, you know, when OpenAI just announced that agent product, it seems to me if I was... If you're running one of the foundation model companies, and, and Jason's world is the world you agree is gonna happen, then you just make damn sure that you build the agent harness such that, you know, so that the device picking the agents is your device, or the agent picking the models is your device.

   3. JLJason Lemkin8:58

      Under-discussed. The public markets have the right idea but the wrong direction. The public markets think vibe coding and Claude are their threat. No, the threat is what the agents pick. And actually, if you look at overall, the markets are, are, they almost get it right. They're worried about Atlassian and Monday because agents don't need project management tools. They have no use for them, okay? And the ones that are actually have outperformed, right, the Twilios, the Cloudflares and others, the agents still have use for it. So our whole narrative, the public market somehow saw the future that most, uh, podcasts couldn't see, which is wh- what matters is what the agents will pick. And to your point, this is why the agent wars, I mean, Marc Benioff gets it even more. This is why Sam Altman, they're all... Like, you gotta win the agent wars because if, if OpenAI wins the agent wars, then you have lock-in. Then the OpenAI will probably pick OpenAI [laughs] as the API and the L... Now, maybe, maybe they will evolve where they're actually agnostic at some level, right? Where, where, where these agents are so successful they have to pick the best of breed. One could imagine it. But there's s- you gotta own the agentic layer. Not just the fabric, but you gotta own the agents too because they're gonna make these decisions.

   4. HSHarry Stebbings10:05

      Do we place no value then on large multi-year enterprise deals, a la ServiceNow, a la... We had, you know, Mike from Atlassian on who talked about the increased rate of multi-year enterprise deals that are very large. Do they just not have value because we're gonna see the eradication-

   5. JLJason Lemkin10:19

      They just mask decay. Churn, churn that is, churn that is deferred still exists, and it is, it is where the rent-a-CEO and the mediocre hide. Okay? Workday does three-year contracts up front and five-year renewals, so the average Workday customer effectively signs up for an eight-year contract. Three and five is their standard term, okay? Does that mean they, they're, they're gonna stay on Workday forever? No. That means they have eight years to find better agentic solutions. Now may- now maybe the executives are all gone by the time that, that comes up. But I, I don't believe there's... If you b- if you believe that public values, Rory's better at this than me. If you believe that public stock prices are the sum of terminal values of cash flows and profits, then deferring churn, masking churn, it doesn't matter. It doesn't help if you defer it four years because if it co- if it dies, if the co- customer dies anyway, at the end you never have it because it falls off your ARR rolls.

   6. RORory O’Driscoll11:09

      I'm not sure it's extreme in the sense. I can envision a world where even eight years from now you don't churn off your, um, SaaS system of record, but you're not growing. So interestingly, and, and again, I didn't expect to be in this-

   7. JLJason Lemkin11:21

      You're not buying more, right?

   8. RORory O’Driscoll11:22

      But hang on, Jason, I'm gonna agree with you on something. It was interesting 'cause you ha- we're gonna discuss ServiceNow at some point in time, right? Which, you know, grew 20% plus or minus. Very negative mark- market reaction. And if you listen to the analyst call, this will make you very happy, Jason, a lot of the really dr- drilly, kind of grindy questions were, "Is your AI agent revenue really real? Are you just bundling it? Is it growing fast enough?" Right? In other words, basically saying, "I buy into," let's call it, Jason, the narrative you articulated, which is if all you are is a system of record for humans, you are a bounded cash... Even if you're not a negative NPV, and I think some companies will be, we'll talk about that later, but even if you're not a negative NPV, you're a slow growth at best NPV terminal value, and the only way to get the high price that you need to make these stocks compelling is to haveYeah, agent-based activity on your platform. And it was just super interesting. You know, we had that talk a few weeks ago where I... You, you kind of gave me clarity on that, that, that you need to see agent acceleration. And then it was funny to look at the, the call and the... You know, this is a company, I, I should know the numbers, doing 16, 20 billion, and they're grinding the CEO about a half a billion to a billion dollars worth of agent revenue, 'cause what they've recognized is that's the tell for the future, right? And I'm willing to bet in a quarter or two, someone's gonna be asking Benioff for how many calls to your agent, your headless API did you get? How do you measure that? How do you measure value, and that kind of stuff. This is the way it's going. So you are right.

   9. JLJason Lemkin12:54

      I think it's con- Like, let's take for ex- I think Canva's gonna have a wildly successful IPO, and they just launched their, their agentic suite, okay? And it's got a lot of great agentic products in it. You can, you can vibe images, you can vibe m- you can vibe everything. Like, it's actually very, very good, this Canva 2... I think it's called Canva 2.0. It, it's great. And, and if it had come out last year, like, it might even be the default that, that we use instead of startups, okay? And it's so, so no question, it's... Canva 2.0 is great. Is it, is it the best? It's definitely better than Make. No, I mean, [laughs] it's great. It's, it's great, okay? But ask yourself a question, would an AI agent use it? No. An AI agent is go- not going to go in and move assets around, vibe them and inter- It's just going to create the assets. So an agent doesn't need Canva. This is the meta-threat that, uh, uh, the, the stock prices reflect, but the narrative misses, right? This, the, the n- Canva got the t- C- Canva, maybe in 2026, built the right 2025 product, but will agents bypa- I don't think any chance an agent is going to use Canva, and I don't think any, there's any chance an agent is gonna use Jira or Confluence unless it's forced to. Like, it has no v- it has no need for these products.

   10. HSHarry Stebbings14:00

       Can you help me understand? I love Cliff. He's been a guest on the show.

   11. JLJason Lemkin14:03

       Yeah. He's the best.

   12. HSHarry Stebbings14:03

       He's a really good friend of mine. If he's going out in '28, which I think is a realistic timeline for when he would want to go out, and you just said he will have a successful IPO, but agents would never use it-

   13. JLJason Lemkin14:16

       Yeah

   14. HSHarry Stebbings14:17

       ... can you-

   15. JLJason Lemkin14:18

       I don't know when it crosses over at the low end at consumer versus enterprise. I actually think this is one area where the enterprise crosses over ahead of consumer, because we wanna automate these workflows as soon as we can, right? I don't know the answer. I don't know if the average low-end B2C user who gets so much value from Canva is gonna make themselves obsolete with an agent. [laughs] They're gonna still be design- They're gonna pay 18 bucks a month getting incredible value out of Canva. So they may be... It, it may take time because we... N- none of us really wanna replace ourselves with agents, right? It's our team. So the more people you have on your team, the more you're gonna deploy more, more agents to replace them. The, the more you're just yourself, a solopreneur, the more you're gonna use AI tools, but not agents to replace you. Agents to enhance you. So, I, listen, I don't know the answer to your question, but I think this is, this is going to harm enterprise workflows beho- before it hits the sort of prosumer market.

   16. RORory O’Driscoll15:13

       I think there's a lot in that, and I wanna just kind of put a bookmark on it, 'cause I think it was actually very helpful. What it means, Harry, if you take it to three categories for software companies, you know, eroding terminal value, melting iceberg, you're in trouble, you have a low stock price, we'll talk about it later, and if you've leveraged, you're dead, right? Then the middle category is system of record. They're gonna keep you forever, but no activ- but not a ton of agentic activity on top, right? You're gonna be worth something. You, you know, there is a positive terminal value, it's calculatable, and there's a price at which you should buy the stock. And then the, the happy outcome is the agents are using you and you're getting increasing returns as you, you know, uh, f- from AI leveraging your technology. So that, if you put those three buckets, I think what Jason... You're right in saying, Jason, in those three buckets, successful enterprise software companies can easily get to that top bucket, because you're right, companies wanna automate, 'cause it's called taking costs out, and it's called, you know, making yourself more efficient, right? So successful, successful SaaS companies in the enterprise that adapt to this reality can probably reignite growth. Obviously, unsuccessful ones will fail, right? That's what you're saying. With what you're saying about Canva, and I don't, I don't have a feel- I don't, I'm not a design person, I don't have a feel for it. I like the team, but I don't, I'm not a designer. I have zero creativity. I think, but I think you could be right, which is, is that individual user, small user, they wanna have AI tools, but they don't need to create a whole AI automated workflow, 'cause they're just not doing enough to matter, right? So intuitively what that says is they end up in that middle bucket, where I think now bringing it back to the IPO, I think you're... The point is, they have the scale and the profitability to be an IPO. This company is gonna do great. The problem is, as we've discussed before, so much of venture is about the pixie dust upside, and any IPO without pixie dust upside just gets priced like a real company. And it's always a bummer for venture people when their company gets priced like a real company, 'cause it's just so much easier to make money when you get pixie dust credit, right? And the truth is, SaaS pixie dust credit expired in 2025.

   17. JLJason Lemkin17:17

       Yeah, yeah. You gotta be... It'll be the... You know, we talked about Rippling growing 70 some odd percent at a billion, right? Th- this should be, if this were an AI play, the, it would be a jaw-dropper, right? AI. Will, will it trade at a SaaS discount? I sure hope not. [laughs] I wanna watch-

   18. RORory O’Driscoll17:30

       No, no, no, it, no, it'll trade... Uh, uh, see, I don't like the, the second half, 'cause I actually think it's, I think Rippling's a great story, is that, and I know you do too, but it's like, it's going to trade on a sensible, adjusted PE multiple based on growth, based on cash flows, entirely rationally in a way that any value investor could buy it. Which by definition means it won't trade like SpaceX, which is gonna trade hopes, dreams, and prayers, right? And the dirty little secret of venture, again, is how much of your money you make in that one year in 10 when everybody buys the dream. So you're right. I think it's gonna tr- Like, it's a great outcome. It's, and so it's not gonna trade... I, I don't think it'll SaaS discount as much as I think it's gonna trade at fair value. I mean, maybe that's a way to state it even starker. A lot of venture capital makes money when their assets don't trade at fair value, they trade at a narrative premium to fair value, and in those one year in 10, when you make 30 to 40% of your total [laughs] cash back, y- you get an unexpected gift, right? Yeah. Good SaaS companies that aren't AI first are going to trade at-Fair value, which means if you've created value, you'll get value, and I think Canva and Rippling have both created enormous value, so they'll get value. But what they won't get is that stupid 30 times revenue premium, that looking back, you might have got in 2021.

4. 18:45 – 27:11

   $45B Floods into Anthropic from Google & Amazon

   1. HSHarry Stebbings18:45

      We started this conversation on OpenAI missing numbers.

   2. RORory O’Driscoll18:48

      Yeah.

   3. HSHarry Stebbings18:48

      Switching to Anthropic, you had Google committing up to $40 billion, $10 billion in cash now, $350 billion, uh-

   4. RORory O’Driscoll18:56

      Yeah

   5. HSHarry Stebbings18:56

      ... sorry, at $350 billion, and then $30 [billion] based on performance milestones, and then Amazon adding up, adding another $5 billion, uh, to the round. This was kind of the latest fundraising news from Anthropic. How did we analyze this? And is the ultimate loser here, when I read this, not NVIDIA? You're training on Trainium and TPUs and getting closer there, but no NVIDIA.

   6. RORory O’Driscoll19:20

      I mean, there's just such a lot to disentangle. M- let's, let's put a pin in NVIDIA for a sec and go back to the big picture on what do the deals mean. And I've been thinking a lot about this, is that, remember I said earlier, right, you have two jobs when you're running an enterprise foundation model, leaving aside the consumer business. You have to build amazing models, and you have to buy enough compute to make sure they can run them at the demand you can, at, at the demand you see. And both jobs are incredibly hard. And the funny thing is, right now, OpenAI got one job right, they have enough compute, and they got the model wrong. So that's why they're in trouble. And Anthropic did it the exact opposite way, right? They got the model perfect. In fact, they may have over-succeeded, and as a result of that, they're light on compute, right? So that's what's big picture going on. And Amazon, um, sorry, Am- Anthropic are massively constrained on compute, which is why they're doing these big deals. And Dario has articulated in the past, you know, "I'm a little careful about this, and this is a... And, you know, let's get real. No one had a business plan last year when they went from one to nine that said they're gonna go to 30 by the end of Q1," right? So they were, they were hit by their own success, right? So that's kind of what happened. And, and, and the bigger picture, going back to the two big jobs is, and I just internalized this, how incredibly hard and risky the second job, the buying compute job is, and how capital-intensive this is. I don't think we internalize it, right? I was thinking about it. If you're at a $10 billion run rate right now, in o- which is roughly Anthropic end of last year, right? And you're looking forward two years, and you think you're gonna go 5X this year and maybe 4X next year, not crazy, which means you're gonna be... Which is 20 times, so that's $200 billion two years from now, right? So let's run a... Let's say $100 billion two years from now, right? So whatever c- you have today capacity to serve $10 billion, you run that model and you say, "Now I need capacity to reserve, to serve two years from now 10 times that amount," which is $100 billion. I need $90 billion of new capacity, right? And the capital intensity for every dollar of run rate revenue, it probably takes four or five dollars of CapEx to support that, right? So if you're gonna add $90 billion in revenue capacity, someone between you and your partners has to find plus or minus $300 billion to buy chips, dig holes in the ground, build data centers, and make it all happen, right? And it's easy to lose sight of that. How... Think about how capital-intensive that is. You're doing $10 billion in run rate, and you're effectively saying between you and your partners, to be able to meet demand two years from now, you've got to invest $300 billion. Not all yourself, some of it through your partners. But think how... And by the way, if you get it wrong and you end up doing $200 billion in run rate revenue, you're gonna only have half the compute you need. You're gonna look like an idiot. And if you get it wrong and you only get to $50 billion in revenue two years from now, you're gonna be left with $150 billion of stranded capacity. That, I mean, w- we lose... 'Cause in software land, it was so easy. If you sold more, you made more money. You didn't have to spend a lot to make that happen. At worst, you had to hire some reps. Microsoft had to hire no one when they exploded in revenue. They just shipped more PCs. More PCs ship, and they got their, like, 20 bucks per PC. In this case, two years before you get the revenue, you have to bet four times that amount on CapEx, right? So my big aha from this is h- it's obvious when you say it, but how incredibly risky this bet is. And you know, it's, it's no accident that if you look at the two CEOs, who is gonna take the risk to the upside and just spend the money and just, you know, devil take the consequences? It's gonna be Sam, so he has lots of compute. And who's the more careful guy and might underspend? It's Dario, right? And I don't blame either of them in the sense of the, the, the sums involved, it's not just the abs- it's not just that the business is capital-intensive, that there's $4 of CapEx for every one X of revenue, but it's also 10X-ing in growth. Yet the combination means you have to bet four, five, eight times your current run rate revenue in CapEx just to meet demand. And you gotta do that every year. Have a, you know... So I'm sitting here going, all these stories are when Anthropic screwed up 'cause they don't have enough compute. Dude, if you can predict two years out what the demand is, let me tell you, there's a... You, you can join Leopold in a special situation, you know, in the situational awareness training game, right? It's really hard. And betting this kind of... So, so that's my big aha, which is the com- it's the compute intensity means the capital intensity, and the growth means the, the, the, the spread and the risk of that capital-intensive bet is just huge.

   7. JLJason Lemkin24:01

      Yeah, I don't think it's a huge deal, but if, if OpenAI really missed last year, and I think some of it's definitional what the miss is, right? We're reading an information report. And I, again, I don't think this is a huge deal. But, but it's possible you look back and see that as the first disconnect from compute equals revenue, right? Because the, the risk mitigation, to Rory's point, is as stressful as this is, all the spend, if Sam's right that, that really compute equals revenue one-to-one, if there's a perfect correlation, then it all kind of works out in the end, assuming that capital is available. I- if, if, if that breaks for any reason, right, then it just adds a level of risk to the model, uh, that's even higher. And I'm not saying that happened for sure, but superficially it seemed to have happened.

   8. RORory O’Driscoll24:42

      But it did.

   9. JLJason Lemkin24:42

      Right? Superficially.

   10. RORory O’Driscoll24:43

       It did. You, exactly what... I mean, I think it's a fucking stupid statement by Sam, right? It's, it's correlation... It, it implies correlation, um, causation. It's just correlation. Let, let's rephrase that statement, 'cause the Altman statement is compute equals revenue. Not true. I mean, I can tell you what is true. No compute equals no revenue.But compute and a shitty model also equals no revenue. See Groq for details, right? The truth is, to succeed, you need to have enough compute to meet demand and a good enough model to generate demand, right? And you gotta do both of them in sync. It's a... You know, it's hard. So I agree. The correlation arg- everyone was making that correlation argument, uh, sorry, causation argument that, you know, compute equals revenue only because what they weren't... Because while they were making that argument, the, the, the demand seemed almost infinite, but the minute you model underperforms a little bit, it's not quite infinite anymore. Now, I think the good news is, if aggregate demand is going up 5, 10x per year, I think these air pockets are just gonna be air pockets for both sides, right? I mean, I think, 'cause zooming out, Jason, give a... The big-picture comment is agents... I mean, what do you think? How many more tokens does your agent use per day than you did, Jason?

   11. JLJason Lemkin25:54

       Our Salesforce bill went up from $12,000 to $22,000 a year, and our seats went down from 10 to, to, to two plus one. So there's your math.

   12. RORory O’Driscoll26:02

       Well, what about your token? I'm, I'm, I'm actually interested-

   13. JLJason Lemkin26:04

       I don't know the amount of... But it, it's, it's, it's derivative of, of it. It's like, it's like your data center number, like dramatically up. They're using dramatically more tokens.

   14. RORory O’Driscoll26:11

       That's my point. I think they're using-

   15. JLJason Lemkin26:12

       Yeah

   16. RORory O’Driscoll26:12

       ... literally, I, I saw a number like it's 50 to 100 times more expensive in terms of tokens to serve an agent than a Jason. Actually, than a... Probably 10 times than a Jason, 100 times than a Rory, 'cause I'm not a... You know, you're pound for-

   17. JLJason Lemkin26:24

       Well, it's because it runs constantly-

   18. RORory O’Driscoll26:26

       Exactly

   19. JLJason Lemkin26:26

       ... if you let it. If you let it, right?

   20. RORory O’Driscoll26:28

       So, so the good news, and that's why y- you don't wanna get caught, lost into who's winning, who's losing on a kinda weekly, monthly basis. The good news, and the reason these guys can all take these risks is, in the short term, J- the compute equals revenue is not always true if your model's not there. But the big-picture trend is, over the next, as agents kick off, the demand for compute over the medium term will be there. So i- it makes sense to lean in, but you should also accept you're leaning into a thing where there's gonna be wide short-term swings. There's probably gonna be six months period where you're like, "I'm an idiot, I don't have enough demand." And then six months later, "I'm an idiot, I don't have enough compute." And it's just gonna be the journey.

   21. HSHarry Stebbings27:10

       I'm an idiot.

5. 27:11 – 30:55

   "Compute ≠ Revenue": The First Crack in the AI Business Model

   1. HSHarry Stebbings27:11

      What's easier to rectify? Is it easier to resell excess compute that you have, or is it easier to emergency buy compute that you don't?

   2. RORory O’Driscoll27:19

      It sounds like it sh- Again, hadn't thought of it, but the problem is if you're one of the two big guys, you are so much... What are you gonna do? Can imagine it. You OpenAI, you have ex- you have a gig of excess compute, Anthropic is desperate for compute, the hell, you sell it to them. [laughs]

   3. JLJason Lemkin27:36

      You might.

   4. HSHarry Stebbings27:37

      "Hi, Dario."

   5. RORory O’Driscoll27:37

      You might.

   6. HSHarry Stebbings27:38

      "You wanna buy it?" "Oh, sure."

   7. JLJason Lemkin27:39

      I mean-

   8. HSHarry Stebbings27:39

      "Sure"

   9. JLJason Lemkin27:39

      ... it sounds crazy, but, like, Samsung would build phones and then sell its components to all its direct competitors, right?

   10. RORory O’Driscoll27:44

       Totally. That's fair.

   11. JLJason Lemkin27:46

       I mean, you, you get zen about it at some point. We're gonna have two divisions. We're gonna have our compute division and our application divisions, and they've got their own P&Ls and, um-

   12. RORory O’Driscoll27:54

       What's more like... Remember, you don't have the... The truth is, you actually have the compute under long-term contract, but Amazon, Google, Microsoft, CoreWeave, or Oracle will actually, quote, "have the compute." So maybe the way to phrase it is, if comp- if foundation model company A can't take their take or pay, the hyperscalers will probably take that compute to foundation model company two and say, "Hey, guys, I got some cheap short-term compute." It's like a sublet. Yeah, just a $10 billion sublet. So yeah, there will be some kind of market, I mean, a- as one is ahead and behi- I mean, what we're seeing de facto is that's happening right now at a kind of macro... Remember that whole CoreWeave, the, the one, the reallocating a data center from company A to company B, that's this going on in real time, right? People are trying to figure out, you know... Again, remember that, that, that, that forecasting problem I articulated. On top of that, there's a two-year lead time. So it's not like you're forecasting next month's demand. You have to forecast two years out, bet 10 times your revenue on CapEx and hope you're right. It makes l- running an airplane comp- an airline look easy.

   13. JLJason Lemkin28:59

       And, and it benefits Google. It benefits Google too.

   14. RORory O’Driscoll29:02

       Yeah.

   15. JLJason Lemkin29:02

       Google's the big winner here.

   16. HSHarry Stebbings29:04

       Why?

   17. JLJason Lemkin29:05

       Well, first of all, now, now Anthropic's deeply tied to them, right? So Google wins whether you use Gemini or whether you use Anthropic now, right?

   18. RORory O’Driscoll29:13

       We should come back to that.

   19. JLJason Lemkin29:14

       Um, two, Google has infinite capacity because they're, they're the largest supp- provider of traditional web software. So they have in- all this capacity for themselves that they can allocate even better than Microsoft. Do I wanna give it to my own compute? Do I wanna give it to, to Anthropic? Do I wanna give it to them? They have the surplus, to Rory's point, to your point, Harry, that they can route between their customers and themselves and others. They, they win-win here. They have Gemini, they have Amazon, and they have the capacity, and they have the ability to rotate it where, where, where, when they want. Um, and they have the cash flow. They have the cash flow to manage it all. So Google win, win, win.

   20. RORory O’Driscoll29:48

       They definitely have won. And to stick with the more ways to win comment and, uh, we forgot Harry's original question on Nvidia. Yeah, the last shoe to drop here is both Amazon and Google have chip products they can bundle into the equation. And for context, you know, chip, you know, is... GPU spend is roughly 50, 55% of total CapEx on any build-out. So if you're building out a one gig data center and, you know, estimate range, $30, $40 billion, $20 billion of that is compute. And Nvidia's gross margins are 70%, which means $14 billion of that per gig is raw profit to Nvidia. So if you're sitting there... Now, uh, you know, you're tr- You know, that's one of the, what Google and Amazon are trying to do, which is substitute that for their chips. Now, Jensen will make the argument, as he did on the podcast, "Dude, it's a mistake. Our, our chips are better. They have more support." And y- you gotta be in the weeds on that to know the exact answer, especially for specialized use, like Google and Amazon

6. 30:55 – 34:59

   Why Google May Be the Biggest Winner in AI Infrastructure

   1. RORory O’Driscoll30:55

      would say that the Nvidia advantages aren't as good on specialist use, but I wonder myself. But nonetheless, that is what's happening, which is some attempt to bundle. Neither of those two chips, the Google chip or the Amazon chip, are widely availableOn a standalone basis. So what both of the hyperscalers are doing is effectively bundling their chip with their capital and their equity investment to convince Anthropic to continue to run on their products and just take more of the gross margin, arguably with, as Nvidia would say, a substandard product. But, you know, tech is... There's many examples in tech of substandard bundling products succeeding. See Microsoft for details.

   2. HSHarry Stebbings31:36

      Mini quick-fire round. Google hit $4 trillion. Nvidia's a $5 trillion company. For maximum value gain on a per dollar basis, which one would you invest in today?

   3. RORory O’Driscoll31:47

      Okay, not the question I was expecting. And I would, I would probably rel- I mean, for maximum dollar, it's a, it, it, I mean, maximum dollar gain? The, I, it's a bad question, Ha- I'm not, I'm not doing my thing again. I think risk-adjusted, I would do Google, reluctantly, because it's... I think if you just wanted the upside, you know, you can paint an Nvidia is, is a more s- single-threaded story around raw CapEx demand. But I think risk-adjusted, you probably would do Google, 'cause ev- to, to Jason's point, the biggest advantage Nvidia has is if this thing happens, if this one thing happens, which is CapEx explosion, they get it all, the biggest advantage Google... But if it slows down even a little, they're, they're really in a different place. The biggest advantage Google has, it has multiple ways to win. It can win if AI adopts fast, it can win if AI adopts slow. It's kicking off cash, so it's got a bunch of steady businesses. Provided only one thing can go wrong, provided ChatGPT does not erode Google Search, which is the motherlode of cash, they're golden. So risk-adjusted, I'd probably reluctantly buy Google.

   4. JLJason Lemkin32:54

      No, you gotta do Nvidia.

   5. RORory O’Driscoll32:56

      Okay.

   6. JLJason Lemkin32:56

      Because it is, it is, despite the fact that, that, uh, it obviously, it potentially has reached its, its, its, uh, market share ceiling with, with, with Anthropic and, deals and others, it's the, it's the best pure play into the AI vector.

   7. RORory O’Driscoll33:10

      Agreed. I was just saying the same thing as-

   8. JLJason Lemkin33:12

      And then your, your, your goo- Yeah, you are. So you don't wanna, you don't wanna minimize your risk. Just put it into VTI or bonds. If you want to bet on AI today, 'cause we can't buy Anthropic or OpenAI, just buy Nvidia. That's how you buy AI today. Just, just buy Nvidia. Don't even think or spell it, just buy it.

   9. RORory O’Driscoll33:26

      That, that, for, for what it's worth, that's totally fair.

   10. JLJason Lemkin33:28

       Yeah.

   11. RORory O’Driscoll33:28

       And I think if you're just going for max upside. If, yes, if you wanted to create your AI upside exposure, it's Nvidia and then a bunch of other weird things we can talk about another time.

   12. JLJason Lemkin33:38

       Yeah. Don't even buy CoreWeave or these crazy things. Just go, just go b- back the truck up to Nvidia, and if, if Nvidia loses, [laughs] AI, AI, AI stumbles. It's okay.

   13. HSHarry Stebbings33:46

       I wanna be a long-only manager. Fuck it. Buy Nvidia. Buy, buy, uh, Google. Done. Go home for three years. Seriously, it's, this game is great. I wish... Long only seems like the place to be.

   14. JLJason Lemkin33:59

       Yeah.

   15. HSHarry Stebbings33:59

       Rory, come on.

   16. JLJason Lemkin33:59

       Yeah. Just charge your fees and commissions [laughs] and just-

   17. HSHarry Stebbings34:02

       Yeah

   18. JLJason Lemkin34:02

       ... "What looks good today? I think Nvidia looks good this week, boys. Let's buy Nvidia. Uh, and I heard good things about Google. My friends use it. Let's fuckle buy some Googles."

   19. RORory O’Driscoll34:10

       Yeah. Okay, fine.

   20. HSHarry Stebbings34:11

       This podcast show is shit. Yeah, we love Jansen. Go Jansen.

   21. JLJason Lemkin34:14

       Yeah, let's buy it.

   22. RORory O’Driscoll34:15

       I mean, look, look, the data says most managers, I, I mean, we all know it, underperform the index. And then especially if you adjust for beta, they underperform the index. So no, it turns out to be remarkably hard, Harry. But keep telling yourself that.

   23. HSHarry Stebbings34:28

       I think that's 'cause they don't do Google and Nvidia. I think it's 'cause they try and have a diverse portfolio.

   24. RORory O’Driscoll34:33

       Yeah, no, agreed. Yes.

   25. HSHarry Stebbings34:34

       Yeah. I think it would be-

   26. RORory O’Driscoll34:34

       And it, when you're not diversified, you're either right or wrong. I mean, yeah.

   27. HSHarry Stebbings34:37

       Yeah.

   28. RORory O’Driscoll34:37

       Survival bias here, but yes.

   29. HSHarry Stebbings34:39

       Yeah.

   30. RORory O’Driscoll34:39

       Yeah.
7. 34:59 – 42:19

   China Blocks $2B Manus Deal

   1. HSHarry Stebbings34:59

      it. China blocks Meta's $2 billion acquisition of Manus. This was a surprise. Distributions have been made to investors. The company's a Singaporean company. The, the people aren't in China. This, this feels like a regulatory overreach.

   2. JLJason Lemkin35:16

      Well, Benchmark has their money, all right? Who cares?

   3. HSHarry Stebbings35:19

      [laughs]

   4. JLJason Lemkin35:19

      If I, if I, if I own 20% of Manus and got my $400 million out, I, I, I would love the boys. I'd wanna help get the boys out of, out, don't get me wrong, but I don't care if I got my money out. I ain't giving it back. I'm not ca- accepting the service of process. [laughs] I'm hiding from the, from, from the service of process provider. I'm keeping my $400 million. I'm taking my $80 million in carry for myself, and I'm hiding. [laughs]

   5. HSHarry Stebbings35:40

      Dude, I don't know if you can hide in Woodside from the CCP, like-

   6. JLJason Lemkin35:43

      The, uh, it might, it is a real risk, but I ain't giving my money back. If, [laughs] if I'm Benchmark in France, I ain't giving my money back. [laughs]

   7. RORory O’Driscoll35:50

      I, I don't wanna trivialize it only 'cause there are humans at the heart of this who are at risk, stuck in China, right? But, but I do agree with your assessment. The investors who've gotten their capital out, the chances of them having to or being willing to return that capital are zero. So when the, when China says they wanna unwind the transaction, I actually don't think they're talking about the money as much as, I think the leverage point is over Meta, where they're really saying, "You have this technology. We'd like it back," right? And let me give you a clue. If that had happened to Tesla, where they have a massive car plant in China, they'd be coming to the table right now with, um, the Chinese government and saying, "Maybe we should unwind this transaction, 'cause you've got a lot of leverage over me," right? From memory, I think i- if, if you do a lot of business in China, th- this ruling is gonna start a discussion. If you don't do a ton of business in China, it's not, no one's gonna be pursuing the venture investors. I think they'll, to some extent, it's gonna be pushing on Meta, and then obviously the more human thing is some of those, the le- team are still based in China, and they're not gonna be able to get exit visas, right? I think it, this process will unwind. What it really is doing is it's less about getting the, this thing back than it's preventing it from ever happening again. That's the first, last, and only one of these deals that anyone will do.Right? 'Cause I just think it's gonna be really hard. Unless literally, as, before you wire your money as a venture investor, you know, the night before you put everyone in a 737 in Beijing and say, "Dude, we'll wire the money when you hit Singapore and bring your family." It's just not gonna be a thing, right? So I think China's is just sending a very clear... And look-

   8. JLJason Lemkin37:30

      Yeah, but sorry, sorry. Who, who loses then?

   9. HSHarry Stebbings37:32

      Like, like Meta loses then? Just 'cause they've lost the money. They've paid, and they're not getting the tech.

   10. RORory O’Driscoll37:36

       No, no, but they have the technology other than some of the found- They have the technology, and any of, any of the team that's based in Singapore, they have, right? I actually think what happens is, I, uh, there'll be some resolution. As I said, I go back, I don't remember how much business Meta does in China, right? But if they do a lot, they'll have to settle. If they don't do a lot, and I think the ba- I can't even remember. I, I know Google didn't for the longest time. I just don't care what Meta does in China. Neither subject interests me, and the combination interests me less. Um, so but I think that if they do, they're gonna have some, they're gonna feel some pressure. As I say, just like if you were a big US manufacturing company or Tesla, and the Chinese government took this position, you'd have to take it seriously, 'cause they'd say, "Otherwise, we're just gonna register a four mil- billion judgment against you and exercise it against your local plant. Have a great day."

   11. JLJason Lemkin38:26

       I think it's just a blip. Uh, human issues aside, to Rory's point, I don't mean to minimize them, right? I, I would just take my, my carry and, and, and hide. I don't think you can, the service providers will come from China. Um, I think that the... And I don't wanna spend too much time on it. I think it will be a minor blip in some upcoming AI war between China and the US that is difficult to fully understand today how this war goes, right? Will the, will, will, NVIDIA's supporting AI to China, right? Let's, let's do more. That's in their best interest. Others are against it. Um, it's clearly a war at some level, but I'm not smart enough to fully predict where it will go, but this will just be a b- the start of... Well, not the start, but one of the first expressions beyond this NVIDIA chip drama of where this war will go. It's a war.

   12. RORory O’Driscoll39:08

       A- agree, and I don't love the war word, because I think, I think that implies actual violence. But I think you're right, 'cause it's funny, you often have to step in the other person's shoes. If you think back, if you, if you're looking at it from China's perspective, there is someone gonna go to prison somewhere, I think in Singapore or the US, for selling NVIDIA chips to China in breach of the sanctions, right? And they're probably sitting there going, "Well, if you won't give us your chips, I'll be damned if we're gonna give you our researchers." And it feels a lot more balanced from their perspective, and you evil Westerners are putting this dude in prison, and all he tried to do was sell us some, you know, Blackwall chips. Back off. The sanctions we're exerting on them probably feel problematic to them. Now, I, I, I, I, I remain on Team USA. I live in Team USA. I'm with Team USA. But just put yourself in the shoes of the other side and think, what, what, they're probably sitting there going, "We'll show you with Manus like you showed us with NVIDIA." Not make sense?

   13. JLJason Lemkin39:59

       Yeah, I mean, it's, it, it, it's at least slightly tied to DeepSeek finally raising outside financing at $20 billion, right? It's, uh, uh, I g- maybe war is the wrong term. I think there's two great battles that will come before this pot ends, right, that are subtle, that we won't hit every. One is this China versus US in, in AI is a battle that's happening. A- and the other is just the social dislocation from AI. Um, it's, it's, it's already happening. I think there'll be more revolts and issues as layoffs happen. I think Cal- the California will pass its billionaire tax, and the exodus will continue. I think New York is already pa- is, is trying to pass its penthouse tax, which is already leading to wars with The Citadel founders and others. So there's gonna be this theme of, of social unrest and this war with, battle with China over AI that won't bubble up each week. But I think at a meta, meta non-political level, these are the two big things I think that, that, uh, we can ignore in our quest to get rich fast. And we're gonna have three trillion dollar IPOs. Who cares? Who cares about the little guys when we have three trillion dollar IPO care? Who cares?

   14. RORory O’Driscoll41:01

       Yeah. But I think what you... That, that bit at the end sounds mean, Jason, but I think what you're saying in the rest of it is, it turns out that the non-trillionaires or non-billionaires can see that the billionaires don't care. And you're right, I think the political climate has shifted. And yes, this is going to be a continuing social drama. It's not the thing that preoccupies my day, 'cause I'm just trying to do my job. But you're right. If you were to zoom out and write a social history of the 2020s in 30, in 30 years' time, I think you're exactly right. I think the two, you know, historians will talk about, you know, the revolt against inequality and AI, and they'll talk about the China-U... I think it's a very good framing. I think those are the two big social/political framing things here, provided we don't blow up the world, right? And, and I think it's interesting, 'cause my, my, I haven't seen the polling on the billionaires tax again. My rule of thumb used to be California, the electorate is quite sensible. They, um, you know, they, they elect Dems, but they're pretty profoundly right-wing at heart, which is what no one ever talks about. They're legit-

   15. JLJason Lemkin41:58

       Poll in Market says mid-40s now that it passes.

   16. RORory O’Driscoll42:00

       Interesting. 'Cause normally they vote down any tax, 'cause they're like, "No, we've learned. Just vote no to anything," right? "Yeah, we're, we're, we're Democrats in our heart, but we're Republicans in our pocketbook." But if it's 40% already, that's interesting. I haven't paid attention, uh, 'cause unfortunately, it's not a billionaire that I'm, [laughs] I'm, I'm not in the price bracket, but duly noted. Okay.

8. 42:19 – 1:06:28

   Thoma Bravo Hands Medallia to Creditors: $5B Wiped Out

   1. HSHarry Stebbings42:19

      Now, in the venture game, we have a lot of zeros.

   2. RORory O’Driscoll42:22

      Yeah.

   3. HSHarry Stebbings42:23

      In, in the PE game, it's, it's rare to have a zero.

   4. RORory O’Driscoll42:27

      Yeah.

   5. HSHarry Stebbings42:27

      Thoma Bravo hands Medallia to creditors, 5.1 billion equity wipe-out. It's the first total loss. There was three billion in debt. That seems to all be going. Um, and it's just very significant, because you never or very rarely see an asset of this scale being handed back to creditors, and it's the first of its kind.

   6. JLJason Lemkin42:49

      Might be second behind Pluralsight, depending on how you define it. It might be the second big one. We just, we just, we just weren't as focused on Pluralsight, but Pluralsight died under debt too, under massive debt.

   7. RORory O’Driscoll42:58

      Yeah.

   8. JLJason Lemkin42:59

      But-

   9. HSHarry Stebbings42:59

      What was the size of that, Jason? You're, you're right. I'm wrong. Misspoken from me, but I, I-

   10. RORory O’Driscoll43:03

       It was in the billions, I think

   11. JLJason Lemkin43:05

       ... yeah, it wasn't as big.

   12. HSHarry Stebbings43:06

       It w- it was a couple of billion. No, you're absolutely right. I misspoke, and so I'm sorry for that. Can we just confirm, though, on this? 'Cause when I was reading it, I, I didn't quite get itAre Thoma losing money here? Did they recoup-

   13. RORory O’Driscoll43:16

       Yes

   14. HSHarry Stebbings43:16

       ... back money?

   15. RORory O’Driscoll43:17

       100%, they're losing money. A lot. I mean, y- y- I mean, it sound- from memory, 2021, the deal, I think, went down in '21, like it was a $6 billion transaction or whatever, and 5 billion of it was equity. So it was not wildly over-levered.

   16. JLJason Lemkin43:32

       Yeah.

   17. RORory O’Driscoll43:32

       Right? Maybe like 1.6 of debt, the rest of equity. So, you know, not wildly over-leveraged, right? Fast-forward today, they have more the debt than that now. So it could be there was a minor dividend recap and they took some money out. Maybe they got 20 cents on the dollar. But the big picture here is this. The... And it's terrifying, is that this is a company, I believe, with a couple hundred million dollars in EBITDA. And despite, you know, if you look at it from a cap structure perspective, it was four or five times equity. Uh, uh, it was 80% equity, only 20% debt. Now, that should be pretty safe. But when you way overpay for a company that now has way underperformed, and for reasons we'll talk about vis-à-vis AI, has very significant terminal value questions, then even though you've only got a small amount of debt, the stunning thing is, with less than a couple of billion... Wh- Did you say it was three billion of that? Right.

   18. JLJason Lemkin44:25

       That's right.

   19. RORory O’Driscoll44:25

       I thought it was only, I thought it was closer to two, but that's okay, right? They basically said the debt smothers the company, right? Even though it was fairly under-levered. What that means is, at 200 billion, they basically realized at eight, nine adj- times adjusted EBITDA, it wasn't worth putting any more equity in. They've massively overpaid, and the deal's underperformed. So it's a business that looked like nothing could go wrong in, which is enterprise software, and it turns out... And, and, and funny, and people would've said, "If something does go wrong, it would be, oh my God, you way over-levered it." [laughs] They didn't way over-lever it, they just way overpaid for it, right? And thus even-

   20. JLJason Lemkin45:01

       That's the important insight that I think is missed, right? Um, Pluralsight was both, right? Vista apparently lost two billion, but it was very levered, right? Um, this is not heavily levered, but they, they can't afford the 300 million of debt service, or it's not worth servicing the 300 million, right?

   21. RORory O’Driscoll45:17

       You are. Actually, that's the thing, 'cause I'd say relative to the c- and I wasn't precise here. In terms of the transaction size, most of the, most of the consideration was equity. So in that sense, it wasn't over-levered. But relative to the size of the company-

   22. JLJason Lemkin45:28

       Yeah

   23. RORory O’Driscoll45:28

       ... I think Medallia was doing a billion. You can't service... This is it. You can't service two billion-plus of debt on a one billion, low-growth company with a pre-AI story that has to transform to AI. You simply can't. And that's the big, scary aha across all these other companies, right? You know, it used to be the old, that you'd be like, ah, you muddle along. You, you know, you, you do 10% operating income, service the debt at low interest rates, and refinance it, right? You don't have a chance to do that now. There's no- there's, there's nothing good about this, 'cause they don't have an AI story. They'd have to invest a lot to get one, 'cause this is a... Medallia, stepping back, is kind of in the measuring customer engagement, customer happiness c- um, kind of survey business. It's not a major system of record like ERP. You can... It's fairly easy to, um, transition to a next generation product, and you can totally see a whole bunch of AI first, very much better products in the space. We have an investment in Unwrap. It's a small company that does customer s- analysis of customer sentiment. There's a whole bunch of much... And I don't push our own product. It's, there's a whole bunch of way better AI first products in this space. So they're looking at an asset that just doesn't have a story that's relevant. It's a full rewrite to change it, and it's just too hard. And this is a full write-down, and that's, that's not what this business is meant to be.

   24. HSHarry Stebbings46:55

       I mean, that sales quota attainment was 21%, reportedly.

   25. RORory O’Driscoll46:58

       Yeah.

   26. HSHarry Stebbings46:58

       I mean...

   27. JLJason Lemkin46:59

       I think the pr- and the other problem with Medallia, and, um, I'm not sure it's true of all the ones that are at risk. Um, there's some big ones at risk. Coupa, New Relic, Anaplan, even Zendesk, Avalara, Smartsheet, um, they all look like they may not be able to fully repay their debt. But my, my limited understanding of the problem with Medallia, it's just, it's one of the ones that, uh, that, that CIOs want, want to reduce.

   28. RORory O’Driscoll47:22

       Correct.

   29. JLJason Lemkin47:22

       It's just that simple. It's not even whether it's a system of record. That's an, an ultimate threat. But why it's already struggling to even retain 100% of its revenue is you sit around the room, it's, it's one, it, like, it under-discussed is the amount of vendor consolidation that's occurring at the same time as AI growth. Uh, uh, you know, whether you look at Gartner's numbers, 30 to 50% of AI dollars are coming from consolidation. Medallia's a top target. Do we really need that half-million-dollar-a-year dated survey product? Uh, did we really learn that much from it, guys? Uh, no. So it gets cut before you cut, before you cut your Workday or Salesforce, right?

   30. RORory O’Driscoll47:57

       Agree. It's just prioritizations.
9. 1:06:28 – 1:28:08

   The Collapse of Private Equity Exit Routes in VC

   1. RORory O’Driscoll1:06:28

      to it

   2. HSHarry Stebbings1:06:28

      Okay, guys, um, w- we, we're gonna do privates. There's a lot in privates.

   3. JLJason Lemkin1:06:34

      Oh, good.

   4. HSHarry Stebbings1:06:34

      Y- you guys, you, you choose. Maybe choose one with a positive slant. [laughs]

   5. JLJason Lemkin1:06:39

      Sorry. Sorry.

   6. RORory O’Driscoll1:06:40

      Look, this is our-

   7. JLJason Lemkin1:06:40

      My fault

   8. RORory O’Driscoll1:06:40

      ... latest pick.

   9. JLJason Lemkin1:06:42

      What are the, what are the choices?

   10. HSHarry Stebbings1:06:44

       There's Thrive. There's Thrive. There's Chamath's numbers. There's Gary Tan on bullshit ARR. There's SBF, the greatest investor of our generation

   11. JLJason Lemkin1:06:53

       I think the Gary Tan one's worth a, a quick discussion. Uh, we've hit it before, but I appreciated that he called out these issues.

   12. RORory O’Driscoll1:07:00

       Yes.

   13. JLJason Lemkin1:07:01

       Um-

   14. HSHarry Stebbings1:07:01

       C- can, can you provide some context, Jason, just for those that missed it?

   15. JLJason Lemkin1:07:05

       Well, um, I, I think it was started by a guy at, uh, this legal tech startup. What, what are the, what, I forget-

   16. HSHarry Stebbings1:07:13

       A spellbook. Scroll

   17. JLJason Lemkin1:07:13

       ... Spellbook, who pointed out, kinda made too much of it, how there's a lot of bullshit ARR, okay? Um, and for example, I've got one investment I made that's north of nine figures in revenue. I get three different ARR numbers each month. [laughs] Three different definitions. I can't, at least, at least they're trying to be honest, right? What's, like, core software ARR? What's software plus variable usage, and what's, like, committed revenue, okay? And there's a massive delta between these. And, uh, the point was, like, it's just so, w- what startups are saying they're doing in classicCommit real revenue, GAAP revenue certainly, versus what a non-GAAP number has grown so great it borders on fraud, was the initial point. Okay? And rather than say, "No big deal, who cares at the pre-se- seed level, like YC? Who cares at the YC if it's so early?" Gary's like, "No, man, be truthful and precise about your revenue. Be truthful." And he laid out five points which hit most of the issues. The ironic thing to me is even I felt by the time I got through Gary's whole memo, I didn't even understand what revenue meant anymore. [laughs] It was so, it was so correct, but also so confusing the way we've rebooted revenue. And, you know, if you're... I don't know what you guys have seen, um, but I've, you know, everyone... I, I got burned once on this in the old days, right? Um, uh, but everyone's kind of been burned on this that's done a deal quickly. And I've personally found if it's sort of mostly disclosed, it's been okay. If it's been hidden, I ain't gonna make any money. I ain't gonna make any money when this is bullshit, which is to Gary's point. And obviously, frankly, the fact that he had to say it probably suggested it is rampant at the seed stage or he wouldn't have to say it. It's rampant. That's my experience is that it's rampant as well, that, that people radically... Like, how can everybody get to 3 million in revenue by the end of demo day? Maybe everyone can't. [laughs] Maybe only a couple can.

   18. RORory O’Driscoll1:09:09

       Yeah. I think it was simultaneously really good and really shrewd, right? And I'll talk about the second, 'cause the really good comment is pretty obvious. It's necessary. There's, you're right, there's this all ambiguity about what's revenue. Young founders are overstating things and at best suckering people into doing investments they shouldn't do, and at worst ending up in litigation and potential fraud allegations down the line if they misstate things. So it behooves... So some guidance is really good and helpful, and I predict if it sticks, the shorthand version at the seed stages will be does this conform to the Y Combinator revenue guidelines, right? So that's why it's a good thing. It needed to be done. Let me tell you why it's a shrewd thing, right? Because if you own a market, you wanna make sure that that trust in the market remains. It's a little like the way De Beers policed the diamond market for years. You wanna know that people can transact in complete confidence, right? Y Combinator has a dominant market share in the seed market, right? 25%. It erodes the value of their product if a whole bunch of people start thinking the numbers are bullshit, right? So not only was it a good thing, it was a shrewd thing, 'cause it's now basically saying, if you look at these deals, at the margin, it, you know, you wanna say you've got the Y Combinator, here's how things are calculated correctly seal of approval. So I think, again, it's a, it, it was good and shrewd, and as such, it's gonna stick, or some version of it's gonna stick, just like safe.

   19. JLJason Lemkin1:10:34

       That's a good point. If he- they're a market maker, so you want to-

   20. RORory O’Driscoll1:10:37

       They're a market maker

   21. JLJason Lemkin1:10:37

       ... you want to have this level of transparency as a market maker, right?

   22. RORory O’Driscoll1:10:40

       But if one in 20 NYSE stocks, um, lied about their revenue, at some point the NYSE would say, "We need to fix this thing here, people. Let's get the auditors in a room." And that's just what happened here.

   23. HSHarry Stebbings1:10:50

       On the slightly other end of this ventures spectrum, Thrive Eternal, Josh just continuously bringing out new, new products and new packages for his investors. Thrive Eternal, I didn't wanna say this, but it, it looks remarkably similar to Sequoia's Evergreen fund in terms of the hold periods. Um-

   24. RORory O’Driscoll1:11:07

       I, I, I... But I think, I actually th- Sorry, keep going a second. I th- I think you misread it. 'Cause I understand that the, the, the, the verbiage looked the same, hold companies forever, but it... And you were saying, is this an example? 'Cause again, for context, folks, in, in, in '21, late '21, Sequoia correctly said, over the long term, our very best companies continue to compounding. If you'd held all the companies, even the bad ones, the good ones would've swamped it, 'cause you'd have Apple, you'd have Cisco. And the analysis is entirely correct, and over- and it's like the old analysis on any equity return business. Over any 20-year rolling return, it's positive. Over 10, most are positive. Over five, some are positive. And every once in a while, over one, it blows up in your face. And unfortunately, Sequoia opted to do the eternal hold every stock forever in that one year where it blew up in your face, right? So they felt a little foolish about that, though I think over 10 and 20 years, their analysis will still be correct. If you build enduring companies, you know, even in the public markets, the compounding will happen, right? So that was the Sequoia comment that Harry was referencing, but I think the Thrive product's actually very different. If you read the prospectus of these, or the, the information on it, it's much less about holding a public stock forever. It's actually a, it's interesting kind of very marketing and positioning around different kinds of assets that aren't impacted by AI that are going to be eternal. It's an entirely different form of investing, 'cause I think their first investment is in one of the San Francisco teams. I can't remember which one. Is it, is it the Gi- I can't remember. Was it the baseball team or whatever?

   25. HSHarry Stebbings1:12:36

       I think it's the Giants.

   26. RORory O’Driscoll1:12:36

       Yeah. Again, my in-de- In other words, what they're actually... It's actually just a totally different product line. It's, they're making the big picture point that there was a, I mean, there was, there were a- there were assets beyond the digital that are enduring and can't be replaced in any way, shape, or form by digital. And 'cause they're right about that. There's no amount of automation. Like, it's like that stupid people who say, "Oh my God, the robots can run faster than people on the half marathon, therefore it's over." Well, as someone pointed out, a To- a Toyota Corolla can drive faster than people, but we still watch the marathon, right? What they're saying is this group of assets is so different than AI that they're enduring long run media assets. And at that level, they're correct. I don't know if the average venture investor would be a really good buyer of sports assets. Um, though history would say the Warriors has been a great deal. It's just a totally different, uh, it's a different bet than the Sequoia bet. It's a different asset, it's a different asset type. And, you know, if their LPs wanna do it and they can pull it off, the guy's showing great taste, good luck to him. It's

   27. HSHarry Stebbings1:13:36

       This is totally off-script, but, you know, we do Business of Sport, a sport show where we interview the biggest owners of sports teams in the world. This Business of Sport is dictated largely, in Europe at least, uh, I don't want to speak for America, but by media rights.

   28. JLJason Lemkin1:13:47

       Yeah.

   29. HSHarry Stebbings1:13:48

       If you see the personalization of media whereby everyone gets very independent media that they consume, whether it's games, TV shows they can customize, craft to their own preferences, and it impacts slash, to Jason's point, maims the consumption of sports, then you have a significant impact on the digital rights package that teams get. That is very, very significant. And so if you wanted to paint a world where AI changes content consumption patterns, that has the ability to significantly maim digital rights for these sports teams, which would significantly impact their revenue-generating ability. That would be the bear case.

   30. RORory O’Driscoll1:14:27

       You're right. In the case of sport, you're right, you have the individual personal journey, and you're right, you're seeing a bunch of that in, at the margin in sport. You know, you're seeing it even at the high school and college level where the athlete's personal journey is a large part of it, and they can monetize that. And in fact, the way Leo, Lionel Messi monetized being Lionel Messi when he came to America is an example of that. He extracted the value, which by definition means that's value that the sports team owner didn't get, 'cause he was able to get it. So I do hear your point at the margin. I mean, I still think, you know, you, you're gonna... If you own the entity that's playing the game, um, you, you know, you do have the marquee asset, and especially in the US. The NFL economics have been widely comp- The US, in fact, has been even more successful at creating sports money-printing machines than even in, even in Europe, but so I do hear you, Harry. Mind you, I will say something I said earlier. You, you do go back to that comment I made earlier, which is when something is so obvious that everyone thinks it can't lose, that's just the time when you do. And sports has been a home run win for 20 years, maybe 30 years, right? It's been a, yeah, it's been the one irreplaceable asset. And so-

Episode duration: 1:28:18