The Twenty Minute VCAnthropic's $10B Round, Klarna's IPO, Inside a16z's 72 Deal Seed Investment Machine ft. Marc Benioff
EVERY SPOKEN WORD
75 min read · 15,103 words- 0:00 – 4:21
Intro
- MBMarc Benioff
We have all been sold a lot of hypnosis around what's about to happen with AI. But you're talking to somebody who is extremely suspect if anybody uses those initials, AGI.
- HSHarry Stebbings
Today, we're joined by one of the greatest founders of the last 20 years, Marc Benioff from Salesforce.
- MBMarc Benioff
When you look at other data clouds, Snowflake, Databricks, Palantir Foundry, they're all in the $3 to $4 billion revenue. They're in my sights. Doctors who are using AI, and they're so over-reliant on an AI that's inaccurate, they are giving their patients bad advice and becoming intellectually lazy. Over the last 26 years, [laughs] Salesforce has had more than 100 million people contact us that we've not been able to call back. We just have not had the people. This agentic sales is calling everyone back and having conversations. I don't think that there will be a piece of software that we sell that will not be agentic.
- RORory O’Driscoll
Soccer is a game played by 22 people. In the end, the Germans win. In the same way, venture is a game played by 6,000 people, and in the end, Sequoia wins.
- HSHarry Stebbings
Ready to go? [upbeat music] Guys, I am so excited for this, and we have a special guest today. The SaaS OGs are joined by the OG of SaaS, Mr. Marc Benioff. So I'm so thrilled that we could make this happen, and I want to start with a really interesting one, I thought, which was Amazon's AGI head said there are just 1,000 AI engineers that matter. And Marc, I wanted to start with you on that one and say, what do you think about-
- MBMarc Benioff
AGI head, that sounds like an oxymoron.
- HSHarry Stebbings
[laughs]
- MBMarc Benioff
So you're talking to somebody who is extremely suspect if anybody uses those initials, AGI. And, you know, I think that we have all been sold a lot of, you know, hypnosis around what's about to happen with AI. And not that it couldn't happen one day. We've all seen those movies. You know, Peter Schwartz, who wrote Minority Report and War Games, you know, works for me. He's our chief futurist. But I ne- you know, just realize that isn't the state of technology today. So how about that?
- HSHarry Stebbings
What made you realize that? What was the penny dropping there? Because that, that is the thing-
- MBMarc Benioff
Well, I mean, I think that when you look at large language models, which is kind of the state of the art of AI today, prompt engineering, which by the way was, came out of our Salesforce AI research team. You know, large language models are two things. They are a finite set of algorithms, which have gotten a lot better for sure, you know, but incrementally better over the last, you know, five years. And two, a relatively finite set of data that has come off the internet. And those two things together really have provide kind of the state-of-the-art of lang- la- large language models today. And when you work with these LLMs, it's very cool because you're like going, "Oh my gosh, it feels, like, very intelligent." Well, it kind of felt that way when I was using Eliza when I was, like, 16 years old on my TRS-80 Model 1 also. You know, it was like, "Oh yeah, this is kind of-
- HSHarry Stebbings
It was pretty-
- MBMarc Benioff
... feels like-
- HSHarry Stebbings
It was pretty accurate. [laughs]
- MBMarc Benioff
Yeah, it was like, "Oh, this is like a person." But it's not a person, and it's not intelligent, and it's not conscious, and it doesn't have a childhood, and it, it hasn't suffered. It doesn't have compassion. Like, there's a l- [laughs] it's not a, it's not a being. And I think that there is some, you know, uh, hypnosis around kind of the state-of-the-art around AI and what is currently possible or what is about to happen. And, um, I'm extremely suspect around that and I'm trying to bring people back to the reality of here's the current state of the art of AI, which is amazing. It is amazing, but let's, let's actually use it for what it can be used for, and also realize, you know, the, some of the, the, the major issues with it. And I thought, I tweeted about this, I guess about a week ago, where I read these two articles about doctors who are using AI, and they're so over-reliant on an AI that's inaccurate that all of a sudden, you know, they are giving their patients, you know, bad advice and becoming intellectually lazy at the same time. And I think that is a huge warning sign for all of us around
- 4:21 – 10:24
Does Benioff Feel The Need to Buy AI Talent Like Zuck Is?
- MBMarc Benioff
AI.
- HSHarry Stebbings
If we separate the finite from the infinite, the thing that I-
- MBMarc Benioff
Back to the AGI head at Amazon. [laughs]
- HSHarry Stebbings
The, the, the thing that everyone feels, the thing that everyone feels is finite is, is talent. And Zuck is paying up for talent like no one's seen before. You're seeing your Mira's getting offers at a billion dollars with bluntly very little to show for it. No disrespect to her, but other than the team. Um, Marc, do you feel the pressure to enter this talent-buying frenzy in a way that we're seeing other large incumbents?
- MBMarc Benioff
No. And we're not. And I'll say that, you know, we're very focused on really defining what is the next generation of the enterprise, and really looking at what is working and what is not working, and how do we go forward. And, you know, tactics must dictate strategy over time in enterprise software. I'll just say, like, the first thing that we've been talking about now for only about eight or nine months is that we have help.salesforce.com. And help.salesforce.com is our agentic layer around our support. And this agentic service means that there is an omni-channel supervisor that is paying attention between my human support agents and my digital agents. And to that point, I've been able to reduce the number of human agents I have in support from about 9,000 to about 5,000. And why that's important is I've been able to take that head count and then rebalance it into other parts of my company where I need more help and need more support, 'cause we're still growing. So I think that this is very, you know, exciting that it's a huge change in how our company is structured, how our technology is built and delivered to our customers, and we're customer zero. And let me give you one other crazy story to that point, and you'll be the first ones to hear this story.Which is that, and this is a little bit forgive me part of the story. Over the last 26 years, [laughs] Salesforce has had more than 100 million people contact us that we've not been able to call back. They're just leads we've not been able to call back. We just have not had the people. That's just all there is to it, and it's kind of this funny thing. And, you know, we have these people, we call them SDRs, you know, sales development representatives, and we just don't have that many of them. You know, we have, like, 15,000 salespeople, but we don't, don't have that many SDRs. Well, we have this agentic sales now, and not only are we doing support, but this agentic sales is calling everyone back and having conversations with them, and then deeply integrating it through the omni-channel supervisor into our new agentic sales product, which you're gonna see at Dreamforce.
- RORory O’Driscoll
In your body language, you're saying you think you're gonna sell a lot of software powered by agentic AI in the next, you know, one to five years. That's-- Is that the summary message here?
- MBMarc Benioff
Well, I don't think that there will be a piece of software that we sell that will not be agentic.
- RORory O’Driscoll
You're willing to say, just as it was never on-prem again in 2000, you're pretty much saying it's never non-AI agentic in 2025.
- MBMarc Benioff
When you get to Dreamforce, you'll see that our, our promise that humans and agents will work together, it's not just in our sales cloud, it's not just in our service cloud, it's not just in Slack.
- HSHarry Stebbings
If we look at w- the impact of AI today on the business, it hasn't maybe led to the lift that one would think so far. Uh, do you think that's fair, and how do you think that changes over the next year?
- MBMarc Benioff
It's so untrue, and that's [laughs] the funny thing. You know, here's the thing. Number one, a- our AI is part and parcel with our data cloud. So our data cloud, m- love it or hate it, the idea that you need a data cloud that's federated to all of the data sources in your company, and why that is so important so that you can get all your data harmonized in one place, which is why we bought Informatica also, so that everything is together, and now the AI can be more accurate. Go to the front of my website and you'll see Agentforce now in the front of our website. It has done as many customer interactions as our support agent. Why is that? Because we put our whole [laughs] website into our data cloud, and now people are just using this agent at the front of our website instead of clicking all the way through the, the website. It makes total sense, right? So that idea, this is really important. The data cloud and AI together now is more than a billion in revenue. We talked about that on our last earnings call. It's our fastest-growing cloud product, whatever, ever, you know, in 26 years. And we've talked about that we have thousands, I won't go through the exact numbers, of customers now on Agentforce, and the number of deployments and all of these pieces. So this is a product that a year ago we hadn't even announced. This is a product that wasn't even shipped until November of last year, and that customers are still getting their head around. What software in the history of enterprise software has ever grown at that level of scale? I would cite to you, okay, Harry, none. And I will say that this is incredible. Now, you can talk about any other new company, whatever, or existing, we can go through whatever it is, but this is a company that... This is a company. This is a product that's breached a billion. And even when you look at other data clouds, you know, like a Snowflake or a Databricks or even a Palantir Foundry, they're all in the $3 to $4 billion revenue level. They're in my sights. So [laughs] you know, I am, I'm on it. You know, I am like the guy in Star Wars, you know, my favorite movie, in my TIE fighter, "Stay on target." I see where I'm going. And data and AI, this is, like, a huge focus of the entire company and our products, and the fundamental aspect of humans and agents working together. So that's, that's how I look at that. So, um, thank you for letting me address that
- 10:24 – 16:25
What Salesforce has Learned From Palantir on Forward Deployed Engineers?
- MBMarc Benioff
directly.
- JLJason Lemkin
When you're looking from the TIE fighter, what do you think of Palantir's growth? Like, what do you think, w- just how do you think about it from the Salesforce perspective? We can all look at the numbers. The numbers are great, right? We can talk about defense and who knows who's spending these contracts, but how do you process that, that... 'Cause it's, it was growing 15% or something in 2013, right? It's crazy.
- MBMarc Benioff
Oh, it's very cool and amazing and, uh, very inspiring to me that this idea that, uh, data, a data, a data cloud, which is called Foundry, integrated with analytics, uh, can be very exciting for a company. So I will say that, you know, our data cloud plus a new agentic Tableau, you know, plus Informatica, plus looking at a, a product like MuleSoft together is our data foundation. And that idea, we need to have all of the government certifications, and they sell into parts of the market we don't sell into. So we really have reassessed, hey, where, where, where are we selling? Because the US federal government is already my largest customer, right? That's our... You know, we run, uh, the Veterans Administration, the GSA, and we just won, you probably read, just, we just run a huge US Army contract. We beat Palantir. And, but in some of the areas that they sell to and some of the people that they sell to, and I won't go through all the details 'cause it's not appropriate, you know, we have not traditionally sold into those groups. So it got our attention, whether they're closing these deals, and their products are so expensive. Like, have you seen their price list? It's out there online.
- JLJason Lemkin
They're good at getting the deals. [laughs]
- MBMarc Benioff
It's like, whoa, these prices. I'm like, whoa, my prices are too low. I'm actually delivering, like, r- I'm automating the whole VA at this price? Like, what would they be charging? I mean, my prices are low compared to theirs.And easier, and mu- products are much easier to use.
- JLJason Lemkin
Yeah, so no, so no, he, he, he's not ignoring that $300 billion market cap.
- MBMarc Benioff
How do you think about it?
- JLJason Lemkin
No.
- MBMarc Benioff
[laughs] Yeah, well, that caught my attention. I'm like, how do I get that 100 times revenue multiple? That's awesome. It's 4 billion in revenue. Let's keep it into perspective.
- JLJason Lemkin
No, it's... Yeah, it's a 10th.
- MBMarc Benioff
It's not, it's an order of magnitude smaller than we are, but I just realized that it is a-- as someone who was 4 billion in revenue once and who's now 41 billion, it's two different companies.
- JLJason Lemkin
Can I ask you one related que- I don't mean to go... Harry, you take the agenda, but related to Palant- well, one of the things Palantir's gotten everyone's attention with is forward deploy engineers. Do you think that's a new concept? Are these the same people at Salesforce deploying software for the last 20 years, and is it different? How do you think about this FDE concept?
- MBMarc Benioff
Oh, what a great question. I think that it's both. I think at one level, you know, we've always had and always gone to the customer in trying to solve their problem and listen to them and do our best, and we have a large sales organization, and we have a large systems engineer organization, and you know what that means, and we're out there talking to them and working and building the prototype. And then we also have professional services, and then we have partners also, and all of us are in there. But we don't have that tr- that kind of branding of, these are our four deployed engineers, where now we're gonna start building your product now before we've really signed a deal. And I think that idea is very cool, that all of a sudden you're, like, in there kinda saying, "Yeah, we're gonna, we're gonna make a bet that we're gonna start, you know, doing business together, so we're gonna start building now." And I think that that is something that we can all embrace and adopt and say, "Yeah, well, let's, let's, uh, have more, uh, more of that, uh, engineering resource start right at the beginning in the customer. Fantastic. Let's do that."
- RORory O’Driscoll
I wanna go back to, uh, I want come back to Palantir in a minute, but just going back to the first comment 'cause, you know, truth is, mathematically Harry's right on the growth showing up thing, which is... But I think it's the law of large numbers. I mean, what you're saying... Look, when you're doing 40 billion, you know, you said, Harry, it's, quote, not showing up in the growth numbers. When you're doing 40 billion, 10% is four billion, which is the entire revenue of Palantir. The problem with this poor guy is-
- MBMarc Benioff
Thank you. I did miss that last part, Rory.
- RORory O’Driscoll
Yeah.
- MBMarc Benioff
I'm very hard of hearing in my left ear.
- RORory O’Driscoll
No problem. I, I-
- MBMarc Benioff
Can you repeat it again?
- RORory O’Driscoll
I speak quickly with an Irish accent. My comment is, when you're doing 40 billion, Harry's giving you grief for growing at 10%, but I'm making the point when you're doing 40 billion, 10% growth is adding four billion, which is an entire Palantir every year, right? So the comment on growth, which is, you know, mathematically true, Harry, you're right, the 10% growth is what these guys are now, you're just dealing with scale. And I think it speaks to one interesting thing, which is... I mean, I saw a number, and you may comment if it's correct or not, that, you know, you, you, you have nine-figure revenue already on the ARR. Ni- you added nine figures of revenue on the AI deals in the last quarter. I mean, it's a $400 million AI-only startup, which would be fricking amazing if we all owned it, right? It's just, I mean, you're just up against the law of scale here, which speaks to even if AI is amazing, it's, it's what I liked about where you started, being grounded. Even if AI is amazing, I think some of these people who think it's gonna transform $100 billion market caps in a week are just way overestimating what it takes.
- MBMarc Benioff
Well, we know that we are always overestimating, especially in our industry, what can happen in a year and underestimating a decade. But at the same time, it's different running a $4 million company to a $40 million company to a $400 million company to a $4 billion company to a $40 billion company. Each step change is an order of magnitude, and it is a completely different company. We've all seen that, and all of a sudden it's like I have a different set of products, I have a different set of challenges, I have a different set of customers. But we can be inspired by everyone, can't we? Can't we, like... I think the biggest mistake is to go, "Oh," or to be dismissive. You know, we're not being dismissive. Aren't we just being in awe and being inspired and being energized by this? I think it's, like, really cool.
- 16:25 – 21:11
Will SaaS apps disappear in an AI world? Why Satya is Chatting S***
- JLJason Lemkin
Can I ask a- another one? Uh, which is like when we think about MCP, uh, and we think about how it changes how we engage with different products, do you think we'll want to log into SaaS apps in the future, or we just want our data inside of ChatGPT and Claude?
- RORory O’Driscoll
Harry's just gonna keep coming at you. [laughs]
- MBMarc Benioff
No, I think this is like-
- RORory O’Driscoll
Try and hold out as long as you can
- MBMarc Benioff
... I, I'll just g- g- open my heart here and just say I think this is, like, one of the greatest disservices that has been done to our whole industry and to all CIOs and all CEOs of software companies in the last 12 months is that certain executives, who will not be named, have said that, you know, oh, SaaS apps are just gonna be CRUD databases, and CRUD means create, read, update, delete. And it's like, really? Do you really think that? Because if you really think that, wow, you are really wrong, and that is crazy talk. And that is not how it works, and I don't know what software we're talking about or what applications or if you use computers anymore or if you use a phone. But I [laughs] and maybe, you know, the whole world changes, but right now in the current world, the world that I'm in here in, uh, 2025, well, I'm just saying that I need apps and I need agents and I need them to work together. And yes, if you can make my job easier and better through AI, then give it to me. But to say that all of a sudden all of those apps are no longer relevant and that humans don't need apps, like that's what we just said, humans don't need apps. That's not true for any of us on this call, and it's not true for anyone on planet Earth. And so that is why I think it was a huge disservice to the industry and got everyone anxious, 'cause certain peopleThey'll remain nameless. Have a lot of credibility because they are great people actually, and great executives. But to say these things is nonsensical. Why Microsoft has 3% CRM market share: because of nonsense.
- RORory O’Driscoll
But I do wanna disaggregate two things 'cause it's worth it. One, 'cause, I mean, even the sentence, you know, it's going to be a crud app and we're gonna vibe code it. Take it apart. W- we agree. No one's gonna build a big, sophisticated app vibe coding. Let's just discard that discussion entirely. I think the interesting question is, how much of the real estate on top of Salesforce do you guys own? How much do you allow other people to own? You know, as Jason said, there's a bunch of startups, we've all funded one, God forgive us, you know, for doing, you know... Assuming Salesforce as a given, you are the infrastructure, not this bullshit comment of you're gonna be replaced. Ignore that entirely, but assume Salesforce is the infrastructure, but maybe the sales rep in their daily toil can have a better tool than Salesforce to do some of the work, or maybe even an agent that's not owned by Salesforce can be doing the work and coordinating with Salesforce on the back end. And to me, that world is much more realistic. Do you want all of that front-facing real estate on top of the Salesforce data? Do you allow other people in the ecosystem? How do you make those choices?
- MBMarc Benioff
There is gonna be a level of application functionality that is gonna be required, and there's no question that these apps that, you know, our users are on today are still gonna be very much a part of w- how they do get their work done, and that they operate in the flow of work, in sales, in service, in marketing, in all the examples that we've done. And then at the third level, that there is gonna be an agentic layer that's gonna interoperate with those applications and that data. And yes, there will also be an ecosystem that is gonna fuel all of these things as well, and that the connectivity is gonna happen and that it's gonna be open, and that you look at, like, the Slack ecosystem or the Salesforce AppExchange. The agentic layer is a huge investment opportunity, you know, for the whole SaaS ecosystem, and I hope that it's gonna be built on, uh, Salesforce.
- JLJason Lemkin
Now we have several agents that give daily updates in Slack.
- MBMarc Benioff
I need a demo of everything you're doing, 'cause at the first time we were talking, you're like, "Yeah, I have this agent. It's with me on the sales calls, listening. It's coaching me." You know? And that was very inspiring to me, and now you're like, "And I have a dozen agents." There is gonna be a radical explosion of small and medium businesses like yours.
- RORory O’Driscoll
Yeah.
- MBMarc Benioff
Because entrepreneurs like you can do more than ever. So while the enterprises are kind of trying to figure out are they gonna DIY it and are they gonna do this or are they gonna do that, look at you and look at all the entrepreneurs like you who can boom, boom, boom, go right into the future and, like, we're gonna see, you know, an order of magnitude more SMBs 'cause SMBs can do more than
- 21:11 – 24:57
Are SDRs really screwed by AI… or just evolving?
- MBMarc Benioff
ever.
- RORory O’Driscoll
Well-
- JLJason Lemkin
You will.
- RORory O’Driscoll
We hear from Jason that SDRs are screwed, that if you're 23 to 35, à la poubelle, uh, in, you know, European terms, to the trash. You know, you, you don't have a future. Uh, y- you, uh, have said before in this conversation, oh, human and agent, and very much suggested a pairing between the two. Jason has presented an idea that in the next 12 to 24 months actually we'll see this mass exodus of the SDR class. Do you think Jason's wrong?
- MBMarc Benioff
Well, like I said, I think that, and I'll tell you what I'm doing, which is that, you know, we, we have all these leads that we've just, just systemically have not called back and now we are. That gives me the ability now to rebalance my head count and to really say, "Hey, I wanna take all these folks and make them sales folks." And I think that in all of the segments of the business that we do business in, not just government, that was one segment, not just the enterprise, the high-end enterprise, the 5,000-plus world, you know, but the mid-market and the small business, we're, we're a company that's going after all of those segments, right? We don't leave any segment behind.
- RORory O’Driscoll
So you're, so you're saying the SDRs will remain, and it'll just allow you to cater to the ones that you couldn't cater with before. Because Jason, just to be annoying and British, but it's mid-
- JLJason Lemkin
No, I think Marc might be saying, Marc said his support team went from 8,000 to 3,000 and he redeployed them into other areas, I think, about that number. I think the same thing will happen with the SDRs.
- MBMarc Benioff
4,000 to 5,000. That's exactly right.
- JLJason Lemkin
Yeah, I think we'll redeploy he'll... I think Salesforce, I don't know how many, like, entry-level SDRs Salesforce has, but I bet you redeploy 70% of that head count into enterprise reps or Forward Deployed Engineers. That head count just becomes more valued with, with Agentforce Sales. I bet you, I bet you don't need 6,000 people.
- MBMarc Benioff
What you're saying is so important, Jason, because what you're saying is that the fundamental architecture of an enterprise software company in the future is not exactly as it was in the past, that the fundamental architecture of the company will be different. And all of us grew up in SaaS and the applications and all this over the last 25 years. But, and so we saw how the applications have changed and evolved. But now we're saying is it's not just that, it's also the companies as well, and that is different.
- RORory O’Driscoll
So, Harry, did you get the answer to your question?
- JLJason Lemkin
[laughs]
- RORory O’Driscoll
Uh, yeah. Redeployment.
- MBMarc Benioff
I think-
- RORory O’Driscoll
Yeah.
- MBMarc Benioff
No, I, I don't think it's bullshit, though. I mean, it's, w- 'cause we have this discussion every week, Marc, it's that Jason is basically the Grim Reaper and thinks not a single 25-year-old will ever work in this town again. And, you know-
- JLJason Lemkin
But I, I, I think it's grossly overly optimistic to think that you can redeploy 25-year-olds who aren't that passionate, don't have that many skills-
- RORory O’Driscoll
Oh, we're off on this one again
- JLJason Lemkin
... and an entry-level SDR- No, but, but when you're at Salesforce's scale, it's about head count. Marc's budget's fixed. I mean, he's got 80,000 heads on a spreadsheet. And that's, well, I don't know, when I was at Adobe it was 20,000, right? And so if you can move those heads up the value chain, Salesforce can be a much more efficient company.
- MBMarc Benioff
That is exactly right, Jason.
- RORory O’Driscoll
Exactly. It's a more optimistic view, A, than Jason's taken in the past, which is why he's contradicting, but it's a good view. 'Cause I, I actually notice-Time and time again, Marc's, I won't say spin, but approach on it is when Jason did his thing about he only has three people in his company, Marc's take on that was there'll be lots more entrepreneurs because of that. It's very, it's super additive, which is entirely the only way you're gonna sell this AI revolution. Otherwise, there'll be another fricking revolution if we keep pushing on this. So I, I, I like the kind of upside related focus. As we've discussed over and over again, if they're not any damn good, they're on their own, but it's at least a vaguely upsidey approach, Harry, versus, you know, Armageddon here.
- MBMarc Benioff
You can go to our website and see who we're hiring, and also this narrative around that we're not gonna hire any more kids out of college, this is also bullshit.
- 24:57 – 25:58
Benioff on Who Wins: OpenAI or Anthropic?
- HSHarry Stebbings
Marc, I'm, I'm aware that you're gonna have to run. I do want to ask one final thing, which is just in terms of unfair questions, Rory loves me for this. You have o-
- RORory O’Driscoll
He's such a dick about this.
- HSHarry Stebbings
You have... No, I'm not. You, you just, you just always comment. You have OpenAI at 300, and you have Anthropic at 170. Which would you prefer to buy?
- MBMarc Benioff
Well, I think both are actually great companies. Salesforce owns 1% of Anthropic, so I'll just, you know, uh, it's obviously a great company, very focused on the enterprise. OpenAI also is, uh, you know, a great company. I'm a big fan of, uh, you know, their leadership and what they've done.
- RORory O’Driscoll
I don't know what you're paying your media training person, but you should pay them more. That was a master class in how to handle Harry being annoying. Basically, Harry, tha- thank you for your question. I've complimented ev- I love it. He just won. You should just fold, Harry. No, I'll, I'll be practicing that next time. It's the nice, nice about everyone, and shut up, Harry. Good job.
- HSHarry Stebbings
Marc, thank you so much. You're a star.
- RORory O’Driscoll
Thank you, Marc.
- MBMarc Benioff
All right. Thanks, guys. Great to see you.
- RORory O’Driscoll
Take care.
- MBMarc Benioff
Bye-bye now.
- RORory O’Driscoll
You as well.
- 25:58 – 32:41
Nat Friedman reports to Alex Wang: Genius move or career downgrade?
- HSHarry Stebbings
And now I'm excited because these I want to dive into. Nat Friedman reporting to Alex Wang after not a huge amount of time. How did we analyze, interpret this news of the new structure that's come to be in Meta's AI division?
- JLJason Lemkin
I thought the consensus when we talked about this deal at least 10 days ago, 14, 14 days ago, was it was, it's fine to give up billions of potential carry and funds to be in the game, right? To be a player rather than to be on the sidelines. Um, I don't want to be critical, but man, then, then essentially getting undermoted, uh, in, in a reorg. Maybe it doesn't feel that way, but hiring freeze and a total reorg within 30 days, um, it's a lot to process. I might rather be running my own fund.
- RORory O’Driscoll
At least it seems like a vaguely sensible org structure where you have one person in charge and then the four divisions. You have pure science, you have LLM foundation models, you have AI, um, applications, which I think is where Nat's running, and you have infrastructure. You know, you read the org structure and go, "Yeah, that's probably how you should run it," and you got one guy in charge. And actually, the core issue is y- you know, it's the same thing, you know. Stupid example is when you get these soccer teams where they just have so much money, you hire all these people in on the transfer market, and then you got a bunch of drama g- And then someone's got to be the manager and figure out who's gonna play what position. So i-i-it, it's... I don't know what promises are made. I don't know who's bent out of shape, but it seemed like a sensible thing to do. You spent, you know, $20 billion on talent. You now need to tell them what position to play and who's gonna play forward, who's gonna play striker, and who's gonna play fullback.
- HSHarry Stebbings
I just don't get it. I, I, I feel naive here, but it's like-
- RORory O’Driscoll
You don't get what? The why?
- HSHarry Stebbings
I don't, I d- I don't understand if you're Nat why you'd do it. I understand you want to be in the room, I get that. But then reporting to someone else who's not Zuck. You know, for anyone that knew Nat and knew Microsoft, he was really in the grooming position to be the next CEO of Microsoft, many understood. And now it's like to then report to someone who's not Zuck in this structure. You've got, you know, Yann LeCun also reporting to Alex Wang as well. Um, yeah, Daniel is reportedly not really there day to day. I'm, I'm just confused by the whole structure, and it just feels like, wow, you gave up on probably one of the best things-
- RORory O’Driscoll
You're not c... I'm gonna push. You, just be logical, Harry. You're not confused on the structure. You, you're actually, the structure's pretty well understood. You're confused on why he'd do it, which is a different thing.
- HSHarry Stebbings
Yeah. Yeah.
- RORory O’Driscoll
Just be precise, right. You're confused on why someone who was highly autonomous would sign up to report to someone who reports to the CEO. That's what you're confused about.
- HSHarry Stebbings
Yeah.
- RORory O’Driscoll
Yeah. Okay. I don't know.
- HSHarry Stebbings
And the rationale around that for me would be like, meh, well, actually, you know, guess what? Elon goes to Zuck when he wants to buy OpenAI and Sam Altman. It's pretty cool being in that room, which Nat would be with Alex to have that discussion, and you're not if you're just another fund. That would be the reason why you'd do it. That's the only rationale I can come to.
- JLJason Lemkin
I think being in the room for that a couple times is fine, and then, then I'd rather run my own shop. [laughs] There's only so many rooms I need to be in. Like, it's pretty fun. It's like the first IPO you're a part of. Like, it's great, right? Um, I, you know, but, uh, I'm not sure what it's like as a VC to have 20 IPOs. But, um, you know, uh, I might rather have more carry than show up, uh, to ringing the bell. I don't know.
- RORory O’Driscoll
I totally get why someone who's a great operator would choose not to be a VC, 'cause I think if you're, if you are a good operator, I always tell the great operators who talk about coming into venture, "Don't be crazy. Your highest and best use is operating." So I actually, you know, even though it's great being a VC, if you had the ability to be the next CEO of Microsoft or be a VC, my strong advice is go be the next CEO of Microsoft. If you had... So I, I, I get the operator. I get the char- the transition from venture to operator. It's what you said, Harry. I, the question you're raising is the level at which you make the transition. It's giving up autonomy. But again, as I say, I don't know what was promised.
- HSHarry Stebbings
How did you think about Meta more broadly being hit hard? I mean, you know, they were down 6%. They've had a pretty meteoric j- just continuous rise. This was, this was a blip. How did you guys take that?
- RORory O’Driscoll
The big picture here is their core business is doing extraordinarily well. They have a very tenuous link between their core business and their AI initiative. They talk about how AI is optimizing their core business. But even I think from the discussions they said that'sMuch more old school AI than any of the LLM stuff. So you've got this core business that's kicking off cash, and then you've got the CEO with Entrammal Power decided to invest all this cash in this new business. So if you're trying to value the stock, your entire day is spent thinking, "WTF is this new business worth, and is it gonna eat all the cash flow?" So every ti- it's like criminology. You know, when you're looking at who lines up in Red Square and trying to figure out who's in charge. You just looked at this announcement and said, "I don't know what this means, but maybe it means bad, so maybe I should sell the stock off." There's just no data, and there's no way of knowing. At some point, it becomes ob-- At some point, someone's gonna have to explain what they're doing with this $60, $70 billion and how it's gonna change the business. And if Zuckerberg is right, like he was about Instagram and WhatsApp, everyone will go, "Yay." And if he's wrong, like he was about the Metaverse, everyone will go, "Oh my God, what were we thinking?" Until then, we're guessing.
- HSHarry Stebbings
So you don't think this is the beginning of a cooling of the excitement of the AI market and a dampening of market caps and a dampening of public markets in a way like some people are worried about?
- RORory O’Driscoll
How the hell would I know? I mean, I don't think implies I'm a no. Like, it's just not knowable. Let me tell you, you'll know when it's happened because it'll hurt, right? Right now, all you know now is things are pretty lofty. You-- When things are trading at 15 times earnings, you don't have to agonize all that much because, you know, if earnings blip 10%, the stock blips 5% and no one cares. When things are trading at a very pricey level, then everything that goes wrong, no matter how tiny, gets magnified through the stock price. Things are trading at a high price now, right? You don't know is that gonna change in a week, a month, a year. But it's, it's gonna be an angsty time and un- either the growth comes to fill the earnings gap or the stocks go down to reflect that. And when that happens, who the hell knows?
- JLJason Lemkin
Meta has a one point five nine beta. It's a volatile stock. Like, I don't think we can read anything into these ups and downs because the beta is so high, right? I mean, Nvidia two point three, right? These are insane numbers, right? And so I literally... I mean, even if you, if, abstract away from that, when you look at the, the amount of volatility Figma's had since the IPO with not-- it hasn't even had a g- a quarter hasn't even gone out. Like, these high beta stocks, I don't know. You gotta be smarter than me to figure out what even a 7%, 8% movement means.
- 32:41 – 49:35
Anthropic’s $10B round: Have we hit peak AI hype?
- JLJason Lemkin
The beta's too high.
- HSHarry Stebbings
Aligned to what I just said, which is, like, the cooling or the lack of cooling, Anthropic goes from a five to a $10 billion raise. Is demand just completely inexhaustible for this? I heard it was four X oversubscribed. How did you guys react to the five to 10 and the four X oversubscribed reportedly?
- RORory O’Driscoll
I mean, yes, good for them. Demand appears to be pretty damn high. You can raise, you know, it looks like you can raise 10 billion plus in a single financing in the private markets. Yeah, OpenAI raised 40. Yeah, I mean, right now, as you say, appetite for the story, the AI story, is extraordinarily strong. And most of the public's comps aren't a pure AI story. They've got kind of AI blended into something else. Your Facebook, A- um, uh, Google, Microsoft have at least something there. Apple has nothing there. Amazon has little there. So there's got to be hu- if you're a Fidelity-type manager, you're like, "How do I get me some AI action?" There's two obvious at scale c- candidates and, yeah, you probably can sell a lot of that stock right now, and they're gonna sell it. And the good news is they know what to do with the money. They can buy GPUs.
- JLJason Lemkin
But is this-- And Harry, you would know this better than me, maybe Rory knows it. Iconic is a lead for this round and Lightspeed led the last round?
- HSHarry Stebbings
Yeah. Yeah.
- JLJason Lemkin
Okay, these are not, these are not... I mean, maybe the underlying LPs and money is from sovereign wealth funds or other. These are the standard cast of characters who can tap into vast amount of money, right, and charge vast amount of econo- keep a vast amount of economics on top of it. Of course, they're gonna go from five to 10. If I can deploy, why don't I deploy another five if I'm Lightspeed or Iconic, right? Why, why wouldn't you? It's the same amount of risk. Like I'm put- ins- instead of Lightspeed putting two mil- two billion in, if it's LPs will give them six, why not? I mean, literally it's, it's a- at, at a GP level, it's the same amount of risk, isn't it? I lose two billion, six billion. What's the difference? But I, I mean, [chuckles] I can make so much more money.
- RORory O’Driscoll
I mean, you'd like to-- Look, and they could-- Um, just to put it, and they could also be right in that call that it is gonna work from here. You know, it was-- It's an interesting exercise to try and take the Anthropic numbers and say, "What do you have to believe to believe in a three X from here?" And it's frankly not impossible, right? Um, so yeah. I mean, a lot has to go right, but a lot is going right. I mean, let's ju- if, if you do that exercis- I mean, we-- I kinda did the thought experiment a while back, and you just simply have the, the growth rate over the last year or two is so fast that one of two unprecedented things is gonna happen in the next year. Either A, they're gonna-- If it deaccelerates at quite normal rate relative to its current growth rate, it's gonna hit that kind of, you know, it's gonna hit $50 billion in revenue plus. 'Cause things that go from one to nine or 10 probably go next year. I don't know, that's a 10X growth. Do they go five X? Do they go three X? Either it grows quick-
- JLJason Lemkin
They could end next year at 40 billion, right?
- RORory O’Driscoll
Exactly.
- JLJason Lemkin
In revenue, it's possible. Could-- If it goes, ends this year at nine-
- RORory O’Driscoll
Yeah
- JLJason Lemkin
... from one to nine, you're much better than me, Rory. What if, what if you just do your, your trailing velocity? What does that end up, what's the-
- RORory O’Driscoll
It, it, that's exact- you end up with an enormous number and you go, "Wow, that's not crazy."
- JLJason Lemkin
Enormous.
- RORory O’Driscoll
And then so either that happens, which would be unprecedented because the amount of revenue would just be so big. Or they slow down faster than anything slowed down ever. Like, it's like going, you know, you know, if you go from 10X growth to two X growth, and once there's 2X growth, it's amazing at that scale, but it would be such a deceleration. So when you look at the stock and you look at the price they're paying, w- as I say, it, it's, it's not crazy to say that the, if the growth only slows even 50%, it's still got a, a, a kind of a trajectory and a throw path to, you know-... yeah, tens of billions of dollars in revenue, and that gets you into the valuation. So ultimately, and, uh, and processing through that, you say to yourself, "Hmm, at some point it's a market size question." If there's enough revenue out there, these two guys are gonna get it. And then, a- and thus, in the end, as all overpriced stock... And I shouldn't say overpriced. As all highly priced stocks do that are really leaning into growth, it boils down to your assessment of is there t- $50 billion of demand for foundation model APIs or $500 billion of demand for foundation model APIs? And if it's the latter, they're probably gonna get 40% of it, and it gets them 200 million. And if it's the former, they're gonna get 20 million, and a lot of these people are gonna be sad.
- JLJason Lemkin
What do you think it is, Rory?
- RORory O’Driscoll
I, it- it's something Jason said three or four shows ago where, you know, if you start running out the, the numbers on what... I mean, ma- let's talk about mark- 200, uh, uh, 100 billion of revenue. Salesforce is doing 40 billion. So at 100 billion, you're saying it's kind of two and a half times the size of Salesforce, which effectively has dominant market share in the CRM space. Coders have to get what Jason said, um, couple of weeks ago, 10, 20 grand. These agents have to be worth 10 or 20 grand a head for that market size to get to that scale. If all it is is $2,000 an engineer, I don't know if you get there, right? That was my big aha when I did the math. You actually need these things to take vast chunks out of the labor budget and be worth 20, 30, $40,000 almost a head to the enterprise for the math to work. And, you know, Jason said, in some cases it will. There will be some people, there will be some use cases where an enterprise will part with 20 grand, but there'll be lots where it don't. So I don't know if I get to that 100 million plus, 100 billion plus in revenue 'cause I just run the math and I can't find the TAM, but I could be wrong and underestimating it. My guess is no, and it slows more than you think, but it's not a crazy call.
- JLJason Lemkin
I can't shoot from the hip and do the math, right, 'cause it's so much money. It, it, it is so much money. Um, but, um, I mean, listen, we just, we just had Marc Benioff here who's saying in Dreamforce they're gonna launch an AI SDR that I guarantee you it's gonna take, like, six to nine months to scale up, but it's gonna be bonkers. Everyone's gonna turn it on. And that, that is, that will tap into a, a vast amount of budget, a vast amount of cycles, a vast amount... Now, maybe some of it'll be their own LLMs, but it doesn't really matter for purpose of this. I mean, we're just starting this cycle, right? And it's hard to predict how much human replacement, how much new applications, um-
- RORory O’Driscoll
But let's do that exercise, though.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
You exactly... Listen, they're do- Salesforce is doing 40 billion a year. Say 10 bi- I think 12 billion of that is Sales Cloud, right? Let's say they turn this on and it's a 30, um, so 12 bill- it's a 30% uplift. AI SDR on top of the core Sales Cloud, which is 12 billion, so it's 3.6 billion of extra revenue, right? Let's just say that, right? Which, as you point out, only gives the poor man another year of 10% growth. But 3.6 billion in revenue, let's just say LLM costs as a percent of revenue are, you know, expensive, 20%. So that's $720 million, right? So you've just had the second-largest software company on the planet turn on the most labor-saving device for their core marquee product, and when it filters down to LLM revenue, it's $720 million, round it up to a billion. Hmm. That's when you kind of go, you have to sell a lot of labor replacement to get to 100 billion. Now, maybe I'm underestimating, maybe the 30% is wrong. Could you see yourself, Jason, paying four times mut- what you pay for Salesforce for an AI SDR on top of that Salesforce? 'Cause that's what you need to, that's what you pay.
- JLJason Lemkin
Well, I mean, in a way we, I mean, in a way... Listen, we're, we're a tiny group, right? But we have four seats of Salesforce. So what do we pay? 300 bucks a month?
- RORory O’Driscoll
Yeah. Okay, maybe you could.
- JLJason Lemkin
I'm sorry. How, how many... Tell me, do the math. I, I get a little tired in the afternoon. So we're paying 10 grand, 12 grand a month, 12 grand a year for Salesforce.
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
Nominally, nominally, nominally we're paying $500,000 for 11 AI agents.
- RORory O’Driscoll
Okay.
- JLJason Lemkin
So what's the ratio?
- RORory O’Driscoll
So you're right. No, in your case you get there, and if I don't know-
- JLJason Lemkin
I don't know whether that sca- whether that makes sense long term. I don't know if it scales. But if that, if, if a portion of that ratio were to hold-
- 49:35 – 58:47
Klarna’s wild ride: From $45B to $6B to IPO at $15B
- HSHarry Stebbings
Totally does. Rory, you said if, if Salesforce grew, you know, 13%, not 10%, it bounced like never before. You know, we had Klarna filed, say, to go public between the $13 and $15 billion range. It was lower than people thought, and it was lower, I think, largely because of the 20% year-on-year growth, which is- isn't great. It's, it's good, but it's not great. Um, Jason, how did you interpret Klarna finally going out? We, we know that it had a $45 billion price round before, SoftBank led, then a repricing to six and a half, and now going public at 13 to 15.
- JLJason Lemkin
If they were growing 24% last year and now they're filing and they're growing 20, like, they're at... What's the rever- what's the inverse of the Mendoza Line, Rory? The opposite. When you fall below, you can't file, right? If you fall below 20, you... Rory did the Mendoza Line-
- RORory O’Driscoll
Yeah
- JLJason Lemkin
... of triple, triple, double, double or better, but there's also this hard, it's the hard deck. You can't fall below the hard deck for IPO, and it's 20% growth. And I could be wrong. Like, I don't know. It might be that Klarna's fi- filing just in time in the midst of this IPO wave, because 24 to for- 20 is not the re-acceleration that we're seeing in some of the folks. Now, I mean, even, even, um, you know, Netskope just filed modest re-acceleration to, from 30 to 33%. 30 to 33% may sound modest, but it's a lot of work, right? 24 to 20, you know, Mav's hitting the hard deck again. Like, you bet- you pull up. [laughs] Pull up. Pull up, pull up. [laughs]
- RORory O’Driscoll
I, I mean, as I think, I think-
- JLJason Lemkin
File, file, file. Pull up, pull up. [laughs]
- RORory O’Driscoll
No, yeah, I, I, first of all, I... There is a, there is a level of growth below which it's hard to file. But just to be clear, the bigger you are, the lower that growth threshold. 'Cause it's nothing, it, it's simply there's a transaction level below which the Wall Street math doesn't work. So, you know, silly example, if you're doing 10 billion in revenue, they'll happily take you public with a 7% growth rate because you're just big enough to matter, right? Um, but you're right. For the typical venture deal, somewhere around 20%, you're starting to get to, you know, the multiples don't get there. But at, look, clearly at 14 billion, it's big enough to get the deal. It's, it's a perfectly doable deal. So I don't think it's a question of you're growing too low to matter. I think at 14 billion, it's a valid transaction. I mean, just, they're just very different business than Netskope. It's very much a financial business. If you recollect, they had that whole issue on, you know... Interesting they, they, they o- they did that little bit of overstatement on AI and they're gonna automate everything, and then backed off on that. But that was interesting, but not important. I think the more interesting fact was some of the early lending, comments on lending lo- lending losses ear- I think it was earlier on this year. So it's a financial sec- services business, and it lives and dies on financial services metrics. And, you know, include... And yet, once you start to lend, you gotta be good at lending. I mean, we talked about NewBank last week, which appears to be bloody good at lending, right? Klarna will be just fine. It'll trade, it'll go public, whatever. Um, it'll be valued like a relatively mature financial services business. I haven't studied the S1 yet, but, you know, the guys who priced it at six billion were right, and the guys, which is Sequoia, and the guys who priced it at 45 billion were wrong, which is SoftBank. As usual, we... I mean, you'll recognize this, Harry. There's a saying, you know. Gary Lineker used to say that soccer is a game played by 22 people, and in the end, the Germans win. Well, in the same way, venture is a game played by 6,000 people, and in the end, Sequoia wins. You know, they won here again. They, they, they had the big win.
- JLJason Lemkin
Still, 24 to 20% growth at less than four billion in revenue. Still incredible, right?
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
But deceleration. And hyping, hyping as they're going public, their million in revenue per employee, that's implicitly saying we're, we're finding our rule of 40 in the bottom line, not in the top line, isn't it? I mean, that, that coded message of a million per employee as growth decelerates is fairly clear to Wall Street, right? We're mature. We're mature.
- RORory O’Driscoll
Yeah, we're mature. But also, you're a financial services company. It's not even, it's not the same metric. I mean, you know, I shudder to think what Jane Street or Citadel's revenue for per employee one day. [laughs] It's in the tens of millions, right? Yeah, I mean, this is the classic fintech company trying to make software noises, but let me give you a clue. You're a fintech company. It's all fine. It's totally wordy thing. You're a fintech company at huge scale. Well done. You built the category. You'll get the medium growth fintech valuation, and everyone but the last round will make money.
- HSHarry Stebbings
Does SoftBank just get washed?
- RORory O’Driscoll
First of all, no, and it boils down to the details in the documents. So two comments. One is there's two, there's two questions where that could have happened. At the time of the last round, I remember thinking people are going, "Oh my God, you raise- you paid 45 and now you're raising money at six." Yeah, you look like an idiot, but you only took 10% dilution. So if you were an investor at 45, yeah, you, you know, it sucks to take that dilution, but it doesn't k- it didn't... The last, the down round at six billion didn't kill the economic value of their investment. In fact, it preserved it by keeping the company alive. Now fast-forward to today. You still overpaid. As we've discussed before, it boils down to what's in the docs. Do they have a... My guess is they don't have a block because Sequoia are not dumb people and wouldn't have left it in. So yeah, they just overpaid, and they're gonna get converted, and they're gonna trade at 30, 40 cents of what they originally paid, and their just hope is that it bounces up from there. So they don't get washed. They just do what's called losing money.It turns out when you buy a stock at 45 and it trades at 15, you're down.
- HSHarry Stebbings
I totally get you. I, I love that also in terms of the 6,000 players and in the end Sequoia win. That's, uh, that's the intro for sure, and I mean, they're gonna pay you for that one, Rory. I mean, I know the head of marketing there, she's gonna be like, "Rory, [laughs] go. Woo." It's amazing.
- RORory O’Driscoll
Well, you know, it, it... Look, I mean, I started here thirty-one years ago and they were doing great, and you, you fast-forward 31 years, they're still doing great. There's something in that. You gotta hand it to them. I remember thinking when the Klarna round went down, and obviously there was a bunch of drama after that with Sequoia that we'll just leave out for now, um, but I remember thinking, "That was a shrewd call. That was a shrewd call." You just let them raise money at 45 billion a year and a half ago, and now you're stepping in at six. Remember thinking, "Good investment," and it, and it's gonna turn out to be that.
- JLJason Lemkin
Th- it's too fast 'cause it happened, you know, th- they, not that it helped them. SoftBank did have a, a ratchet in WeWork. This deal was not that far off at a similar valuation. They could have a ratchet here. Like, I, I, I just don't... We- I need one more day to find out, right? You don't think so?
- RORory O’Driscoll
No, no, I, I'm not, I, I don't think... Yeah.
- JLJason Lemkin
I mean, if they got one in another deal at about the same price at about the same time, at, at least it was discussed. At least it was discussed. [laughs]
- RORory O’Driscoll
Y- you're exactly right. It is knowable, and when I get off here, and we will feed the S1 into ChatGPT, and we'll know in an hour.
- HSHarry Stebbings
I love that. Uh, what will Netskope go out at? 700 million ARR, growing 33%. Last valuation was... I can't remember what it was, but where does that go?
- RORory O’Driscoll
It was around 7.4 billion in 2021, and after that they raised some kind of weird convert that's harder to track. So that's, yeah. So it's hard not to, um, um... I mean, I think it... I don't know if that was indicative pricing, but it's a g- it's a good company. It's not making money like Figma. It's losing money, but it's got... I, it'll be at or close to it is my guess, or maybe even up from it. So yeah, I think the 2021 round connects hill there. Not quite out of the woods yet, but if you got a company growing at, if you got a company at 700 million growing north of 30% with a little bit of re-acceleration, it doesn't take more than a squint to see a $7 billion, you know, flat round to '21, and as being doable.
- HSHarry Stebbings
I totally agree.
- RORory O’Driscoll
And good for them. Great company. Around since 2012. Cong- all congrats to Lightspeed, who own a big chunk of this, along with Accel, and yeah. Um, we, yeah. They built a great company there.
- JLJason Lemkin
What were you guess- what are you guessing the valuation would be?
- RORory O’Driscoll
I mean, the point is this, it's really hard to get-
- HSHarry Stebbings
No, no, no, no, no, Rory, he's putting it into his calculator, and he's gonna tell you where he thinks it's gonna be. This is like the PLG for SaaStr.ai.
- RORory O’Driscoll
Yes.
- HSHarry Stebbings
Everyone, SaaStr, SaaStr.ai for more-
- RORory O’Driscoll
We'll value your stocks for you
- HSHarry Stebbings
... Yeah, Rory, what, what do you think it is, and then we can compare it to Jason's.
- 58:47 – 1:01:46
Inside a16z’s seed machine: 72 bets vs Sequoia’s 27
- RORory O’Driscoll
be a reach here.
- HSHarry Stebbings
Going to the other end of the spectrum, guys. I don't know if you saw this, but it was astonishing for me. It was a mapping of seed rounds, and it w- div- segmented between mega funds and boutique funds.
- RORory O’Driscoll
Yeah.
- HSHarry Stebbings
Number one mega fund seed investor was Andreessen with 72 seed deals, compared to number two was 27.
- RORory O’Driscoll
Which is Sequoia.
- HSHarry Stebbings
Which is Sequoia. Exactly. Rory, how did you analyze that? Is Andreessen just playing a totally different game? How do you think about that?
- RORory O’Driscoll
I mean, you have to say they're playing a different game. I mean, the words ipso facto, the words speak for themselves. If everybody else is doing 27 or less, and you're doing 72, then by definition it's a different game. Yeah. I mean, we saw it again in the o- other interesting analysis that someone did on the Series A rounds. They are, they are the, they are the successful quantity provider at every stage in the thing. They're the largest capital raiser, I think other than Insight, but Insight, obviously it's slightly more later stage. In the kinda Silicon, pure Silicon Valley universe, they're the largest capital raiser at every stage. So by definition, they're doing the most deals and being the most aggressive. I mean, and so far successfully. There's, you know.
- HSHarry Stebbings
Do you think it will work out? When you look at some of them, and we've mentioned, like, the Databricks' of the world and how much that will return, it is astonishing.
- RORory O’Driscoll
The truth is this, probably... If it does or it doesn't work out, it won't be because of their seed program, and that's the big aha. Like, the seed program could get lost in the noise. It will work out if by virtue of their seed and A program, they get the small number of absolute outliers, and they stated this right back in 2009, so give them credit for wild, wild consistency. As long as they get those few number of companies that are absolutely outrageous upside performers, and they stuff a billion dollars into them like they did at Databricks, and they do it at the right price, it'll work out fine. Everything else is a loss leader. I mean, the seed program, it's basically like cheap milk in the supermarket. It brings in the crowds, right? [laughs] You know, it's the loss leader.
- HSHarry Stebbings
Seed is for suckers, apparently, Rory.
- RORory O’Driscoll
No, no, we, we said that, Jason said that last time, and then we all got... No, I mean-
- JLJason Lemkin
Yes.
- HSHarry Stebbings
I, I think it's-
- JLJason Lemkin
Yes. I've got a friend who-
- HSHarry Stebbings
I think that's consistent. I think it's consistent
- JLJason Lemkin
... I've got a friend who's a complete dipshit, and he's gonna make a huge amount of money from $100 million SPV into OpenAI at 200 million. [laughs]
- HSHarry Stebbings
You know, I, I, I thought about that-
- JLJason Lemkin
Well, he may be a dipshit, but he's got good sales skills 'cause he got in. Sales... There's different ways to win in this business, and sales is, uh, you know, sales is part of it.
- HSHarry Stebbings
There you go.
- JLJason Lemkin
Yeah. Sometimes you just gotta sit on their steps, to sit outside of OpenAI's office all day long and grab Sam 11 times. The classic Sequoia playbook. Sit on your, sit on your steps until you get the meeting. Don't leave without the term sheet.
- HSHarry Stebbings
Now, guys, do we, do we have any other news items before I do a tweet
- 1:01:46 – 1:14:33
Martìn Casado: Is consensus investing dangerous - or the only game?
- HSHarry Stebbings
of the week where I just wanna talk about one tweet which I thought was particularly interesting, grabbed the zeitgeist, and I wanna hear your thoughts on? Okay?
- JLJason Lemkin
Okay.
- HSHarry Stebbings
What's the tweet? Martìn Casado: "The idea that non-consensus investing is where the alpha is, is actually quite dangerous in the early stage. Follow-on capital tends to be more and more consensus aligned."
- RORory O’Driscoll
I thought it was a better tr- tweet than he got credit for in the tweet- in the Twitterverse, right? Um, I, yeah, I saw that tweet, and I, I'm gonna work in, he also did a really good piece on gross margins and the way people are misunderstanding that, that if we had more time we'd talk about. And I, I thought the gross margin piece was very thoughtful, and I thought that that tweet wasn't crazy. Let me tell you what... And, and I think, you know, people then cited the cons, and yes, there was, there, there are always outliers that, that are not consensus. Like in 2016, the non-consensus bet would've been to do OpenAI, true, but probably... But it's also probably true that 90% of non-consensus bets would've failed entirely, and at that stage, SaaS was probably consensus, and only about 50% of SaaS bets would've failed entirely, right? When you're on this mega trend of an architectural re-platforming, a goodly amount of the correct investments to do are fairly consensus in terms of the broad macro themes, right? And I, I remember, I think it was IVP years ago, I mean, like 20 years ago, they had this concept of, you know, 70% of the bets being very much on track, faster, better, cheaper, and then I remember 30% kind of brave new world bets. I don't think you could build your entire business on waiting for OpenAI, right? So I actually think his comment was more spot on than people give credit for. I think if you look honestly about what you're doing, you don't wanna be 100% consensus. You don't wanna be caught just doing AI. You wanna be looking at new stuff. But at any f- It's like the exploit, explore thing. I think 70% of the time you are... Consensus is a bad word. You are betting the mega trend that's probably gonna last 20 years, and it can be, it could be AI. It was... 20 years ago it was SaaS, 15 years ago it was public cloud, and I think it's... And, and that's a consensus bet that paid off for 15 years, right? So I think, I think his com- I'm, I'm rambling a little, but I think his comment was more correct than the 140 or 280-character comments made out. Y- you don't wanna just be consensus, but a large... Consensus is a bad word for archit- [laughs] you know, on point with where the industry is going.
- JLJason Lemkin
He responded back to my, my reaction, too, which was that o- I thought one of the implicit points, I mean, we've talked about this entire series of the show has been making, putting money into consensus bets, right? I mean, half this AI stuff is. I thought one of the points he was making maybe, a- and he agreed, was that part of this is just if you're going to make today, you know, the, the 10 deals are consuming 40% of venture capital.
- HSHarry Stebbings
Yep.
- JLJason Lemkin
Everyone we knew that used to do B2B deals only does AI. My point back, which he agreed, was like, if you're gonna do bets outside of that, you better not count on much follow-on capital.
- RORory O’Driscoll
Agreed.
- JLJason Lemkin
'Cause they're not interested. They're not interested. And so I've done, I've done several B2B plus AI deals in the last, uh, 18 months that I love, that are, that will do great, and the advice I give to all those founders is, "Don't expect any money."
- HSHarry Stebbings
Yeah.
- JLJason Lemkin
Don't exp- just noth- Like all... I can't... 80% of the folks I can refer you to are not gonna take your meeting, and, um, it's a reality. And so I, I don't know that w- I mean, he was like, "That's, that's exactly part of the issue," right? And so it... So there, there may be several layers, but if the whole industry is consensus, um, just be aware that that's the m- the capital's concentrated. It's not just your buddy that put 100 million in the SPV. Everything's concentrated here, right?
- HSHarry Stebbings
We, we had an IC today for a fintech business, and they scaled to 5 million ARR in a year, and the founder was great. And I said, "Guys, why, why is this not moving fast? Like, what's wrong with it?"
- JLJason Lemkin
Yeah.
- HSHarry Stebbings
And one of my team were like, "Oh, it's not AI."
- RORory O’Driscoll
And that's an example of where I, I, I think, Jason, you were spot on. It's not, it's not that you shouldn't do non-consensus bets. There's a couple of different things. But that's a classic example where you should do it. You should buy it at the right price because you're not gonna get the magic pixie dust next round, and you should run it capital efficiently 'cause you're not gonna get people throwing $4 billion at you.
- HSHarry Stebbings
So Rory, what you're saying is the price should reflect that it's not AI, and with that in mind, then it sh-
- RORory O’Driscoll
Yeah, you basically, you, you... It, it, it will and should be valued on fundamentals. But if it's-
- HSHarry Stebbings
So that's different to what it was in the last years.
- RORory O’Driscoll
Yeah. If it's non-consensus only 'cause it's doing something different, then by all means do it, provided you understand what's different and you understand what you're getting into. I think the really true thing, for example, that didn't quite come out, we, we talk about this when we think about our mega trends. It's one thing to say I'm gonna do a deal that's not, say, in this case, not the ultimate consensus bet, AI, but it's really something kind of you gotta question if you're doing something that effectively is a bet against the mega trend. Like, it's a little like doing a client server deal in 2002, right? So I think knowing what the consensus is in has quite a lot of value because it also speaks to where the industry as a whole is going technically, s- the technical... Let's call it the technical consensus as distinct fromThe financial valuation consensus. 'Cause going back to what Benio said, the technical consensus is that most software is gonna be agentic for the next 20 years. Do you really wanna take a bet against that? I mean, because that's probably where the industry is going, and that's, again, where I think Martin was right about that.
- JLJason Lemkin
I just think more tactically, if you're gonna do... If Harry's gonna do this fintech deal at three-- what you said, five million ARR with good numbers, right?
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
One issue is, is are you paying an A- AI premium that you shouldn't, right? And, and that's important. And we-- I built this AI calculator. I live coded it. It's pretty cool on SaaStr at AI, and it shows how the premiums work for the types of companies. It's very interesting. But valuation aside, I think the bigger issue for venture is just when times are good, we take follow-on capital for granted. No one's worried about the follow-on round for Anthropic that they're throwing $10 billion in. There's not a single investor that's worried about the next round, is there? Gre- it's just greed, okay? But most of our careers, um, we've worried about follow-on capital. I worried as a founder, a capital in B2B was, was scarce until as late as 2018. It was very, very scarce. It was very, very scarce. And, um, so that's just where the hell you... Like, like doing Harry's bet might be great, but not burning two million a m- a million bucks a month, right? Like, then it's like, who the hell's gonna... Like, I mean, Harry's fund isn't big enough. He doesn't have billions yet. Yet. Uh, and he doesn't like to carry his investments through three or four rounds. So you gotta pass on that one unless the burn rate's zero, then I would do it.
- RORory O’Driscoll
'Cause it's funny, when, when I... I agree. When I... Um, 'cause I'm having this experience right now. When I look back at my mistakes in the last three or four years in terms of investing, you know, I, I have, I have actually both kinds. I have a, "I wish I'd made more consensus bets," 'cause consensus is such a negative word. I wish I made more on-trend AI bets. We made a lot. I wish we'd made more, 'cause the mega trend was bigger and more dominant. But then equally, I have three or four utterly non-consensus deals that I looked at, was intrigued by, and probably should have... and, and should have pulled the trigger on and regret, and I just saw one of them today where I'm like, "Wow, I really missed that one." But I'll say it, what you don't remember is the 90 non-consensus bets that you didn't do that just haven't worked out, right? I mean, both... so both statements are true. It's just, it's a lot more forgiving in the consensus marketplace, 'cause as you say, you get washed away by a... You get, you, you get buoyed up by other people's capital, right? And it's easier in the short term to, A, survive long enough to get the feedback.
- JLJason Lemkin
I'm just... I've done... Two of my best investments I have today, I... And I'm a seed investor, right? I have the smallest amount of money of these three people, right? Two of my best investments today, I had to create a round out of nothing when no one... when there was no capital. I had to create a round. I didn't have enough money. I had to create it.
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
I don't wanna do that too many times. It, but it's like-
- RORory O’Driscoll
It's brutal
- JLJason Lemkin
... this isn't as hard as creating Snowflake from scratch, man, but it's hard, okay? It's hard.
- RORory O’Driscoll
Going back to the consensus comment, it's okay... I'm, I'm trying to formulate it here. Maybe it was, it's okay to do the consensus bet, but you don't wanna do the consensus bet where the odds on the consensus are lower than the accuracy of the consensus. In other words, y- you don't wanna be... You wanna be in AI 'cause that's what... 'Cause we've wrestled with this, a lot of these quote consensus AI bets, and we're not doing them, and we can't make the prices work. You still have to be paid for... You have to assess the risk accurately, and all the quote consensus statement says is, "It's more likely than not that this is the direction the technology is moving." So therefore, you probably don't have that, "Oh my God, are you totally wrong?" dimension to your business. Which is why you can lean in a little into this AI consensus bet versus some of the others. But you still have to get all the other shit right, put your point. And on top of that, if you overpay beyond the dreams of man, then there's nothing you can do to save yourself. So like everything in investing, it ends up being way more nuanced than consensus, non-consensus. The consensus bet risk, you're probably right on direction. You might ludicrously overpay. The non-consensus bet, you could be way asked wrong on is it even gonna work? You probably won't have any follow-on capital. But if you get it right, you will have a beautiful thing. You'll have a high ownership, low capital, N of one outcome. Again, as always, it turns out investing is hard and you, you can't just [chuckles] paint the numbers and collect 100 million bucks.
- HSHarry Stebbings
Final one. What consensus shit do you wish you'd done more of, Rory? Or do you wish you'd done?
Episode duration: 1:14:43
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Transcript of episode 6ky5POiQs5M
