The Twenty Minute VCAnthropic's Raise & What It Means for Potential IPO? Mag7: Google & Amazon Up, Meta & Microsoft Down
EVERY SPOKEN WORD
100 min read · 20,314 words- 0:00 – 1:06
Intro
- RORory O’Driscoll
The most aggressive quarter in capitalism. This is leaning in like you've never seen leaning in before. This is the top of the distribution pulling away.
- HSHarry Stebbings
This week, it was the Super Bowl of earnings, Mag7 earnings. So what happened? Meta lost, [buzzer] Microsoft eh, [bell dings] Amazon thumbs up, [bell dings] and Google home run. [whooshing] Next, is the SaaSpocalypse over? Atlassian 29% up, Twilio 20% up, Five9 23% up. And then in private markets, Sierra raising $950 million at a $15 billion valuation. And then finally, Sam Altman versus Elon Musk, week one of the trial begins.
- RORory O’Driscoll
When the music stops, who has a chair with a trillion dollars on it? Without the AI initiative, Microsoft is flat revenue.
- JLJason Lemkin
Anyone on LinkedIn that talks about their team, fire them. "My team this." They're all so precious about their team. Lead from the effing front with AI. A CMO today should be able to run their own campaigns. Ready to go? [upbeat music]
- 1:06 – 4:59
Mag7 Earnings: The "Super Bowl" of Tech Results
- HSHarry Stebbings
Boys, there's a lot for us to report on this week. We had a big week of earnings. Mag7 Super Bowl was the title that I had down. 540 billion in combined revenue, 700 billion in AI CapEx. I thought we'd start with, like, the clear winner, which seemingly was Alphabet. Cloud backlog nearly doubled to 462 billion. Now exceeds Alphabet's entire 2025 revenue. Do you agree Alphabet was the runaway winner from this mega earnings season?
- JLJason Lemkin
I mean, Jesus, it's jaw sta- it's jaw-dropping at that scale, right? I think the meta-- Uh, like, the theme of this episode, I think, and then we can tie it into Twilio and Atlassian and Palantir, is just this jaw-dropping acceleration, right? And even since we've been doing this show, it's, it's obvious the CapEx boom has been happening. Rory's been great on this, right? But to see Google accelerate at this scale, uh, you know, 60-some-odd percent, I think, it, it's just, um, it's, uh, it, it just, it, it, it once again makes you wonder why you invest in anything else. Why, why [laughs] you, why you invest in ... The, the, the amount, the sheer force of spend and, and as a side note, just, and as a personal note, I mean, everything's clicking at Google. You know, when we started this show, folks were wondering would search die, right? Because everything would go to the LLMs. Clearly, the, like, it hasn't happened economically. It hasn't happened in advertising. And honestly, I was checking even our own little SEO at SaaStr. It, it's up 60% this year, the highest ever. The highest ever. So, like, Google's cash, you know, everyone, a lot of folks are struggling to protect their cash cow versus the investment in the future, right? Should Uber invest in autonomous driving, which it needs to, or should it invest in Uber Eats, which is on fire? There's so many trade-offs here, but Google has no trade-offs. Everything-- The only trade-off it has is where do I put my chips? Because I need, I need, I need all the GPUs for myself and for my customers and my partners, and I need it for Replit, who hosts every website on it. They just have to figure out who's getting this massive backlog.
- RORory O’Driscoll
So first of all, a-a-agree on the, um, the kind of framing, and a-actually, I'm, I'm gonna quote a, a blogger I read, a Substacker I read, Evan Armstrong, who described this quarter, and I thought it was a great description. He writes something called, I think it's, uh, The Leverage or something. "The most aggressive corner..." Sorry, "The most aggressive quarter in capitalism," right? And I'd actually amend it to saying the most aggressive quarter in American capitalism, 'cause it is a uniquely American thing. This was an astonishingly aggressive qu- And, and I love the wording, 'cause it's, there's, there's two things going on. One, the largest five or six companies on the planet are accelerating at scale and doing plus or minus 20% growth overall, 30, 40% growth in some of their sub-sectors. So that's wildly aggressive growth. And then even more aggressive CapEx, right? These same companies are doubling down on CapEx, letting it grow 50, 60%, such that CapEx is now eating most of their free cash flow. This [laughs] and, and exactly, this is leaning in like you've never seen leaning in before. And he wrote a really nice piece that says, you know, normally it's the new guys, the, the up-and-comers, you know, being aggressive, and the incumbents moving a bit slowly and defending their turf. These are five of the seven largest market cap companies on the planet saying, "Hell no, we're not gonna get pushed around." Um, in fact, six, if you include NVIDIA, which didn't report this week. "We're just gonna make the bet too," right? So that's the first zoom-out comment. This is the, the top of the distribution pulling away, which is kind of a sobering thing if you start thinking about all sorts of inequality, all sorts of those kind of issues. But just from a wow perspective, these are amazingly great companies doubling down. So that's kind of the first big-picture framing here. You just can't take it for granted. Uh,
- 4:59 – 14:46
Google's Cloud Explosion & The AI Search "Disruption" That Never Came
- RORory O’Driscoll
second comment would probably be, yeah, you're right. Of the companies, Google did, quote-unquote, the best, right? Um, in that it, you know, it's exist- Jason, you framed it right. The existing business where you could have made a disruption story around search hasn't happened, and the cloud business has accelerated. But I'm gonna make a point. I actually think controversial take for all of these companies, I wouldn't say it's disappointing, but this is only the start of it. It's not the main event. All these companies are ta- Fundamentally, the, the, the, the, across all of the companies that have been successful out of here, and it's obviously Google. It's not Meta, which we'll talk to in a second. It is Microsoft. It is Amazon. If you analyze what they're boasting about, and if you go one level deeper, it's two things. One, we sold a lot of compute to the LLM companies to make their tokens. And then second thing they're boasting about, "Oh, and by the way, we bought some of those tokens and sold them to our customers 'cause we have distribution too."Right? And both of those statements are too true, and both of those statements made the revenue line go up. But if you zoom out a million miles, what you say is, "Oh, let me get this straight. You, the five largest market cap companies on the planet, are effectively working for these two privately held companies and doing their distribution and doing their CapEx investment, while ultimately they own the IP." Hmm. Just an interesting phenomenon. And, and that's kind of the second big-picture comment here, which is this is all a bunch of peop- yeah, th- this is a bunch of the largest companies growing quickly by servicing these other companies. It's super interesting. And then the last, which is going back to Google. I thought everything was really good, but it was interesting th- uh, yeah, let's talk about Gemini. You see all these evals of Gemini, and, you know, it's nearly as good, it's nearly as good for coding, right? And then they cited a number, and I, I, I wrote it down, and I apologize. I couldn't find it in front of me. Like, the, the month-on-month token growth, Q1 was pretty good. It was like 60, 70%, XD billion tokens per second or some vanity metric like that. But the truth is, Anthropic probably grew tokens 15X in Q1, right? So the interesting thing is I go back to think every other business is ancillary to the business of making tokens as an LLM, and the only guys who are even in the game there are Google, 'cause they actually have their own model, and their token growth, their Gemini growth for coding and related things, significantly out- was underperformed the other two guys. So my-- where I'm going with this, the last sentence, the most aggressive corner in Amer- quarter in American capitalism is an underperforming quarter relative to the privates. Jason disagrees.
- JLJason Lemkin
No, no, no. I, I, actually, I just want to... I don't wanna go, I don't wanna connect it to another section too quickly, but the point is super interesting, of course. They're at the mercy of these two privately held companies, right? They're, they're the, the, the, the hyperscalers. On the other hand, you know, Palantir blew out the quarter growing, I should have it at hand, 80-something percent-
- RORory O’Driscoll
Eighty-two percent. Astonishing
- JLJason Lemkin
... at six point something billion in revenue. And I watched-- I never do this 'cause I just read it, but I watched Alex Karp's analyst discussion. He's great. He's so entertaining. He has a T-shirt just like Harry's today, um, and he's with his team. Really interesting. Um, and he made the point, and obviously he's talking his book, to use Rory's point. But he was really insistent that there is no value at the LLM level to Palantir because at Palantir's scale, this is not a simple B2B app, right? This is high-end AI. He's like, "There's no difference between the LLMs." There's no-- So it is interesting that where, where the value is at the three layers, right, right, from application to LLM to sort of infrastructure or hyperscaler, it- if nothing else, it's a challenge that it's fluid. It's just gonna be fluid the rest, the next tw- it's hard to predict. I'm not-- I know you're not challenging me. I just, when Alex said that, I don't buy it today, but I don't not buy it, right? It's so fluid.
- RORory O’Driscoll
Totally. By the way, if what is what, I agree with that. I think he's living on a different plane. Look, I think-- And, and let's kind of play it back to hyperscalers. You-- And let's compare it to Microsoft, who went down after their results. You know what? Palantir have a exciting enough enterprise product line that despite the whole LLMs are gonna eat everything story, they can make that statement and make it credible, and I believe it's credible for them, and we can talk about why later, right? I don't think Microsoft can make that statement. "Hey, our copilot is so cool that we don't care which LLM we use, and enterprises are just ripping it off the shelves," right? So I, I, I, I agree. I think that you're correct for Palantir. That same level of enter- uh, there's an insatiable enterprise demand for Palantir. The only insatiable enterprise demand that Amazon, Google, or Microsoft are experiencing are the insatiable en- en- e- enterprise demand for sell-through of the LLM products that they now host and can sell using their large distribution channel. And it's a great business, don't get me wrong. It's like they get revenue. I mean, right now they probably get more revenue from the LLMs than the LLMs are getting, 'cause they get the revenue going in on the hosting. Um, in Google's case, they get the revenue going in on the chips, they get the revenue going in on the hosting, and they get the revenue on the f- uh, on the distribution side from selling, right? And only a small sliver accrues to the LLM. But my instinct is that over time, that's the attractive sliver vis-a-vis those guys, not vis-a-vis Palantir, to your point, Jason. I think Palantir-- 'Cause you, this is all about there's clearly a wall of money out here, and everyone's trying to figure out who gets to keep it when, you know, when, when the music stops, who has a chair with a trillion dollars on it, right? [laughs] And that's what we're all trying to figure out here.
- JLJason Lemkin
The only one thing I might add is, you know, there still remains, probably in that Substack you quoted and others, there's remains a lot of skepticism that's investment ties. It's consuming all of our free, their free cash flow. Um, are, is, are they really capturing-- Yeah, Microsoft's own some of OpenAI's IP, but are they really capturing that value? And we went from free cash flow engine to no free cash flow, right? The only thing I would say, I know this is captain obvious, but it, it's, it's certainly clear to me when I worked at a Fortune 500 tech company, it's clear today, if, if there's one thing these companies are good at, it's financial engineering, day in and day out. They s- Now, we could challenge them, but they've worked through 27 sensitivity analyses and gone through this, and maybe they're making the wrong bet. Maybe they will regret having squandered their free cash flow on a bunch of chips sitting in, in, in, in depreciating servers. But they know exactly what they're doing. They know exactly where they can offload risk to CoreWeave. They know what, what Neebia should take. They know where to do-- And they may be making the wrong bets, but it probably doesn't matter because they'll scale them back, right? But I do believe that it is very thoughtful financial... And, and, and when that OpenAI blew up and they fired Sam, Satya kept saying that, "This is not such a huge bet for us," back then. Remember he kept saying things like, "This is not the end of-- Like this is important, but this is a, a week of c-" I mean, it's gone up. This is not gonna ruin Microsoft. So my only rambling point is I think they may be wrong, but I think they know exactly what they're doing to, to the last decimal point.
- RORory O’Driscoll
I don't know. Um, well, I, maybe a better statement is this. I, it was a really good phrase 'cause, 'cause-So I saw a, kind of a dialogue on Twitter this, what, six months back where, you know, someone said effectively that, "Who are you to second-guess these folks? These are the smartest people on the planet making bets." And, and the response back, which really struck with me, was, look, no one at the height of the CapEx boom thinks, "I'm just doing dumb shit here," 'cause they wouldn't do it, right? Everybody when you're spending a trillion dollars thinks, "This is a great idea. It's gonna come back." And then just sometimes you're right and sometimes you're wrong, right? I think, look, they are making informed bets, and right now, I mean, one of the things they're wrestling with is, for example, Microsoft was a little conservative a year ago, and now they're wrestling with that. It turns out that being aggressive is the winning strategy. And, you know, one of the definitions of a bull mar- of a crazy bull market is when the most-- It's typically that's when the most aggressive person makes the most money, right? So we're in that stage now, right? And, and, uh, but, but, but you are right about one thing, which is, is that if they over-invest... I mean, the great thing is all-- And this is where it is different than '99, is that if they are over-investing, if they, and they throttle back, they still have their existing businesses, is your point.
- JLJason Lemkin
I think it's low risk, low- lower risk than the-
- RORory O’Driscoll
It's low, I agree. It's low percentage risk
- JLJason Lemkin
... than the substantive claim it is, right?
- RORory O’Driscoll
I agree. It is. I agree. That's why I tr- actually, I've come up with this distinction between over-investment, which may be happening. So far it's not. Even over-invest- we can't prove over-investment, and a bubble. I don't use the bubble words, 'cause the bubble words are, to your point, Jason, they're making a financial and valuation statement, right? I don't think you have to make that here. You're just simply saying, you know, right now the compute's all finding a good home. Will it over the next five years? Who knows? But to your point, it's, it's interesting. I wanna go back to your comment on Satya, that it doesn't matter that much to us. I'm gonna say bullshit, right? One of the most interesting statistics about, uh, Microsoft is in this quarter ex- taking out their quote unquote AI businesses, and to, to some extent they do this reallocation bullshit. All the good stuff is reallocated, right? But if you take out, um, you know, Copilot growth and Azure growth, the rest of the business is flat to slightly down. In other words, Satya, if you didn't have an AI business, you'd be another SaaS company trading at three times revenues. Welcome to our world, right? So it is, it does matter. I mean, right now... Three years ago, that might've been true, but right now, if the AI bet is wrong, all these valuations are wrong, despite the fact that they're not outrageously valued on a PE basis. All the growth is coming from these initiatives. And w- and like I say, it was stunning to me. W- Let me repeat. Without the AI initiative, Microsoft the corporation is flat revenue.
- 14:46 – 21:24
Microsoft's $190B Bet: Is AI the Only Thing Keeping Growth Flat?
- JLJason Lemkin
Yeah, so a good, good bet. [chuckles]
- HSHarry Stebbings
Their AR, they, their AI ARR is 37 billion. Their CapEx spend will be 190 billion. Does that concern you to hear?
- RORory O’Driscoll
The most aggressive quarter in American capitalism, baby. That's why, y- you know, I mean, and, and I... Yeah, no, it, look, if they're wrong, they just throttle back the future, live off the cash flows and they, you know, they, they, they just have a great big digestion period where the stock looks overvalued and goes down. So it's not as terrifying as the, let's just say, you had the same bet and you financed it with 150 billion of debt. That would be beyond terrifying. But yeah, no, it is, it's an aggressive investment well in advance of revenues. So by definition-
- JLJason Lemkin
I have a just a slightly different take, for what it's worth. Um, it's just, and, and, and we know this, but you especially see it when you work on the other side at an extremely profitable public company with massive margins. Your cash is so trapped. You cannot spend it. Your EPS goes down. Your dividends might be impacted. But there are moments in time when the public market lets you spend it and, and don't take a hit for it, right? And some of this is financial engineering, where it sits on the balance sheet, et cetera. That's important, right? But, you know, one of the reasons, like, Salesforce Ventures and Google, Google owns so much of SpaceX and everybody is you could do something with the cash. You're allowed to make investments. It hurt Shopify this quarter. But when you have these windows, and you don't have to be like Jeff Bezos in the day convincing Wall Street to let you spend. When Wall Street lets you spend and doesn't punish your stock, you should spend every dollar on the balance sheet they'll let you, because you'll build it back up. But it's trapped when growth slows. When growth slows, it is l- you're literally at the mercy of getting another half cent a- into your EPS. It's a terrible place to live, like, when you're at the mercy of not being able to spend. It is, "Oh, we have six billion on your balance sheet," but if you can't spend it, who cares? Like, like literally who cares? You can't, you can't grow if you can't spend it.
- RORory O’Driscoll
I, I understand what you're saying, and you're not incorrect about the wider constraints, but those wider c- uh, uh, how the Wall Street and perception impacts your ability to invest aggressively. But the cons- the, the, the, the, the result you articulate, it, it, it, it, it, it raises the risk of, you know, bad capital allocation. 'Cause if you're grabbing the moment-
- JLJason Lemkin
Yeah
- RORory O’Driscoll
... not because the OI- the ROI is there, but because the permission is there, right? What you're basically saying is your decision to invest is in some part predicated on the street's willingness to give you that permission, and now they're giving you permission. And I think you're correct. Everyone's allowed to lean in right now a little, but it does just, it heightens the risk of groupthink and the fact you, you end up allocating badly. Now, I gotta s- having said that, I just gotta say it again. Right now, the allocation's been great, and the more you allocate it, the smarter you look. Like six, nine months ago, there was this, "Oh, I don't wanna buy from OpenAI 'cause they mightn't have the money." Now, you know, Core Weave's killing it. OpenAI looks like a good credit. And every w- and the more compute you have, the smarter you look. So I don't wanna sound like Debbie Downer here talking about capital misallocation when right now it's working, but, you know.
- JLJason Lemkin
Yeah, but let me just give you one example. Uh, sorry. I was talking with the CEO of a $20 billion plus public company, software company, that, where growth is modest today, right, but revenues are very impressive. And, um, we were talking about AI and agents, which is what people want to talk to me about, and he was talking about how they were saving, like, 100 basis points on their LM costs. And I'm like, "You're deadYou're, you're dead because you don't have permission from Wall Street to do the opposite. You don't have permission to spend 10%, to decrease your gross margins 5%, 10%, so you have the best agent in your category. You are- you're trapped in a death spiral, and he's so focused... I mean, the margins of this company are very impressive, right? But he's so focused on driving them up to keep away, to keep Wall Street happy, and to keep, um, the Carl Icahns happy. The m- the r- rooms of maneuver is so effing narrow at a $20 billion market cap, and when these guys, when Satya and Google can spend... If I were running one of these companies, I would be like, "I would force you to force rank it, of course, but spend it all if we're allowed to. Spend it all, boys, because the day will come when we can't spend nothing."
- RORory O’Driscoll
Again, I always rec- recoil from the, from the, the vehemence of the direction, but I think you're right in the sense that you- put it, if you're trying, if, if your number one priority right now is to optimize your LL spen- LLM spend dollars, you're missing the point. Over the medium term, you probably wanna optimize, but if there's positive ROI on LLM spend in terms of agent functionality, yes, you should be doing it. So as usual with you, Jason, I agree with the broad trust. You're exactly right. If you're dickin- uh, if, if you think you're gonna make money by saving money right now, you know, that's not the case. You do wanna, I think, be a little more circumspect than some of the investment you're seeing, but err on the side of aggression. And so maybe it's good time to talk... By the way, when I did find that number for the Gemini token production, they boasted about the fact that their Gemini tok- token production went from 10 billion per minute in Q4 to 16 bi- billion per minute in Q1. All I'll say is Anthropic 10X'd in that period of time, and tokens probably went up by more than that.
- HSHarry Stebbings
What's your takeaway from that, then?
- RORory O’Driscoll
My takeaway from that is every time you look at the evaluations, it says, you know, you got the big two, uh, uh, obviously Anthropic and OpenAI, and then oh, close behind you've got Gemini, you've got Groq, and then you got the open source guys 6, 12 months behind. And when you look at what's actually going on, the big two guys are getting all the money. Gemini, for some reason, doesn't appear to be able to do a great job of developing code or love and just getting that kind of traction, 'cause coding is where it's all happening. Groq is obviously nowhere until it gets Cursor done. And even the open source is, when you rec- I mean, you, you do see people using them, and you do see the Palantir perspective, which is you can get something done with the open source. But... And this really matters because it, you know, it, there's one view of the world, the Palantir view of the world, uh, five years from now, these are all API calls, they're all commodities. And if you look at the benchmarks, you could convince yourself of that story. But if you look what's actually happening, you know, there are millions of developers who have that same choice every day, and they are choosing over and over again because of the model or because of the harness to go with the big two, right? So it's, it, you know, I, I think Google has outperformed everyone in terms of being AI relevant. They are by far the best of the five people who reported this week. And as yet, in terms of mindshare of coding, taking that as the kind of motherlode and the epicenter of the revolution, they're nowhere compared to the other two guys.
- 21:24 – 28:14
Meta's $150B Future Bet vs Wall Street's Need for Spreadsheets
- HSHarry Stebbings
Help me out. We have Meta crushing earnings, revenue 56 billion, EPS 10.44 versus 6.67 expected. Like, insane beat there, and they got crushed because of CapEx raise again from 125 to 145. So why did Meta get crushed on CapEx increases where Google got plaudits?
- RORory O’Driscoll
Two people are spending 100 to $200 billion, and one of them has revenue coming in that's clear and attributable, and that's Google, and one of them doesn't. So let's... and that's Meta, right? So l- that's the big picture com- Let's kind of dive down one level, right? Why is Meta doing this, right? And yeah, th- you can imagine three scenarios, and I think there's only two of them. One is, are they going to be yet another third-party, um, you know, hyperscaler provider? Doesn't look like that's happening. They're not competing with, um, Google to provide compute to Anthropic, nor should they, right? So the two reasons they use, one is the, the reason they started to use a little bit over the last couple of calls is, "Oh my gosh, we're optimizing our ad performance a whole ton using these models, and it's making the numbers better," right? And you know, uh, so let's dive into that a little, is that there's no doubt the numbers are amazing. They are using... And so, you know, they are getting, if you do the math, they're saying they're getting 10, 15% lift in the last couple of quarters. The performance is better. But it's super hard unless you see an AB test to just... And, and this is always the case with lift analysis, right? You need to see the AB test. You need to see half of the ads optimized using, let's call it the Meta Llama 5 or whatever the new model is called, I can't remember, whatever, and then half not. Are you really getting lift, right? And you probably are getting some lift, right? Is that worth 10 billion a year? Maybe 15? But they're spending 150, right? So my point is the jus- th- they, they've been using this justification for, um, the LLM spend as being it'll optimize our existing business, and I've always felt that's bullshit because if it takes 150 billion in CapEx to give a 10% lift on a $200 billion business, it's probably a mistake. You know, especially when some of that technology might be available third party. So it was noticeable in this call, there was a little bit more of the, "We're just gonna build next generation experiences," kind of qualitative comments on, you know, simply put, if people go from talking to other humans and looking at news to talking to chatbots, I, Facebook, wanna be there when that happens. And I think that's the justification. So the market is looking at that and going, "I got it. This is not a business. This is a I wanna show up if something happens." So it's, it's $150 billion bet on the future that's not quite articulated, so you just put a, a slightly higher discount on that, right? That's all that's happening here. It's like, don't know why they're spending it. He's gonna do it. No one ha- He doesn't have to ask any permission, and maybe he'll be right, like he was on Instagram or WhatsApp, or maybe he'll be wrong, like he was on Meta. But it's not like Google where you can go, "Oh, I get it. They're spending 150, but they're getting 60 billion back, and it's growing 80% year on year. In two years it'll be cash flow positive." It's just a different thing.
- JLJason Lemkin
I do think that Wall Street is also, to Rory's point, IWall Street is all building these spreadsheets, uh, GPU depreciation, CapEx, where it's going. It- the Meta model doesn't support that.
- RORory O’Driscoll
Agreed.
- JLJason Lemkin
It just, it's, it's indirect, right? And, um, it just doesn't support it, and-
- RORory O’Driscoll
Well put
- JLJason Lemkin
... and n- nor does the math tie, but it's too, it's too confusing. They're all running spreadsheets and arguing over the inputs and the outputs of these capital investments to the outputs, and they just debate it.
- RORory O’Driscoll
I, I, I like that, Jason, 'cause effectively what you didn't say but it's true is, and Mark isn't running those spreadsheets and doesn't give a shit about those spreadsheets. Like, "Thank you very much, guys. Knock yourselves out. I'm gonna spend to be relevant." Their, their little heads are hurting when they run the spreadsheets 'cause they can't touch it, and they can do it for the other guys, and they can't do it here. I think you're exactly right. He di- he didn't, he didn't make $200 billion by running a spreadsheet at Harvard. He just built the product and got the traction, so it ain't, ain't gonna change now.
- HSHarry Stebbings
Of the four, Alphabet, Amazon, Meta, A- uh, and Microsoft, you can buy one and sell one. What do you buy? What do you sell?
- RORory O’Driscoll
You buy Amazon and you sell Microsoft, but these are weekly held. I haven't, you know-
- HSHarry Stebbings
Why, why, why do you buy Amazon? It's the one we didn't touch on. And for, for everyone listening, Amazon, 181 billion revenue, AWS 37 billion, fastest growth in 15 quarters.
- RORory O’Driscoll
You know, n- I mean, look, it's, it's weekly held in the sense of, look, there's, there's two net sellers, two net buyers. Google and Amazon are doing well. Meta and Microsoft, not so clear. So you obviously pick on one each side, and I picked on Microsoft because I just, that, that sentence that they're flat excluding AI just made me really pause. Whereas Meta, even though what they're doing is crazy, they can always stop and they'll still be the best ad network business on the planet. So that's on the b- on the sell. And on the buy, you know, honestly, it's, it's too boring to buy Google at this point. It was great a year ago when we were saying it's great. Now it's up, you know, it, it's the highest, slightly the highest valued on a PE basis of those four. So it w- to some extent it was a on the fly contrarian bet in that Amazon just has now access to the Anthropic models and gonna get that lift. Now, they have the AWS distribution. They now have the Amazon mo- An- Anthropic models, so they're more aligned there.
- JLJason Lemkin
One thing, the, w- we, we talk constantly about how AI impacts the, the, the top line and to a lesser extent the bottom line. There's a secondary, there's a derivative effect that benefits everyone and does not benefit Meta at all, which is we're, it's, we're not just using AI to make applications better. We are building many, many more applications. There is an application boom. This is the greatest boom in application building in the history of our lives. The amount has exploded. Right now you make even more money selling tokens than you do selling basic AWS, uh, or GCP services. But there's a double boom going on here. So I gotta put Meta last because they're not benefiting from the application boom either. They're not benefiting from it. And, and even, there may even be a crossover where the AI gets a little mature, which I do not remotely see happening, okay? But even if it did, the application boom has just begun, the thousand flowers of applications and, you know, maybe, maybe this was the quarter SaaS bounce back from the SaaS apocalypse, but I think in a couple years we'll look back and we'll laugh at the SaaSpocalypse and say, "My God, the explosion of B2B applications were like nothing we've seen before." They were just old guys, old guys that learned a new dance and didn't die. But who care? We'll look back in a couple years and we won't care because of this app explosion. Everyone's building everything. It's so wonderful. And so, like, that could lead to a renaissance for Amazon beyond what we've seen, right, because of its traditional strength. It benefits Microsoft in the enterprise, but not below that, right? And GCP is, and Gemini are this weird thing where it's very cost effective, it's developer friendly. I can't predict, but I know Meta loses in the app explosion.
- 28:14 – 39:42
Palantir's Home Run: Why Big Companies Spend Big Money on AI
- HSHarry Stebbings
Before we move to the SaaSpocalypse, which you mentioned there, Palantir obviously very, very recently, and we added it last minute, uh, home run in terms of performance. RPO is up 134% at $4.45 billion. Rule of 40, uh, they're at 145%. Um, uh, Jason, I'm borrowing from your tweet here. "Kopp's letter was blunt. This number has only been matched by AI infra companies NVIDIA, Micron, and SK Hynix." I mean, guys, I don't know what to say other than holy fuck [laughs] . These numbers are really fucking good.
- JLJason Lemkin
He also said, and it, this didn't quite tie to the forward guidance, but he also said that they were, they were doubling. So they're accelerating from there, he was clear. Now, I couldn't quite get that to tie to the Wall Street guidance. That's what happens when you shoot from the hip. But he was very clear that they're do- that they're doubling, so they are accelerating. I don't-- I just think he was shooting from the hip in terms of the timing of when the RPO would land. Um, he was clear. And Harry, he was very clear that Europe's just started. It's so far behind, not at the startup level, but at the buying level, that that, that's just started on the commercial side. [laughs]
- RORory O’Driscoll
The way I was thinking about it is they're just in a very enviable position, right? Because if you're a large corporation, right, you know, I, I always think that w- whenever you're selling application software, you wanna be one of the top two initiatives for the most senior person you're selling to. That's how you make money, right? And right now they're selling to the CEO, and the most senior initiative, the top two initiatives for every CEO in corporate America is do something in AI, right? So, you know, that's what your board is telling you. So what are you gonna do, right? If you think about it, you don't have a large number of choices. Yeah, you can sign up something with Anthropic and OpenAI. You can, you can buy Copilot or you can buy Cowork or you can buy Claude for every one of your employees, and that kinda gets individuals using AI, but doesn't move the needle, right? What you really wanna do is some corporate-wide initiative that's big, right? And all the AI apps companies that we all fund, they tend to be, you know, fairly point solution, right? 'Cause they've come from that, they've been founded in the last two or three years, right? And they're really good at saying, you know, let's take Sierra or Tarbot and say, "We'll deal with your customer support." And that's probably the most call high company in AI land, in new AI land. In other words, Brent Taylor can call higher than anyone else. Most of these 25-year-old founders can't. So that's as high as they can call, right? So, you know, you can spend $2 million with Sierra. You can spend 200 grand with Har- to whatever, right? And that's an issue. If you're running corporate America-If your number one task is to do AI, you don't spend 200 grand, 'cause that doesn't solve the problem, right? And then there's this one company that's been selling to the US government for 20 years that can move in 20 and $100 million chunks. They can literally say, "Yeah, you wanna redo your entire go-to-market infrastructure? You wanna redo entire, your business intelligence with AI? We can do that. We did it for the US government. We did it for the DHS. We've done it for JP Morgan." They mo- they are credibly moving in $10 million chunks. So now this corporate CEO can say, "I have two initiatives this year, you know, launch that new product and make this company AI first. I just signed Palantir for $10 million. They're gonna bring in people, they're gonna make shit happen. Initiative done, tick it off, report to board, it's June 30th, I'm on track for the year." Right? And it sounds stupid, but big companies have to spend big money to do big things, and there are very few software companies that are situated... It's why IBM has existed for 30 years longer than it should, right? Because they can do those kind of big deals, the big initiatives. It's why EDS made a lot of money as an outsourcer. Palantir right now is the only business that can credibly say, "Hey, Mr. Corporate America, Fortune 500, you wanna move your needle with an AI initiative that has measurable, demonstrable results that is about enterprise-wide transformation, we can deliver you that." Right? The alternative to them is Accenture with a bunch of cloud licenses. Whoop-de-do. Right? I'd go with the guys who are winning the war.
- HSHarry Stebbings
Palantir's like general, gen- it's like general catalyst for AI transformation, you know? [laughs]
- RORory O’Driscoll
Yeah, yeah.
- HSHarry Stebbings
For the LPs. You need to move $100 million, you probably won't get fired.
- RORory O’Driscoll
Yeah.
- HSHarry Stebbings
Cool. Good.
- RORory O’Driscoll
Absolutely. And it has a, and you know, this is more clearly demonstrable value. No, and I, I, I know that sounds really simplistic, but you just think of it from... And Jason, you know this, but like you think of it from the perspective of the CEO, right? You can't have your top three initiative be a $200,000 spend. Like, with any of these AI, it's just like, ooh, that's a bit of a weenie bet, right? Yeah, you know, you come back in and you say, "We hired the guys that have been doing this for all corporate America and for the government. We spent $5 million. Here's the three-year plan." You're done.
- JLJason Lemkin
To add onto that, just maybe two things. One, I'm not, I, the numbers have obviously gone up 'cause I'm dating myself. When I was a VP at Adobe, there were only two or three big initiatives at a time, to Rory's point. That's it. But they were all 20 million a year and up. So maybe they're 30 today. That's just what it cost at Adobe's scale in the Fortune 500 to have something that was ble- b- that was critically important for, you know, five figures of employees and, and it was just, that's what it was budgeted. Um, I believe at, back in the day, Salesforce was 26 million a year and Workday were 24. Those were the big projects. They took five years to deploy. Now Palantir can deploy it in less than a year, which is magical. But the other thing I would add, what, um, [laughs] it was funny having been doing B2B for a while, Alex Karp on the earnings call, he talked about the, first he talked about the defense business and he talked about how important it is to support our country and that, like, the only thing more important than our customers is supporting our country, and clearly they're, they're deeply embedded in, in, in the defense in the Western world. But then he went to the commercial side of the business. What he said to me was super interesting even though it's obvious. He's like, "This is different than in my entire year the last year." He said, "My entire year in the commercial side, I get brought in by a stakeholder, marketing, uh, revenue, someone, and then I gotta sell to ano- even at Palantir, I gotta sell to another stakeholder and another stakeholder and it takes a couple years." He's like, "In the last year, every stakeholder shows up to the meeting. Everyone is there." So not only are we a top two or three drive, to, to Harry's point, drive the corporate change, the CEO and the CF- and the CFO importantly are saying, "Now, everyone come to the table now, and if Palantir is the answer or at least the bet, we're not gonna evaluate for two years. We have to do this now." And Alex was like, you know, he was so, so aggro in his somewhat charismatic, weird, goofy way on the call, but he was taken aback by the compression of the buying. It was almost, it felt to me like the COVID buying cycle today because we just never s- he never saw folks on the commercial side, they did deals this big like Adobe, but instead of f- everyone's there. Like, [laughs] everyone shows up to the damn meeting.
- RORory O’Driscoll
Look, AI is, it sparks the imagination in the way that digital transformation or databases or client server or SaaS just doesn't. You know, it's just, it's got that spark of, "Oh my God, is it live? Is it sentient?" Corporate America now believes it is the way to transform their company. And you're right, Jason, every board is telling every company to get on top of this. Every com- I mean, who's gonna be the C-level executive that says, "No, I don't wanna join the meeting on the most important corporate initiative. I don't think it's gonna work"? Right? By the way, what it means now is that there's literally not, the naysayer voice has gone to zero, so you do think there's gonna be some pretty interesting misallocation. As I say, if you're in, you're, if you're selling $5 million solutions right now for the biggest corporate imperative, you're in a golden place, and good for them.
- HSHarry Stebbings
At 349 billion market cap though, is it priced to perfection or is that upside?
- RORory O’Driscoll
Yeah, of course it's priced to perfection. It's priced to more than perfection. I will admit I exhaled when I saw this quarter, 'cause when you pushed me, and again a few weeks ago to name stocks, I'm proud that I named Atlassian. We'll talk about that in a second. But at the mo- on the expensive side, I said Palantir's the best situated. And yes, it's wildly expensive. You know, you really have to grow for two or three years to get into this valuation. But you know, if the, if, if the boom has legs, they're the most likely to grow into it. You know? It's still ter- look, it's still a terrifying va- I, I woke up the night after I did that podcast and I'm like, "Ooh, that's a risky one." Right? Atlassian's a b- you know, it's a value play. It's a no-brainer. Um, but this one, wow. You're, you're leaning in, but this quarter kinda justified that. 'Cause you know, you do the math and two years, two years of doubling and it looks cheap.
- JLJason Lemkin
But Alex predicted basically a year of doubling, so there's an argument if you think that's cheap, I haven't fully thought, if you think it's cheap, it's not the craziest place to get to, right? Because 100, 100 we've already, the CEO's already said, you know, he, he probably fudged a quarter or two, but he said it's coming, so, um-
- RORory O’Driscoll
Good
- HSHarry Stebbings
Yeah.
- JLJason Lemkin
The thing, the thing just, just to... I know maybe it's Captain Obvious, but just going to Rory's narrative about how corporations work and Palantir, it's just a rem- every conversation I have is a reminder that no one has this expertise in-house. No one.
- HSHarry Stebbings
Agreed.
- JLJason Lemkin
It's so am- it's the worst gap between in-house and external expertise in, in our lifetimes. And so for years, this is gonna benefit Palantir. It's gonna mean, like, even if we are head-scratching why Anthropic and OpenAI are setting up these consulting entities, which seem goofy, right? They're not, because the dollars are gonna go up, the initiative is gonna go up, but the inability to have anyone in-house that can remotely execute, not- remotely execute. If... And it's, and there'll be folks down th- some HubSpot agencies will figure this out. Some Shopify dev shops will. Everyone in th- these ecosystems thinks the majority of HubSpot and Shopify agencies who are, who actually deploy most of them, most is not direct at these SMBs. You need an agency to deploy HubSpot. Most of them are gone. They're, they have no AI play. But the ones that do are gonna have infinite demand, because these, the, whether it's enterprise or SMB, they, no one has this expertise. No, it's, it's almost embarrassing how few people have the, this expertise, right? It's just, even Coinbase today, "I'm laying off 50%. I don't, I have managers managing managers. I don't need them. I need folks that will, that will actually do the work in AI," right? If Coin- if Brian doesn't have the people, what hope is there for the rest of the world? [laughs]
- RORory O’Driscoll
And I think, you know, and when you say it, one sense it sounds almost derogatory, "No one has the expertise," but the real truth is this. I'm, you know, donning my microecon hat here, right? Logically, what you want is to someone to take the time, six months, to develop the expertise, and then sell it to me, and I can only have to pay them for a week of my time and their time. It totally makes sense. Like, I even think about how I learn AI. A good slug of it is doing it myself, but when I get stuck, I just ring our chief data scientist and say, "Look, I could spend a whole day or two slogging through this point, but just tell me the freaking answer so I can keep moving here." Right? That, you know, in a microcosm is what you need in every organization. You know, you're a line manager in marketing. You've been told you want to roll this shit out. You just got to hire the expert who knows.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
Which is why, to your point, Jason, is that this is a Darwin test for every consultant, and, and frankly, anyone looking for a job too, which kind of gets to the, you know, the undergraduate unemployment discussion. If you don't develop the skills you have, you deserve your fa- yeah, that, that, that you need, you deserve your fate. I truly believe if you develop the skills that people want and focus like a laser on the things they actually want, you know, there's an in- there, there's a real demand for that skill in all these companies.
- JLJason Lemkin
I call it the $250,000 SDR. There is now a market, instead of SDRs being worth 60 grand in the US or 80 grand, there is a market for a small number of $250,000 a year SDRs. But there's almost no need for a $60,000 SDR with six months of junior college research that can't, they can't spell Eleven Labs. You just don't need that person anymore. You needed them three years ago. You don't need them today. But you can spend 250, one, for, for someone that's as, as, as productive as 20 human
- 39:42 – 42:37
Apple's Quiet Consistency & The Stealth Inflation of Memory Chips
- JLJason Lemkin
SDRs. Those are the skills you have to have, or, or, or, or-
- RORory O’Driscoll
So before we, we're going to move on to the SaaS apocalypse next, but it's so funny. We are about to do something incredibly funny. We're about to skip the one line item in the agenda just to point out Apple, poor Apple beat across the board. Tim punches out on a high. Stunning results. Great quarter. No real AI story yet. Thank you everyone else for getting caught in hysteria. Meanwhile, we're just building the largest, you know, one of the two largest companies on the planet and doing really well here. Not wasting our money on c- you know, CapEx. Continuing to do buybacks, just working for the stockholders. I just felt the need to call that out in passing.
- HSHarry Stebbings
I thought the memory chip supply constraints were interesting.
- RORory O’Driscoll
That is interesting, and it's not just for Apple, but just one f- interesting statistic I saw is, you know, everyone's talking about how the CapEx budgets have all been raised this quarter, 10 or 20, 30%. A significant slug of that CapEx raise is for the same physical amount of CapEx, just at a higher price, 'cause the memory portion of anything you're doing has exploded in cost, right? So I, I, I, I do, I agree, and I think that you're going to see some impact of that right down to the price of your iPhone next year. It doesn't appear to have impacted demand, but you probably will see that filter through. Um, that would be the iPhone you can't afford transported to the US on a plane that can't have jet fuel [laughs] from the f- from the Far East. But yeah, there you go. Uh, much, much pain to come. But yes, I think memory prices, and obviously thus memory stocks, is, is a factor not just for Apple, but across the whole CapEx story.
- JLJason Lemkin
Well, I mean, Apple basically increased this week the price of the Mac Mini from $599 to $799 because of memory.
- HSHarry Stebbings
Oh, wow. Yeah.
- JLJason Lemkin
They dropped the $599 because it's sold out, because of these damn open cars. But, uh, I, I believe it's, maybe it's the 16 meg versus the 8. I forget what the difference is, but it's not $200 even at current prices. So the, the, all this stealth inflation, it's off topic, but, um, you know, it, it will, it's gonna lead to a lot of socioeconomic stress when folks can aff- don't care whether there's a $799 or $599 Mac Mini, and, uh, the average individual is hurt. It's like, you know, the, the rental market in San Francisco is, is almost unimaginably competitive versus even when we started the show, it was cheap to live in San Francisco. Now, now you can't f- rent anything. They don't even exist. No one's going to leave.
- HSHarry Stebbings
I, I see buy, I see buy prices like 3 million higher than the 5 million listed.
- JLJason Lemkin
I know, yeah.
- HSHarry Stebbings
It's stunning. It's-
- JLJason Lemkin
Yeah. I just made 30 million on my Anthropic vesting. My partner wants a house. What am I gonna do? Argue that it's not worth 5 mil? I mean, I... And it's been six months. I'm just gonna buy it. I don't really care. I don't really care.
- HSHarry Stebbings
Okay.
- JLJason Lemkin
Right?
- HSHarry Stebbings
La- last, last week we were in a bit of doldrums, and we wanted more positive news.
- JLJason Lemkin
Uh.
- HSHarry Stebbings
The SaaSpocalypse could be over. Atlassian up 29%,
- 42:37 – 1:04:17
The SaaS Apocalypse Over? Atlassian and Twilio Lead the Re-acceleration
- HSHarry Stebbings
Twilio up 20%, Five9 up 23%.
- RORory O’Driscoll
Boys, is the sunshine coming out? Is the SaaS-pocalypse over, or is this a case of three good-performing companies pulling away?
- JLJason Lemkin
Well, look, let me-- But I think R- Rory, Rory categorized these companies the last few times. Let me just break it up. First of all, Five9, I'm not interested in. Re-accelerating to nine percent, I don't care, okay? I'm not saying that they're not benefiting, but, like, I don't think that deserved the, to be, to be with the friends. I would really distin- First of all, it is heartening to see Atlassian and Twilio re-accelerate. These are older companies, right? Atlassian is still founder-led. Mike was on this show, right? He's great, but everyone was worried about Atlassian, right? Twilio, they, you know, they pushed Jeff out, who was on the show, that we love, and somehow muld- the old products were able to re-accelerate. So two great stories. And if nothing else, they support the idea that for folks that are benefiting from AI, we're past the bottom. For, for folks that are benefiting. We're gonna see some more quarters come out that maybe aren't as good, right? Before the next show. But I do just wanna-- This is my bias and my perspective that Wall Street, a subtlety that I think you guys will agree with, that Wall Street didn't see. Atlassian got really good at, and this, we've talked about this, monetizing its AI product, its Rovo AI. It s-sold the F out of it last quarter, and people were happy to pay for it, okay? Its net new customer count is still slowing. Its net new customer count. Twilio did the opposite. This company was dead when we started this podcast. Now it's re-accelerated to twenty but accelerating. But the, you know, like, they, their disclosure is less clear, but their net new customer count may have grown forty percent in the last year because of AI and other startups and other companies. Now, their, the ACV per customer hasn't gone up quite as much, right? But there is an explosion. Eleven Labs uses Twilio. All these AI folks use Twilio. So Twilio won on two points, right? Folks use it sort of for AI and, and they had net new customer growth. Atlassian monetized its base with AI. Thumbs up, right? Passed the test. But it's not clear it's attracting new customers. And, and so you might be deferring bad news ultimately if your AI story gets more revenue from your base but does not expand it, right? T- to be proven, to be proven.
- RORory O’Driscoll
You, you're right on the facts. I mean, s-so going back to the, you said, "Is the SaaS apocalypse all over?" No, I would say it's not over in the sense of I didn't think-- Look, three months ago we said and, uh, we said, "I think Teams are buy, Atlassian's a buy," right? I, I think you, you know, w-w- if you just avoid going from guardrail to guardrail, the big picture is when, when people price these stocks like it's all going to zero, you've got this potential for a twenty or thirty percent bounce, and you saw that right now, right? Taking Atlass- taking Atlassian for example, I don't think it's like, it's not gonna ten X from here, right? It's not, it's, it's, uh, it, it's not and it's never going to be a AI first, you know, five X, ten X growth company. What it is is going to be a really well-run company that, as you say, Jason, you know, if you can't add new customers, maybe your steady state growth is twenty or thirty percent. If you can add new customers on top, maybe you can go higher. But it's, you know, these are gonna be cash flow positive companies growing thirty percent. They're gonna deal with the SBC issue, and then they're gonna be, instead of being worth three times, they're gonna be worth six times. You're gonna move in that-- My point is this: You're gonna move in that bounded range, and when people's heads start exploding and saying it's all going to shit and they trade at three times but the company's fundamentals are decent, you can buy and get a two X. And when people start believing all the bullshit and it gets, they're still pretty lofty, like ServiceNow was before the last announcement. When you're trading at, you know, um, six, seven times revenues, you, you're very vulnerable to a correction, right? 'Cause I think, you know, you've got a bounded-- And you're right. The low end is five nines, you know, yeah, grew at nine percent. The high end, I mean, Atlassian's growth rate was pretty impressive, thirty-two percent in GAAP revenue. You know, right? That's -- And, and I'm not surprised at the lack of new customers, 'cause one of my th- I always felt these stocks would slow down independent of AI 'cause these markets are fairly well-served. Atlassian has done a great job over fifteen years of meeting the need for this product, and now whenever the, you know, additional customer growth either is new company formation or takeaways from someone else. So it's not surprising. It's a bounded, well-executed company. So I'm delighted for them. I'm delighted I said buy it at six, two months ago when we were asked. As I often say here, things are proving out to be exactly what they should be, which is these are solid, high-growth, cash flow-generating companies, probably worth closer to six times if they're growing north of thirty percent, maybe even a little higher, right? Which is what they traded at for a decade and a half before COVID. And there you go. So-
- JLJason Lemkin
Yeah, but, but so, but of course you're right, but, but, you know, but to me, Twilio's more interesting because it's also benefiting from net new customer growth. When Jeff Lawson was on the show, Twilio was in the, I mean, it wasn't even that long ago, it was in the doghouse, right? This was, uh, it looked dead, a dated product. And Jeff, and y- and, and, and Harry asked Jeff about this, and Jeff's like, "Well, I actually haven't been in the game for a little while. I'm working on nuclear fusion and harnessing the sun's energy. But if I had to think about it, Twilio's gonna be a beneficiary because APIs are what AIs and the agents need. We have the dominant service, and as these agentic products scale, they will use us and Twilio will do well. Maybe not, um, segment, right? And some other stuff, but the core business will." And he was right. It is expl- it has become, you know, it's just N equals one. If you go into Replit or Lovable, it's also the default choice.
- RORory O’Driscoll
It goes back to your early framing is, you know, are you getting value for new products to your existing customers and are you getting new customers? And when you do the latter, yeah, it's good. 'Cause I, I g- I think why would anyone in AI, why would Lovable or Replit bother rebuilding this stack? It's like especially if you can buy it on an API basis, just call it a day.
- JLJason Lemkin
Well, the risk would be if at the infra layer there, someone had built a better Twilio that was, that was better, you might switch, right? But Sierra, fifteen billion dollar deal, run on, run on Twilio, right? There's a lot of, I'm not a total expert, but obviously there's reliability, right? There's infrastructure under the infrastructure. And so my learning is for a lot of folks, nobody built Twilio. Nobody beat Twilio.It's not just software. It, they could. Like, it's possible, right? But it's now they're a beneficiary because this infrastructure was good enough, like Apple in, in, in a, in a... I mean, it's, it's a little attenuated, but there's something- it's good enough to benefit from all the trend happening. It's good enough.
- HSHarry Stebbings
Who are the other traditional SaaS companies in SaaS jail that should be released in the same way that hopefully Atlassian and Twilio are being released?
- JLJason Lemkin
Well, [sighs] here's where Har- here's where Rory and I d- d- diverge. I, I, I... That's why I'm worried Atlassian isn't c-
- HSHarry Stebbings
Clearly, yeah
- JLJason Lemkin
... a two-pronged AI beneficiary.
- HSHarry Stebbings
I agree.
- JLJason Lemkin
To be a two-pronged AI beneficiary, you have to be able to monetize your AI, and you have to attract new customers. There's two prongs, and the ones that have done it so far are close to infra, right? Um, Cloudflare, Twilio, Mongo, Datadog, uh, and even DigitalOcean, which proves anybody can do it, right? If you're the 11th cloud provider and you can grow 352% stock price, anyone that has a, a, c- can do it, but the... And the one- I'll tell you the one I'm waiting to see. So HubSpot this, this week announced that HubSpot will put agents on parity with humans in their cur- in their c- coming release. It'll be- their platform will be completely open to agents, and they'll make sure that the a- agentic version of HubSpot is at least at parity with the human version. That's the right vision. Now, are they gonna overcharge for it? I mean, I'm not even sure anymore it matters outside of SMBs, but, but I, I want to see if that... It's a little late, but it's not too late. It's a little late. It's, it's not too late. I want to see if that works. I want to see if it works. I- in a way, it's Marc Benioff's headless vision that he talked about, right? But let's see. If, if, if HubSpot can become the hub for agents in all of its categories for SMBs, for GTM, it should re-accelerate dramatically. Let's see. Let's see if it works. If it doesn't work there, I think we can write all the rest off. [laughs] All of its peers. I mean, it should work be- Hu- Hub- HubSpot has such a broad customer base, it's relatively more tech-centric than Monday, right? So I think this headless thing, I'm not saying it should d- lead HubSpot to double, right? It's not mathematically possible. I believe over the next 12 months, this strategy, if it's real, should lead to genuine re-acceleration at HubSpot. Otherwise, it's, it, it, there's no hope for this cla- th- these classic categories because they're gonna make it completely open to all agents.
- RORory O’Driscoll
I think to your point, Jason, far more of them are going to fall into the not re-accelerating. Re-acceleration will be exception, not the rule, right? And then for the others, it's a question of is it a slowly evaporating ice cube or a long, uh, or a, you know, a quick evaporating ice cube?
- JLJason Lemkin
The underlying issues in the SaaSpocalypse haven't changed, right?
- RORory O’Driscoll
Agreed.
- JLJason Lemkin
For the drama to reduce around it, we need a few more folks to be in that category, I think. And, and I'm h- I, I'm not sure Atlassian gets both prongs, but I'm here for it because it lifts, it lifts all the tides, right? Uh, if we could have three or four of these, then we could kind of, like, the underlying issues are there, but we can move on and, and talk about other things. [laughs]
- RORory O’Driscoll
'Cause just to push a little bit on the positive on Atlassian again, 'cause I actually, I think you're changing the goal, 'cause I thought your other rule was not new customers, but the, which obviously is the best of all, but I don't think it's realistic any more than I think Zoom will ever get a new customer again. Everyone who needs a Zoom account has one. But the other test you applied, which I thought was a good one, was can they sell new products to their customers? And Atlassian's da- daily active users, their AI revenues did take a jump, so I do think there's some lift there that you can get. That, you're right, it would be great if 10 or 15 of the companies start doing that, then you have a sense of what, you know, good looks like for SaaS companies, 'cause I think that's what people are struggling with. 'Cause there's no universe in which any of these companies become, you know, obviously not an LLM or a Sierra or a Harvey or anything like that. That's just not going to happen. You can't get there from here. The question is, can you return to 30% growth with free cash flow positive and stock-based comp under control and a gross and net retention such that no one's terrified that you have a zero terminal value? If you can do those things and demonstrate relevance, then the advantages you bring to the table in terms of scale, in terms of, you know, a couple of billion dollars in revenue can all come to the fore, right? And you're right. A couple of these guys have done it. If more of them do it, then we'll know what winning looks like. And to your point, Jason, then it'll become painfully clear what not winning looks like. And, you know, let's be frank. What we saw in Medallia was an investor walking away saying, "This thing isn't winning. I, I, I just can't get there from here." Right? Even though it had positive EBITDA that was, you know, five or six times coverage, just like, there's just nothing here, right? So I wanna [laughs] in many respects, seeing what, seeing what Twilio and Atlassian have done will be a positive for the people who are on that journey and will be the nail in the coffin for the people who aren't, 'cause it'll be like, "Oh, that's what, that's what it takes to win, and you're not doing it, Mr. Fill in the blank." Okay.
- HSHarry Stebbings
Okay.
- RORory O’Driscoll
On to the-
- HSHarry Stebbings
Uh, uh, through onwards, uh, to private company land, Anthropic at $44 billion. I thought Jason's q- question here, which you put in, was, was exactly the right one. Are there enough developers for this level of revenue growth to continue? And you can immediately say yes when you look at the TAM of, like, the service value of developers. But when you look at this, it's 100 million per day. How did you guys react to this?
- RORory O’Driscoll
I think that it's the right question. I think that if I was to pick one number that I'd like to know, which would m- give me an informed opinion on this, and we're trying to figure it out, we're doing some work in the portfolio, what is the steady state token spend as a percentage of salary dollars per engineer in, for a fully mature AI-first organization, right? 'Cause I actually did a b- I, I just was looking at this, doing the bottoms-up knowledge work TAM-And I think in anything other than pure AGI, which is too arm-wavy for me, most of the other ta- most of the other jobs have a task automation potential, in my view, that's sub 10%. You know, you can do some of marketing, some of sales, some of accounting, but not all of it. Whereas for coding, you can do a shit ton today, and we-- Don't argue the former yet, Harry. The point is, coding, it's pretty clear that it can be do- that there's a huge amount of automation that can be done. So now what-- in a way that it's not as clear yet for the other areas. Let's just go with that for now, right? Therefore, coding is the tip of the spear. Coding is, pick your cliché, it's the c- uh, canary in the coal mine. So therefore, if you know what the long-term steady state automation of, you know, token as a percentage of salary is, you know how big this can be. And at 20% or 30%, Anthropic can grow into that, you know, multi-hundred billion dollar revenue category, right? Maybe even half a trillion dollars, right? At 5%, it gets a lot harder, right? So to me, that's the question.
- HSHarry Stebbings
When you look at Andrej Karpathy saying, like, he used to use it for 20% and now he helps it with the final 20%.
- RORory O’Driscoll
But how much would you have to pay a month to get Andrej Karpathy to code for you? I can tell you, it ain't 250 grand a year.
- HSHarry Stebbings
Probably about a billion a month.
- RORory O’Driscoll
That's my point.
- JLJason Lemkin
I'm 20K an hour just for me. That's what I a- quoted this morning.
- RORory O’Driscoll
I love it.
- JLJason Lemkin
Someone wanted to h- I got a h- I got one of those requests to help them look at this vibe code. I said, "20,000 an hour." I got a yes. I don't know if it'll really happen, though. I just do it for fun, right? That's my price. It's one interesting thing, you know, David Sacks and Marc Andreessen and others were pointing out that the number of, uh, reqs out there, job specs for developers and engineers is up, right? Are there just enough developer dollars in everything? It's just interesting that we're-- that 20% doesn't sound high to, to the scale analysis, but it's not gonna come from net, uh, net headcount cut in developers and engineers that are AI-pilled. It's not coming from loss of humans, right?
- RORory O’Driscoll
I totally agree, 'cause to be very clear, and this is where I don't know why people struggle with this, and I think words I never thought I'd say, David Sacks and people are entirely right on this thing, right? The-- And Aaron says it really well. If automation, if 20% spend on tokens, three Xs the effectiveness of your developer, then the ROI in developers goes up, so the number of developers will go up.
- 1:04:17 – 1:10:57
Anthropic's $50B Raise & The Math Behind Token vs. Salary Spend
- HSHarry Stebbings
do we get in? Anthropic, uh, it's $50 billion round at $900 billion. Uh-
- RORory O’Driscoll
And, and I'm gonna admit, here's one where I was... I keep track. Uh, here's one where I was wrong two weeks ago. I thought they wouldn't have to do it, they should go straight to the IPO.
- HSHarry Stebbings
Yeah.
- RORory O’Driscoll
But that was stupid old world thinking, because the truth is you shouldn't do it if, A, you have to spend a whole bunch of time doing a raise, and B, those ways give you rights around an IPO block or anything like that. But we live in a world where they can just send out a fricking email and people respond in 48 hours, and it's no drama, and they take the terms they get. So yes, they should grab the 50 billion. I didn't... And good, good on them because-
- JLJason Lemkin
Yeah, you have two, uh, you had 48 hours to decide no nothing. That is better than any IPO on planet Earth.
- RORory O’Driscoll
You're right, Jason. And you know, we talk about public versus private. As long as you can raise capital like that in the private markets without any statutory liabilities, any disclosure liabilities, why would you go public, right? Um-
- HSHarry Stebbings
Well, does it... Well, that was gonna be my question. Does it do anything to the timing or the price of this supposed Q4 IPO?
- RORory O’Driscoll
It might do nothing to either of them, but what it does do if you're the IP- if you're the Anthropic CFO, is it allows you to exhale, right? It means that you can get this... Like, you always hate to have to do something that you have to do, right? You know, like, 'cause there's no doubt had they not done this, they would really want to get public in the back half of this year. And you could see a scenario where that's not possible through circumstances beyond your control, right? So I think what it does, I don't think... I mean, there, there's a mild anchoring effect on pricing. I'm sure there's no blocks on IPOs, so to a rounding error, we should assu- assume these shares are powerless and ill info- and, you know, have no votes and no knowledge. But there might be a mild anchoring effect to the high end. But the real point is it just gives you that degrees of freedom. You don't have to do it, right? And one of the math I did, I tweeted it 'cause you guys helped me think through it, is... This is gonna be really obvious, but if you have a company, every dollar of revenue that Anthropic does means someone, either Anthropic or its partners, has to invest 3 or 4x in CapEx, because it's just expensive in terms of compute to service AI. And then on top of that, if you're going 10x and you have to forecast one year out-Right? You're now guessing not your cape- your revenue today, but your CapEx a year from now, right? So when you're doing $10 billion in revenue of run rate, you're actually making CapEx predictions that might be, you know, 10 times that amount times three do- times three dollars per dollar of revenue. You're committing 30 billion in CapEx for every one billion in revenue you have. It's amazing, right? You're on the tr- Now, a lot of that you lay off that risk to the hyperscalers, but when you zoom out, there is no s- my big aha is, and that's why I was wrong two weeks ago, there is no such thing as too much cash on your balance sheet. There is no such thing. Dario is entirely right. This is the riskiest game of financial guesswork I've ever seen. You're betting 10 times your re- I mean, somewhere between five and 10 times your revenue at any point in time to meet the CapEx demand one year out. It's huge. There's never been a bet like this before, and the only thing you can do is de-risk the bet. Raise capital.
- JLJason Lemkin
But I do think it somewhat decreases the odds of an IPO this year.
- RORory O’Driscoll
Yes.
- JLJason Lemkin
I, and I think there's two fac- Just mathematically, if you can raise 50 billion literally in 48 hours with no rights or no anything, uh, and if arguably, and, and again, I've, I've become on, on Team Sam and OpenAI recently, um, with my agents. As my agents have taken control of my life, I've, I've changed my allegiances to some extent. But if OpenAI, OpenAI said today they thought about spinning out their hardware business they just bought for 6 billion, it's like ... And the, the slight drama with aligning Sam and Sarah Friar, if OpenAI pushes out its IPO timeline and Anthropic is well-funded, they may, they may be in less of a rush to deal with the headaches of being IPO. So if, if they, if they really feel like OpenAI is a second half 2027 IPO, this may ... It's just for the sport of it. I think the combination of the two decreases the odds of the IPO this year. We'd have to check Poly Market.
- HSHarry Stebbings
Do we think that, uh, w- we've all said all along that both will go out this year. Do we think this is actually the first sign that this is true slippage and both will actually go out in '27?
- RORory O’Driscoll
I think the truth is now they don't have to. I mean, OpenAI, remember, how quickly we forget, raised $120 billion like six weeks ago, Anthropic raised 30 and now raised another 50. Neither of them have to go public this year. I'm with Jason. I think Jason described it well. You still will in a fav- with a favorable wind, if things are organized, if you feel you're predictable. You won't if you're not. And now you don't have to. So in the right circumstances, they'd be crazy not to go, but you can't control the circumstance. You know, first of all, you have a- another IPO pricing in advance of you that has way more risk and story risk in it in terms of SpaceX. So you can imagine the world getting a little disrupted 'cause of that. There is a war on, as a reminder. Lots of shit can go wrong, right? So I think the big aha is i- if you're the CFO of Anthropic, you go home after you raised, you know, $50 billion after two days work, and you say to your spouse, "Good week at the office, hon. We got it done," you know? Pub, you know. Exhale.
- HSHarry Stebbings
Ex- I, I don't logistically know how they do it with the amount of 10s and 20s and 30s, and just like the logistical challenge of collecting $50 billion from every family office, institution under the sun.
- JLJason Lemkin
Well, the key is having a Brex and a Ramp account.
- RORory O’Driscoll
[laughs]
- JLJason Lemkin
You, you gotta split it up between the two, right? That's the tr- That's the insider trick, right?
- RORory O’Driscoll
Yeah, and, and you get the credit card points. I, I ... Look, genu- That's why I think that you, you end ... Look, that's why you end up with these minimum check sizes that are huge. That's why you end up with people doing bundling and SPVs so it looks like a single check size. You just end up with those structures to make it happen, right? And the point is, when you have unlimited demand, you just tell people what they have to do. 'Cause look, it's not like ... I mean, sometimes in a deal you have a minimum close. I'm not gonna close unless you raise a minimum of 10. That's not gonna happen here. So they can truly look everyone in the eye and say, "Let me tell you how we're gonna accept the money. The first person in the door with the money and the completed paperwork gets the full allocation, and it goes down from there." And then people will just make it happen. I bet you there's an account somewhere in the Fed that's just seeing a wall of money keep coming in. It's like, you know.
- HSHarry Stebbings
I remember speaking to one of the leading GPs of one of the leading firms. I said, "How much does it cost to take a meeting with you to get one as an LP?"
- RORory O’Driscoll
Yeah.
- HSHarry Stebbings
250 million bucks.
- RORory O’Driscoll
Yeah. Yep.
- HSHarry Stebbings
That was the entry price. I was like, "Wow, I'm really thrilled that you're, I'm thrilled that you're on the show." [laughs] That's awesome. Um, uh,
- 1:10:57 – 1:19:30
Sierra's $15B Valuation: Replacing the $400B Customer Service Labor Market
- HSHarry Stebbings
speaking of, uh, OpenAI, OpenAI's chairman, Brett Taylor, is out in market raising $950 million at a $15.8 billion price for Sierra. Uh, they're at 150 million in ARR. They've got some amazing enterprises as customers. It's 105 X revenue multiple. Um, on the negative side, it's a $400 billion customer service market on the positive side. How did we read this, Rice?
- JLJason Lemkin
I'm starting to get worried, and what I mean is on the legal side, we clearly have, if nothing else, proven I think the TAM is a little larger than, than when we thought in agentic. I'm not just 100% convinced the CX market, as big as it is, 400 billion, whatever you wanna call it, I'm not convinced it's grown 10X because of AI. I believe it's grown a bit. I believe it might have grown 50%. Um, and I believe that these agents, uh, uh, you know, everyone from Brett Taylor to Owen at Intercom, everyone sees these agents, um, merging, and they're gonna do sales and CX and enterprise. I'm not saying it's not true and that you're not replacing all these humans that we saw early, um, and I'm not saying I'm even right, but I, I'm worried that the, the, the overall TAM is-Is being flattered by the desire to just reduce headcount. It, it seems to flatter the, the TAM expansion. I, I just, I just think it's TBD at this valuation if there's a $100 billion company here for sure or not. I, I don't know
- RORory O’Driscoll
Broadly agree. 'Cause just from my n- my guess is the customer support software market which exists today is probably $20 or $30 billion, and the customer support labor spend is $400 billion. So you're exactly right. If you're selling a story that says, "We're gonna replace the old customer support software with new..." You know, you're gonna replace Service Cloud, which is the Salesforce product, which Brett Taylor obviously knows really well, with Sierra, that's not a great business, 'cause you're gonna be grinding out replacement for the next couple of decades, right? You have to buy into some level of there's, there's TAM expansion from labor replacement-
- HSHarry Stebbings
No, not only, no, not only that, sorry, Rory. Not only TAM expansion from labor replacement, but actually expansion into sales and upsell massively, too.
- RORory O’Driscoll
Agreed. There's a lot of-
- JLJason Lemkin
And the operating margins for revenue growth
- RORory O’Driscoll
Agreed, because remember, i- i- in the abstract, you have TAM expansion from labor replacement. But once you have three or four customers competing for the same thing, then your, then your competition is not labor, your competition is three other companies, all of whom are using LLMs for the same thing. So I think, you know, there's a fair... Look, to state the obvious, there's a fair amount of leaning in here at 100 times revenue in a world where you can buy Anthropic for, you know, 30 times revenue, or 44, yeah, 20 times revenue, right? Just to state the obvious. Now, I think the fun thing about it is, is that, you know, when you have this whole dialogue, software is dead, right? 'Cause if you think about it, there's two sub-dialogues of software is dead. There is SaaS soft- all software is dead because the SaaS apocalypse, and then there's the more terrifying version, all software is dead 'cause the LLMs are gonna eat everything, right? And what I like about this is this is the guy who's chairman of the L- the, the, what's still the biggest LLM company, OpenAI, and they clearly believe that there's value to be added on... It's the same story Alex Karp is telling. There is value to be added on top of LLM software to build a large independent company. When people are giving me, "Is software dead? Are the LLMs gonna eat everything?" story, people are voting with their dollars that say it's not, right? With companies like Sierra, and I believe them to be correct. And one rule of thumb, going back to my failed math earlier, but now trying to get it right, it's IO- one of the things I look at in these companies, token intensity, which is how much they spend on tokens on a cost of goods sold basis. In other words, how much does it cost to deliver a next-generation Sierra customer agent? And my guess is their LLM spend is sub 10% of revenues. In other words, LLMs are not the dominant portion of the value they deliver. It's the LLM plus the software, plus the hosting, plus all the domain-specific knowledge. So I think the fact that they can raise this kind of money, it, it's healthy and it speaks to the, um, belief in the next-generation software companies. The multiple, you can definit- look, any time you're paying 100 times ARR for any software company, no matter how fast it's growing, you know, you really are leaning in to a very aggressive future. I hope they're right.
- JLJason Lemkin
Rory makes such an important point here. The SP- SaaSpocalypse assumed that no one was going to buy software. Sierra is a counter-narrative to that, if nothing else. We, we want to buy, as is Palantir from this week, right? So there, it's meta good news, but maybe not for a lot of our portfolio. But at a meta level, it's great news. [laughs]
- HSHarry Stebbings
Are we really running out of ideas that much, GV and Tiger? My friend Tom Hume runs GV, so I'm, I'm, I love him and I'm taking a dig at him here lovingly. But, like, seriously? If it's a $100 billion company with no more dilution, you're doing a 5.5X.
- JLJason Lemkin
Yeah, but we want Tiger to be back. That's good for everybody, Harry. So let's distinguish between GV and Tiger, okay? We want Tiger to be deploying lots of capital into our portfolio companies, so let's cheer them on, okay? We need Tiger to be strong again.
- RORory O’Driscoll
No, it doesn't... I think, Harry, we're all Pavlovian. Investors are the most Pavlovian things out there. The things that f- we do the things that feel good, and we do the more, we do more and more of the things that feel good until it feels bad, right? And the truth is this: buying marquee assets at absurd prices has been by far and away the best strategy for the last three years, right?
- JLJason Lemkin
True.
- RORory O’Driscoll
So you're just gonna do more, and you're just gonna keep doing it until you overshoot. Is this the moment they've overshot? I don't know. I would've guessed $380 billion for Anthropic. Ooh, that feels a bit lofty, right? The point is this-
- HSHarry Stebbings
The, the, the point, the point is also on the flip side, OpenAI will buy them today for $40, $50 billion to get Brett as CEO.
- RORory O’Driscoll
Actually, I don't think they need to... Actually, the truth is this, we, 'cause we gotta say it, something has happened at OpenAI. I mean, we suggested this a while back, and when I suggested, I was also saying it shouldn't, it shouldn't be necessary, 'cause really all we, all we need is for someone to tell the team at OpenAI, "Come on, just, just stick to your knitting. Do two or three things. Do them well. Get rid of the external noise." And to be fair to them, there's, you've seen some progress in that direction, right? So you don't need to have, quote-unquote, "Brett Taylor run this company." I think whatever's working, Mr. Altman's decided to focus a little bit, reduce the extraneous noise, and they seem to be getting better performance. I'm kinda, to Jason's point, being a little bit back on team OpenAI, not from a bandwagon perspective, but from a all you have to do is just do the ordinary things well and you'll do great.
- HSHarry Stebbings
Which has more upside, if you were to put a dollar to work, Sierra or Anthropic?
- RORory O’Driscoll
Anthropic. Not even subject for a sec- second. Not even subject for a second.
- HSHarry Stebbings
Wow.
- RORory O’Driscoll
I mean, yeah.
- HSHarry Stebbings
You're saying it's more likely then that Anthropic is worth $60 trillion than, uh, Sierra is worth $100 billion.
- RORory O’Driscoll
Yes. I think the likelihood of both of those happening are low, but yes.
- HSHarry Stebbings
That's interesting.
- JLJason Lemkin
Look, I mean, you could play... I, I think that there's, my sense is, I'm not good at the VC gossip, Harry. You're much better at this than me. But my sense is they're just different bets, because Anthropic is a bet that there's boundless upside. And Byron Deeter was on CNBC or whatever this week saying, "By far, this is the best round to invest in," right? And a little bit he's talking his book, but I definit- we all know Byron. I believe he believes that this is the best round, okay? I believe Sierra, I don't know, I mean, I met Tom once through you when he was at S- Sastre London. I really... But I believe that they all believe there's also downside protection in this deal, and it's just a different type of deal. And people were kinda snippy when they did the round at $10 billion. And again, I don't know gossip, but I was at a, at a big event, and people are like, "Well, they did that round because they wanted access to Brett." I don't believe that, right? But the sense that there's massive downside protection when folks are still struggling to deploy capital in venture, it's not easy.These bets are risky. They're very expensive. The fact... I don't know how big the round was, 950, I can put half a mil- half a billion into Sierra and, uh, you know, my, at least my downside's protected. You don't want every deal to be like that in your portfolio, but there's some comfort in having downside protection, even if it's pretend. But it's part of venture investing, is we, we, we, we, you know, we, we bu- downside protection is real. We just overstate it, right? And, uh, the number of potential acquirers is real. We actually overstate that too. Well, worst case, [laughs] Claude tells me this the other day, I was talking about my portfolio. He's like, "Well, worst case, this one will exit for one and a half to two billion [laughs] to one of these three folks." I'm like, "Thanks, Claude. I mean, I feel better." [laughs]
- RORory O’Driscoll
Let, let, let me explain. Yes, that's because the training data doesn't include the decades that I remember.
- JLJason Lemkin
[laughs]
- RORory O’Driscoll
Well, let me tell you, there are worse-
- JLJason Lemkin
Worst case, Jason
- RORory O’Driscoll
... no, worst case is then a $1.5 billion exit for your investments.
- JLJason Lemkin
Worst case.
- RORory O’Driscoll
I assure you of that.
- 1:19:30 – 1:23:49
Musk vs Altman Trial
- HSHarry Stebbings
In other news, Musk versus Altman, trial week one. Rory, going back to this that you mentioned earlier, uh, Musk admits xAI distilled OpenAI models partly, importantly that he said partly. Um, also, Greg Brockman claims that his stake is now worth $30 billion, um, another revelation that came out. Boys, what's the analysis on week one of Musk versus Altman?
- RORory O’Driscoll
First of all, thank you, God, for this gift for the tech version of TMZ. It's gonna be the gift that keeps on giving. It's kind of, it's a little bit, you know, kind of, you know, rubbernecking on a train, on, uh, on, on a, o- on a car accident because it's going... it's just gonna be impossible to tear your eyes away from it, right? And yeah, evidence is gonna come out, and it's just gonna... yeah, people aren't gonna look great. Um, but which is different than actually, and we should talk in a second about the actual legal issues here, which are much distinct. But yes, I mean, so in no particular order, yeah, the distillation comment wasn't a good look for Elon. The, um, uh, being asked under oath to rank the, um, models and ra- you know, having to rank OpenAI and then Anthropic above him probably hurt deep in his soul, right? And it just showed whenever you get to this kind of law, um, yeah, it's always embarrassing for both sides. I mean, I, I feel for Greg Brock when the, you know, you, you have this private diary where you i- you, you write your inner thoughts and suddenly you get, you know, a, um, document retention request, and now your private personal diary, 'cause it doesn't have attorney-client privilege, is out there forever and to sneer at you. It's kind of bullshit, right? So under 30 billion, think people have been not... Well, of course someone, the, the, the Twitter tweets, "Oh, he owns 30 billion. He didn't put any money in." Well, yeah, that's how equity works when you're kind of a founder or near founder. He is one of the top two or three executives in a company worth $800 billion. It would be surprising if it was worth less than $10 or $20 billion. The most surprising thing is Sam Altman's worth zero on this, right? Which I still think is weird and a mistake. It will be easy to throw kind of shit at both sides, but it actually doesn't matter to the legal issues. The legal issues I think are going to be, um, you know, that no one talks about. Super interesting is one is, um, statute of limitations. Did Elon... These are what's actually going on. One is there's a time limit on when you can bring these cases, and the earlier you see threads from Elon about, "Hey, this might be something I want," the earlier it says you should have known then and you should have sued then. This, he may lose on statute of limitations. The judge may just decide, "Dude, you had to bring a case within three years. Five years have passed, so I'm not gonna rule on the merits. It's been fun listening to you guys for two weeks, but I'm ruling it out on that." Right? Then another one that's kind of super obscure, but the minute you hear it, you go, "Oh, get it," is a lot of the money came through his donor-advised fund. And I, you know, anyone uses a DAF, it's super efficient. You distribute stock into it, and then you advise the fund how to spend the money. But it turns out that that DAF is a separate legal entity, and once you give the money to the DAF, it's not your money anymore. So the DAF is the person who's been harmed when Elon's DAF gave that money to OpenAI. So Elon may not have standing in the case. These are the legal issues that are going on underneath the surface. So what's gonna happen here is... And sometimes, especially in a pure jury trial, if someone looks like a jerk on the stand, it can, you know, impact them, and both people are gonna, both sides are gonna look like jerks on the stand, possibly because at times they are jerks. Uh, but it doesn't matter because the jury, it's a weird thing. The jury is advisory in this case. In other words, they have the right to give advice on some of the issues, but ultimately, it's kind of a weird thing. The judge decides. So in the end, this is gonna boil down to one judge, probably a series of legal issues, right? And then at the margin, you know, the merits of the case. So, you know, when you look at it the first day is that Elon looks maybe slightly be- I mean, regardless of that, no one looks great, maybe is the truth. But in terms of the merits of the case, uh, Elon probably went backwards just 'cause of these kind of technical issues. It's hilarious. But I mean, I will admit, I, I say all that and I give this virtue speech about we shouldn't be looking at the car crash, and then I'm looking over at the car crash just like everyone else. It's like, oh my God, you did that. You know, it's just gonna, and it's gonna continue.
- 1:23:49 – 1:36:22
The End of Managers? Brian Armstrong & The Rise of the "Individual Contributor"
- HSHarry Stebbings
Jason, we can choose one final topic of the week.
- JLJason Lemkin
Okay.
- HSHarry Stebbings
You, you get to choose 'cause Rory likes to hand this over to us.
- JLJason Lemkin
Okay. What, do I have choices?
- RORory O’Driscoll
Yeah.
- HSHarry Stebbings
You have choice, you have choices, dude. You can choose any of the remainders. There's a lot in the venture and private markets from Founders Fund's new $6 billion fund, Coinbase cutting 14%, Vanta 63% growth at 300 million ARR, Rogo raises at 2 billion.
- JLJason Lemkin
[sighs] I'm gonna give a quick shout-out to Vanta. We don't have to spend the time on it. A- another story of re-acceleration of growth. It's not just Palantir. It's not... We had Rippling last week, 70% at a billion. Vanta 60. I think every week we gotta have a shout-out. So shout-out to Vanta, the, our, our, our good news story of the week. But I don't think we need to talk about, uh, SOC, SOC 17 compliance this week. So why don't we just leave it a- as a, as a cheerlead? I, I, even though I hit, hit it at the beginning, I do think-At least as we record this, to me, the Coinbase thing, if, if people really think about it, is, is, is, is pretty important and transformational, which is Brian saying that, "I just don't need anybody at Coinbase that isn't also an individual contributor anymore. I just don't want anybody here," is what he said this morning when we recorded this, so it'll... You know, day- a day delay, but, "We do not need managers of managers, and we do not need managers. If you can't ship and manage, if you can't deliver a campaign and be the head of marketing, right? If you can't manage sales agents and be a sales manager, I don't want you at Coinbase." That's how... I think that's how all founders have felt, and then we give up at a certain point. We give... Like, it's always true of the first 50, right? And then we start to give up, and then around 500, I've learned in the old days, you would just capitulate, and then you have managers of managers, and then you start not meeting people as CEO before they leave, right? I remember I was at Aaron Levie's office when they crossed 500, and he said, "This was a learning moment for me." He's like, "Now people leave Box before I've ever met them." He didn't mean managers of managers, but it... But, but we capitulated to this, and Brian's saying, "No more with AI. We will even have teams of one that are self-managers," right? And I'm living that today, and I know every founder, every founder wants this world to exist, where there is no one anymore working in my effing company that isn't shipping, that isn't committing, that not- isn't building, and I think if this really hits, it, it will just... He's putting into words what many of us have struggled to say, is we don't want managers anymore. You gotta build or you gotta go.
- RORory O’Driscoll
Interesting.
- JLJason Lemkin
Build or go. E- everyone wants this. Every founder want... It's not the layoffs. Build or go. Build or leave.
- RORory O’Driscoll
What percent of managers can also build?
- JLJason Lemkin
5%. They all gotta go. They build Kanban cards and, and have t- and talk about their team. Anyone on LinkedIn that talks about their team, fire them. "My team this." They're all so precious about their team. "My team, my team did this." That means they did nothing. Lead from the effing front with AI. AI le- No, but in all seriousness, AI lets you lead from the front, and this is who we want to work with. This is who we want to invest. This is who we want on our teams. We want folks that lead from the front. Managers of managers lead from the rear. They lead from HQ, from their, from, from their c- comfy office in their mug, and we're done with it. I'm done with it. So anyone that talks about how great their team is, th- get your four months of severance and two, two weeks for each year you've been at the company. Good luck to you.
- RORory O’Driscoll
As usual, you know, there's a part of me wants to recoil against this, but I'm c- but, but I'm coming around to your perspective. I mean, let's... I'm gonna start with kind of Coinbase, Brian Armstrong. I mean, 'cause, you know, a, a while back, I... We talked about this, and I did a tweet on it, got a lot of pickup on, you know, all the performative lying reasons why people are blaming AI for terminations, either 'cause they've overhired or because, you know, the growth has slowed or because they just spent all the money on CapEx or, as you pointed out, they need different people, all of which being different than the pure, "I just can do more with less," right? So my assumption is when people use AI as a justification for layoffs, I'm now mentally guilty until proven innocent you're lying. But, and this is the big but, I gotta give Brian Armstrong credit. He's demonstrated clarity of thought in how he thinks about hiring, firing, and company culture. I mean, go back to when we were locked in, you know, what turned out to be a fairly destructive period of conflating politics with how you run your company and bringing your political self to work, which proved divisive. He was one of the ones who early on said, "We're not g-" He didn't say, "I believe in this and you believe in that." He just said, "We're not bringing that to work anymore." You remember that manifesto he did and basically said, "I'll pay you... You know, I'll give you severance if you want to go." In re-
- JLJason Lemkin
To a, to a lot of ba- to a lot of backlash at the time
- RORory O’Driscoll
... to a lot of backlash, and in retrospect, an excellent call. I mean, an excellent... not only because it wasn't just a political call, it wasn't taking the other side, it was taking no side, which has turned out to be entirely the correct position. So my mental model is when he says something, like, I'm gonna assume there's gonna be less cant and hypocrisy in it than the average CEO blaming AI for the thing, right? That's the first comment. And then to your thing, too, I, I, I'm... You know, you, you wanna believe that managers should manage, and at some point, you know, Alfred Sloan managing, you know, uh, uh, Al... You know, the, the guy who built GM, you know, managing the modern corporation, but there's a part of me that agrees with you, Jason, is that, you know, I think if you're not hands-on, you just don't have a feel for it. The best CEO at, at every level, you know, y- you can't be... a- a- and what you're not saying, you can't be an individual contributor all day, 'cause, you know, Jamie Dimon's not out there making loans, right? But you have to do enough to know what's happening on the frontline with the new stuff. You can't be so dissociated from it that you don't understand, 'cause then you're in the grip of the experts, right? And today that thing is AI. I mean, if you... Kind of a different example, if you look back to 2008, 2009, the financial crisis, if you really examine what happened to those companies that went... the financial companies that went bust, it was like, "CDO, CLO, my 25-year-old kids are doing this, my quants are doing this, and I don't understand, so I'm just gonna accept... I'm gonna be," as Jason says, "a manager of managers, and I'm gonna accept that they did their work correctly and it'll be fine." And they all went bankrupt. I think the same thing that Jason's right today. If you're not using the technology yourself at least 10% of your time, then you're in the business of listening to other people tell you things and you don't know if it's true or not. You know, I mean, I, I, I w- I always run my own models for our companies. It's like I just want to see the numbers. Where does the cash go? Makes me a little old school, but, you know. I, I, I think there's an element of hands-on authenticity that I think Brian Armstrong is speaking to, I think you're speaking to, Jason, I actually think is a thing, because without it you just end up disconnected. So I actually-
- JLJason Lemkin
But I think it's more... I think that was true last year. I think Brian wants more
- RORory O’Driscoll
Yeah. Okay
- JLJason Lemkin
So let me give you an example. So last night we had our AI VP of customer success reach out to 120 sponsors for SaaStr Annual, asking them exactly what their issues were, telling me everything they had to do, and get it done. You don't want a, a chief customer officer that has to tell three people to do that today. You want a chief customer officer that actually understands why is that possible, how did that happen, why is that better than any human's done on my team, and that they can then talk to Cloud Code or Replit or whatever and make it better tomorrow. That's who you want on your team. It's not just that they dabble. It's not they want... Because pre-AI, a chief customer officer could not reach out to 150 customers at 12:32 last night, in the morning, like we did. Now with AI, our chief AI officer reached out to 232 cust- hundred and something customers at 12 something in the mor- You want that person or move them out. Promote the director that knows how to do that. It's a waste of time having that, that, that, that overfed person talk to the VP, tell the director, and tell someone else that takes three weeks to do this when we did it at 12:32 in the morning last night to a hundred and some odd, uh, sponsors-
- RORory O’Driscoll
Point taken
- JLJason Lemkin
... the 10 million of revenue.
- HSHarry Stebbings
D- d- dude, they wouldn't ask for feedback. They'd ask for a meeting to give the feedback, which would take two weeks to get the meeting to get the feedback, and then they'd do a bunch more work-
- JLJason Lemkin
Yeah, but we want-
- HSHarry Stebbings
... to do
- JLJason Lemkin
Oh, for sure. That's what's always frustrating. But now we know that the best executives... Let me, let me make an even simpler version. A CMO today, and I know this, this will, this, this is really triggering to, to 90% of CMOs, but you know it's true. A CMO today should be able to run their own campaigns, and this is why. I'm not saying you have to spin up, uh, Marketo or HubSpot. I'm saying you should be able to t- tell your agent, and our agent, our AI VP of marketing started running its own campaigns the last two weeks, and it's better. And so you don't even need to know exactly how that works. But the CMO should be able to interact with the agent and say, "Let's talk about the three best campaigns we should run to support, scale, whatever," and run it themselves now because you don't need a team to do it. You and the agent should do it, and you should want to do that, and you should be passionate about it, and you should get rid of the executives in your organization that are resisting that. Get rid of them. They're-
- HSHarry Stebbings
J- Jason-
- JLJason Lemkin
Get rid of them
- HSHarry Stebbings
... again, I love it, but, like, what percent of CMOs can do that? 2%, 1%?
- JLJason Lemkin
Maybe you just need a director or a VP that cares, and you don't need a CMO.
- RORory O’Driscoll
But the interesting question on that, how, let's say it's 10% or less, the question is, do they become the most successful CMOs, right?
- JLJason Lemkin
Yeah, they're gonna crush it.
- RORory O’Driscoll
If, if Jason is right and there's a correlation with success, then the one thing I do know is that economics is Darwinian, and, you know, over time, that 10 will become 20, will become 40 because the people who can't do it will be forced out, right? I mean, I think what you're saying, Jason, is what it takes to compete is changing, and if the people who have it succeed, y- capitalism works. It excludes the people who can't do it.
Episode duration: 1:36:34
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Transcript of episode i98P2wodb10
