Chime IPO: Are IPOs Hotter Than Ever?

1. 0:00 – 1:10

   Meta’s $14.8B Scale AI deal: what actually happened and why it’s unprecedented

   1. JLJason Lemkin0:00

      There's no way that Scale can recover from losing its founders. I love you, but it's a dead man walking instantly.

   2. RORory O’Driscoll0:06

      I could imagine an entire IPO cycle where, once again, neither of the two names you cited chose to go out, and we get to the end of the year.

   3. JLJason Lemkin0:12

      I'm starting to lose confidence in the old guard.

   4. RORory O’Driscoll0:14

      In situations of ambiguity, the person who has the most leverage has the best chance to win, and I would argue Microsoft has quite a lot of leverage 'cause it's not existential for them, especially now.

   5. JLJason Lemkin0:23

      I think they have no leverage, actually, honestly. I'm not trying to be a chaos agent like a prior guest.

   6. RORory O’Driscoll0:29

      Ready to go? [upbeat rock music]

   7. HSHarry Stebbings0:41

      Guys, I'm so excited for this. It is my favorite time of the week, and oh my God, what a week of news we have to go through. Uh, we're also thrilled to be joined by Garrett from Handshake. So I wanted to start with the news of Scale and the acquisition there. And so I'm gonna start with, obviously, Scale, $14.83 billion to Meta. I wanted to start with that. Garrett, how should we read this? You're the expert in the room. How did you take the news?

2. 1:10 – 6:14

   Handshake’s perspective: demand surge as labs reallocate spend away from Scale

   1. SPSpeaker1:10

      Well, I think it's in, it's pretty unprecedented, uh, to have the leading player, one of the leading players, like, completely bow out. What we're seeing is, uh, many of the labs having to reallocate their spend and, uh, trying to diversify away from, uh, some of the leading players that, that they no longer can trust to do, to do work right now.

   2. JLJason Lemkin1:29

      I have a bunch of questions I want to ask Garrett since we have him. At, at, at, I mean, at a deal level it seems pr- pretty clear. It's a weird deal. They've put almost $15 billion into Scale. Rory may have the details. Most of it comes out as a dividend, and the CEO leaves [laughs] to go run, uh, seemingly a much broader portfolio at Meta, right? He's not just running training, right? Which this is the whole mystery is, um, is that Facebook does, or Meta doesn't even seem to care about the revenue, right? Um, but if only OpenAI is committed to, to maintaining that as a partial presence, I assume the revenue will decline rapidly, right? Um, I don't know, though. That's the... But you've already benefited from that, right? I mean, almost overnight you've benefited from that. So, so in a way, you are, you are the mole here rather than us.

   3. RORory O’Driscoll2:13

      Agreed.

   4. SPSpeaker2:14

      Yeah, I mean, we have seen, uh, a huge surge in demand. Primary concern right now [laughs] is hiring on our team. I mean, demand tripled in, in the, you know-

   5. JLJason Lemkin2:22

      A week

   6. SPSpeaker2:23

      ... in, in the aven- of the week.

   7. JLJason Lemkin2:25

      [laughs]

   8. SPSpeaker2:25

      Uh, I'm running on an average of, like, three and a half hours of sleep for the last, like, 10 days.

   9. RORory O’Driscoll2:28

      I think I'm gonna zoom out even one level before, just to restate in case... I mean, we've dived right in 'cause we're so in the details. But zooming out a million miles, yeah, Scale AI is an amazing company founded 10 years ago to do, to help companies build great AI models, and they do that by rounding up human experts and initially just doing very simple data labeling. But increasingly over the last four or five years, as Garrett had said, as the tasks that the model builders have to attempt to solve get more complex, they've been hiring experts and at the PhD level to help with post-training reasoning questions around making the models better. Zoom out comment. It's an amazing business. It grew to $800, $900 million. Think about it kind of one level below the model providers themselves. Th- this is a company selling to those five or six amazing model provider companies a vital service that's probably kind of a pain in the ass if you're OpenAI or Anthropic. You don't want to spend your life rounding up literally thousands of people to answer, you know, what 10 years ago were very mundane questions like, "Is this a stop sign?" And are now, as the AI has gotten smarter, much more advanced questions, as Garrett knows better than me, right at the level of PhD knowledge. So that's the business AI, Scale AI was in, and it was doing $800 million, and its customers were, in the main, the five or six large model providers. That's where we were a week ago. It was a highly valued company, just raised at $14 billion. So that's kind of the, the level set here, and probably the leader in the space in terms of size, not making any comments on quality. And then as you say, a week ago, in the last week, you know, Facebook/Meta announced the fascinating transaction whereby they, that definitely is a bit of a head-scratcher, whereby they invested $14 billion into Scale AI, took 49% non-voting control, allowed the other investors to literally take that money back out as a special dividend, so all those other investors got $14 billion in cold hard cash. Some, and some of the key executives at Scale AI move over to effect- to working with Meta. So that's, those are the facts on what happened, and I think, you know, the open questions that we're starting today is why? What's the impact on Meta? What's the impact on the remaining Scale AI business? And then as Garrett says, what's the impact on all the other providers who probably, as Garrett just hinted, if you think about it, Facebook, again, to state the obvious, Facebook is another contender in the AI model wars. So if you're OpenAI, if you're Anthropic, if you're any of the other guys, you now have a key supplier who's selling you a pretty important subsystem of what it takes to build your model, who is now owned, controlled, dominated, infiltrated, pick your word, by one of your direct competitors. It's got to make everyone pause.

   10. HSHarry Stebbings5:22

       Wh- which is exactly what you'll see happen with Windsurf being turned off of Anthropic's model.

   11. RORory O’Driscoll5:26

       Agreed.

   12. HSHarry Stebbings5:26

       And then back to Garrett. What you're saying is in the last week, the phone's been ringing off the hook.

   13. SPSpeaker5:32

       Uh, absolutely. And I think as you talk about the shift from generalist to experts, like, we haven't even talked about, like, the future too. Like, future's gonna involve more audio. The future's gonna involve more tool use. The future's gonna involve more trajectories as some of these agentic systems, uh, and step-by-step problem-solving is trying to be improved by all the frontier labs in their pursuit of AGI, right? So, um, really what that means is that, like, you need experts i- in domain, m- mostly in, in, right now we're, we're focused is on, you know, core science skills, and also skills that you'd imagine, like finance, law-

   14. RORory O’Driscoll6:09

       Yep

   15. SPSpeaker6:09

       ... medicine, like the large markets that these, that these frontier labs are chasing after.

3. 6:14 – 9:28

   Procurement paranoia: how much visibility will customers allow vendors post-Scale?

   1. RORory O’Driscoll6:14

      One key question for you though, Garrett. As you're having these conversations-Post the announcement, right? If I was running procurement or ven- for one of the other AI company, and I've had this happen to me once, right? How do you think it will impact how they contract with people like you, companies like you, and how much of the in-- Like, how much of the process will they let you have visibility into? 'Cause one could argue that Scale, the asset that Meta may think it's bought is that Scale AI has a lot of knowledge just by virtue of the questions that are being asked and the kind of expertise that people are seeking from them, has a lot of knowledge about where the most advanced LLM companies are going. And if I was procuring Handshake after that experience, I might have some different perspectives in what I can let you see or not see or... Is there anything you can comment on that?

   2. SPSpeaker7:06

      Uh, when we're talking to our customers, I mean, they, uh, we are talking about, uh, the absolute frontier of what's happening.

   3. RORory O’Driscoll7:14

      Mm-hmm.

   4. SPSpeaker7:15

      Um, and, uh, the, you know, our customers really care about three things that are always in balance. They care about quality first and foremost. You have to have high-quality training data. Uh, you have to have high-quality evaluation set. Like, you, you have to have high quality. Then they care about volume. You know, it's really hard to get to Scale on volumes if you don't have an audience. Like, I would say the only durable moat in, in the entire human data business is access to an audience. Uh, and then they care about speed. How fast can you turn them around? If you're another company in the space, like, you know, or one of our advantages, I would say, is the ability to activate volume and quality quickly. And, uh, we don't have to run month-long advertising campaigns to make that happen.

   5. HSHarry Stebbings8:00

      In a year, Garrett, over or under, one word, does Scale have over 100 million or under 100 million of revenue?

   6. SPSpeaker8:08

      O- over 100 million.

   7. RORory O’Driscoll8:09

      That's a great call, Garrett. And the reason it's a great call, it was a such a savvy thing, 'cause you're probably correct, 'cause it takes a long time to go from 800 to 100. So you didn't diss anyone, and you also gave a probably a factually correct answer. If Harry'd asked a different question, which I'm now gonna ask, do you think the revenue goes down? Do you think customers will reallocate significant spend away from Scale AI to other providers of data in the light of this acquisition? How would you answer that question?

   8. SPSpeaker8:39

      What we're seeing right now in the market is that there are hundreds and hundreds of millions of dollars of, uh, spend that is trying to be reallocated to, uh, leading providers. Um, and the primary constraint is the ability to deliver volume and scale, and we c- we can deliver volume, we can deliver quality, and we can do it really fast.

   9. RORory O’Driscoll8:59

      I, I, I want, you know, after you're wildly successful in this org- in th- in this, uh, entrepreneurial endeavor, there is a career in politics ahead of you. The way you answer those questions without avoiding the pitfalls is excellent.

   10. SPSpeaker9:11

       Thanks.

   11. RORory O’Driscoll9:11

       But you're right. What you're s- what you're saying basically is, yes, there's a massive spend reallocation away, which gets, you know, which gets to the interesting question about the deal, what did they get for their 14 billion? I know at the vent- I, I know what the investors got for their 14 billion. [laughs] They got 14 billion. Um, it's just interesting to speculate-

4. 9:28 – 13:18

   Was Meta buying revenue, talent, or market signaling? The ‘messaging’ thesis

   1. HSHarry Stebbings9:28

      D- I don't think there's-- I think everyone's really confused by this in a way that they shouldn't be. Zuck was behind with Llama. He needed to show the public markets that they were still a front runner with an AI slant. [laughs] Bluntly, that was the play. The price is less than 1% of the market cap.

   2. RORory O’Driscoll9:44

      Yeah.

   3. HSHarry Stebbings9:44

      Honest, he doesn't give a shit, and he gets good talent with some people that he likes. Roll the dice.

   4. RORory O’Driscoll9:50

      I, I agree. That is the analysis. I, I-- So I was asking the question, but you're right, Harry. Implicitly, what you're saying when you make that answer, and I, to be clear, I 100% agree with it, what you're saying is this is not a corporate of... There's no internal DCF that says why this is a good idea. There's just a, "I wanna be relevant. It's less than 1% of market cap. I'm doing it. Somebody paper the file." If you piece it up logically, you're right. You gave a company 14 billion for half the c- of the company. The 14 billion has moved out of the company, so that's now gone, right?

   5. HSHarry Stebbings10:24

      Mm-hmm.

   6. RORory O’Driscoll10:24

      It didn't move out as a repurchase of shares, so the... you, you still only own 49% of the company. The cash is gone, and therefore you now have half ownership in a business that obviously doesn't have that 14 billion and just has whatever revenue it's had, and we just agreed that's declining. The value of that asset, it's not nothing, but it's nowhere near 28 billion post, right? It's a, we now have an 800 million declining revenue business with so-so gross margins, right? The amazing thing you've got is, you're exactly right, the talent of those people that you've brought across. And, you know, and-

   7. HSHarry Stebbings10:58

      The talent, the talent, and the messaging-

   8. RORory O’Driscoll11:00

      Yes

   9. HSHarry Stebbings11:00

      ... for a company that is as high as-

   10. RORory O’Driscoll11:02

       And the messaging and the knowledge. It's-

   11. JLJason Lemkin11:03

       Well, I'll tell you, if I had to simplify it, I think the question is, is, um, Alexander Wang as good or better than Bret Taylor? Because look, here's my view. Salesforce spent $750 million to buy Quip in 2016, a word processor that barely worked for one dude, right? One of the greatest of all time, you know, CTO of Facebook, right? And then almost CEO of Salesforce, except he bailed, right? And so Rory's really good at this math. What is 750 million in '26, where great exits were, IPOs were lucky to be a billion compared to 2026, 10 years later? It might be the same as Scale. Like the mult- it might be 20X bigger, so 20X times 750 is almost exactly the deal size. [laughs]

   12. HSHarry Stebbings11:45

       I, I don't think it ma- He's not saying-- I think you're placing emphasis on, bluntly, the talent acquisition.

   13. JLJason Lemkin11:50

       Yeah.

   14. HSHarry Stebbings11:50

       I think 27 billion of the 28 billion is on messaging. It is about showing the public markets in the world he is still a front runner.

   15. RORory O’Driscoll11:58

       Important, in fairness to say, it's only 14 billion, not 28.

   16. JLJason Lemkin12:02

       Yeah, 14.

   17. RORory O’Driscoll12:02

       Right?

   18. JLJason Lemkin12:02

       So I think the math of Quip is actually pretty good. Rory, you're better at math than me. 750 in 2016, 14 today for one dude, basically. I mean, who uses... You, raise your hand. Garrett, help me. How often do you use Quip for your word processing? Pretty, pretty often? Every day?

   19. SPSpeaker12:15

       Don't be mean. Don't be mean.

   20. JLJason Lemkin12:16

       How's he, how are the LLM... [laughs] No, what I'm saying is it seem crazy, right? It's, it's gotta be... But if it's the same deal or Google buying Bebop to get Diane Greene for 400 million, right?

   21. RORory O’Driscoll12:27

       Right.

   22. JLJason Lemkin12:28

       That was a generation before Quip. What's it... Everything's bigger.

   23. RORory O’Driscoll12:31

       Everything is bigger now. There are seven companies who can write stunning checks and only cost them a quarter's cash, uh, uh, literally one quarter of free cash flow. And therefore, if you're in-The path of the corporate imperative for one of the top seven companies, you can just get huge amounts of money, and you're thinking, "Oh my God, this is the most amazing thing of all time," and they're literally thinking, "Tick, that's Q2 done. What am I doing in Q3?" Right? And it's just... And, and I, Harry, broadly speaking, we're all saying the same thing. Facebook's market cap is $1.7 trillion, and their free cash flow for a quarter is $15 billion. Even if it's a total write-off, he literally goes away, Mr. Zuckerberg goes away, and in 90 days come back and said, "Whoops, that was an error, but we earned it back. Keep moving here, people."

5. 13:18 – 16:01

   Founder temptation and timing luck: ‘stay in the game long enough’

   1. JLJason Lemkin13:18

      Garrett, I'm gonna, uh, with that, Microsoft put down an offer tomorrow for $4 billion to acquire Handshake, would you say yes?

   2. SPSpeaker13:27

      What? Uh, uh, uh, absolutely not. [laughs]

   3. JLJason Lemkin13:30

      [laughs]

   4. RORory O’Driscoll13:32

      I love it.

   5. SPSpeaker13:32

      I think a broad opportunity for us is, like, you know, leveraging all of this trust we built with a million employers-

   6. JLJason Lemkin13:38

      All right. J- Jeff at GGV is just calling me.

   7. SPSpeaker13:40

      Yeah.

   8. JLJason Lemkin13:40

      He says, "Fucking sell at four bil."

   9. SPSpeaker13:42

      I think there's an opportunity-

   10. RORory O’Driscoll13:43

       Okay

   11. SPSpeaker13:43

       ... to really build-

   12. JLJason Lemkin13:44

       I tell all founders to sell now, by the way.

   13. RORory O’Driscoll13:46

       No.

   14. SPSpeaker13:47

       Yeah.

   15. RORory O’Driscoll13:47

       I just, I, I have a different-

   16. JLJason Lemkin13:48

       As a ch- only as a challenge. I'm not saying you shouldn't take th- this fake offer, but this is my, this is what I... my life lesson. I tell you to take it, and then if you come back the next day and say what you just said, which is F no, it's the right answer, [laughs] right? But I wanna, I decide I wanna be the one, as crazy as it sounds, I wanna be the one guy to tell you to sell as a, as a challenge.

   17. RORory O’Driscoll14:07

       My observation is no one's opinion on what they would do at a hypot- hypothetical offer is worth a damn, and what people actually do when the money comes into view tends to be very different on both sides.

   18. JLJason Lemkin14:18

       Listen, Garrett, you're gonna get a term sheet from Rory at a $4 billion price on the back of that, so congratulations. This was a very well-spent Half Now Peak.

   19. RORory O’Driscoll14:25

       Total time-

   20. JLJason Lemkin14:31

       Can I ask Garrett one question, Harry, before we, just if we have time? Just 'cause a meta question for founders out there and VCs struggling. With all this demand that you have now, are you an AI company? Is this a two-product company? Like, because I feel like you, in a way, listen, you've worked so hard, right? But you also have a little bit of luck. This has bounced for you, right? You've become an AI company that I... When did you found the company?

   21. SPSpeaker14:53

       Uh, nine years ago.

   22. JLJason Lemkin14:55

       Okay, so you weren't AI first [laughs] when you were a network, when you were sort of the network for, uh, for, for jobs for university students. How do you think about it yourself? Um, how do you think about taking advantage of these opportunities? Like, what's the meta lesson? Harry, you're the boss. I just think it's very interesting 'cause so many founders are trying to become AI startup companies, right?

   23. SPSpeaker15:14

       Agreed.

   24. JLJason Lemkin15:14

       But they're not quite, they're not quite hitting it, right?

   25. SPSpeaker15:17

       Yeah.

   26. JLJason Lemkin15:17

       They're, they're launching features and products, but the growth isn't there.

   27. SPSpeaker15:20

       Yeah, I mean, I think this just accelerates our, our mission of, like, democratizing access to opportunity and becoming the number-one job platform on the internet.

   28. JLJason Lemkin15:27

       No. The, no, that's not the takeaway, Garrett. Sorry. No, no.

   29. RORory O’Driscoll15:32

       [laughs]

   30. JLJason Lemkin15:32

       The takeaway is stay in the fucking game long enough.
6. 16:01 – 19:43

   Liquidity shock: dividends, LP distributions, and why this Scale deal is ‘instant cash’ rare

   1. JLJason Lemkin16:01

      Now, now, the thing that I do wanna discuss on the back of that, guys, back to the show, is $14.8 billion back to LPs as well is a lot of money. Do we see a resurgence in LP activity reinvesting that money, given what has been a period of illiquidity and people struggling with liquidity? C- do we see now LPs return to the game at speed with Chime, with Circle, with Scale coming back?

   2. RORory O’Driscoll16:29

      I mean, it's gotta help. Look, there's no doubt that liquidity this year is gonna be way up on the last couple of years. It's gotta help. I mean, I think, you know, when you're dealing with a couple of trillion of NAV, you know, f- terrifyingly $14 billion, let's call it $20 billion, round up, it's 1%. It's a good start.

   3. JLJason Lemkin16:49

      [laughs]

   4. RORory O’Driscoll16:49

      Right? But, you know, that's the terrifying thing about big numbers. They're big.

   5. JLJason Lemkin16:53

      LPs, my, at least the LPs I interact with don't get ahead of the distributions. What I mean is, uh, yeah, Scale, uh, as near as I can tell, Scale's already distributed cash as a dividend, right? It's out and folks are gonna be wi- uh, may have already wired the money out to their LPs, right? Have some fun, right? The Chimes, the Circles, the rest, the six or s- six or seven great IPOs, a lot of the top VCs are gonna be managing those distributions out over 36 months following a lockup, right? So my LPs don't, they're looking at dollars out now, this quarter, before they get excited about putting money, even though they should get excited because they can see it, right? You know the money's coming back over 36 months, and you can do a model and model whether it's gonna be more or less than its current price. But I haven't seen that excitement until the cash is-

   6. RORory O’Driscoll17:38

      Agreed

   7. JLJason Lemkin17:39

      ... back. Right?

   8. RORory O’Driscoll17:39

      I, I think that's what's so unbelievable about this deal, though, is, like, how rare do you get cash back this quick?

   9. JLJason Lemkin17:44

      Totally.

   10. RORory O’Driscoll17:44

       No lockup, no delays.

   11. JLJason Lemkin17:46

       It-

   12. RORory O’Driscoll17:46

       Yeah. I mean, it's actually-

   13. JLJason Lemkin17:47

       Yeah

   14. RORory O’Driscoll17:47

       ... totally weird, and I think it will, it, it, it's even more unusual, I mean, in the sense of the deal now it's already closed, right? And it's such a, it's such a get-around on the Department of Justice that, you know, the... I'm sure somewhere in the DOJ someone's head is pounding, and if, you know, we were under the prior administration, they'd be trying [laughs] to do some kind of retroactive restraining order. It must make everyone's head hurt, 'cause it's such an obvious get-around. You know, if the real asset is some combination of the people you hired at Face- at Meta, I'll call them Meta, and/or, as Harry said, some kind of market perception, it's very hard to imagine a DOJ, what's the word for when you, um, uh, um, rescission, that says, "You can't work at Facebook anymore. You gotta go back to where you were." I think it would be... It's very hard. This is such a weird transaction. It would be very hard for any kind of judicial review to unwind it, in part 'cause it's so weird, right? So I think cl- clever, clever, clever, and amazing result, but-

   15. JLJason Lemkin18:48

       Yeah. But clever, but you have to realize you're getting... It's clever if you want nothingThey're bought no revenue-

   16. RORory O’Driscoll18:54

       That is the thing

   17. JLJason Lemkin18:55

       ... no assets. [laughs] They bought a-

   18. RORory O’Driscoll18:56

       No

   19. JLJason Lemkin18:56

       ... as we just discussed, I mean, if Handshake j- has already gotten, say, 50 million ARR from Scale already, this is the wor- as, as a revenue asset, they don't even own it. It's the worst purchase ever of all time for, for, for assets, right? [laughs]

   20. RORory O’Driscoll19:09

       A- a- and that c- by the way, that was very, your, your first sentence there came out what it was, it's, but no, that was a very succinct summary here, I thought. That should be one of the sound bites, 'cause you nailed it exactly, uh, Jason. Anyway, the funny thing, and you're right, the funny thing is Scale AI is still the same amazing company it was, right? Two or three, I don't know how many talented people have left, and Alex is obviously wildly smart, but you've still got, you know, hundreds of really talented folks there. But the issue, as we've said, is that the impact on your customers is so traumatic that it may be very hard to get back from it. So yeah.

7. 19:43 – 23:07

   Can Scale AI survive? ‘Dead man walking’ and the customer conflict problem

   1. JLJason Lemkin19:43

      No, I mean, I lo- I love you, but it's a dead man walking instantly. There's no way that Scale can recover from losing its founder.

   2. RORory O’Driscoll19:50

      I, I agree.

   3. JLJason Lemkin19:51

      It's, it's like-

   4. RORory O’Driscoll19:51

      I, no, I agree

   5. JLJason Lemkin19:51

      ... this is too dynamic a business, and it, it can, it can manage 200 of its 800 for 24 months, but it's, it's, it's a dead company.

   6. RORory O’Driscoll19:58

      Agreed. And by the way, I'm just, I, first of all, I agree with your conclusion. I'm just being precise. It's not because, quote, "you've lost your founder," 'cause, you know, a company can survive the loss of one person. It's the way it happened-

   7. JLJason Lemkin20:10

      Yeah

   8. RORory O’Driscoll20:10

      ... sends such a signal. I mean, about your ability as a customer of Scale AI to continue doing business with them when 49% of the company is owned by one of your competitors in the LLM space. So I agree with you 100%, practically speaking, trying to say it nicer, I'm working on being nicer. Practically speaking, it's hard to imagine an independent, viable business selling to the LLMs, who are the competitors to your 49% owner, where your founder and charismatic CEO is currently working. When you put it like that-

   9. JLJason Lemkin20:45

      It'll be, it'll be fun. In like three or four years we can do an analysis, or you can help. It'll be the AI Stubbs. What happened to all these characters, Scales? [laughs]

   10. RORory O’Driscoll20:53

       At that, yeah.

   11. JLJason Lemkin20:53

       They, they were sort of bought, right? We got a big one called OpenAI, which was sort of bought by Microsoft. They're trying to undo that one right now. But the rest of these little stubs, they're g- what will they look like in four years? [laughs]

   12. RORory O’Driscoll21:05

       That's a fun fact.

   13. JLJason Lemkin21:06

       Yeah, we'll leave like, you know what we'll do? We'll pay 14 billion for Scale, but we'll leave a, we'll leave 200 million in the bank. Okay, that's what they're doing. They're leaving a little pot of honey in the bank. And as folks leave, because they're all cashed out, when we're left with 18 employees, the 200 million can last a long time. [laughs]

   14. HSHarry Stebbings21:20

       I think the interesting thing for me as a McC- a McCaw investor is how is the spend distributed across the other players, one, and then is there additional acquisitions that the others feel they have to make as a result of this acquisition to compete with Facebook's acquiring Scale?

   15. JLJason Lemkin21:34

       Yeah.

   16. RORory O’Driscoll21:36

       A- a- agreed, but and I'll just, and I could be wrong on this. I agree that that's the question, 'cause as, as a good investor, Harry, you're right. The only response to any great outcome is, that's wonderful, but what does it mean for me? Um-

   17. HSHarry Stebbings21:49

       Rory, you know me so well at this point, boys

   18. RORory O’Driscoll21:52

       ... but I, I, I think this is going to be a unique thing. I don't think ev- I could be wrong on this, but I don't think everyone else is gonna wake up and say, OpenAI's gonna say, "I need..." Well, maybe. They might buy... I don't think, I may step back. I don't think they'll buy a person like this happened. You might see some of them say, "Hmm, I would, I would prefer to take some of this work in-house, or parts of this work in-house, 'cause I'm giving too much information to a third party, and therefore maybe I continue do business with Handshake, with Mercury, but maybe more of the process is handled by me, or maybe I buy a small one of these." But I don't think you'll see someone else do a crazy, let's hire the CEO, buy 49%, give Harry the money, and let Harry divvy it out and pretend it's still a company.

   19. HSHarry Stebbings22:37

       I, I, I mean, the one thing I just want to highlight, I always want to do this. I think it's nice. We hear enough about downtreading on people. In terms of like bringing people up, Excel made $2.5 billion. Well done, Daniel Levine, amazing seed bet early. Paige Craig led a pre-seed, 1,000X return.

   20. JLJason Lemkin22:53

       Awesome.

   21. HSHarry Stebbings22:54

       The du- the dude is well known for passing on Airbnb, which he very humbly always talks about. Awesome news there.

   22. JLJason Lemkin23:00

       No, for, no, he's humbly talks about screwing it up. It's an even better story for him-

   23. HSHarry Stebbings23:03

       Yes

   24. JLJason Lemkin23:03

       ... about screwing the deal up, right?

   25. HSHarry Stebbings23:06

       So I think that's awesome.

   26. RORory O’Driscoll23:07

       I agree.

8. 23:07 – 30:25

   CEO removals and founder-first governance: Discord rumors and board fiduciary duty

   1. HSHarry Stebbings23:07

      In, in terms of CEOs moving around, as we have with Alex at Scale there, uh, DeLeon tweeted about Jason at Discord being removed, um, potentially by Benchmark due to a delayed IPO of Discord. I wanted to hear what you guys thought of that.

   2. RORory O’Driscoll23:24

      If you think about, 'cause I, I, I've always been interested in the, you know, you see the threads of, you know, X, Y, Z, w- everyone hating Bill Gurley for replacing Travis Kalanick. I always thought you want to very much strongly bias to backing the founder the whole way. I think that's been a really good move in venture in the last 30 years, not 'cause it's morally right, though maybe it is, but because it's savvy. Whenever you have to change out your founder, by definition you're gonna lose a couple of years and it's a pain in the ass. So even apart from the moral issues, it's just not good for investing. But I also feel sometimes maybe you do have to make a change. And, you know-

   3. JLJason Lemkin24:02

      Rory, have you ever fired a founder?

   4. RORory O’Driscoll24:05

      I've done it, yes, uh, mainly consensually, and I'm proud of the fact that a couple of the founders I've said, "You need to be replaced," have actually have been references for me thereafter. I believe almost all of the times, even when a founder is struggling, you do a lot better by working with them and saying, "What does success look like? Can you get there? Agree on what success is, and if you're not getting there," then most of the time people say, you know, "Maybe you're right. Maybe I can get someone else to do this." So I very much, uh, I believe the following statement. If you walk in and fire a founder or any CEO and they're surprised, you have massively failed as a board member, 'cause you didn't have the guts to tell him in advance you're worried.

   5. JLJason Lemkin24:50

      Personally, I don't have the capabilities or, forget about interest. I could say I have no interest, which is true. I just literally don't have the sc- Like, for me, like, if a founder came to me and said, "I'm out," right? I don't have a guy

   6. RORory O’Driscoll25:03

      One of the deep reasons for not making a ch- change is, oh my God, it's such a lot of work. And you're right, you rarely have the guy. And I always tell people, "This is open heart surgery. Even if the founding CEO wants to make the change, this is open heart surgery, and you got a one in three chance of dying." It's really brutal.

   7. JLJason Lemkin25:20

      Well, just, just u- one, one... A little while ago, I haven't updated it, but I don't think it's gonna change. I did analysis of all the B2B IPOs, okay? Of the IPOs, 90% still had the founder CEO-

   8. RORory O’Driscoll25:31

      Yep

   9. JLJason Lemkin25:31

      ... as CEO, and as near as I can tell, all but one had an elective step down. Okay? Like, we're, we just don't wanna do it anymore at scale, okay? That's like the PagerDuty story and a few others, okay? So, like, if we're going... N- n- and then let me, let me contrast this a little bit with Discord because Giss- Discord is not a B2B company, okay? It is... It has elements of it. I, I, I... If, if we're, if we're s- if we're aiming for these great outcomes and nothing else matters today in the B2B world, then if the founder CEO is out, I'm out. Because there's no s- there's no hope in B2B. This is just my view. If the founder CEO is out, I'm out.

   10. RORory O’Driscoll26:06

       If the founder w- doesn't wanna go the distance and works with you to hire someone, great. It's a little riskier, but you can have amazing outcomes, 'cause that's what the facts say. The violent change is very hard. I could come up with some examples of where violent change worked, but it's just so hard. Typically, I mean, you know, the one canonical example, as you say, Jason, in consumer is Uber, which is why it attracts such attention. It was a violent change. It was very controversial. But if a board member feels it's his fiduciary obligation, and this is where I do give Bill Gurley credit, if you're on the board of a company that's raised $10 billion in money from third-party investors, I don't think you can just say, "I religiously don't fire founders," if you come to believe it's your fiduciary obligation to make a change. And again, we can't run an alternative history. You don't know what Uber would be with or without Travis Kalanick versus with or without Dara. But in particular, in the light of the kind of backlash he got from it afterwards, I do give credit for anyone who says, "I'm in the boardroom, there are lots of people's money on the line, I'm gonna be a good fiduciary and do the hard thing, not the s- not the aesthetically pleasing soft thing. I'm gonna step up to my duty."

   11. JLJason Lemkin27:21

       I don't know the exact story with Discord, but, um, if I had the choice as a seed investor, you have two choices. Um, Jason Citron, he's clearly, uh, uh, one of the best found- I mean, he seems like the... I only... I fo- followed him since the beginning, okay? I'm a super fan from a distance, okay? If I was the seed investor and you said, "You got... Like, the company's plateauing. Jason doesn't seem to wanna go public. We're worried about him. And you have two ch- We've done the math. W- The last round was at 15, okay? We can either bring someone in and try to go for a 20 billion-plus IPO, or stick with Jason and we're probably gonna have a 10 billion IPO," okay? I'd stick with Jason. In a, in a heartbeat I would stick with it. I would stick with the risks of the founder that, oh, oh, okay, we're gonna have a sl- somewhat worse outcome. I'll take my... If I invested at 20 pre, what's the multiple with dilution? Like-

   12. RORory O’Driscoll28:08

       I, I agree. And by the way-

   13. JLJason Lemkin28:09

       I, I'm, I'm, I, I'm there for... I, I don't wanna do that. I don't wanna, I don't want... And I think what Bill Gurley's doing at Uber was doing a, a mental calculate. And if they did it with, with Discord, I'm sure this is what happened. I don't th- if... He's, he's clearly wa- a generational founder, right? But he's not the, the, the Beltons. He's not the guy running Starbucks from Newport Beach, whatever that guy is, right? I'd rather make less money. I would rather... I'm okay just making a billion dollars, Rory, in, in care, in, in... Or two b- a couple hundred million in carry and sticking with the founder. In all seriousness, I'll take the bet for the le-

   14. RORory O’Driscoll28:40

       No, I understand

   15. JLJason Lemkin28:41

       ... for the less carry

   16. RORory O’Driscoll28:41

       And actually, I genuinely had those conversations.

   17. JLJason Lemkin28:43

       Yeah.

   18. RORory O’Driscoll28:43

       I'm on the same side as you. And it's not just 'cause less is... I, I want less. It's often because it's less, but with a higher certainty. 'Cause I go back to my comment, whenever you make a change, you've got a one in three chance that the person you hire is an empty suit and a freaking disaster. So I hate making change. But I'm gonna say it again, just 'cause I can't stop. And I, I do think there are still some times when you say the combination of reasons, including fiduciary reasons, you do. You just, Dear God, I hope that doesn't happen a lot.

   19. JLJason Lemkin29:11

       If I'm a founder, okay, w- do I... And let's say Benchmark did push them out, right? And Sequoia used to be clear, like, "We'll find the right CEO, whether it's you or not, but you're gonna make a lot of money." That used to be part of the Sequoia's pitch, right? "It may not be you." Like, I, I think founders sh- it, it is a important factor for founders to weigh in.

   20. RORory O’Driscoll29:29

       It is.

   21. JLJason Lemkin29:29

       And the, and, and when you s- when you sell 3% of your company at demo day at 60 post, it's still your company. [laughs]

   22. RORory O’Driscoll29:36

       Totally. I, I agree.

   23. JLJason Lemkin29:37

       It's still your company. [laughs]

   24. RORory O’Driscoll29:38

       It is. And more and more founders do ask it, if you don't mind my-

   25. JLJason Lemkin29:42

       They should

   26. RORory O’Driscoll29:42

       ... a- a- and I would say the com- I, I, first of all, I totally agree with that. It's relevant. And I think actually his... Again, we'll talk about founders funding the world. It's pretty clear that early on, part of the reason that Sequoia aren't in Facebook is residual frustration with Mike Moritz for prior, you know, prior situations where they had in fact made a CEO change. Which is why I think the pendulum, which was way too far over on the, you know, always make a change, has massively moved the other way. So if you had to pick... So maybe the, maybe the clear statement is this: if you had to pick one default mode, it's clear, and you could only have one button that you always press the same button, you would go for the never change button, because it's statistically the right outcome.

9. 30:25 – 37:42

   Ramp at $16B: private-market pricing, dilution optics, and brand-by-fundraising

   1. HSHarry Stebbings30:25

      Okay. Uh, we- we're gonna move on. There are a couple of other rounds that I do just wanna cover, I want your wisdom on, guys. Ramp can an- announced today they've raised a $16 billion price. I mean, these guys just never stop fundraising. The price just goes through the roof. A- amazing, and this is not criticism. It's astonishing. So one, how did you think about that, raising it 16 billion? And then two, guys, I don't get it. Brex is like 10, 11, and Mercury's at three and a half, with 500 in revenue and owning the banking relationship, which is more valuable. How do you guys think about this?

   2. JLJason Lemkin31:02

      So just to frame it, like, uh, this is 1% dilutionHere's the thing. It's $200 million at $16 billion. Uh, no one's, no one's gonna be r- uh, th- 'cause some of these rounds, you look at them, they're great, but they're 20% dilution, 30% dilution, right? That's an expensive unicorn, right? 1%, I mean, I, I know it's a lot, like, but, like, we're not really gonna notice the dilution on our cap tables, are we?

   3. RORory O’Driscoll31:29

      I think Harry's not asking why did Ramp do it. Um, you know, I could- I think Harry's asking, uh, h- how does it pencil out for investors? Am I correct, Harry? In other words, is that a good... And, and, you know, and that, that's the question. Yeah. Why, why would you pay 16 if... I, I think it's a better com- I mean, I think it's a... So you made two statements, you know. You compared it to Brex, and then you, and then Mercury, and you were implicitly saying, Harry, you know, why would you do that at 16? I mean, my sense of it is that they have a very nice business which has both card and software and have headed more upmarket. Though Brex has also moved upmarket. And the, quote unquote, "competitor" here is a combination of the card business from Amex and the accounts payable business from the accounts payable s- suite of SAP and Oracle. So they have a software plus kind of transaction business, which is pretty nice. You know, they've got hyper-growth. I, so yeah, I get it in terms of ju- just the explosive growth they're seeing in that space, though I, I think it's slowed down. I think, look, the million-dollar question on all these th- on all these fintech companies is how ultimately do they trade if and when the growth slows down. And yeah, that's probably a question you'd be asking yourself if you were paid $16 billion for that business for a, what looks like a $700, $800 million revenue, pretty, you know, reasonably high growth business. It, it feels lofty, but as we're going to discuss if we get through our agenda, which I doubt, Founders Fund have shown an uncanny knack for getting these things right, so I'm not gonna bet against it.

   4. JLJason Lemkin33:05

      You're right. L- Ramp, Brex probably are basically the same amount of revenue, right? Mercury's approaching. I don't think Mercury's bank relationships are worth anything, Harry. I think they're worth zero. I could tell you why. But putting that aside, here's the theme that I see in, in the private markets, which I think is weird, which is that it-- let's assume Ramp is the fastest-growing of the three, for the sake of argument, because it has the highest valuation. It should be, right? It should be. I still feel like for startups we're giving revenue valuations that don't have an adjustment for different ways their-

   5. RORory O’Driscoll33:35

      Agreed

   6. JLJason Lemkin33:35

      ... comps trade in the private markets. And if Ramp is in a space that's two to four X revenue at, at, when it's public, uh, or whatever, you could look at the comps, three to four, f- like it see- that's the part, you know, a lot of fintech revenue is lower, it's lower margin or where the public markets value it lower, and that's the part I don't get in, even in my own portfolio, when I see valuations that value 80% gross margin products the same as 20 or 30 or 40 and that remains a mystery to me in the private markets, right? Where everyone gets the same, uh, ARR valuations [laughs] even if the quality of revenue or even if the public comps, the public comps are different, right?

   7. HSHarry Stebbings34:14

      So I totally agree with you there. And I, I just look at it and was like, "Wow." Um, and just the speed. They are always announcing fundraisers. Like, I mean, it's like every three months Ramp has a new round.

   8. JLJason Lemkin34:24

      [laughs]

   9. HSHarry Stebbings34:24

      Which is, again, great. I'm just like, "Wow! Fuck." Okay?

   10. JLJason Lemkin34:28

       1% every six months with a little bit of tender offer thrown inside is no big deal, but I hear your point.

   11. RORory O’Driscoll34:33

       A- and as a reminder, it is probably at the margin a cash-consumptive business because it is, I mean, just like Amex, it's giving people credit cards that they pay for things, and the merchant gets paid next day, and then someone has to float the card for 15 to 30 days. It's not a lending business in any long-term sense. But on a short-term basis, you are lending money and, and you have to fund that capital. So there probably is a capital need. Now, I don't know how much they're doing that w- with securitization or receivables, but fundamentally, this is not the kind of company you can run on the cheap. It's not like a software company where you can be down to your last dollar and juggling payroll, as I'm sure Jason did many times, right? When it's, you know, starting out. You know, you have big-ass receivables, right? If you're doing... I remember doing the math and you kind of have to make a bunch of assumptions about, you know, you have your, if you have revenue of a billion, then, you know, if you're getting two or 3%, you can work out the gross, um, transaction value per year. And then if you say to yourself, settled over 12 months, you probably, if you're doing a billion in revenue, you probably have roughly $4 billion in receivables you're financing. In other words, you're advancing money, maybe two to four depending on the credit cycle. You're advancing money to your customers that you have to fund on the balance sheet, and that's probably where some of the money goes.

   12. HSHarry Stebbings35:52

       Totally agree. I actually think it's a really interesting way to do relevance. The most important thing today is to be relevant and to own consumer attention, and I think by having frequent fundraisers and frequent media hits, it's just a great way to continuously keep velocity and momentum ahead of someone like Brex. It's actually important, Rory. Like, in the nicest way, like, I would push back on your, you, you went, "Mm."

   13. RORory O’Driscoll36:14

       Yeah, no, uh, yeah, yeah, you're right.

   14. JLJason Lemkin36:15

       I do think it is, e- especially 'cause most cust- mo- a lot of consumers don't know which one to pick. You're, you have a Bre-

   15. HSHarry Stebbings36:21

       I agree

   16. JLJason Lemkin36:21

       ... it's, it's all brand anyway, right?

   17. HSHarry Stebbings36:23

       Yeah.

   18. JLJason Lemkin36:23

       And Ramp, Brex, what... I don't, I don't, even I, I don't know.

   19. HSHarry Stebbings36:26

       No, but Ro- Ramp is always on fucking Twitter-

   20. JLJason Lemkin36:29

       Yeah. That's what-

   21. HSHarry Stebbings36:29

       ... and they've got Sasquan, and they've got Sasquan or whoever this random footballer is running with Ramp on, and that goes viral.

   22. JLJason Lemkin36:36

       You gotta do it, man.

   23. HSHarry Stebbings36:36

       They are just, they, they're crushing brand.

   24. RORory O’Driscoll36:38

       You're right, Harry. You did, you called me on it correct. I did make a little face, but I'm willing to say you're correct. It, it, it kind of galls me that you'd be using fundraising as momentum builder, but you're right. It's so much of the business in this part of the market is about momentum that, yeah, they're smart. I mean, I think almost most of what they do is pretty damn smart, and that's probably smart too.

   25. JLJason Lemkin36:57

       Plus, if you're doing it, if you're a new customer, you don't want to invest in a loser in the space.

   26. HSHarry Stebbings37:02

       Yeah.

   27. RORory O’Driscoll37:02

       Mm.

   28. JLJason Lemkin37:03

       It just sucks when the, when the, when the velocity comes out of the product, when they start removing features. You just, you just, you know, we are, we, we don't, we, you know, this, the enterprise gets this, right? That you're, you're, you're doing a long-term journey. But I think in this space, in this, every, uh, the, the beauty to this Ramp, Brex, Mercury et al business is everyone needs it.Right? They may not need these pro- but it's 100%, uh, attach rate, right? But I, I don't wanna, I don't wanna be trapped. I don't wanna be ripped off. I do- I want someone that's actually gonna make my life easier, where the spend management actually works, right? And so I don't wanna see, I don't wanna see the ones where the energy's seeping out of the company. I just, I won't, I won't sign up for that vendor. Intuitively, it makes no sense, right?

10. 37:42 – 40:17

    Deal heat signals: Perplexity’s two-step price jump and OpenAI’s defense contract

    1. HSHarry Stebbings37:42

       Listen, 16 billion at Ramp. Perplexity raising again. At first tranche 15, second move to 18 because there was so much demand. Rory, is it the same as you said last time, which is just, "Hey, it's an infinite short at a massive $500 billion outcome. Roll the dice"?

    2. RORory O’Driscoll37:59

       The two-stepper price uptick thing is, is, is weird, but we're, you're, you're seeing some of that now, where I think the first round gives you certainty, and then the people who didn't get in say, "I'll just pay 10% more. I just want in." It's, it's just a sign of deal heat. It's a sign of the market right now, and rational CEOs take advantage of it.

    3. HSHarry Stebbings38:19

       Listen, we have OpenAI creating more news as always. Uh, we have a 200 million defense contract w- from the Pentagon, which is actually very sizable. It's, like, the largest the Pentagon have given to a single provider. How did you guys read that? Also, OpenAI's first foray into defense in this way.

    4. RORory O’Driscoll38:37

       I mean, I didn't-- I mean, first of all, stepping back, aggregate comment, it's probably good news. I just love the fact that the Pentagon is spending money with all these, you know, venture-backed, high-growth, very technically savvy, forward-facing companies. I think it speaks to some level of improvement in the procurement process. You know, I think Palantir started that, SpaceX, and I think it's, you know, Anduril and all that now. I think it's great because, you know, you look, you look at the news right now and, you know, wars in other places, and you go, "I wanna make damn sure that we have the best stuff if we ever go to war," and it looks like that's not being made by the old fuddy-duddy companies. So big picture, good news. You know, go team.

    5. JLJason Lemkin39:19

       I think that, um-

    6. RORory O’Driscoll39:19

       Go the Palantir team

    7. JLJason Lemkin39:20

       ... I don't know what you guys think. I, I just think that, uh, related to what you said, Rory, I, I, I, I think OpenAI, to achieve its mission, anyone with this market share, you have to be friends with everybody.

    8. RORory O’Driscoll39:30

       Yep.

    9. JLJason Lemkin39:30

       And I think before 2020, e- there were so many principled CEOs. So m- we're, we're so principled about issues about not working with defense or the gov- There are many things folks are principled. In fact, many things are, I, uh, that are very aligned with my values that folks are no longer principled on. You gotta be neutral. And I think what, the limited press I saw on it, Sam said, "This is not mat- this is only 200 million. This is not material to us. This, this is like a, this is a small deal," right? I, he, he probably didn't do a customer call on this one. I mean, maybe he did, but it is immaterial. But you have, you can't be Republican or Democrat or anti this. You, they, the, it, the, the threat to OpenAI from being political is so high, right? You gotta be friends with everybody, and so you've gotta, I mean, other than rogue states, I think OpenAI's gotta sell to everybody. They've gotta own it.

11. 40:17 – 44:41

    OpenAI vs Microsoft: leverage, ambiguity, and the ‘AGI’ contract tripwire

    1. RORory O’Driscoll40:17

       For the record, he may wanna be friends with everyone. He doesn't appear to be doing a great job of staying friends with Microsoft.

    2. HSHarry Stebbings40:23

       What happens there with the Microsoft feud?

    3. JLJason Lemkin40:27

       Listen, I do, I think they're lucky in that Microsoft crossed the line first.

    4. HSHarry Stebbings40:31

       Hmm.

    5. JLJason Lemkin40:32

       Microsoft, listen, it's a weird deal because Microsoft basically bought OpenAI, and they're gonna end up being, uh, like a 33% shareholder of a standalone company. This is the opposite of scale in some ways. [laughs]

    6. RORory O’Driscoll40:43

       Yeah.

    7. JLJason Lemkin40:43

       They're descaling. [laughs] They, they were, they were a mu- you know, they could not scale. Before ChatGPT, this was a, in some ways, a struggling company, right? Before, I mean, ChatGPT exploded, right?

    8. RORory O’Driscoll40:53

       Yeah.

    9. JLJason Lemkin40:53

       It was great, but the revenue was t- was, in the grand scheme of things, relatively minor, so they sold 49% to Microsoft, right? Um, now they're gonna desell it. Um, but, uh, but Microsoft does use multiple providers, right? It does compete with ChatGPT, with OpenAI. So even if it's allowed under the contract, they did cross the line in terms of remaking, I think, the spiritual side of the relationship.

    10. RORory O’Driscoll41:16

        I don't know if just because Microsoft, quote unquote, "crossed the line first," and I'm not sure they did, I'm not sure that will impact h- I don't know how it ends up, but I'm not sure that it will be determined by w- you know, who, quote unquote, "crossed the line first." I think it's a very weird contract. It, it, it's, it's right up there, it's a very different version of weird than Scale AI, but very weird. It's not just about ownership and preferred stock and common stock. It's, you know, all sorts of different rights around profit sharing, all sorts of different triggers around AGI. I would say in situations of ambiguity, the person who has the most leverage has the best chance to win, and I would argue Microsoft has quite a lot of leverage 'cause it's not existential for them, especially now.

    11. JLJason Lemkin42:01

        I think they have no leverage, actually, honestly. I'm not trying to be a-

    12. RORory O’Driscoll42:04

        Wow

    13. JLJason Lemkin42:04

        ... a, uh, a, um, a, uh, a chaos agent like our prior guest. Um, but what, here's why, 'cause, listen, my, I'm still l- I'm a student, right? The reason I think they have no leverage is because I think that wh- whatever AGI is, we're gonna be there pretty soon. So Microsoft loses... W- what Microsoft wants out of OpenAI is a relationship where as much of it survives, I mean, obviously it's tied to profit sharing, survives this moment in time in the relationship, right? And they can, uh, and listen, I'm sure they'll, they would argue over it, and I haven't, I don't know the details of the contract, but the profit sharing and all the rest ends at AGI, right? So part of this relationship ends at AGI.

    14. RORory O’Driscoll42:45

        Which that's a good reminder of that term, 'cause if you recollect, a few weeks ago in one of our quick questions, someone, you, someone went, "When are we gonna hit AGI?" And I think my answer, which now I feel smart 'cause Jason confirmed it, is, my comment is, "We're gonna hit AGI when Microsoft and OpenAI litigate what open AGI is." 'Cause everyone else is using that term loosey-goosey. It could be now, or it could be 2045. Who the fuck knows? Now, half a trillion dollars of value depends on that word, I can tell you. [laughs] It's, you're right, Jason. That is the only part of the contract where you go, "Ooh, that is a bit of..." 'Cause it's ambiguous. So you're right. That will be a fun-vector of this discussion.

    15. JLJason Lemkin43:26

        Well, I've talked... Listen, I'm not, I'm not smart enough to do a lot of stuff in AI. I've talked with several of the smartest folks I know in AI, okay, what they think about this A, A, what they think about AGI, and they basically all say variants of the same thing. Like, at this point in time, it's something Sam Altman made up-

    16. RORory O’Driscoll43:40

        Yes

    17. JLJason Lemkin43:40

        ... to simplify a lot of concepts. He's the one pushing the narrative, and we, none of us really believe there's a magic point for AGI, right? Um, I, I, at, at a lay level, I think we're close to being there already. That's the risk to Microsoft, like, right? So I think my only point is since they both have something to lose in this-

    18. RORory O’Driscoll43:58

        You're right

    19. JLJason Lemkin43:59

        ... and Sam is signal-- He alway- like, the guy, the guy, uh, signals early and he's like, "You know, Microsoft will, will end up with 33% of a new entity," and like, he's just trying to create the outline of a deal so that it, it lands there, right? They own a third. He owns 6 or 7%. It gets reorganized in some weird, new way.

    20. RORory O’Driscoll44:17

        Yep.

    21. JLJason Lemkin44:17

        Right? And, and Mic- what does Microsoft get out of it? They get a longer tail. They're gonna get a longer tail in this agreement, but it's gonna be a different one because the cash alone is not important to them, per your point, right? The IP and the relationship is more important than the cash. Like, they, what are they gonna do with the cash, dividend it out? Buy Scale AI Prime? Like, they don't actually need the cash, do they?

    22. RORory O’Driscoll44:38

        I think we can agree that they don't need the cash.

    23. HSHarry Stebbings44:40

        Yeah.

    24. RORory O’Driscoll44:40

        Agree.

12. 44:41 – 50:32

    IPO window reopens: Chime pop, pricing conservatism, and who goes public next

    1. HSHarry Stebbings44:41

       Scale AI Prime coming to you soon, clearly. Uh, listen, guys, we do have, we've talked about Chime in two separate episodes, and this went out. It went public, and it popped 50%. All IPOs up in 2025 except for SalePoint. How did you-- Is this a sign that IPO markets are roaring, there hasn't been a better time in years? And how did you analyze Chime specifically?

    2. RORory O’Driscoll45:05

       So, yes, they clearly are roaring now, right? Um, there hasn't been a better time in years. Yes, 'cause there's been none, and some is better than none. It's not a complex question.

    3. HSHarry Stebbings45:14

       So, so you think it's pent-up demand that's just latching onto available supply, not necessarily the quality of companies coming out?

    4. RORory O’Driscoll45:21

       No, I think the great com- no, I, I did not say that at all. No. I think tradit- look, how do windows open? Traditionally, good companies go out at attractive prices. That's how, that's how you... If you've had the window shut, you know, the only way you open it is with good quality assets and at prices where it's attractive. And the way it manifests is, unfortunately, you get these pops where effectively the, the company going public has effectively bribed the buying public to like IPOs again. Because investors, we're all fairly Pavlovian. If you were a IPO buyer in 2022, your searing memory is, "I bought them all in '21. I lost my, I lost 30%, 40% on average, 90% in some cases. I'm never doing that again." Right? So you take a long time to come back. Now, in the last month, your narrative has changed. It's, "Oh my God, I piled into the last five IPOs. I'm up 70% on average. I'm up 250% in the case of Chime, in the case of Circle. This has been a huge boost to my fund performance. I gotta do me some more." So, the, the mi- the pop helps the win. It's not ideal. It, there should be a better way, but there's clearly positive momentum now from good companies, and there's going to be more of an appetite.

    5. HSHarry Stebbings46:39

       Will this lead to Databricks or Stripe or one of the big boys going out?

    6. RORory O’Driscoll46:44

       Even if they go out, the sentence is wrong, Harry. It doesn't lead. You, you see, lead, you're implying that they couldn't go out and now they can. They can go whenever they want. They could've gone in '22. They could go in '23. 'Cause they're so big and so good, they can go whenever they want. That's an idiosyncratic, a genuine com- that's an idiosyncratic decision that they're gonna make that I don't have a ton of visibility into. I think what-

    7. HSHarry Stebbings47:05

       No, no, no, no, no, no, no, no, no, they, they, they can go out whenever they want, but now they have data to suggest that if they were to go out at this period in time, it is highly likely that they will be priced at a premium with a huge amount of demand. They did not have that historical data beforehand. So this data is leading to a new decision for them.

    8. RORory O’Driscoll47:24

       I'll give you that. It's not clear to me that the only angst was on pricing. I think it's much more true-- Maybe the better statement is this, Harry. I think it's much more true for the whole flotilla of companies in the 200 to 4 or 500 range who have been trying to figure out where to go and can now see some kind of exit. For those folks, they're, everyone is dusting off their plans. For the big four or five companies like Databricks and Stripes, you're right. At the margin, it's a more favorable time. Why not? I think their reasons for doing it or not doing it are more about the whole when do they wanna do it, do they really wanna deal with it? So, it's not... I, I could imagine an entire IPO cycle where, once again, neither of the two names you cited chose to go out, and we get to the end of the year.

    9. HSHarry Stebbings48:07

       Was Chime mispriced, or is that pent-up demand?

    10. RORory O’Driscoll48:13

        Well, by definition, I mean, pent-up demand, the whole point of pricing is to pick up pent-up demand, so by definition it was mispriced.

    11. JLJason Lemkin48:24

        My limited, uh, c- the, my limited understanding from, from folks that have been involved in some of these recent IPOs, and it's limited. Harry, you probably have had more, but, um, the, the advice was just to be conservative.

    12. RORory O’Driscoll48:34

        Yeah.

    13. JLJason Lemkin48:35

        It's just, it's just there haven't-- It's, it's a slow market. Will the advice to be less conservative now after these IPOs? Probably, right? I think you're still gonna tell everybody to be conservative, right? And, uh, it was to be conservative. And, yes, we could talk about how much money people really left on the table versus in theory. You can't sell every share at the highest possible price, right? That's the fiction in the Circle math. But even if the company leaves money on the table, the investors distributing over the coming years, they, they may have only lost a little bit from the incremental dilution, right? Uh, uh, dilution aside, the price, the IPO price is almost irrelevant for the VCs. It's when you get out, and getting out strong may be worth the incremental dilution, right? That's the one that Bill Gurley, I guess, disagrees with, right, is that there's a trade-off. Like, going out strong doesn't matter, right? You'd rather go out and, and limp along, uh, uh-Uh, but I think that's, that's the advice. The other thing I would say on Databricks, and I don't know on Databricks, I literally know nothing, but literally the fact that this last week they had an analyst summit where they went through all their metrics, their revenue, their growth rate, through, through an entire group of [laughs] investors and analysts says to me they will decide one day to file, and it will just happen. Like, they're already re- They're ... Not only are they running their company like they're going to IPO, they're actually managing to Wall Street. Like, they're already pu- They're at the edge of managing like they're already public, right? So I wouldn't be shocked if we opened up, uh, the news tomorrow and they filed, because they're already completely ready, right? They're already, they're already in, they're already halfway there. So I think we'll be shocked on Databricks because we think we'll, we're, we'll, we'll see these signs, but they're... It's like a Sam Altman narrative. The signs are already there. Like, they, they literally could file next week and no one should be shocked.

    14. HSHarry Stebbings50:17

        Totally agree with you on Databricks. I actually interviewed their, uh, head of sales, Ron, who was unbelievable and spoke in detail about how they structure and run the company like a public company.

    15. JLJason Lemkin50:26

        Crazy. He was there since almost the beginning.

    16. HSHarry Stebbings50:29

        Yeah. I mean, really crazy.

    17. JLJason Lemkin50:30

        Crazy.

    18. HSHarry Stebbings50:30

        I was so impressed with him.

    19. JLJason Lemkin50:32

        Yeah.

13. 50:32 – 55:27

    Gusto’s tender and payroll’s massive TAM: why the category supports huge outcomes

    1. HSHarry Stebbings50:32

       One of the, one of the com- companies in the flotilla that you, I think, very wisely described, Rory, is, is Gusto, who announced a tender at 9.3 billion at 900 million in ARR. I was actually surprised they were at 900 million in ARR. Amazing. I, and congrats to Tomer-

    2. JLJason Lemkin50:46

       Yeah

    3. HSHarry Stebbings50:47

       ... and Josh and the team. That's awesome. Um, I kind of underestimated them, and I thought that was awesome to see. I don't know if you guys had a, a take, a read on, on that coming out with 900 and 9.3.

    4. RORory O’Driscoll50:58

       I mean, I think, yes, you underestimated them. We had talked to them way back when, and obviously should have done the deal, so I share your pain. I think, look, payroll is one of the biggest markets out there. I mean, it's very ob- Sometimes the obvious shit is the most important shit, right? It's a huge, big market, 'cause everyone gets paid, and you get five bucks a month per US worker that you're paying. You know, ADP and Paychex are two old school companies that are, you know, worth approximately 100 billion. There's a bunch of other companies at the 10 to $30 billion level of public comps in the space. So it's a huge ass market with a lot of attach, and it was pretty stodgy. So at one level, I'm not surprised given the TAM. They've clearly executed really well to get to that size and scale. But, you know, their deal, their, their, have a modern SMB-focused payroll solution. There's, you know, half of the workers in the United States work in, um, SMBs, so you're probably at 60 million people on which you can get, I'm just doing the math in my head, five, 60 bucks. Hold on. But yeah, I mean, you add, you know, you get to a huge market very quickly, 60 billion market.

    5. JLJason Lemkin52:03

       You know, and they're also lucky. I think all these guys are lucky in that, um, they have a great comp. So Paychex, again, I think was founded in the 1870s, Rory. We could look it up. I mean, it- Paychex is an old one.

    6. RORory O’Driscoll52:15

       No, it, it-

    7. JLJason Lemkin52:15

       It's trading-

    8. RORory O’Driscoll52:16

       Yeah. It-

    9. JLJason Lemkin52:17

       It's trading at 10X revenue-

    10. RORory O’Driscoll52:19

        Yep

    11. JLJason Lemkin52:19

        ... at 55 billion in market cap. So it's very easy. And it's a- L- look it up. It's at an all-time... It's not just trading at, that's an all-time high. It's at an all-time high today. So if you're a VC, it's very easy to say, "Well, look, okay, Gusto's at a billion. Paychex is at five." Okay? Gusto is growing a little bit faster. It's newer, it's better, it's founder-led. You can back into Gusto, all of the payroll folks. You can, with a $55 billion ancient public company trading at 10X, you can justify any of these deals, right? The co- The, there's some... People don't realize Paychex, Toast, a few others, there's some great comps out there.

    12. RORory O’Driscoll52:55

        Well, ADP as well. I mean, you have to put in ADP.

    13. JLJason Lemkin52:58

        Yeah.

    14. RORory O’Driscoll52:58

        I mean, the two big dogs in payroll are ADP and Paychex. And I m- Paychex, I think, was found '60s, or 1960s or '70s, 'cause the original founder, you know, went on to continually run for governor of New York as a Republican, all very weird. But fundamentally-

    15. JLJason Lemkin53:10

        ADP's almost all-time high too.

    16. RORory O’Driscoll53:12

        Yeah.

    17. JLJason Lemkin53:12

        They're both at a, uh, yeah.

    18. RORory O’Driscoll53:13

        But they're, they're two big businesses, so provided you can make the economics of replacement work, you can build a big company.

    19. JLJason Lemkin53:19

        Actually, ADP, I didn't realize, ADP's trading at 15 times revenue.

    20. RORory O’Driscoll53:22

        Yeah.

    21. JLJason Lemkin53:23

        Why didn't we just put the fund into ADP, Rory? Forget about putting the fund into these, these newer kids. We should have put the fund into ADP. [laughs]

    22. RORory O’Driscoll53:30

        Look, if we're gonna go off-

    23. JLJason Lemkin53:31

        And Paychex. ADP and Paychex.

    24. RORory O’Driscoll53:33

        Yeah.

    25. JLJason Lemkin53:33

        I mean, that's what my grandpa's startup used. Like, they used Paychex, right?

    26. HSHarry Stebbings53:37

        Rory, what's your reflection on turning down an early Gusto round, and did it change your mindset, teach you anything?

    27. RORory O’Driscoll53:44

        Yeah. That I can occasionally be very stupid, um, which probably didn't need to be thought. I mean, you know, we talked to them in between rounds, so it wasn't actually an engagement. But yeah, I, I think I underestimated both the founder and the, the, the openness of the market. Well, two things. One, the founder, the openness of the market to switch, and I'll say something else, the willingness of investors to pay up quickly for that, such that it got outside my price range very quickly, right? Stuff happens, you know? And you, and you were wrong. I mean, I was wrong on that decision.

    28. HSHarry Stebbings54:18

        I, yeah.

    29. RORory O’Driscoll54:19

        Being wrong sucks.

    30. JLJason Lemkin54:20

        It's funny. It's still, these are, th- and they're still niche products, actually.
14. 55:27 – 1:02:08

    Old guard vs new guard in AI apps: Dropbox vs Glean, Slack inside Salesforce, and moats

    1. HSHarry Stebbings55:27

       Final one before we do a quick fire. We mentioned old guard competing with new. Glean is a $7.2 billion company today, moving very fast. Dropbox is still working to get Dash out, whichI'm sure it's a good product, but it's, it's separate to their core product and core business. Uh, can the old guard compete with a very, very fast, well-funded new guard?

    2. JLJason Lemkin55:49

       I'm starting to lose confidence in the old guard. I wanted to believe... I- listen, I d- I think because the LLMs are open, anyone can use the, the API, and most of the work is done by third parties, okay? Most of... It is not... Yes, it, you can build, you can, you can t- use an open source framework for your chat, and then you can use an LLM, and then you can... It's pretty simple to, to rag a bunch of data and stick it in and I, I just figured that the, at, at the software level, the, the big guys would, would catch up, right? Um, but I'm just... I- in my ecosystem, I, I, they're too, they're still too slow. I just don't see it. I don't see it. I'm worried.

    3. RORory O’Driscoll56:28

       First, the minor comment. I do believe the, quote-unquote, "old guard" can compete if they, in certain circumstances, if the situation is right, and then they have leadership to just push it through. But I don't think that's the issue here. It's a different issue. The, the real truth about Dropbox shipping or not shipping whatever the product is, dash, is it doesn't matter. Let me tell you what I mean by that. Typically, the old guard play is some version of, "I'm the system of record. I'm already in there. I can add this stuff on top." That's the pitch every time. "I'm ServiceNow, I can add an agent. I'm Zendesk, I can add an agent. I'm Saleloft, I can add an agent," right? And the new guy's pitch is, "We have this agent and we can run on any system of record, so you can buy us and you don't have to change out your old guy," right? And th- th- that's the vector of competition. What it means is you can only be an old pr- system of record provider, your right to win is predominantly in your existing customer base. And ServiceNow has a big one, and Salesforce has a big one, and brutally in the enterprise, Dropbox doesn't. So even though we threw out Dropbox and Glean, they're not in the same quadrant. It's not a relevant question, with all due respect, Harry. Glean is out there competing with all the people on enterprise-wide deployments for big-ass companies, and they're gonna have a whole bunch of competitors in that space that we could talk about. Even if, even if Dropbox had shipped a perfect... Hear me out. Even if Dropbox had pitched a perfect functionally equivalent product to Glean, it would mean that for their existing business customers, which is a s- smallish percentage of their total business, they would win all that business. But then when they moved on to customers who didn't have Dropbox, they would be at ground zero competing against Glean for that. And that, I think, is the real issue, not some kind of are they powerful, are they good enough engineers, are they strong enough founders? I think just situationally starting where they are, it's just hard to get there.

    4. HSHarry Stebbings58:25

       Rory, the joys of me is I have very few feelings, and so you can always say it's a wrong or a moronic question. My rep- retort to you would be, you're very wise. What would be the right question to ask with regards to the new versus the old guard then?

    5. RORory O’Driscoll58:38

       Whenever you're dealing with the old guard, by definition they're not gonna bring oomph to the table. They're gonna bring the asset to what they have. So the interesting questions are things like Salesforce, ServiceNow, and people like that. And you know, we had a mention there of, I will say the whole service n- Salesforce throttling Slack seems pathetically lame, irritating to customers, and I, I was asking someone about this and they had a good take on it. They said it probably doesn't survive in that form, but it probably survives because if I'm a customer, you're telling me I can't access my Salesforce records, I wa- and when I wanna, you know, run it through Glean, that's not gonna... I'm sure that's not gonna survive. But the question is, is there some kind of API connectivity fee? Are they gonna try and monetize that? But it definitely felt a little lame. I mean, you, you'd really want 'em to say, "Of course you shouldn't use Glean 'cause our product is so much better."

    6. HSHarry Stebbings59:29

       Is, is Slack, bluntly, have its best days been and it is now in a decline?

    7. RORory O’Driscoll59:35

       I mean, almost by definition your best days are as a startup. And going public and then selling for 20 cents seven times revenues, I don't think it would get 27 times revenues today. So yes, by definition it's, you know, on the downward slope of excitement. Which isn't to say if it was well run and integrated well, it w- couldn't be a perfectly good and successful part of the Salesforce ecosystem. And we're, you know, small, small in size but big Salesforce users. So it's not like it's doomed, but they gotta make it happen.

    8. HSHarry Stebbings1:00:04

       Do you think it will be a good and successful part of the ecosystem if it continues as it is?

    9. RORory O’Driscoll1:00:08

       I don't have a developed opinion. Jason?

    10. JLJason Lemkin1:00:11

        Well look, first of all, it's probably maybe doing two and a half billion in revenue today. Some-

    11. RORory O’Driscoll1:00:15

        Yeah

    12. JLJason Lemkin1:00:15

        ... somewhere around that. So just as an aside, I don't think Salesforce got a terrible deal in the end. It ju- you just gotta, you gotta view it by where it ends it up as a revenue multiple. And think, and Salesforce is growing single digits, so I don't think Mark would wanna give up that two and a half billion today.

    13. RORory O’Driscoll1:00:29

        Sure.

    14. JLJason Lemkin1:00:29

        Right? And in fact, interestingly for Salesforce, all of their, not all of them, but the light, s- so many of their acquisitions, Slack, even Tableau, which I think was founded in the '50s, they're actually all growing faster than the core Salesforce. So, like, we can say, "Oh, Slack isn't what it was," which it isn't, but growing in the teens when the core is growing 7, 8%, that's, and, and you have billions in revenue, that's material, right? This is hard stuff to do. So I think Slack today is, is pretty successful, like LinkedIn i- it's not as good, but like LinkedIn and Micro- it's just a different Slack. Will it be a hub for developers that, that people build their eco- those day- the hu- Slack, Slack, for us as our hub, those days are, are far behind us, right? Um, and, uh, but pro- but s- and, but here's the irony of it. My view is Slack got acquired, it was, it was a better, even better deal than it looked. You know why? It only had one product.

    15. RORory O’Driscoll1:01:21

        Yeah.

    16. JLJason Lemkin1:01:22

        Uh, my view, Stewart is a generational founder, right? Did it multiple times. Did, uh, the kind of CEO we'd all love to work for, right? But I think deep down in his heart, he didn't wanna do multi-product, or they would've been multi-product. Like, it had an existential ticking time bomb because it could only be so big as a single product company. So it had to, it had to evolve. Um, and so this is a new enterprise Slack. It is what it is. We still all use it, right? Um, and just like Workday and LinkedIn are locked down, it gonna be locked down.And, and the three of us can complain, but if Allstate and State Farm and, and those folks don't complain, it ain't gonna change. [laughs] We don't matter. The small S- Slack and Salesforce customers, we don't m- we don't matter at 30 billion ARR. We just don't matter, right? We don't matter.

15. 1:02:08 – 1:09:22

    Prediction-market quickfire (Kalshi): iPhone US assembly, S&P direction, China model #1

    1. HSHarry Stebbings1:02:08

       We're gonna do a Cowshi quick fire. We've got three to go through. Again, Cowshi, essentially prediction marketplace where different people bet on different things.

    2. JLJason Lemkin1:02:17

       Yeah.

    3. HSHarry Stebbings1:02:18

       Will Apple announce iPhone assembly operations in the US this year? Everyone... I, I'm sitting outside the US, I hear constantly, "Oh, we wanna bring back manufacturing, starting with phones." Will they bring it back?

    4. JLJason Lemkin1:02:32

       I, based on the news today, I don't know what the odds are, I don't have the, the... in front of me. I'm gonna say they're gonna announce it, yes, because Trump announced a Trump phone at $499 to be built in the US yesterday.

    5. HSHarry Stebbings1:02:43

       It's gold.

    6. JLJason Lemkin1:02:43

       It's gold.

    7. HSHarry Stebbings1:02:44

       You guys are so-

    8. JLJason Lemkin1:02:45

       It is gold

    9. HSHarry Stebbings1:02:45

       ... you guys are so classy.

    10. JLJason Lemkin1:02:46

        It's-

    11. HSHarry Stebbings1:02:46

        Your president's announcing phone packages. Look at you.

    12. JLJason Lemkin1:02:49

        I, I like all gold. Like, you haven't seen our new office. It's all gold as well.

    13. HSHarry Stebbings1:02:52

        That's just 'cause-

    14. JLJason Lemkin1:02:53

        Uh, it's a power play

    15. HSHarry Stebbings1:02:53

        ... your prime min- that's 'cause your pri- prime minister couldn't build one. Look at you, Rory.

    16. JLJason Lemkin1:02:58

        If-

    17. HSHarry Stebbings1:02:58

        You've got, you've got a, you've got a coin and a gold phone. Not nice.

    18. RORory O’Driscoll1:03:02

        It's, uh, it's sweet.

    19. JLJason Lemkin1:03:03

        I think, li- listen, I don't, I, I don't, I, I would, I, I would have to do more analysis to see if, uh... It's not possible, right? If, if Tr- it's, it's close to impossible, but announcing it and beginning a process, you might have to do it. You just might have to do it.

    20. HSHarry Stebbings1:03:15

        I'll take it.

    21. JLJason Lemkin1:03:15

        So I'm gonna go yes.

    22. HSHarry Stebbings1:03:16

        Announcing yes, Rory. Announcing doing... Yes or no?

    23. RORory O’Driscoll1:03:22

        I think politically it would be smart to announce it even though it's impossible. I think Tim Cook is such a straight shooter that he just couldn't pull it off with a straight face because everyone would know it's absolutely bullshit. But yes, in a cynical world, I would make one phone in the United States of America just to confirm that, you know, we can, we too can do the low margin commoditized parts of the electronics value chain, and end this question.

    24. HSHarry Stebbings1:03:49

        Will the S&P finish positive this year? Yes or no?

    25. RORory O’Driscoll1:03:54

        You know, if I knew that, Harry, I wouldn't be talking to you. I, there's an easier way to make money than venture capital if you know that. So it's just not knowable, right? I mean, and you know, look, the, the record of-

    26. HSHarry Stebbings1:04:06

        That's why it's a bet, Rory. It's a venture

    27. RORory O’Driscoll1:04:08

        ... well, that's a, that's a different question.

    28. JLJason Lemkin1:04:09

        I've, I've made the bet.

    29. RORory O’Driscoll1:04:10

        That's a... No, actually that's exactly where I was going to go. So I was gonna say the record of analysts predicting the S&... The start of the year, they do this exercise a- as analysts, predict the S&P at the end of the year. Universally wrong. The error rate's huge. There's nothing to it. Much more interesting question is, okay, now let's talk a bet, because then you have odds, and now you can actually make an economic decision. 'Cause the odds here is S&P, will it finish on the year, I'm reading it as 70% likely yes, is that correct?

    30. HSHarry Stebbings1:04:38

        Yeah.

Episode duration: 1:09:30