The Twenty Minute VCCognition vs Factory | Anthropic Under Threat | ElevenLabs Doubles Its Valuation to $22B
EVERY SPOKEN WORD
80 min read · 16,244 words- 0:00 – 1:17
Intro
- DIDev Ittycheria
I was just flummoxed by that tweet because it basically handed every other firm a weapon when they're competing on deals saying, "Is this the partner you want when things go bad?"
- SPSpeaker
And we have a special guest joining us this week, Dev, the returned CEO at MongoDB. And today we discuss OpenAI. They are closing the gap on Anthropic, nearing a $70 billion run rate. Then we have the Factory and the Cognition debacle. Salesforce then buys Listen Labs for $2 billion. Reflection, could they be the US's best hope for an open source model that can compete with China? This and so much more in today's show.
- DIDev Ittycheria
I've never seen a CRO flip from one competitor to another.
- JLJason Lemkin
I just think in the AI age, the definition of loyalty has changed.
- DIDev Ittycheria
The reputational damage that you can do in the long term is gonna come back and bite you.
- JLJason Lemkin
When agents pick you, it's a force of nature right now.
- SPSpeaker
There's a lot that's gotta happen between now and the Anthropic IPO in the middle of November.
- DIDev Ittycheria
Ready to go?
- SPSpeaker
[upbeat music] Boys, it is so good to be back, and we have a phenomenal guest joining us today. Uh, Dev, thank you so much for joining us, dude.
- DIDev Ittycheria
Thank you, Harry. Thanks for inviting me and being part of this, uh, amazing group.
- 1:17 – 3:09
OpenAI Nears a $70BN Run Rate
- SPSpeaker
Do you know what? Actually, I don't know if you guys know, but Dev gave me feedback that we needed to move on faster from just OpenAI and Anthropic. [laughs]
- JLJason Lemkin
I love it.
- SPSpeaker
And, and we really took it to heart. And so taking it to heart, I thought we'd start on OpenAI. Uh [laughs]
- JLJason Lemkin
Well done. [laughs]
- SPSpeaker
[laughs] Uh, uh, OpenAI nears a $70 billion run rate and goes for $30 billion at $1.4 trillion, but the IPO is gonna wait until 2027, despite Anthropic going out in the next few weeks it would seem. What do we think, boys?
- JLJason Lemkin
The crazy thing to me when I think about the story is, I mean, OpenAI's back, right? $70 billion in revenue, but more importantly, if you look at your portfolio companies and others, I mean, Astra, Sol, and Lunar are everywhere, right? Everyone's using them. E- everyone is using them. And when you think where we started this year, like things... A lot of things in B2B only worked like at the end of last year, and like only Anthropic could get this stuff to work. [laughs] And nobody could... And even coding at the start of this year only worked on Anthropic. And then we went into the summer and it kind of seemed like, you know, OpenAI in some ways was on the rope, right? Because consumer was the wrong path and they couldn't get back. It's only October something-eth. [laughs] I mean, the rate of change here and the rate at which the OpenAI team got back in the game and made something that is truly epically competitive to the point where people are switching out their models for real because it's better and cheaper, I mean, it's c- it's crazy that pace at that scale. So I mean, it's... And it's $70 billion. It says it all, right? So I mean, you counted them out three or four months ago, not literally, but figuratively, and now if, if it, if they launch a truly competitive set of model LLMs, it's tr- it's like instantly massively competitive. It's crazy. So maybe it's Captain Obvious, but massive kudos I think.
- 3:09 – 5:34
What Happens if Anthropic’s Q3 Numbers Disappoint?
- SPSpeaker
Can I ask-
- JLJason Lemkin
Yeah
- SPSpeaker
... what happens if Anthropic's numbers for Q3 aren't blowout? Like, every team that I speak to has at least deviated some meaningful portion from Anthropic to Codex, and everyone says how amazing it is. What happens if they're not blowout numbers, like the world really just assumes Anthropic always has now?
- DIDev Ittycheria
The interesting thing that we should also learn from this, and having sold, sold to developers the last 12 plus years, is that there's not a lot of loyalty, and, uh, developers are very quick to use, to switch from one tool to another or frankly use multiple tools. And, uh, and I think what we're seeing is that, uh, developers are, are quick to find the shiny new toy. I think the question is, um, you know, what will C- uh, Claude or Anthropic come out with next, and what are the other alternatives? The other thing that's, I think, interesting also is that, um, what OpenAI has done is shown that when you have essentially a billion people using ChatGPT a week, that's a great distribution channel, but the potentially where the moat is, where the enterprise business is. You know, um, you have to sign contracts, you have to train thousands of employees, you have to build workflows, and, uh, and it may be harder to switch the DPU again to the enterprise. But that, that's kind of a little bit of reaction I had.
- JLJason Lemkin
Yeah, I guess in that sense, it's E- uh, OpenAI's run rate's even more impressive, right? I mean, maybe they're already embedded, maybe they're already through procurement, but that's pretty fast change in the enterprise too, right?
- DIDev Ittycheria
Yes.
- SPSpeaker
Yeah. Yeah. I mean, turning again and-
- JLJason Lemkin
Can I ask Dev, can I ask you a follow-up question? Sorry to interrupt, Rory. What... From w- from your seat, do you think that is a blocker for more progress in open weights models in the enterprise, just the, the literally the ability to get through procurement, get, get approved, or do you not? Where do you... I mean, obviously the explosion this year is crazy, but, but, but it a- but, but it is, it is a hurdle to get over. What are you seeing from the Mongo and Sequoia side?
- DIDev Ittycheria
Well, actually, from a Mongo side, I was just talking to our CIO, and we're talking about token costs and token budgets, right? So cost is a big factor, um, that I think every enterprise has to consider. Uh, no one has unlimited budgets. Uh, the second thing is, uh, IP rights, you know, how we train these models, who gets the data, how proprietary is the data. Uh, and, um, and I think those two things are also pretty important points when it comes to what models you choose and, and who you
- 5:34 – 8:27
OpenAI vs Anthropic: Has the Momentum Shifted?
- DIDev Ittycheria
work with.
- SPSpeaker
As you often do, Harry, you put a lot out there, and I think you're right. Going back to the... Forget the valuation stuff, which we haven't even discussed yet, just the raw number, the 70% Q on Q for OpenAI in Q3. And I tweeted at the end of Q2, when the, the, the OpenAI numbers came out for Q1 and Q2, and the GAAP revenue growth from Q1 to Q2 was 18% quarter on quarter. And you did that math and it was, that implied, you know, just under 100% year-on-year growth rate, which was massive deceleration at a time when Anthropic was still going 10X. So like at the end of Q2, that was the state of the race. And I don't like to make this a horse race because you need to zoom out, but there's a part of it that's a horse race, right? And if you noticed, really early on in Q3, all the OpenAI team started really tweeting, "We're having a killer July." Do you remember Sarah Friar commenting on that? "We're having a killer August." It was clearly that they internalized that, you know, Q2 was the first time Anthropic in GAAP revenue was larger than them, and it just felt like they were pulling away.
- RORory O’Driscoll
Right? Just, you know, 11 billion versus 6.8 billion, growing 10X versus growing 2X. Suddenly, a 70% number, no matter what, we'll talk about Anthropic in a second, but no matter what Anthropic does, at least changes that narrative back. If, if it really is correct, and we don't know, but if GAAP revenue grows 70% Q on Q or even 60% up from 18% Q1 to Q2, that's a massive re-acceleration. And, you know, just, just starting with a huge win and the big freaking sigh of relief because, you know, given the OpenAI forward purchases of just about everything from compute to data centers to land in Virginia, if they didn't grow at a hyperspeed, a lot of things come unstuck. So that's the first thing, which is, if true, amazing for OpenAI, right? And then you're right, the second thing is, did that come... And this is where the dev comment on developer loyal is, is important, is that did it all come at the expense of Anthropic? In other words, you, you asking the question, is this a rotating share game? They accelerated 70% and, and then Anthropic slowed down markedly, or did they both grow pretty well? In which case the ta- you know, you can lean into the TAM. And you're right, it's a, it's now... I mean, if the OpenAI growth rate was the key missing card, you know, the missing data point, now that you've allegedly seen that card, and again, we're assuming the 70%'s correct, you are exactly right. The next shoe to drop is, okay, OpenAI, you played your 70% card. Now we're gonna play our still it's 10X growth card, or is it gonna be the 5X growth, or is it gonna be, "Hey, we've slowed down a lot"? It will be super interesting to see where that Anthropic Q3 number comes out. And I won't say it's no accident, but it's worth noting that the timing of the IPO now is such that that number will be in the prospectus, but it will be known at the time they go
- 8:27 – 9:58
OpenAI Raises at a $1.4TN Valuation
- RORory O’Driscoll
public.
- SPSpeaker
If we disentangle the revenue from the price and the round, and Rory, as you quite rightly illustrated I should have done, poor Harry, uh, $1.4 trillion, the largest private round, $30 billion more. I mean, I thought we'd dried up all private capital. Clearly there's more. How do we think about this, Rory?
- RORory O’Driscoll
This would be the first ever venture round above a trillion dollars. That's pleasing. The first ever private trillion dollar plu- I remember in the mid-'90s, I remember the first above a billion dollar round, and we were like, "Whoa, that's kind of crazy." You know, moving right along with three orders of magnitude.
- SPSpeaker
Rory, congratulations for becoming the new head of CalPERS pension fund, and you are now in charge of directs, and you have the chance to do OpenAI at 1.4 or Anthropic as they go public at two. What would you like to do?
- RORory O’Driscoll
Oh, I think you lean to liquidity. It's a lot better to have liquidity than not have liquidity. So let's just say the two com- I mean, so y- y- you, you separately have to value the two companies, which is worth more, but then separate from that liquidi- you really asked the question liquidity versus illiquidity. I would much prefer to be in the liquid stock when the amount of information is as unknown as it is. You either decide, "Yeah, I want the liquid stock," or you accept that you're holding for three or four years, 'cause that's what the risk of being private is. Yeah, you think it can go public next year, and it should be. It's, damn it, it's big enough, but you never know with the world. So I probably would lean to liquidity at the margin.
- 9:58 – 18:19
Factory vs Cognition: Did Chris Degnan Cross a Line?
- SPSpeaker
We can go to Anthropic's IPO, or we can go to the, the slightly salacious one, which is Factory and Cognition, and I, I think we should go there. I'm gonna just throw my hat in the ring there.
- RORory O’Driscoll
[laughs] I think so.
- SPSpeaker
So I'm gonna provide some context. Um, Chris Degnan, sales leader, legendary from Snowflake for many years, uh, was a board observer at Factory, spoke to Matan every day according to the founder, and was very close to him. Um, and whilst he was very close to him, was interviewing for a role at Cognition according to the founder, Matan, this is. Um, and then took the role at Cognition as CRO, and that is when Matan came out and said, "You're barred. You know, this is wrong," and, "How bad of you." Let's start on that before we discuss Vinod.
- RORory O’Driscoll
Agreed.
- SPSpeaker
That Vinod's a whole new topic. [laughs] Um, how did we analyze this?
- DIDev Ittycheria
Yeah, so I just wanna be clear. Um, I know Matan personally. I'm an angel investor, Sequoia's investor in Factory as well, and, um, and MongoDB is a partner with Cognition. The fact that an advisor has access to a founder's confidential plans, you know, there should be clarity on, you know, with, with the, uh, with the founder that they're thinking about going a different direction, especially if that's a potentially competitive situation. But if I was the CEO, I'd be pretty annoyed to s- see someone who had access to my plans go to a competitor. Again, I don't know if that had happened, um, but that would be quite upsetting to me if it did.
- JLJason Lemkin
On the other side, like, as a CEO, you're, it's gonna be profoundly frustrating, right? Your advisor goes off and joins a competitor, right? It's happened to us all at some level, right? I would think 95% of the CROs, CROs we would talk to would say, "This is fine, man. This is the way it works." Like, CRO is a risky job. There's a lot of turnover. Jobs come in fast. And a lot of CROs, if it's a hot job, they move very quickly, right? They, the, and, and so I just think [laughs] that a lot of CEOs would be frustrated. I think 95% of CROs would say, "I, I, this is how I found my last job." [laughs] Maybe not literally the same facts.
- DIDev Ittycheria
Jason, I'm gonna respectfully disagree, because remember-
- JLJason Lemkin
Yeah
- DIDev Ittycheria
... that CROs also hired other people to work for them, selling them on the company, selling them on the vision, selling them on the, on the how they're gonna make money, and how it's gonna be transformative for their family. If that person were to leave, they've basically burnt their reputation with everyone they recruited as well. So I, I've never seen a CRO flip from one competitor to another. I've seen a CRO go from one company to another company in a different space because they think that's a better opportunity. Um, but I've never seen a CRO, at least that I can remember, that's ever flipped from, you know, one company to a direct competitor of another.
- JLJason Lemkin
No, I just don't think most CROs, if they were just an advisor, not, not a f- I mean, he's not a full-time employee. He's an advisor. He's not even on the board. A board observer, what... And, and that's important, right? But there is a distinction between a board observer for a little while and a board member. A CRO, not a CTO, not a founder, not a CEO, gets so- some- maybe somewhat retired, as far as I understand it. You know, made a lot of money at Snowflake, k- kind of, kind of, uh... And that's fine. Nothing wrong for many for, for retiring. Gets what seems to be the greatest job offer. Um, it's gonna happen, right? And, and then says to the s- the, the other CEO, "I got this offer. I'm gonna take it." It'd be nice if there was a little more temporal separation. Um, but I just think most CROs that find the job of a lifetime that are just an advisor to another, they wouldn't even see a conflict. The way, the way we think about conflicts as founders, I think a lot of CROs think of it as a game. Like, competitors are often really friends with each other, CROs. They see it all, "My job's to beat Mongo. My job at Mongo is to beat whomever," right? And so anyway, I just thought-
- DIDev Ittycheria
But I think-
- JLJason Lemkin
... the founder is shocking, but I don't know if the CRO as an advisor, this is seen as crossing some sort of line.
- DIDev Ittycheria
So again, not knowing all the facts, what I will tell you is that different advisors have different roles. So you can ha- call an advisor for a particular part of the business-
- JLJason Lemkin
Yeah
- DIDev Ittycheria
... or a particular function and say, "Hey, I want your advice on, 'Hey, I'm, I'm looking to hire someone in Europe. Can you vet this person or give me some ideas of who I should talk to?'" That's very different than someone who's inside the tent looking at your product plans, your board plans, your financial plans, and has real visibility in terms of where you're taking the business. I think if it's the former, then yes, there's no issue. Hey, this person was talking to you, it was kind of a, you know, a light relationship, and they decided to move on to a competitor. Okay, it happens. You're not thrilled about it, but it happens. Again, not knowing the facts here, but if someone had real insight into the business, real insight in terms of what the product roadmap was like, real insight on how they're competing and winning and losing against the com- competition, and then they suddenly jump to a competitor, that would be very, very different to me.
- RORory O’Driscoll
The interesting thing is, if you think about the employee relationship first and then the advisor relationship, at the employee level, you know, if I'm, if I have a CRO working for me, right, at any point in time, it's entirely possible that he can, he or she can get a compelling offer from a direct competitor and go over there and literally know, know everything about what I was doing up until the minute he gave his notice, right? And Dev, you, you might think, "Ooh, that sucks. That was a pretty shitty thing to do," 'cause you were all in for Team A, and now you didn't go to another sport. You went to Team B in the, in the same damn league. It's really shitty, but it happens, right? And, you know... And, and, you know, the, the Factory CEO was, you know, voiced anger, but it's worth pointing out, if I was a full-time employee, there's no way for me to tell CEO A, "Hey, I'm thinking of leaving," until I got the job and then I have to give my notice. There's no halfway measure, right? So to some extent, this is going to happen. If you have employees, they're gonna know a lot about what you're doing, and at any point in time, they can go and do the same thing for a competitor, and at that point in time, it's gonna suck. And right up until the minute before they sign that offer from your competitor, they had know all your plans, right? So i- in other words, something, shit like this can happen. And if-
- JLJason Lemkin
Or you, you could forward communicate. You could say, "Matan, I've been approached by Scott, and I would like to actually pursue it. And so I wanted to let you know and be upfront about that because I'm aware I have a position of sensitivity." Then he is able to know.
- RORory O’Driscoll
First of all, u- um, dividing a full-time employee, and then we'll talk about advisor, 'cause I think one thing that Dev has corrected, there was implicit... This is where you get explicit and implicit understanding. There was a, there was probably some implicit understanding about the advisor that wasn't fully fleshed out on either side, and that's where I think Dev is actually correct. But going back to the full-time employee, I don't think you can, Harry. If your number two said to you, came in and said, "Hey, I got an offer from Excel. I'm thinking about it. I may go, I may not. If I g- if I, if not, I still want you to love me as if I'd never kinda thought about leaving, but I may go," right? The tru- some pe- And I've done that, but it's generally in an operating role, it can, it can at least be difficult. At least half the time people find out-
- JLJason Lemkin
I'm with you, but that, but that's not the case here, Rory. You're doing Matan Hykars-
- RORory O’Driscoll
I, I, I know. I'm ta- I'm... What I'm saying, what my point is merely, people are saying, "Hey, you had a part-time advisor who left and brought all this information," right? My point is, you can lose a full-time direct report employee who brings exactly the same information and even more. So it can happen, like, it c- it happens quite a lot in business. It's not like it's unusual. The thing that's unfortunate here is, if the person's just doing kind of part-time advising, you, you kind of end up in an odd, you ended up in an odd situation where you, you're disclosing everything. That person's not on the board, so has no fiduciary obligations, is not employed by the company. They're probably, to Dev's point, with some implied statement that said, "Hey, you shouldn't do this," but it was never made concrete. Harry, you're shaking your head. I'm sorry.
- JLJason Lemkin
Well, I think you're, I think you're, I think you're absolutely wrong. I think as an employee-
- RORory O’Driscoll
In what way?
- JLJason Lemkin
... you have very siloed information, and you don't have a lot of privileges that a board member would do with the oversight on strategic discussion across the whole company, across all the different functions. And so it's completely different.
- RORory O’Driscoll
I, how would you say... Okay, CFO-
- JLJason Lemkin
[laughs]
- RORory O’Driscoll
... COO?
- DIDev Ittycheria
S- sorry, what do you mean?
- RORory O’Driscoll
I mean, my, my point is, you, you can lose... If you're the CEO, you can lose one of your top two or three direct reports-
- JLJason Lemkin
Yeah, sure, sure. But if you're, if you're the CFO who moves on, you have n- no real insight into the maybe product roadmap and function, functionalities.
- 18:19 – 22:35
Has Loyalty Changed in the AI Era?
- DIDev Ittycheria
I mean-
- JLJason Lemkin
But listen, the, the... W- what, how is it so different, ha- half of the, uh, of the, uh, the Frontier Labs folks are rotating back and forth-
- DIDev Ittycheria
Yeah
- JLJason Lemkin
... right? They go in and out. How, how, uh, they're, they're taking tons of intellectual property and knowledge from each other. Um, I, I, I mean, I, I know it's different, but I, I think, I think, and, and, um, Dev can challenge me here, and I wish it, this were not true, but I just think in the AI age, the definition of loyalty has changed. I think it's changed permanently. I think culturally it's changed. I see it with some of the top executives I've learned. And, um, just one prong, I mean, people move more quickly. People are f- uh, the compensation's very different. And- I think you just have to expect people will move from competitors. They will go from A- OpenAI to Anthropic to wherever. It's just that, uh, we've changed culturally. And if you, if y- it can bother you, but you, y- th- w- the world changed. It's, you know, it's, it's, what... We gotta, we gotta accept it.
- DIDev Ittycheria
Yeah, so, so what I would say is the following. Like, it's very rare for me to see people go to a direct competitor. It has happened and, and, and Jason, you're right. In this a- age, there seems to be more of that happening than not. Um, but it's still quite rare. And I think you also have to understand that these people have reputations, that if they're in a leadership position, they've recruited people who work for them, who believe in them, who believe the story, and then for this to c- get up and leave, and obviously I dealt with this last week, it kind of leaves a bad taste in people's mouth in terms of how really committed were you to this, and did you sell me a, a bill of goods? And, um, in, in, in the, in the situation where a CRO or a senior executive is leaving, the question I'd ask is, like, "Okay, I understand there's lots of opportunities out there, but do you have to go to a direct competitor? There's no other company who wanted you? There's no other co-
- JLJason Lemkin
[laughs]
- DIDev Ittycheria
... you know, company that wa- values your skills as much as this company?" Like, I think the reputational damage that you can do, you know, long-term is gonna come back and bite you.
- JLJason Lemkin
I, I-
- RORory O’Driscoll
Do we even remember next week anymore in the age of AI?
- DIDev Ittycheria
No, I think you do, because I would kinda-
- RORory O’Driscoll
I think you do
- DIDev Ittycheria
... I, I think you do. Actually, Jason, I would say the more things change, in many ways the, the, a lot of it stays the same around people, around relationships, how you work with them. And I think people too often use the AI era as like, "Oh, everything's changed." I disagree. I think how you manage people, h- how you recruit them, how you develop them, how you hold them accountable. In fact, a lot of these young AI founders struggle with this all the time because some of them have never hired a, a go-to-market person. They've never hired a finance person. And so they're always asking for advice on, what do I look for and how do I evaluate someone with skills very different than mine? And they're all the same issues I had when I started my first company in 1998. Like, it's the same thing all over again. It's just obviously happening maybe more visibly than it ever happened before.
- JLJason Lemkin
Until recently, my experience was there was always, when, when you went, went somewhere else to another company, there was always the rule of two. Kinda like the Sith, but different, right? Wasn't the Sith like the rule of two? I don't know. You could take two people with you. So when you left Mongo to go do your own company, you could bring one and Dev would get kind of pissed, okay? And you'd talk about it, and then you'd ask permission for the second, and it, there'd be a lot of friction. But if you crossed two, the relationship was broken, right? Now I'm seeing folks take like eight or 10 with them the first week. [laughs] And like, it's not a cultural issue anymore, through people that I respect and think are high ethics, right? And some of that, I think, is the pressure to move so quickly in the age of AI. But I do think it's a s- I think it's related to this. I think it's a symptom of change, that the rule of two seems to have died. Was that your rule with your team over the years? Did you, did you in- informally enforce the rule of two?
- DIDev Ittycheria
No, I had people who le- who left and then carpet bombed the rest of the organization trying to follow them.
- JLJason Lemkin
[laughs]
- DIDev Ittycheria
And obviously, you know, that wasn't a great feeling and, you know, and stern words was exchanged but-
- RORory O’Driscoll
Would you, let me ask an interesting question, Dev. Would you prefer someone to, a, a senior executive to leave and go to a direct competitor but recruit no one, or someone to leave and go to a totally different business, broadly in dev- developer tools, but say, and recruit four or five of your top, of, of, of his top execs? Which would you prefer to defend, the talent or the knowledge? It's a tough one. I don't know.
- DIDev Ittycheria
It's a tough one. I think it depends on who that competitor was. Um, and it was, like, my mortal enemy, I'd be more upset about the former. If it was another company and a four or five people left, it is what it is, and I, I'd move on.
- 22:35 – 25:14
The Vinod Khosla Tweet That Shocked the Panel
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
So I-
- RORory O’Driscoll
Fair enough
- JLJason Lemkin
... I do just wanna, I, I, I would just love to maybe slightly move the conversation along. Um, because we mentioned the word loyalty and, you know, when we hear the word loyalty, I just think of Vinod Khosla, um, uh, who led Factory Series C, led their most recent round, and then goes on Twitter, and the wording was like, um, "Struggling second-tier competitor. Absolute demolition job of Matan." Um, I don't know what to say. Was he asleep in the partnership decision? Like, was he aware that he led the last round? I- I'm genuinely not saying that stupidly. I don't know if he was.
- DIDev Ittycheria
Uh, candidly, I was shocked when I saw that. I was just f- totally flummoxed by th- that tweet because it basically handed a weapon to every other firm competing with Khosla Ventures, and Khosla's got a great team with Keith and a bunch of other people there, and basically handed every other firm a weapon when they're competing on deals saying, "Is this the partner you want when things go bad?" I was just totally flummoxed on why he would do that publicly.
- RORory O’Driscoll
Yeah. I mean, there's nothing to add. Some days you just make a mi- it was a mistake. He will probably look back and say, "Gosh, I wish I hadn't done that." I would add it's like, it's weapon in the hands of everyone who competes with them, wish it hadn't happened. A lot of what's going on here is what are the, what are the legal obligations versus what are the implied rules, and what are the consequences of breaking the implied rules? And what are the non-legal but nonetheless implied rules? It is really hard for venture firms when they do two directly competitive deals, and the only way you get around it is you make all this argument about you love your children equally. You don't say anything in public about one, about the other. And then you have something like this that crashes through every wall. And, you know, it just shows that those situations of, you know, two directly competitive investments are very fraught, especially if you're actively involved in the companies. It was very unhelp- it's very unhelpful for Khosla, very unhelpful for both companies. It's like, ick. It was not venture's finest hour. Let's move on.
- DIDev Ittycheria
[laughs]
- JLJason Lemkin
[laughs]
- RORory O’Driscoll
Enough.
- JLJason Lemkin
Maybe it's just, maybe being the Pollyanna, he meant it positively as tough love. Struggling sec- you know, there's a theory, like be harsh on the struggling f- the most struggling founders. S- he thought-
- RORory O’Driscoll
But as you know-
- JLJason Lemkin
... struggling second-tier competitor would be motivating. [laughs]
- RORory O’Driscoll
No, I, I, I, I, I, I yield obviously to Dev and the CEO of man manager side here, but I do vaguely remember something about praise in public and chastise in private.
- JLJason Lemkin
Yeah, it seems backwards but-
- RORory O’Driscoll
I don't think that was the mission here.
- JLJason Lemkin
You never know.
- RORory O’Driscoll
You know?
- JLJason Lemkin
It seems baffling. [laughs]
- RORory O’Driscoll
Yeah.
- SPSpeaker
We've,
- 25:14 – 28:55
Reflection Launches Beam: America’s Answer to Chinese Open Models?
- SPSpeaker
we've, we've been talking a lot about, um, open models over the last few weeks. We saw Reflection ship Beam. I thought that was a really interesting story. We also discussed, Rory, one of yours before, Intercom, obviously selling to Salesforce. Well, we had Salesforce buying Listen Labs too for $2 billion. Of those two, where would you rather go?
- RORory O’Driscoll
I think both are worth some time. I mean, I'd love to hear y- the, your thoughts on Reflection, 'cause look, they've been frankly talking about shipping for a long time, and from what we said earlier, it seems to me that being an open weight US sourced model is a super interesting strategic position right now. So if someone can ship something that's near, near frontier quality, even if it's 6, 12 months off, just from the dynamics of the market, that's a nice place. So what are you guys' thoughts, David?
- DIDev Ittycheria
Yeah, I actually tweeted it out this morning. Um, I actually thought that, uh, enterprises kind of can have their cake and eat it too. One, you get a US open source model that's near frontier intelligence that's, you know, three to four times more cost effective, i.e., you know, cheap, cheaper. And that's music to the ears of any enterprise, uh, because there's obviously gonna be some hesitation by using Chinese open source models, especially if you're in a regulated industry or industry that deals a lot of sensitive information. So to me, this is a, a, you know, was a very noteworthy announcement. Again, I do wanna disclose as Sequoia's investor in Re- Reflection, but I think it's great for the enterprise.
- JLJason Lemkin
I was at Dreamforce this year, right, and got to actually have a surprisingly large number of conversations with execs. Um, notwithstanding, you know, the incredible force of nature of Chinese-based open weight models, when I... Nobody I talked to really wanted to use a Chinese source model. Right or wrong, fair or not, nobo- everybody that was, they felt like it was under duress for cost, but no one i- really wanted to use one. R- again, right or wrong. So I... You know, if they nail this right, it could be a torrent of demand.
- DIDev Ittycheria
I agree, and I think the, this also reinforces a point that you don't need the, you know, the frontier level intelligence for every workload. If it's close to the frontier, as, as Rory said, you know, within six months of the latest models and addresses 90% of your use cases, like, especially around, you know, reasoning use cases like coding and agentic workloads, you know, um, I don't see why enterprises would, would, uh, not kind of want to talk to them immediately.
- RORory O’Driscoll
Yeah, and it's funny, it's, you know, 'cause... And it, it ties back to the first topic. At one level, you know, so far the evidence has been, you know, when you actually toted, that there hasn't been a massive push because people are lazy and the, the bills haven't been astronomical, and therefore they've just kinda used the frontier model and maybe, you know, downgraded to the Anthropic or OpenAI, you know, less expensive model levels. But I agree. I think the, the interesting thing now is because the numbers are getting so huge. I mean, if, if OpenAI and Anthropic are each making $70 billion in ARR, that's $140 billion. That's plus a m- that's more than Microsoft taxed for the longest time across both Windows and Office. That's a chunk of US corporate profits, right? And at that point in time, if you're a CFO, you probably come in to your CIO and say, "I don't care that it's easier to just use Anthropic, dude. We need to shave 3 million off this token bill," right? "So start using Jev for your 20% of your decisions, and start using Reflection or something for anything that's not frontier and figure out a way how to use Anthropic for the hard shit." I, I, I would imagine there's a s- I'd imagine, Dev, you guys will start to have those conversations, and all your customers will. That's why, again, these growth rates are so interesting right now for Anthropic. Um,
- 28:55 – 31:43
Why Enterprise AI Could Be Far Bigger Than Current Usage Suggests
- RORory O’Driscoll
can they still maintain that, you know, unparalleled growth rate in the context of this kind of chipping away? It's like, remember the old man in the sea, the guy's bringing back the shark and, uh, the, the, the fish, and then the, the, the, the other fish are gnawing at bits of the body. You know, they're just taking away slugs of revenue from them.
- SPSpeaker
Well, and then you've got Jev and you've got a load of the other-
- RORory O’Driscoll
Yeah
- SPSpeaker
... Jev competitors also in a different way attacking them.
- RORory O’Driscoll
Yeah. Yeah, and again, the forward momentum has been such that all this is like, "Yeah, thanks, Rory, that's super interesting, but did I mention we 10X'd last year and the year before?" So, um-
- DIDev Ittycheria
Yeah, the, the, the other thing I think it's important to understand, and Jason, I'm curious what you saw at, at Dreamforce, but I think there's a big gap between where the capabilities are and where actual usage is in the enterprise.
- RORory O’Driscoll
Yeah.
- DIDev Ittycheria
I think there's a paucity of, of real experienced skillsets inside the enterprise. And so I think we're gonna see Jevons paradox kind of come into play, where basically as these costs come down, people will get more and more comfortable with deploying it for more and more use cases across the enterprise. As they get more conversant and s- and skilled around these technologies, they'll s- they'll start deploying it for more use cases. I see this even at MongoDB. And so I think you're gonna see that frankly, this is a massive market, and I think everyone can be successful. I mean, I won't comment on the growth rates of the frontier labs versus the open source model, but I, I don't see this, like, I don't just see this as being a zero-sum game.
- JLJason Lemkin
To answer this, the, the Captain Obvious answer to what I learned at Dreamforce, everyone I talked to, everyone was just overloaded with the amount of internal demand there is for, for tokens. And whatever it is, it's more than they can imagine. Whether it's being used properly, whether it's being burned-
- RORory O’Driscoll
Yep
- JLJason Lemkin
... for nothing, they're just overwhelmed with whatever the cap is. Whatever it is, the demand is probably an order of magnitude more than they have f- they've figured out how to surface, right? That may lead to using suboptimal models. It may lead to a lot of, a lot of waste in some ways. But everyone's got, gotta manage it, which just... That and the, and the fear of using China-based models, again, right or wrong, is just a huge opening if you can nail it. Um, I'm just... The only thing I will just add, uh, just for fun, we can move on, is man, just personally, I'm getting more and more skeptical of ev- published evals. Like, of course, you can make an eval look great, right? How fast was it? What were really the outputs? How well did it perform on a real workflow? How well did it perform on a mission critical workflow versus telling you an item was in stock when it wasn't? Which is still kind of mission critical workflow. I found that, uh, that, uh, you know, every single eval needs like three asterisks and four daggers next to it today. So I am, I'm skeptical Beam is as great as they say it is, but I just asked while we're on if I could get on OpenRouter and check before we end the podcast, but it's not there yet. But I, I would try. But, uh, I just, I... It's not that I don't think these are all great. I just think all the evals are so biased and, uh, or focused on chess championships that I j- I just, uh, that, you know, I, I'm, I'm slightly skeptical
- 31:43 – 34:49
Could US Open Models Take 50% of Open-Source Tokens?
- SPSpeaker
We have, we have Nemotron, we have Thinking Machines, we have Reflection.
- JLJason Lemkin
Yeah.
- SPSpeaker
In 12 months time, what percentage of token in open source flow will go through US versus Chinese?
- JLJason Lemkin
Well, look, just two things. D- uh, as Dev made the point in the beginning, developers will change, and, and especially here. This is, this is, this is a lot easier than swapping out your database, right? Uh, that, that, that could be done, but I, having recently done it, it's some work, man. I gotta tell you. It's not, even with an LLM, it's l- this is not that... I mean, listen, this is still work. You have to qualify your prompt. You have to redo your workflows. It's not nothing like the internet says, but I, I could see it being half in 12 months. 12 months is a lot of time, and I think every- I think sovereignty plus US-based is really important. I'm not saying it will happen, because I don't know that... Again, I'm skeptical of the, I'm skeptical the parity is really there versus pretend there. But if, if you're even three, three m- like at, you know, X minus three months, to Dev's point, it could be half in a year. A year's a long time.
- SPSpeaker
But that gives me-
- JLJason Lemkin
It's a really long time
- SPSpeaker
... a lot of confidence. I, I'm, I'm an investor in Fireworks, uh, as is Sequoia, and I think the biggest concern I would have as a Fireworks or a Base10 or a Modal investor would do is that actually big enterprises are concerned about Chinese models, and that would prevent them from engaging with partners like Fireworks or Modal, and they then go to Frontier. And so the fact that you say 50% shows me that the, the levels or quality you think is sufficient enough that it would be that rate, that makes me excited.
- JLJason Lemkin
Yeah.
- DIDev Ittycheria
I, I think the other thing that enterprises are gonna care a lot about above and beyond cost is safety, like being able to trust these systems, and I think we're just, you know, you know, getting focused on this. Obviously, there was that big conference last week in Washington, and, uh, I think it's clear that, you know, there's gonna be some self-regulat- regulating approach to figuring out how to, um, address safety. The challenge is how do you define safety, right? Because if someone knows how to define it well, I'm, I'm really curious, but it's, it's beauty is in the eye of the beholder. And but we need some way or some mechanism for people to be able to determine, much like a benchmark, and yes, people can game a benchmark, is like how safe are these models? And I think the m- you know, the more safe these models are, uh, with whatever mechanisms are in place to prevent people from doing bad things, the more widely usable they'll become.
- JLJason Lemkin
Agreed, and I wouldn't guess, by the way, 50%, Harry, but I think even 10 or 20% would be extremely significant in terms of tokens. Because if you think about it, the foundation models on OpenWater, I think get a, you know, 20, 30% of tokens and get 90% of the dollars. If the, if the US open weight models are even 50, 60% of that in terms of tokens, that, that's a lot of traction because it'll be by definition the more enterprise centric, safety conscious customers doing it. So I think that would be a, frankly, a huge triumph for Reflection, and as you point out, a real de-risking for all the inference guys.
- 34:49 – 38:07
Investment Committee: ElevenLabs at a $22BN Valuation
- SPSpeaker
Ding, ding, ding. We got investment committee. Dave, welcome to the committee, by the way. We're thrilled to have you as part of the investment team. Uh, you are, sorry, I should say on the, you know, new, new firm that is, uh, O'Driscoll Lemkin Stebbings. Um, Jason, we have ElevenLabs who doubled their valuation to $22 billion.
- JLJason Lemkin
Yeah.
- SPSpeaker
Would we do $22 billion?
- JLJason Lemkin
I think at $22 billion we should consider doing up to 10% of the fund. Um, time is short. Um, we're at, we're w- at an 18-month deployment cycle. Um, one of our most esteemed partners is going back to run a public company, so we're losing some of the folks on the team. The way I see it, ElevenLabs has done something quite d- with, with, with actually a fair amount of intense competition. Its, its lead keeps widening. Um, it is one of the 10 most important underpinnings of, of agentic applications is the voice applications where they're going. And the, the rate of growth, and surprisingly, the margins are very impressive. This is a company that, that, uh, you know, by the time we, we close the friend and families round, which we're hoping to do at 50 billion, right? This one could be approaching a billion in revenue, and that's the sort of growth rate that, um, I think it's the deal we've got to do. And it's, it's a high- highly differentiated. I won't say they have the highest moat out there in the world, but this is no... This isn't Jeb level risk. ElevenLabs has built an incredible team. Um, they have sub-millisecond response rates for, for, for voice, which has become a key modal. And it, it's tough to find a better asset today. Do I wish it was at 21 or 18? For sure, but I say we go all in.
- SPSpeaker
Can I ask you, Mr. Lemkin, you previously said on the show that this would be the year of substitution for voice models and that cost would drive that decision. Have you changed your mind given where we are?
- JLJason Lemkin
No, because I think ElevenLabs is, for the most part, it's always a risk. For the most part, it has covered, it has multiple models. It has covered the low end and the high end. And quality here is, is in many ways more important than it is in your classic open weights model. We can tolerate a little bit of, uh, a little bit of laxness in the reasoning, um, for non-critical workflows, but when you're a- when, when that, when that flower dealer is, a flower, uh, uh, uh, dealer is, is picking up the phone, it has to work. It has to answer that phone in seconds, and the f- it has to be the right flowers. If it fails, if it misunderstands it, if we can't populate, this, this product isn't worth it. So there, there is a limit to price, but I'm shocked at the deal size of ElevenLabs. I'm shocked at the number of folks that are, that are relatively modest companies paying hundreds and hundreds of thousands of dollars a year happily, and our reference checks said they love it. They feel like they're getting a good deal. So I don't think all models are fungible. Despite some of the other discussions we've had at the fund, um, the fact that I did recommend putting maybe 500 million into Reflection and others, this is not a fungible, this is not a fungible use case today. 12 months, it's hard to predict, but I'm impressed with the team and I don't think anybody's gonna catch them here today. It matters. This is where the LLM matters
- SPSpeaker
10% of the fund goes to ElevenLabs. Wow
- JLJason Lemkin
I just don't wanna do it over two rounds, you know? I don't, I don't need to see it at 50 or 100. Dev knows what I mean, okay? I don't need to see it a second time. I just wanna put all the chips in now, g- get the ownership I can, and move on, right?
- SPSpeaker
I agree. Plenty more things to-
- JLJason Lemkin
And I've got a friend of mine that's a CRO I wanna put on as a board advisor. I think he'll, he'll be able to help out and give them some insight. [laughs]
- 38:07 – 41:30
Salesforce Buys Listen Labs for $2BN
- SPSpeaker
Okay. M- m- moving from one Sequoia company to another Sequoia company. Sorry, Dave, we... I- it's not intentional. Um, Jay said, uh, Rory once said a quote, which is like... What was the quote? Like, "Whatever game you're playing, just be Sequoia." Do you remember the one I'm talking about?
- RORory O’Driscoll
Yeah. Uh, there's so many quotes of mine.
- SPSpeaker
Yeah, yeah.
- RORory O’Driscoll
You know, I, look, I've, I've been doing this 30 years, and when I came in, Sequoia were top, and give them huge credit, 30 years later they're still there, you know? So, yes, I g- I gave the Gary Lineker football quote, if you recollect.
- SPSpeaker
So with great sur- with great surprise, Sequoia made hundreds and hundreds of million dollars, uh-
- RORory O’Driscoll
Oh, look
- SPSpeaker
... with Salesforce buying Listen Labs for $2 billion. Now, apparently they had offers at $1.5 billion, a major win for Brian Cheire at Sequoia. Uh, about $850 million back to investors on 96 invested. Sequoia did the best. Uh, they led the seed, they led the A, making about a 25 X. Ribbit led the B, uh, which, 4X in eight months, so, uh, well done, Mickey. Um, what did we think of this, guys?
- RORory O’Driscoll
I think it was a great outcome for a very clear category, in the sense of it's pretty obvious that mar- Stepping back, listen. Market research is a very large, fragmented, almost pre-technical industry. There's a bunch of consulting-type companies, and then there's three last generation companies, Qualtrics, Medallia, and s- what was SurveyMonkey, all that got to kind of high single digit, low double digit billions of revenues, and to billions of dollars in terms of market cap outcome. So it's a really good category. It is an existing category with a big ass spend, and LLMs just do it so much better, 'cause, you know, what are you doing in market research? You're kinda asking questions of people, right? And assim- and aggregating and assimilating the answers. And the two things LLMs do well, we just talked about voice. Voice as a modality is a solved LLM problem. And then asking questions and knowing how to... And not just kind of these canned, stupid last generation surveys, where no matter what you say, the survey just asks the next dumb question. You know, it's like, "Did you, did you like your stay?" "No, I didn't even check in." And then the next question is, "Was the bed comfy?" Right? That's the last generation, whereas now with LLMs, you can i- adjust the questions based on what the respondent is saying. All that means market research can be done so much better, um, with LLMs, and I think Listen Labs was one of the early contenders that did it well and executed brilliantly and, you know, got to real revenue, and I think, so great outcome. I mean, uh, it is kind of one of those, when you make the lu- the list of use cases for AI and LLMs at the app layer, that comes out like a top five, top 10 use case, and there it is.
- JLJason Lemkin
But you know what? I would love to get Dev's thoughts on this. I don't lo- You know, I, I am a p- pretty much a fan of a lot of Salesforce's acquisitions, and I've, I've been championing many one. This one I don't really get. It's not that I think it's a bad idea, but I mean, Salesforce is coming up on 60 billion in re- Their, their target's 60 billion for... You know, they're almost at 50.
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
I just don't... I don't know how 20 million of revenue of next generation AI survey moves the needle. Th- this is... And I'm not saying it doesn't. I mean, MongoScale, you gotta mo- It either has to tuck in or move the needle, right? May- maybe you think about it differently, but to move the needle it's gotta be big. And Salesforce even... So this is the one where I'm... I get the theoretical appeal, but I, I wonder if this one will just be kind of forgotten
- 41:30 – 45:44
Is Your AI Startup a Feature or a Franchise?
- JLJason Lemkin
in a couple years.
- DIDev Ittycheria
What I will say is that, um, I think we're gonna probably see more of these deals, right? Because I think there's starting to be a difference between a feature and are, are you building a feature that's m- masking as a company or a franchise, right? And I think a lot of AI application companies will sell because a clever product on top of someone else's platform, you know, will, will basically, um, is, is frankly a feature. And if they can use the distribution of that larger company, they have the cash and distribution, they're gonna take advantage of it. I think the companies that are more durable are the ones that ha- you know, essentially are creating a data loop where the, you know, the users creates data that no one else has. The data makes the product better, the product attracts more usage, and you kinda create that virtuous cycle. So and so if someone tries to copy you, they can copy the features, but they don't have all the interactions that you have. And so I think the difference here is, you know, when you look at these kind of standalone AI app companies is, are they really a feature masking as a company, or are they really building a franchise? And I think the founders of Listen Lab decided that this was an offer that, that made sense for them.
- SPSpeaker
I mean, you'd be pretty pissed off if you're Intercom, wouldn't you? Sorry. You're just like, you've gone through, like, 15 years of shit and struggle and, you know, just bull, like, building this business. And then, you know, ABBA's answer to Justin Bieber comes along and three years later sells for a comparable number, and you're like, "Fuck." [laughs]
- RORory O’Driscoll
So-
- SPSpeaker
You know? So I know, I know they all made money, but you'd be like, "Oh, bugger, that was an easier route, wasn't it?" [laughs]
- DIDev Ittycheria
Yes.
- JLJason Lemkin
Of course you think that as a founder. I mean, I don't mean to be s- There's always someone that had the easier route, and you do think about it.
- SPSpeaker
Yeah.
- JLJason Lemkin
Of course you think... Even at Mongo, I bet Dev thinks about once in a while, "God, those... I mean, we've done great at Mongo, but those guys-" [laughs]
- DIDev Ittycheria
Yeah, I think, um-
- JLJason Lemkin
"They had an easier w- easier way with it." [laughs]
- DIDev Ittycheria
The lesson I tell my boys is comparison is the thief of joy. You start comparing yourself to everyone else, and you're gonna be, spend a, be very miserable for the rest of your life.
- JLJason Lemkin
Yeah, Rory.
- RORory O’Driscoll
Yes.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
Hey, I, I, I didn't do it, Harry. You know, I was-
- JLJason Lemkin
Rory
- RORory O’Driscoll
What?
- JLJason Lemkin
Yeah, comparison's the thief of joy, okay? God.
- RORory O’Driscoll
G- g- good to know, Harry, but that's why, that's why you were wrong to mention that, 'cause in the end, I think both companies made money, and to Dev's point, you'll step back and say, both of them will go, "Yeah, I feel good about what I did." Now, you're right. It's a lot easier to do it in 3 years than 10 or 15. Duh, we get that, but life ain't fair, and venture outcomes are very random. And more than anything, what it says is timing and the cycle is just so interesting, 'cause, you know, like, look, you know, we put some money in Intercom recently. Intercom achieved that valuation. It could've happened for Intercom had they sold in 2018, '19, in the SaaS boom. Just that's the way... And to Dev's point, maybe we will look back. I, in f- five years from now, maybe 10% of these apps companies will have sold early. They'll have got their 30X revenue, and the rest of them will be grinding it out for six times revenue at 300 million with, you know, 3,000 employees and their head exploding, right? But you just... You know, that's just- To some extent it, you can't control the outcomes, you just gotta like the process, right? And if you end up doing well, then, you know, both of them have done just fine.
- JLJason Lemkin
I will say one thing from the, how old was Listen Labs? When was it founded?
- RORory O’Driscoll
Three years old.
- JLJason Lemkin
I will say as a founder, having been through the different lengths of journeys, um, the earliest days are always the hardest, right? They're sort of fun 'cause, you know, it's just you and your crea- it's very creative, like, in the way, but it's, you know, unless, unless you're the lucky kids these days, you almost always run out of money. You don't have enough customers. It's brutal, right? But I will say, if you can exit for a good price in three to four years, I'm not saying you should financially, but man, it's easier. [laughs]
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
It's so much easier to exit, no matter what struggles you go through as a team, the... You never get the... 'Cause it's, I find it's five-year chunks, and they take it out of you, right? And if, um, I'm not saying it's a reason to sell, man, but if you can sell for an, for $2 billion in the first five years, and it was my... And I, I was... I'm a, "I'll tell them to take it." [laughs] 'Cause it's just, you just lose... It's not that we don't all wanna build a Mongo. We, we do intellectually, but man, it, it's just, do it in the first, in the first wave. It's
- 45:44 – 49:09
Should Founders Take a $2BN Exit Early?
- JLJason Lemkin
so much easier.
- RORory O’Driscoll
I, I don't think anyone is sitting on the call screaming, "I can't believe you sold. Damn it, guys. Why would you only take $2 billion?" You know?
- JLJason Lemkin
No, no, that's not true.
- RORory O’Driscoll
I mean, that can-
- JLJason Lemkin
We've all, we've all had VC meetings where a company is like this, and, and no one around the table says you should sell on a deal like this, right?
- RORory O’Driscoll
We had some-
- JLJason Lemkin
I had one, I had one this year at about this price, and, and every single VC said, "Don't sell," right? In that first wave, and it's 'cause there's a lot, a lot of momentum in the business, da, da, da. But man, getting out for that fir- I know you can call it the first exit, but, uh, [laughs] you really can do another. [laughs]
- RORory O’Driscoll
I think...
- JLJason Lemkin
You just have to decide if it's really... You know, the, the thing is, you have to decide if it's generational. Are you building a Mongo or better? Then of course you say no, right? But, um, if you can get out for $2 billion in the first five years and you're not building Mongo or better, um, I don't know, man. I would, I would, I would take it and, and, uh, enjoy, enjoy my life at Salesforce.
- RORory O’Driscoll
I mean, yes, though I... It's such an old story now, but for some reason it surfaced on Twitter, the whole Zuckerberg turning down a billion from, was it, um, Yahoo or Google? I can't remember, right early on, without even thinking about it twice. But it is... I think the real point, Jason, that comes to your thing is what's, what's your likely... You have to be kind of cold-blooded. What's the likely trajectory from here? You know, h- how... And then, you know, how do you feel about running the tape, and how likely are you to get not just three times this amount, but 10X this amount and more, and how do you assess that? Plus the personal side.
- JLJason Lemkin
I think you have to be honest if you're trying to build a generational company. I don't think that's a catchphrase. I think it's really important. Because otherwise you have a, you have a terminal value, a terminal state, and it's, and, and if the offer is reasonable, you'll never beat the net present value of these deals. This generational stuff isn't easy. I mean, Dev's back in the seat again.
- DIDev Ittycheria
Yeah. Yeah, so, so-
- JLJason Lemkin
It ain't, the stuff ain't easy, this generational companies stuff. [laughs]
- DIDev Ittycheria
So, and I will tell you, the best companies always get offers to sell, right? So I'll use my example, um, and I wouldn't say, like, Blade Logic was, you know, a massive, you know, outlier. But, like, every stage of our growth, we had people who wanted to buy us. I remember sitting, you know, I guess I can share this now, I was in John Chambers' office. We were literally sitting face-to-face where he wanted to buy the company, and then for some reason it just didn't work out. Then they came back again. I had EMC at the table. And you just go and go, and then ultimately you sold a year after we went public. And I think to, to Jason's point, it's, uh, ultimately the founder has to decide, do I feel good about continuing to build or should I just hit the ex- exit button? And, um, and I felt good about our decision to sell to BMC, but we came really close, uh, a number of times to sell the business earlier and we... And looking back, it was the right decision. Obviously the numbers were a lot smaller then-
- RORory O’Driscoll
How much did you sell for to BMC?
- DIDev Ittycheria
We sold for about $900 million, which, which at that time was the highest acquisition paid in 2008. Highest mobile acqui-
- RORory O’Driscoll
It was a killer deal. I had, I had a small company that competed with him. He cleaned our clock. Blade Logic was the winner in that category. Actually, and the number two was Aref, who is now at Bain Capital. He was running Centerview, CenterPoint. We had Moonlight. You guys-
- DIDev Ittycheria
CenterPoint, CenterPoint.
- RORory O’Driscoll
Yeah. Center, CenterPoint. You walked all over us, Damn you. I remember because-
- DIDev Ittycheria
[laughs]
- RORory O’Driscoll
What revenue were you doing when you sold?
- DIDev Ittycheria
Uh, we were doing, uh, we, about 100.
- RORory O’Driscoll
Uh, well then-
- DIDev Ittycheria
So 9X. Yeah
- RORory O’Driscoll
... then, then the Swedes did do well.
- DIDev Ittycheria
Which, which by the way, was right on the heels of the GFC, so the market was getting quite skittish in
- 49:09 – 51:29
Vercel Hits $600M ARR as Agents Drive 50% of New Business
- DIDev Ittycheria
2008.
- SPSpeaker
One that I am interested by is actually one that Jason suggested, which is Vercel at $600 million in ARR, with agents being 50% of the new business, up from 3% at the start of the year. Jason, I always find you quite mind-expanding for me when you talk about these topics. How do you think about this? How much budget we should give to agents for 2027? What's the takeaway for us from Vercel now getting 50% of new business from agents up from 3%?
- JLJason Lemkin
Well look, I would say maybe two different things. One, I, I think that, you know, there's, there's a bunch of companies like Vercel that, that had the right infrastructure and the right product before AI and agents, right? So Vercel founded in 2020, right? Um, to, to... I mean, Guillermo didn't not know that, that in 2026 the majority of his business would be from agents, right? Spinning up applications on their own, right? No- no- nobody saw that. So some of the, some of the most amazing stories, even ElevenLabs is a little bit of that. Certainly Replit, founded in 2016, is, like, a big case study, where you just, you just, you just, you, you, you latch onto that and it just works, and they do have the tiger by the tail, right? Vercel, there is a lot of competitors, a lot of really strong competitors, but agents pick Ver- agents pick Vercel. It's very strong. And you know, what's interesting, I think, what do they say? They're growing 170% at $600 million from 20% increase in, in, in customers or something. I mean, the, the, the, the expansion revenue is astronomical, right? And it's just, the thing is, when agents pick you- And I'm sure Dev's thinking a lot about this, right, on the database side. When agents pick you, it i- it's a force of nature right now. And agents, what I've learned from... Well, you have 21 agents. We're building all day. Between me and Amelia, I'm literally building eight to 10 hours a day, and man, my agents have opinions, and they're really hard to argue with. And if they wanna use a vendor, it's a lot of energy. I, I know I'm anthropomorphizing it, but it's powerful when an agent, uh, decides something, and Vercel is a major beneficiary of this. Even, even when we start... Even last year it looked great, but it never seemed it would be as important as it is today. "Oh, that's just, that's just where I'm gonna stick my code," right? Important, but, but, but back office infrastructure. But man, this is where so many agents and apps are running and, um, I, you know, I w- I would, I would only w- I would, I would take this one to the IC
- 51:29 – 55:09
Why Winning AI Agents Could Become More Important Than Winning Google
- JLJason Lemkin
too.
- DIDev Ittycheria
This is really interesting about the point that Jason made is that agents are picking or making decisions, right? It's fo- for the last 25 years, every marketing person, every company has optimized how you show up on page one of Google, right?
- JLJason Lemkin
Yep.
- DIDev Ittycheria
You educate human buyers. Now you have to make sure that agents can find you, understand what you sell, have current accurate information about you across the sources they read, and if you're missing from an AI-generated answer, it's like being invisible on Google. And, uh, you know, full disclosure, Sequoia has a company called Profound that helps companies with those, helping them, but I will tell you, this is a massive problem, and it's not just in tech. If you're an e-commerce site or y- or you're a retail c- c- um, you know, a company trying to sell through e-commerce, and agents are now making the buying decisions, you gotta f- figure out how to educate those agents. Otherwise, your business is going to zero.
- SPSpeaker
You know, when I look at this market, we too have a company, Dave, Peak, and everyone's like, "Well, this is just like a next generation of Semrush." Is it just a next generation of kind of SEO analytics providers with your Profounds and your Peaks, or is this actually a much larger category that we're not seeing currently?
- DIDev Ittycheria
I, I think the opportunity is more than just analytics, but telling you where you're missing and all that. I think the opportunity for these companies is not just tell you what you're missing, but to help shape the content and create the content to help you solve that problem. If they can close the loop, that becomes a very compelling solution versus just telling you, "You're here. You're not here. This is what the other guys are doing."
- JLJason Lemkin
I'm just looking today, for example, it's m- it, it's smaller, but look at Resend. So, for example, the first agentic purchase we made was Resend for email, okay? When I was trying to set up a bunch of agents last year, um, uh, I kept getting recommended SendGrid, but, but because they need the, the CEO to go, the founders to go back, I just couldn't get the damn SendGrid thing to work. They'd kinda deprecated Free. I couldn't figure out the key. It kept breaking. It was... And so I asked my agent what I should use. It said, "Use Resend." Resend, April 106,000 MCP calls, to September three, three million. That's agents saying to use products, and I'm not saying Profound isn't doing that. They may well be. My limited experience is this is different. Yeah.
- SPSpeaker
But, 'cause I, I, I would, I wanna kind of disagree with you all is how did your agent decide? 'Cause I, I assume some part of it is the general how I show up initially in the ans- in the answer engines. You know, how I show up on OpenAI, and then what else does the a- what else does your agent look at? Is it just the, the agent-
- JLJason Lemkin
It looks at your infrastructure. It looks at the application you're building. It looks what's trusted. It looks what it thinks the right match is. And once in a while, it'll make wacky choices that are very specific to your use case. Um, but, uh, you gotta be that one. You gotta... And it's not j- a ChatGPT is gonna give you a generic answer based on a number of fact- I'm not saying it, it... They're using the same LLMs, right? So some of that is being into it. But, but the... An agent knows your whole stack. It knows every... It knows your application. It knows what you've built on top of, on top of the system. So it will make a very-
- SPSpeaker
Yeah, and, and-
- JLJason Lemkin
... specific recommendation what to use.
- DIDev Ittycheria
And the, uh, this problem is even more profound, no pun intended, for early-stage companies because there's so much corpus of data for your incumbent who's been around for 10, 15 years, and if you're trying to disrupt some incumbent, the agent's gonna see all this data about the incumbent and very little about you. So when it makes a decision, it can very easy just basically pick the incumbent solution. So it's actually incumbent [laughs] upon the startup to figure out how they basically educate agents on what they do, h- the documentation, the APIs, and all the infrastructure and the wrapper so that they can then show that they are f- truly a first-class experience for an agent to m- make a decision on.
- SPSpeaker
And going back to the w- w-
- 55:09 – 59:33
How Startups Should Optimize for Agent Recommendations
- SPSpeaker
I, I-
- JLJason Lemkin
Here's my... For what it's worth, here's what I tell my portfolio com- companies I've, I've invested or worked with. I say, "Find 10 folks you know that have agents in production doing different things, 10 folks you trust, and ask them every two weeks, 'What would you recommend in this category? What would you recommend?' And see what the agents recommend." This product doesn't exist today. I think the four of us should fund it. But it doesn't... The, it's not the same as Profound, which is guessing what LLMs do. These are live agents in the field in different applications asking the agent which, what should, what, what should be used, right?
- SPSpeaker
And what would that agent... Um, just let me understand. W- w- where is that agent who will answer the question? I mean, that agent presumably is doing some other job, and you'll just go on and say-
- JLJason Lemkin
The agent could be at any c- any tech company. Any startup is gonna have agents-
- SPSpeaker
So-
- JLJason Lemkin
... running today that's, that's worth their salt.
- SPSpeaker
Yes, and you, you, you, you will allow your agents spew out what they're using internally? Now, if I, uh, if I-
- JLJason Lemkin
Uh, yeah, like, for example-
- DIDev Ittycheria
Or you could have, you could have, you could have two-
- JLJason Lemkin
... I, I literally, I'm on the phone, uh-
- SPSpeaker
Yeah
- JLJason Lemkin
... right now. I'm asking one of my, an app I'm building, SaaS Recruit, its agent, "What should do I use for hosting?" It said, "First, use Render." Actually, honestly, I barely know Render, okay? It says, "Use Render, my pick." The agent said, "My pick." Number two, Railway. We know Railway. They're doing pretty well, right? Number three, Fly.io. Number four, Adios. Number five, Vercel, not suitable for this. Oh, interesting. I would've picked Vercel, you know, for, for this. Uh, I, I don't even... You guys may know Render. I never heard of it, and you know what? Probably, I would probably use Render. [laughs] And it literally says, "My pick." And you gotta... So Render just got a lead. It just got a pretty good lead from this agent, right? You gotta win that war. Can we get into the last round in Render? Can we get the Sequoia price at Render? What was the Sequoia price-
- SPSpeaker
I did, I did
- JLJason Lemkin
... at Render? Anybody know?
- SPSpeaker
But I don't know. I don't think it's in the, actually the same market as Profound and Peak. So, so like- Yes. Yeah
- RORory O’Driscoll
I don't... I, I... Okay. Interesting.
- SPSpeaker
So, so yes. Um-
- RORory O’Driscoll
I, I, I actually do. I think it is, 'cause I, I, I think both prof- I know both companies actually wrote a term sheet on the Profound A, which we got it. And I think naturally both those companies, when they're finished figuring out how to h- how, how you show up on, on ChatGPT for humans are gonna quickly evolve to, how do I sh- if, if, if agents are who I need to show up for, then by God, I need to tell my cum- my customers how to show up for agents. So I think h- it's a natural next product extension, right? I... 'Cause I think the zoo- 'Cause, you know, don't get kinda caught up in the minutiae of, "Oh, we only do it for humans." Zooming out, as Jason has convinced us, everyone, humans and agents, will make purchasing decisions, and using LLMs and using information they get online, and you're gonna have to make sure as a vendor that you show up correctly. And whatever that takes, the opportunity there is to sell a solution to the marketing person who's gotta solve that problem in any company. There's some dude at MongoDB who is going to be figuring out this afternoon, "Check how we show up on agents to make sure when Jason needs to get a database, we show up first." And if that person needs to have some way of surveying what other people are saying about them, what other agents are saying about them, that's a product that MongoDB is gonna buy, right? And I think that's the profound opportunity. It's the peak opportunity. It's a bunch of other companies in the space. I think it's a good space and for some, I think it's gonna have more depth than the Semrush space, which ended up commodified and boring for a whole bunch of reasons.
- SPSpeaker
I agree. I agree.
- RORory O’Driscoll
Yeah. I mean, reminder, we did the series, I think C, at HubSpot, and I say this over here, it was an SEO company to start out, but they just did a brilliant job of adding a whole bunch of other stuff on top. You solve the customer's immediate pain point, especially these marketing platforms. You solve the customer's immediate pain point, and then they realize they have an adjacent pain point, and you solve that, and then you solve the one after that. And I think every marketing person has a three-year list of pain that they have to solve in terms of how they show up in the new world of LLMs, and they want all the help they can get for that, right? If you make solutions, you can make money here. So I think it's, I think it's a super good market.
- SPSpeaker
Okay. What topic have I missed, boys, from the list that I have to discuss? Dave, this is the fun one.
- DIDev Ittycheria
Okay. There was one that I liked, but I, I like the one [chuckles] 'cause it could change a lot of tech stuff. Uh, the engineers suing, um... Which one was it? Uh, which-
- RORory O’Driscoll
Oh, Groq
- DIDev Ittycheria
... which of the, the license deals?
- SPSpeaker
Yeah.
- RORory O’Driscoll
That was super interesting.
- DIDev Ittycheria
Yeah. I didn't think about that, but now it seems like an obvious claim that, that, like, I lost the benefit of my consideration [chuckles] by doing this. I don't know where the lawyers come out on this one, but yeah, give us the background
- 59:33 – 1:05:33
Nvidia’s $17BN Licensing Deal Gets Hit With a Lawsuit
- DIDev Ittycheria
on this one.
- SPSpeaker
Groq's engineers sue over Nvidia's $17 billion license and hire deal. Two former engineers sued in Delaware, allege Groq's board effectively sold its core technology and top 200 staff to Nvidia through an 11 billion license plus about 3 billion in stock, leaving common holders with a hollowed out company.
- RORory O’Driscoll
The news is that they perceive that there might be a course of action 'cause what ha- I mean, zooming out a million miles, corporate law tries to say everybody gets treated the same, and there's 200 years of precedent, and you know exactly how it happens. All common shareholders get treated the same. Board members have a duty of care, a fiduciary duty to all shareholders, and there's like, you know, case law up the wazoo has to happen. And this stuff tears up all the case law, right? And it effectively allows the buyer to reallocate consideration in the company. "Hey, you guys are coming across and you get a lot of money. You guys are getting stayed behind and you get a little money." And crucially, these two employees had already left the company, and I don't know this for sure, but my guess is when the acquirer is allocating capital, they don't say, "Oh, I also wanna take care of the ex-employees," 'cause they're like, "Why would I bother?" Right? But Delaware law says everyone who owns a common shareholder is exactly the same, and it's one of the non-negotiable principles of this stuff, that you treat everyone in the same security in the same way. So when I read that, I thought, "Hmm, that's interesting. That's a clever little case," right? And it will be an int- it, it'll run a little. I wouldn't be surprised to see it settled 'cause there's probably only a small number of people in the class, 'cause my guess is everyone who came across was happy. My guess is everyone who stayed and got stock is happy, so it could be a relatively small number of people who'd left already. But it's going to be an interesting case where they probably have some legal argument to make. I mean, Devs-
- DIDev Ittycheria
Well, I-I-I-
- RORory O’Driscoll
Go.
- DIDev Ittycheria
Yeah, I'll connect dots, right? Remember we started this discussion about people leaving and, you know, leaving very, very quickly, and here's the parallel I draw, is like investors long ago, and actually even more recently, have learned to protect themselves in situations. They negotiate these kind of issues up front, what happens in any kind of exit, including a weird one. Employees never thought to ask about this. So if you're a founder, you're gonna have employees saying, "Hold on. What happens to my equity if the company's tech and some members of the team get bought, but the company doesn't?" And, uh, um, and I think founders need to be able to answer that question because that's a question of, you know, as people learn about this, is gonna be coming up more and more often, especially if people, you know, um, you know, switch between companies very often.
- RORory O’Driscoll
And the idea of kinda corporate law Delaware or even if you go to a place like Texas, you shouldn't have to think about it as an employee because it's like, dude, you know, there's common law and you, you'll all be taken care of the same. But once that gets eroded, as you say there, once that it, you know it's up for grabs, then it's quite insidious. And you're right. Everyone has to think, you know, "When I join a company, I don't just have to think what my 1% is worth. I have to think, well, what could happen to my 1% if you sell the t- the IP? What could happen to my 1% if you sell the IP and half the employees?" And I think it probably makes everything harder to pull off. So it, it'd be interesting to see if this kinda leads to some kinda pushback away f- away from those kinda structures. I mean, they're not ideal, and the only, the only reason people are doing them is 'cause of the FTC. I mean, no one will ever say this because they can't, but- It's because of the FTC and the fact that you can't get M&A through in a- any appreciable time, whereas you can get these deals done literally overnight, and the employees start next day. It's a workaround, a regulatory problem that is no surprise creating a bunch of second-order issues and unfairness.
- JLJason Lemkin
That's awesome.
- RORory O’Driscoll
And, and, and someone's gonna figure it out.
- JLJason Lemkin
I just think it's interesting 'cause it, it-- unless this, this structure is fading away a little bit and the politics aside in the current administration, it sure seems easier to get a quick deal done, uh, a Fin or a Listen Lab pretty quickly, right? So some of these issues, some of th- some of them are, are fading at the margin. Um, but man, I don't know. Uh, some of these deals sure feel like mergers in substance to me. [laughs] So I think, I think if, I think if one of these lawsuits wins, which even if one fails, another may well win, right? I think this is a mergers in substance. I think these deals will die because they already have double taxation. They're already horrific from a double taxation perspective. Then add a whole set of risk and carve-back for the employees we're leaving behind with the keys at Windsurf, who will end up being the big winners in Cognition, right? But it looked like they got left with the keys [laughs] and, and a year of cash to work it out. Um, I think it'll end these deals if there's significant legal risk here. And, and, and it, it also feels to me a little like a safe note. You know, safe say, I know this sounds niche, safe say they qualify for a qualified small business stock because they're stock, but they're not. They're clearly not stock. And all these merger doc- all these non-merger documents say they're not mergers, there's licensing de- and I'm sure they say it a thou- the, the more deals go by, the more clauses say it's not an acquisition. But just 'cause you say it's not a duck, it don't mean it's not a duck. I think these are, some of these are ducks.
- RORory O’Driscoll
E- e- exactly, and that's exactly the case they're laying out, which is it was a de facto an acquisition, and there's a whole bunch of things you have to do in an acquisition. So yeah, I-- you're right.
- JLJason Lemkin
It's just in- it's interesting in hindsight that, uh, we didn't think about this because, uh, we-- they may end up being like, "How the hell did we think we could do these deals?" [laughs] And just completely work around the, not just part of the cap table, but the whole cap table.
- RORory O’Driscoll
But it's, it's forgiveness permission. I don't-- We talked about it at the time. We don't like it. It feels unfair. But I think the pragmatic answer that I'm willing to bet, Groq was Nvidia, wasn't it, right? I'm willing to bet, let's say they have to settle and they have to chuck in an extra $200 million. The real answer is, my lawyers, my very smart lawyers came to me and said, "I found a way that we can buy this company on a Sunday night, and all the employees start on Monday morning, and we have the IP, versus this other way where we put in an application to the US government and close in nine months." And Jensen said, "Is there some risk?" And they said, "Yeah." He said, "I can live with it." Done. We did the deal. And then two years later, you go, "Yeah, there was a little bit of risk. It turns out it's 1% extra on the price. Here's $200
- 1:05:33 – 1:10:42
Meta’s Muse vs OpenAI Dots
- RORory O’Driscoll
million."
- JLJason Lemkin
Right. I think an additional that just isn't discussed enough is Muse was a phenomenal launch and has been a phenomenal reception.
- RORory O’Driscoll
Yes. We should talk about that.
- JLJason Lemkin
And, and I respectfully think Dots has been very unimpressive. I thought that demo was incredibly poor, very tech-centric. How do I do flights for enterprise usage for an OpenAI employee? I, I thought it was out of touch, and I thought it was very underwhelming. Um, thoughts?
- RORory O’Driscoll
I obviously used Muse for a while, and you're right. They're s- they're doing Muse, but they've killed it. And, you know, I, I, as, as someone who thought, A, that acquisition isn't working, it seems there's a whole bunch of gear grinding, I just gotta give the executors credit. Whatever he did, whatever between Zuckerberg and Alex Wang, they put their heads down and they ship product, and as the CEO on this call, both CEOs on this call know better than me, that cures everything. They shipped a killer product. They launched it full on. They resourced it with compute. They kicked ass, right? You know, and it's good. I mean, I'm going to New York this week. I'm pay- It's real fun. You do instinct in your Muse, and you kinda check on them and see who's winning. It's kind of a bit of a geeky joy, but there you are. They're w- you know, absolute, let's use the word, frontier, state-of-the-art. This is g- as compelling as any fricking startup. You guys have-- Muse nailed it, right? Anyway, conversely, I was trying to figure out Dots today. I wasn't quite sure what it is, even at the end of it. I, I went and looked in, in anticipation of the program here. I went and looked at the whole online demo day thing, and I'm, I'm not quite sure I got it yet. I see what spaces it's going, but yeah, it's not nearly as cool.
- JLJason Lemkin
And sorry, you are a 30-year venture investor, Rory.
- RORory O’Driscoll
Yes.
- JLJason Lemkin
How do we feel about America adopting this?
- RORory O’Driscoll
I don't know. I'm not gonna be as opinionated as that. I wouldn't-- I'm, I'm, I'm not a product guru. I'd like to hear from these guys. But my point is, I wanted to celebrate the good because in the past, I'd been a little cynical of the Meta thing. They nailed it. I wanna celebrate the good stuff. I-- All I can say on the OpenAI Dots stuff is I'm still trying to figure it out. So Jason, did you, did you turn it on? Did you try Dots?
- JLJason Lemkin
Oh, I think I-- Listen, I don't, I don't disagree-
- RORory O’Driscoll
I would love to do it
- JLJason Lemkin
... with Harry's point that, like, the consumer PR element was definitely underwhelming, considering the, the Muse buzz, which I modestly contributed to. But I think, I think it's because the, the, the initial point of Dots is that it integrates with Codex and can work as a co- a 24-hour coding agent. And one of the annoying things, and one of the things that, you know, it's under-discussed that actually a Replit or a Lovable did well in the early days is they could be on all the time, right? At least sort of. Sort of. Um, but it's pretty annoying to, to... Y- you can't really keep, uh, Claude Code or Codex going 24 hours. That's why OpenClaude took off and others. I'm, I'm simplifying a lot of stuff. Now everyone has a 24-hour persistent agent that can work with, with Codex, if nothing else. So I want to give it 30 days and see what developers do for real, right? With the persistent agent optimized around Codex, um, before giving up on the fact that maybe they weren't as excited about, about booking my business class tickets, uh, to Palm Beach over the holidays as, uh, as other folks were. I-- It could end up being the b- the bigger win, and almost, in a, in a sense, it's almost guaranteed to win in that sense, right? If it, if it's sort of the persistent extension of, of Codex and building on the OpenAI stack, like, it, it almost can't lose unless they stop developing on it. Um, but maybe it's never that consumer-y, right? Maybe it's just a nerdy product, and like, like Mongo, it's okay. Like, you can make money in these nerdy products, can't you, Dev? It's-- There is money to be made. There is, definitely. That's just my read. Uh, like, let, let's view it from the developer lens and give it 90 days and see what cool stuff gets built
- RORory O’Driscoll
I think it, it points to the thing we've said before. It's just super hard to be developer forward, enterprise forward, and consumer forward at the same time, you know? It's just an inter- Yeah, it's, it's just not... Which interestingly ties back to the Mongo comment and where your former colleague went to run the enterprise side of, um, Meta. I, I, I think that doing one thing well is hard, doing two, two things well at the same time is super hard, and I think OpenAI struggles with that all the time, even on the kind of the product surface area. There's, uh, just a lot going on. Do you remember last week when you mocked me for my buying of stocks in the middle of a show? 26% up in a single week, Rory. Um-
- JLJason Lemkin
Good job
- RORory O’Driscoll
Yeah, um-
- JLJason Lemkin
What did you buy again? What did you buy again?
- RORory O’Driscoll
I bought Nu Bank, and I have to admit, I didn't quite know the Brazilian elections were coming and they would go in my favor. I didn't know that the M- Monzo deal would not happen, which would also go-
- JLJason Lemkin
Got it
- RORory O’Driscoll
... in Nu Bank's favor. But 26% in a week, I got a lot of thank yous from people who made thousands and thousands of dollars. So let me get this straight. You bought a stock-
- JLJason Lemkin
You're, you're a veritable Robin Hood-
- RORory O’Driscoll
You can-
- JLJason Lemkin
... making all these people thousands of dollars
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
A veritable Robin Hood
- RORory O’Driscoll
You, you, you, you, you bought a stock, and two things that you didn't expect happened- Yeah ... and your stock went up and you're feeling good. That's, that's the takeaway here, right? Well, I feel more, I feel more, uh, you know, charitable. And we made money for stock- Yeah, I, I, I just wanna answer. No, but it is interesting that as a Brazilian-based company says stock goes up when they realize they're not investing in a third-world company like the, country like the UK, stock pops. Sorry, just being me and Harry.
- 1:10:42 – 1:15:41
Why Oura Pulling Its IPO Is Bad News for Venture
- RORory O’Driscoll
They're walking the walk.
- JLJason Lemkin
Harry, can I do one before we lose Dev-
- RORory O’Driscoll
They're walking the talk
- JLJason Lemkin
... that I would love to get his thoughts on?
- RORory O’Driscoll
Yeah. Yeah.
- JLJason Lemkin
Can... I know, I know we barely... I, I added to the list 'cause I don't think we touched enough on it. I loved, uh, the, on the Oura IPO.
- RORory O’Driscoll
Mm.
- JLJason Lemkin
I thought this was, uh, I thought this was terrible news for venture. Terrible news for venture. Because you could argue this one is, is overpriced, I guess, right? I mean, that's an analysis. Uh, maybe, Rory had a point that, um, Forerunner was selling a, you know, there's a... I think them selling their whole stake was a large part of the IPO, which adds some element to pricing. But I just think it's a huge bummer that a company growing 1.2 billion, growing 74% with pretty attractive recurring revenue portion of it, the IPO got pulled. Like, we talk about M- uh, liquidity's easy and, and, and M&A's everywhere, and the, the 1000th Frontier Lab's gonna be bought for 7 billion, but this one kind of bum, bu- honestly, it bum- bummed me out that this deal didn't happen. I felt it was under-discussed as, as something that didn't happen. Uh, I don't know what you thought, Dev, on this one.
- RORory O’Driscoll
I think, Jason, I, you know, it's like that old saying, O- Occam's razor. I think we gotta figure out what the simplest answer is, and to me, I think it was probably price. I think... I, again, I have no inside information, so, but I think they probably, the bankers probably told management and the board that they could get this deal done at a certain price. They quickly had an oh, shit moment, and rather than go through a protracted problem, and I, I, I don't think the optics of someone selling their entire position is great, for whatever that's worth. I think it came down to they couldn't get the price they wanted, and they pulled the, p- pulled the filing. That's, that's purely speculative on my part. I have no inside information.
- JLJason Lemkin
But you really think they... Now, I mean, uh, for sure, but I mean, the, the markets are pretty good overall, and it's hard to grow much fa- faster than 74% of the scale if you're not an LLM. I just-
- RORory O’Driscoll
But it's a function of what, what your multiple you think you have, right? So you have- I agree, and I, I totally agree, and again, disclosure, just as you know, we have a small passive piece there to a M&A, right, situation, so I was bummed too, right? But to your point, I, I, I think the super int... And there was a good piece in the Wall Street Journal on it, right? And one, just to put out, it is possible that they pulled it 'cause there's an M&A pending or something like that, but let's assume that's not the case. I just put it out there to outline the range of options. I think Dev raised an interesting point, and it, it's more interesting than just Oura 'cause it gets to banker dynamics, right? We've all seen it. Bankers are pitching a deal. They wanna tell you, I mean, they wanna tell you as optimistic a story as possible. The p- This could be one of those cases where if you convince the board that you're gonna get 50 bucks a share, right, when you're trying to get the business, and then when you go out to talk to the investors, you only get 40 bucks, they're only offering you 40 bucks a share, this is the kind of dynamic that happens. And you see that happen in IPOs, right? And it, it, it feels a very subpar outcome. And I, I, you're right, Dev, I do wonder. I'd love to see what the banker books were when they pitched the IPO and what they said, you know, the price per share would be, right? And this is the problem. It's always a weird dynamic when bankers are pitching an IPO because, you know, to some extent, there's always the feeling, well, you just go for the person who says you're gonna get the highest price. But if he's whispering bullshit in your ear and it turns out not to be true, then you end up in this far worse situation where you think you're gonna get something done, you telegraph it, and then it doesn't happen. I would have hit the bid on price here, boys. Come on, you look at the consumer hardware companies that have gone before, from your Jawbone, Bones, to your Pelotons- Yeah ... to your, I mean, hit the bid at 13 and take it out, Rory. Yeah, I agree. What you're saying is, what you're saying is the board, uh, and again, I don't know, the board should have said, "These guys told us 30 bucks a share," whatever it is. "They didn't believe it, but we didn't believe them, so our lies cancel each other out. We got offered 20 bucks a share. That's a good price. Hit the bid." And yeah, they obviously chose not to, and that's, they had their reasons. But yes, I think it's very hard to go this far down. I mean, I can't remember, Dev, did you guys at Blade Logic, did you hit it the first time after you filed? Did you, you, did you have an extended filing or something weird like that, or did you clean straight out? No, we got straight out. It was a little wild- The market was a little wild at the time because that's when the signs of that the debt markets were maybe not as solid as people thought. We went out in July of 2007, and then the- Nice ... market progressively got worse, you know, going into 2008. But we got out. Yeah. Yes, got it. So you probably would be one of the last out of that class. Yes. I remember we had Omnitru in, I think it was '06 or early '07. But yeah, you had that Vonage company and a couple of others, and then it got thrashed, and then it was done. Yeah. Right. But yeah, Harry, to your point, I mean, playing that back, listen to what he said, is that the, the debt markets were getting a little shaky. Take a look at the Wall Street Journal now. Sometimes you're right, Harry, you should hit the bid and get it done when you get that far down because, you know, there's a lot that's gotta happen between now and the, I mean, the Anthropic IPO in the middle of November. I don't mean to be rude, but I gotta go sell some software, so [laughs]
- JLJason Lemkin
Yeah, you gotta sell some software.
- RORory O’Driscoll
Go. Go sell some software, baby. Thank you. All right. Th- thank you for having me.
- JLJason Lemkin
Thank you for your time.
- RORory O’Driscoll
It was great being on the show. Thank you for joining. That was awesome. We're done. Thank you. 11:30
Episode duration: 1:15:51
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Transcript of episode NAwiGfk_sCY
