The Twenty Minute VCDaniel Gross and Nat Friedman: Acquired by Meta | Microsoft Layoff 9000 People | OpenAI's Bombshell
EVERY SPOKEN WORD
150 min read · 30,097 words- 0:00 – 1:08
Intro
- JLJason Lemkin
It will be the biggest issue of 2026, I think, in B2B AI, is just the inability to recruit talent.
- RORory O’Driscoll
No one ever said to Winston Churchill, "Did you bring World War II in on budget?" They just said, "Did you win World War II?" The truth is this, when it becomes existential, you do what you have to do to win. The money in the early AI markets has been very much attention begets more attention, begets more attention. So if you start to pull ahead, provided you continue to execute, it's very hard to catch up.
- HSHarry Stebbings
Ready to go? Guys, I am so glad to be doing this at a normal time. What everyone didn't see was me at 6:00 AM being slightly slow to start in the last show. Doing this at normal time, great success. Guys, it's so good to have you back.
- JLJason Lemkin
Great success. (laughs) It's a big week. Things just keep accelerating, Harry.
- HSHarry Stebbings
Dude, things keep accelerating, and I- I'm gonna start with one that you tweeted brilliantly well, Jason, by the way. You said
- 1:08 – 8:07
Daniel Gross & Nat Friedman: Why Two Legendary VCs Walked Away From $1B to Join Meta
- HSHarry Stebbings
about Daniel and Nat joining Meta and you said, "The wild story of NFDG. Two Silicon Valley legends built a $1.1 billion fund, 4x'd it in two years, and then abandoned it all for Meta this week."
- RORory O’Driscoll
Yeah.
- HSHarry Stebbings
Which is bluntly what we saw with them moving. Why don't we start with you, Jason? How did you analyze this? Because it's pretty big and shocking news.
- JLJason Lemkin
Well, listen, I wanna- I wanna have Ha- Rory help me with the math here, 'cause there are als- so they have- they're 4x on a $1.1 billion fund. The Wall Street Journal said it was about 50% deployed and they're already closing another fund, right? Two partners and a few other guys. For m- 99% of the venture world, this is, uh, beyond a dream outcome. Right? Beyond a dream outcome. And it's not that I don't, like, it's- it's o- there- th- there's a lot to this story. Obviously, it's a moment in time, right? That in- including the ex-CEO of GitHub, right? Not founder, right? Who's had a run, to wanna go work for a dude. See, here's the problem. Like, one, I get it, right? The excitement when I- I just flew back into Palo Alto today. The Bay Area was in so cal- for a week. I already feel the vibe. Like, I wanna do the same, but I also worry this is gonna be like the Trump administration, like everyone's gonna quit too. Like, they're not gonna last, like-
- RORory O’Driscoll
(laughs)
- JLJason Lemkin
... the Elons and the Davids and all the techies aren't gonna be there for four years. Am I- do I really wanna go work for Meta for four years? It's- it's that's the only weird part in it. But I get it of the moment, right? I don't want to be frigging meeting founders and writing checks, right? I wanna- I wanna be... this is a moment in time and there's only, you know, this is a mul- this is a once-in-every-20-year moment in time, right? This is like- this isn't like- this is like 1999, except it's not gonna implode on us in- in 12 months.
- RORory O’Driscoll
And it was a lot riskier, Dan, 'cause there wasn't a whole bunch of large incumbents willing to, you know, take your quitting and monetize it for 100 million bucks. So, in many respects, it's more zany by far than what's going on- wha- went down in '95 to '99 when I actually was around and in the business. This is something I've- we've never seen before 'cause there's never been incumbents just willing to plop down this kind of cash to hire people, for God's sake. Right? Just to go do something. And it gets back to what we've discussed a couple of times, which is though- that small number of high priests of AI who are deemed to have the answer just have huge market value, and this is the market working true.
- HSHarry Stebbings
W- and- and Rory-
- RORory O’Driscoll
I do not think- ... help us- ... that they like to be friendly. ... sorry, I didn't mean to interrupt, Harry, but let's just do the math for a moment for folks that might read or watch. So you have a $1.1 billion fund, it's 4x'd, okay? Um, let- let's be generous on the math, but- but true, right? Half of it's deployed. So 500 million times 4x, that's to two billion. That's one and a half billion profit on paper, which we can talk through. That's 300 million in gains already. We're ignoring some subtleties, right? We're- we're already 300 up, the three of us. Correct.
- JLJason Lemkin
The two of them, plus a few guys that probably have 2% carry. They're already up 300 million in two years. They're up 300 million in two years.
- RORory O’Driscoll
And- and this is why the offer is so good, 'cause you know what you're getting is you- you- you had a billion dollar fund, you put out a half a bill, then you're 4x'd up, one and a half billion gain. You're- you know, you're not... remember, it's worth pointing out, you're not getting that money now, right? As- a- at least to my knowledge as AGP. It's the LPs, they're basically- and I'll give them huge credit. They're taking care of their LPs. They're saying, "You can take half your money off the table," which is effectively means even if the whole thing goes to shit, you got a 2x, right? So the LPs are getting the money off the table. What they're giving up, and there is a real give up here. They're giving up, as investors, the right to use the other 500 million and the b- other billion that they were clearly gonna raise in two weeks flat because they're those guys. So basically, what this does is it pr- it says to th- th- the offer- you should think about the offer as being kind of in three components. Mr., Mr., Mr. Nat and Daniel, we will, A, take care of your existing LPs in a way that will make you feel good 'cause you're a reputable person. Secondly, you're walking away from one and a half billion dollars of investable capital, right? And the worth of that depends on what you think you could turn it into. Let's just say you could do another 4x, which means 3x of gains, which means four and a half billion, 20% profit. There's a credible argument that's 800 million of value to you, Mr. Nat and Mr. Daniel, and obviously whatever other offer they got for that had to be better than that, right?
- HSHarry Stebbings
Yeah.
- RORory O’Driscoll
Effectively, what they've done-
- JLJason Lemkin
So they gave up 800 mil- plus they had premium carry in the fund, so let's call it an even billion. They gave up 800 million to a billion on- in theory to join Meta.
- RORory O’Driscoll
I personally think, you know, forget the am- f- a- and I agree there's all sorts of, you know, what do you want to do with your life questions. But I think cashing a- I mean, not having to put that money out in today's frenzied market and instead getting kind of- i- if they got anything like a comparable equivalent in terms of capital return, that's a pretty damn good deal.... right? It's also an excellent deal for the LPs, who, you know, are effectively getting ... I mean, you know, they are losing the stewardship of those two guys on their investments, which is why there's no new investments. But on their existing money in the ground, you know, if they put in four bucks, they're getting ... Sorry, if they put in $1, they're getting $2 back, and they still own their other $2. So, if SSI goes great, hooray. If it doesn't go great, they at least got a 2X. So, you know, for the LPs, it's an inter- it's an interesting one, and, you know, subtle nuance. I believe the terms are that overall, and this is ... Meta will buy 49% of the fund. But each individual LP can put in to sell as much or as little as they like, and then it just aggregates. So, you know, there's a lot of LPs going, "Hmm, do I take my 49? Do I hold tough and sell nothing? Or do I ask ... Hey, I'll take it all if it's available?" Right? Yeah, this is a chance for liquidity in a stellar fund early. It's an interesting question we could talk about.
- JLJason Lemkin
Great. I remember, I remember a couple of months ago, I was having lunch with one of my LPs that I share with Harry. And, uh, after lunch, the, the, the LP was going to meet with them for the, for this fund, for Fund 2 (laughs) to put it all ... And I'm like, "You're, you're doing what ...?" He's like, he's like, "Jason, it's not even like the same game you're playing." (laughs) He's like, "Don't worry about those guys." (laughs) They're like, "We're, we're not ... You're not in the same box, you're not in the same bucket." (laughs)
- HSHarry Stebbings
I do not think LPs are happy about this outcome, by the way. I think many LP ... Uh, don't get me wrong. They're happy to get cash back and good, good economics back. But I think there was such excitement and fervor around them as a partnership and what they were building, that they will be sad to lose the stewardship in the future funds. Personally, is how I read the LP sentiment from what-
- RORory O’Driscoll
A- a- and I think at, at that level, that's probably true, but there's a lot of people ... Look, getting jilted is one thing, but getting jilted with a 2X is a lot less painful. Right? Yeah, sure, you want it all. Like, you know,
- 8:07 – 15:38
Meta’s AI Talent Magnet: Will It Actually Work?
- RORory O’Driscoll
uh, you know, when funds end, most of the time it ends in weirdness, it ends in, you know, pain in the butt for the LPs. The- I'm giving Daniel and Nat very qu- great credit. This is a very clean ending. They're like, they can look everyone in the eye and say yes. I mean, simply put, "You, Mr. LP, would like us to do venture capital for the next four or five years. It would appear, in a market system that we all live in, our highest and best use is building AI for Meta. So the market has spoken, and that's what we're going to do." And I'm not ... I'm genuinely not surprised. And I can say that with some credibility because, I mean, without sh- I, I, I, I competed for a deal with those guys back, and, you know, we lost to them, right? And it all worked out in the end, um, 'cause look, the why-
- HSHarry Stebbings
Rory, Rory, they beat every single person in the market who wanted to run.
- RORory O’Driscoll
I know. Agree. And, and, you know, I ended up getting to work with Dan and I think w- wonderfully talented guys. But I remember saying to the CEO, "They won't be doing this in four years," because it was obvious to me.
- HSHarry Stebbings
Why?
- JLJason Lemkin
That's interesting.
- RORory O’Driscoll
Why would you do ... Venture, it's f- it ... Look, it's a perfectly good gig, but it's not ... Like, they have so much more talent. W- if I was someone-
- HSHarry Stebbings
(laughs)
- RORory O’Driscoll
If ... When you meet two people, one of whom's been the C- a f- talented entrepreneur early on. We looked at that round at Xamarin. Been the CEO of GitHub, built the most com- first most compelling product, and then his colleague has built that ... You know, a bit involved in that kind of early AI stuff. Capable of being a founder at SSI. Your highest and best use is not being the 50th venture guy. Even if you're the best venture guy, there's other things you can do. No, I'm totally not surprised.
- HSHarry Stebbings
I've never felt so unspecial, Jason.
- JLJason Lemkin
You should. I felt, I felt this way going into venture myself. I felt like I was walking into quicksand of a world with m- f- fungible sp- sources of capital, where clearly some GPs are better than others, like in terms of adding value, no question. Some funds are modestly better than others, but, but are you really ... Like, the only value I think you can add in venture in the world, really, is if you discover talent that would otherwise not get funded. Like, that's the mitzvah in it, isn't it?
- HSHarry Stebbings
100%.
- JLJason Lemkin
Like, you find, you find the young Rory. No one would fund him and he builds Cursor. You've done a good thing for the, for the world. No one else is really adding significant value to the world in venture. (laughs)
- HSHarry Stebbings
R- dude, that's why I did Project Europe.
- JLJason Lemkin
Other than Sam. What's that?
- HSHarry Stebbings
We just funded this ... We funded this kid in- we funded this kid in Athens with Project Europe who's doing humanoid robotics from his grandmother's garage. Never ever would he have been found.
- JLJason Lemkin
Yeah.
- HSHarry Stebbings
Totally agree with you.
- JLJason Lemkin
There is a good, there is a good ... That's a unique value-
- HSHarry Stebbings
Okay.
- JLJason Lemkin
... you could add, right?
- HSHarry Stebbings
Ju- ju- just- I- There's one question for you.
- JLJason Lemkin
Yeah.
- HSHarry Stebbings
If I'm an investor in SSI and I've just put in a big check-
- JLJason Lemkin
(laughs)
- HSHarry Stebbings
... and Daniel led that fundraise, I am a bit pissed off now.
- RORory O’Driscoll
It's interesting because that was ... W- why, why ... It's gonna sound zany, but why are you pissed off this week rather than a couple of weeks back when he stepped away from SSI?
- HSHarry Stebbings
No, I'm saying it 'cause he, because he led the round as an operator, and he was in charge of the fundraising, committed to it as an operator. And I think there's a responsibility there that you don't piss off a couple of weeks later.
- JLJason Lemkin
I think it's interesting, Harry, when I remember ... Um, I ... When I wrote it up, the other thing I said, it was an interesting parallel to Garry Tan because Garry Tan left Initialized to run YC two years ago. I instantly got it, right? I don't know Garry very well but I had the chance to sort of watch him a little bit over the years, and people ... We have a lot of LPs in common, and people thought it was crazy. But he ... Their fund two is gonna be a 10X fund, I think, with, uh, Flock Safety, uh, Rippling and others. So he left them with a 10X fund, right? A great position. A lot of them are involved in YC today as LPs and otherwise. But there was some ... People were upset. They're like, "We love Garry and we want him to go another couple rounds." They weren't, they weren't ... The, the LPs we had in common, they were all ... Don't get me wrong, they're all happy for him, but they were, they were upset briefly because they thought he was gonna do this for another 20 years, right? And, uh, you know, I'm like, "This s- this- this guy's a builder," right?
- RORory O’Driscoll
Totally. I, I, I don't think ... I, I agree. The same thing exactly applies here.You know, people with those talents are going to be drawn to the thing that can most allow them to instantiate those talents. You shouldn't make decisions based on someone else, quote-unquote, "doing the right thing." All you can do is evaluate their incentives and motivations. Are they aligned with you? And if they are, most of the time it'll be fine. But even then, I mean, kind of back to what you said last week, Jason. You know, we're seeing a lot of founders tap out. We're seeing more people say, either, you know, walking away from something, or in this case, walking towards something. It's just gonna happen in this market. And yeah, you can be pissed for a day, but... A- and I go back to what I said, if getting screwed over is getting 2X in cash and a ticket to ride on the other half in two years, we should all be so lucky.
- JLJason Lemkin
I'll just end it with tw- two things. One, I really don't think this is about money. (laughs) Both of them were worth half a billion before.
- 15:38 – 18:58
Cursor Is Breaking the Market: Can Anyone Compete?
- RORory O’Driscoll
- JLJason Lemkin
I was with the founder this morning of a multi-billion dollar company. And it's a very good company. And they said, "My single biggest challenge today is Cursor. Cursor's just paying insane amounts of money for everyone." And not, no, no, no disrespect to Cursor, but the question for me was just like, wow, if this is a tidal wave then of just incredibly well-funded AI companies just paying through the nose, and it's not just Meta, but suddenly 10 others have to compete. Where does this end?
- RORory O’Driscoll
With people losing money. I mean, obviously. Um, I mean, yeah.
- JLJason Lemkin
It's, uh, the, the, the, the, the talent war, it's under-discussed. It's under-d-... How the hell, if you're not at a top five coding company or t-... How are you gonna compete for talent? You better find somewhere where being very good is enough. (laughs) Because you cannot take these teams head on. There is just no way. And you, and you also can't pay them $800,000 a year plus RSUs, plus guarantees. You just can't do it, right? It will be the, the biggest issue of 2026, I think, in B2B AI, is just the inability to recruit talent. I don't think buil-... F- firing up Lovable or Replit is, is gonna solve this problem. I love both tools, don't get me wrong.
- RORory O’Driscoll
(laughs)
- JLJason Lemkin
And I see too many startups saying, "I'm gonna hire an AI guy," or, "I'm gonna hire..." My worst one, like if a startup says, "I want to hire a VP of AI." I would like to sell all my shares on any secondary market that exists. If you think your answer is to go hire a VP of AI that wears a tie and is studying things, like just shut the startup down. Sell it for anything. Sell it... Go sell it to, uh, Grammarly, if you can, while there's time.
- RORory O’Driscoll
I- God, you're just piling on. I mean, look, and I, I, I th- I think that's true. I mean, obviously, at the application level-
- JLJason Lemkin
(laughs)
- RORory O’Driscoll
... they, I won't say at a caliber, but the kind... You, you know, if you're a user of the models, you don't need to have the same caliber of people as it takes to build the models, provided you have people who can deploy them, who can use... So I s- I see Jason making his "I disagree" face, right? I don't think-
- JLJason Lemkin
The problem is-
- RORory O’Driscoll
I don't w-
- JLJason Lemkin
... if, if you... It's true, but the problem is, in a lot of these categories, sure, you have exposure to the same models, but your ability to do more with them requires an S-tier team. Otherwise, you're just, you're just, you're just lost in the sea of the sameness.
- RORory O’Driscoll
Yeah. A- a- and that's the point I was trying to make, Jason. You're exactly right, is that, look, yeah, they're not doing it by paying $800,000, a million dollars in cold hard cash to the... You know, 50 people in Silicon Valley who can do that. You build a center of excellence somewhere else. You have to be very, very good, but you don't have to be quite as on it as if you're build- building Cursor, right?
- JLJason Lemkin
I was with... I was actually talking this last week with the CEO of, uh-Slight, uh, it's, it's adjacent, but it's a really good B2B company at, coming up on 200 million in ARR. Do- doing well, okay? And, um, and he's like, "Yeah, I, I basically have to give half a percent or a percent of my company to each AI engineer now."
- RORory O’Driscoll
Wow.
- JLJason Lemkin
"To get who I need." Like, you can't do that for 50 engineers, can you? What does, how does that math work out at, like, the series D dilution stage? (laughs)
- RORory O’Driscoll
Pretty badly for the other investors.
- JLJason Lemkin
It's pretty rough on everybody. (laughs) He's figured out the catch is like, I gotta do like, half a percent or more to get the people I need today, and he's like, "I got no choice," right? Coming up on 200 million. That's the time when engineers start to get like, 0.00001% of the- (laughs)
- 18:58 – 23:40
OpenAI’s SBC Bombshell: More Stock Comp Than Revenue
- JLJason Lemkin
of the company.
- HSHarry Stebbings
But that, that, that's partly why this wave I think, will be highly damaging to venture returns, because the employee stock-based comp dilution is gonna be so significant and so much more significant than in prior generations of venture.
- JLJason Lemkin
Yeah.
- HSHarry Stebbings
Is you're having to... Now, if you're, if you're Anthropic or OpenAI, you're just continuously having to top people up all, every year. And you'll see that-
- JLJason Lemkin
Well, Information said OpenAI has more SBC this year than revenue. They came out with a piece this year. More SBC than revenue.
- RORory O’Driscoll
Agree.
- JLJason Lemkin
(laughs)
- RORory O’Driscoll
A- a- a- and intellectually, you're correct. And, uh, you know, I'm not gonna lead the SBC doesn't matter comment, because you know-
- JLJason Lemkin
If it's more than revenue, it might matter. (laughs)
- RORory O’Driscoll
But it's more than revenue only... Can I make a comment and say-
- JLJason Lemkin
Yeah, yeah. You know better.
- RORory O’Driscoll
More than revenue, only because there's this spurious way of accounting for it that's, you know, cash-based, which is quite misleading because it's obviously not a, it's a dilu- the way... When you're private, the way you gotta... It- it's more clear to think about it, at least part, as a, as a dilution percentage versus cash. And I understand there's an element of both. It, when you, when you're sitting there allocating the money, the more it's freely tradable stock, the more you should think of it as cash and a direct replacement for, you know, cold hard cash. In which case, if it was 100% replacement for cold hard cash, you could argue the loss is approximately double what it's stated to be. But, you know, my, what suddenly my mind is this, if you end up building a big ass company and you look back and you go, "This is horrific," you had 20, 30% more dilution than you'd expected, you still got a pretty good big company, right? So if it works, I'm not advocating mass dilution, but the truth is, and it's not going to be the fatal error. Not getting there is the fatal error. It's like a line I often use, no one ever said to Winston Churchill, "Did you bring World War II in on budget?" They just said, "Did you win World War II," right?
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
When it really matters, the truth is this, when it becomes existential, like you're talking, you know, you do what you have to do to win. And this is where, you know, again, we said it before, you give, you know, Fa- Meta huge credit. I don't know if they're right in making the assumption that this is existential, but once you've decided it's existential, you just do what you have to do. Right?
- JLJason Lemkin
For sure. But hold on, listen to this, listen to this statistic, it's pretty funny. Last year, according to the information, um, OpenAI had 4.4 billion in stock compensation. That was 119% of its gap revenue. Okay?
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
Now, that's a lot. But it projected it would, it would (laughs) fall to 45% this year. (laughs) It's not gonna happen. Now, it's gonna still be in the triple digits. That's to Harry's point, right? There, there's the directional... I, I would, I would assume if your SBC exceeds your revenue at scale, it's pretty dilutive, right? But the fact that it's 119 instead of 45, that's a lot of dilution, isn't it?
- RORory O’Driscoll
Oddly, it mightn't be. I'm not trying to really get down in the weeds here. I'd like to know the percentage dilution, 'cause one of the weird things on SBC comp is it, it's priced on when you issue, and it's basically based on the difference between, you know, it, it, it's, it's an accounting entry based on the 409A evaluation of the stock, which has been motoring up enormously. So they may well be recording a large, very large, quote unquote, "gap SBC number," but the dilution, while still big, may not be nearly as catastrophic as the gap number-
- JLJason Lemkin
Well, for sure, I, I, I'm being too simplistic. If they're worth 300 billion, right? And they're issuing 10 billion of stock, it's 3%, right?
- RORory O’Driscoll
That's exactly right. And they have to run it tr- that's exactly right. I, I kind of couldn't articulate it because I'm a bit jet-lagged, but that's exactly it. The bigger... You see this a lot, where you have a company that has an enormously high mark from the VCs or from the public market. They issue stock, and then you, you see this a lot in the public market. Two years later, the stock has returned to a much lower level, but the SBC still rolls through the books as if it was all priced against the 300 billion value. And you have those absurd, you know, public company where, oh my God, the SBC is 3X the revenue, right? And you are, it's all about this nominal accounting charge, which is meaningless. Now in this case, it is interesting because to the extent that the 300 billion is a money good valuation, then if you deliver, if you give someone 3% of the company, they are in fact getting, you know, nine or 10 billion in cash, uh, in value. And if they can realize it via a series of tenders, then good on them. I mean, if the stock, if the market cap of that company stays at 300 billion or greater for the next four years, the people who got $10 billion today will have $10 billion of cash cop. Good for
- 23:40 – 27:50
CoreWeave’s Power Play: Buying Their Landlords
- RORory O’Driscoll
them.
- HSHarry Stebbings
Speaking kind of capitalizing on appreciation of stock price and using it strategically. There, I'm, I'm jumping around the schedules that we have, but there was one that I thought was really interesting was CoreWeave, who bought ki- Core Scientific for $9 billion. And this is after they bought Weights & Biases for a billion dollars. I'm intrigued. Is this just incredibly strategic use of an appreciating stock price? How did you think about this?
- RORory O’Driscoll
I thought it was a great deal. Quick and simple. I think, 'cause I remember, you know, the early on the hosting business in '98, '99, and I looked at Exodus way back in the dawn and couldn't get by pro- couldn't get people there, like a tiny number. It goes public. It's basically offering the first ever hosting facilities, goes public, has a huge valuation, and then in the dot-com bust...... it went bust. Absolutely bankrupt. 'Cause it had leases and debt, and it killed it, right? These guys have a mark- have a currency. They bought, is it Core Scientific? Apparently, th- they lease a lot of data center from them. It effectively de-leverages them somewhat. It uses equity to take out rent expense, and it means that over the next five or six years, if the demand for, I mean, shock horror for this next sentence, if the demand for data centers doesn't continue to grow to the sky, and they have to have a more robust balance sheet, they will look back on this and say, "Great move. We took a bunch of fixed c- costs out of our P&L in return for, you know, a small amount of dilution."
- HSHarry Stebbings
I'm sorry, who would take the bet that the demand for data centers would go down?
- RORory O’Driscoll
I, I might consider it, Hari. And I know, I can see it in your face, I can see it in everyone's face. Consider, I would put that bet at least on the table as being plausible at some point in time, in the next three or four years, that people find they're ahead of their investment schedules and just want to slow down. And I can see the pained look in your face. But if I was the CFO of a company like CoreWeave, where effectively what they did was they took themselves from 100% leveraged on the upside of infinite data center demand to 80% leveraged on the upside of infinite data center demand. That's a smart slight de-risking.
- HSHarry Stebbings
Wow.
- RORory O’Driscoll
It's not like they're shorting NVIDIA stock here, dude, which is the bet you'd take if you really believe. I mean, there's a whole series of bets you can take depending on how much you think the hyperscalers are going to spend to build these models in the next four or five years, right? It can all the way from, "I'm so leveraged to the upside that I'm gonna buy NVIDIA out of the money calls." That's if you really believe, and you can just go in a descending order of risk reduction from there. These guys are very leaning in on data center demand. They're not walking away from that, but what they're doing is replacing... I mean, 'cause it's effectively a financing company, CoreWeave. They're replacing fixed charges of, you know, debt and leases with equity. It's a good move.
- JLJason Lemkin
Yeah, it would help us all if there were, like, 10 CoreWeaves. There's like, if you have a public company trading at a crazy high, a high multiple, right? 20X revenues, um, that has existential losses, you gotta use your stock as your currency ASAP. You gotta buy everything you can that can address the bottom line or other challenges you have, right? And these are f- these are, like, fun times if you're a target. (laughs) You could get bought in an hour because they're gonna, the CoreWeave corp dev team's gonna be looking for 20 assets that they can buy that can fix some of the structural challenges in their models. And we haven't had an IPO like this in a while. Like, we haven't had someone searching with a high-priced equity, um, and it's, it's a great deal for everyone to turn high-priced equity into cash.
- RORory O’Driscoll
And I don't know they even say the challenges in the model as mu- I mean, Eli, it's not the negative in the model, it's just the nature of the model. I mean, the nature of the business is you, you know, you buy things, fix that. They have long-term contracts against them, so they're a lot less exposed than some of these guys that are doing short-term contract. But it's just a fixed-cost business. You own this great big fricking data center, all these machines, and as long as there's money coming in the top, it's fine. But if not, it's brutal. So,
- 27:50 – 30:25
Is Circle Next to Go Shopping with Meme Equity?
- RORory O’Driscoll
it makes sense.
- HSHarry Stebbings
All I was thinking was, well, Jesus, look at the other meme stock being Circle. Why are they not leveraging their stock appreciation to do the same?
- RORory O’Driscoll
Probably 'cause they're still not out of the first, um, (laughs) the first 90-day period where it's a pain in the ass to deal with. Believe me, I am willing to bet that d- you know, 'cause CoreWeave, remember, has been out there a good, I can't remember, a couple months longer at least.
- HSHarry Stebbings
Yeah, yeah.
- RORory O’Driscoll
I should know, right? You know, generally there's a period of time where you wanna put your first... I remember asking this actually when I was on the public board. You, you probably want to put one or two, at least one earnings release on the board as the asset that you sold to your investors before you start doing crazy deals. I am sure that stock is burning a hole in their pockets, too.
- JLJason Lemkin
Yeah, they'll do something. But one, you know, Circle, uh, had net income of 156 million last year. So CoreWeave, they both have inflated stocks. They both should use it to bo- to, to, to enhance their business models, and they will. But it is different if you're pro- if you have net positive. When you're profitable, you think about these deals differently, right?
- RORory O’Driscoll
Agree.
- JLJason Lemkin
If you're burning cash, the, you, no one sweats the dilution from an existential deal. You just do it. It's like, "Let's get going, guys." Right? When you're profitable, it just, it, it confuses a lot of things, right? It impacts your earnings. It, it impacts, you care more about dilution. There's a lot of things going on when you're profitable.
- RORory O’Driscoll
Yeah, I, I think if Circle does something, it will be about buying distribution, 'cause obviously their biggest cost is the money they have Coinbase. So, finding other ways to get their coin in the hands of users will be their thing. Whereas, obviously for CoreWeave, it's just addressing their cost structure over time.
- JLJason Lemkin
It's a weird thing. It's like SBC. If you're losing money as a public company for real, you don't care so much about dilution. (laughs)
- RORory O’Driscoll
(laughs)
- JLJason Lemkin
It's just more dilution to achieve your goals. You only really start to care when you cross the curve to profitability, right?
- RORory O’Driscoll
You, you're exactly right. And I would just, one note. Uh, it's not that you don't care. It's the Maslow hierarchy of caring, right? If you don't make profits, then it doesn't matter, 'cause you're screwed, right? So you are, and that's why VC, and that's why kind of, that's why early on, VCs are right to keep an eye on dilution, but not get all antsy about the economics of it. Just keep an eye on dilution. 'Cause the way I think of it is, we're all in this together. If we create something of value, everyone gets a share. Once, you're exactly right, Jason, once you've created something of value, then a decision to allocate some of that is a much more meaningful economic term. I, I could not agree more. It's why the treatment of, the way to think about SBC as a venture firm or a, or a pre-profit company, and we'll take about any kind of dilution, it's just very different than when you have a cash flow positive asset. You know? It's a different
- 30:25 – 37:02
PE Is Back: The Olo Take-Private Explained
- RORory O’Driscoll
thing.
- HSHarry Stebbings
Speaking of kind of different things, a, a different kind of asset, but one that I found very encouraging was actually Thoma Bravo going shopping with Olo. 320 million of ARR, uh, GAAP profitable.... business looks, looks decent and is bought for $2 billion by Thoma Bravo. Is this PE coming in to save the day as we've heard time and time again? Remember, it was public as well, so they're taking it private.
- RORory O’Driscoll
I, listen, uh, Rory may have more thoughts. I, we ha- I have talked about how personally I, I've been concerned I haven't seen the PE deals I'd hoped, right, with these funds raised. It's a good sign, right? It's a vertical SaaS player. Um, if you wanna compare it to Toast, I know a tough comp, but it's two billion versus 25 billion, but you could see the upside. Like, there's positives and negatives in that, right? Defensible, it is defensible, right? Sticky. If you squint, maybe there'll be more of these vertical SaaS deals. 6X ARR though for us a- as investors, like, this doesn't, this doesn't buy the- the- the biggest house in Atherton. Like, it's- there's only... This is not gonna buy a fourth house, right? This is... Like, at Yellowstone Club we're, we're just gonna get a condo. We're not even get, we're not even, we don't even get something on the hill at the, the, you know, at- at 6X ARR. You're right. It's a cl- it's a meat and potatoes deal. That was my aha. It's a 20% grower, profitable, six and a half X, all is right with the world, sensible kind of deal, right? It's exactly the kind of deal that should... I think it went for 10 bucks a share. I think the damn thing went public for 25. So, just as a reminder what's happened here, went public in '21, hopefully the VCs made money, I can't remember who did the deal. You know, trade's back way down and obviously it gets to a point where after three year, four years, people are willing to transact and the buyer's willing to pay six and a half times. So, total solid meat and potatoes deal. And, you know, if you've got any more 21% growers that are profitable, I'm sure Thoma that have, as Jason said, good defendable vertical niches, um, I'm sure they'll be glad to give you six and a half times for that too. It's not gone... You know, it's a start, but it's not gonna save 500 to 700 unicorns single-handedly, right? It is. I think that 20% number, we talk about it a lot in Venture at scale, right, but it's an example of how important it is, right? You got to be above that number to be of interest, right?
- HSHarry Stebbings
Yeah.
- RORory O’Driscoll
Probably, right?
- HSHarry Stebbings
And profitable.
- NANarrator
Yes.
- RORory O’Driscoll
And profitable, right? Yeah. It's still probably a rule of 25 I, oh, we should look it up, right? But you got to be above 20 and profitable and, um, there's too many unicorns that are profitable but not above 20 or 25, right? Um, but yeah. That- that's your 6X outcome.
- HSHarry Stebbings
What are they underwriting this to? Is this like a 3X?
- RORory O’Driscoll
Probably only because... Yeah, I think that business is inherently a two to 5X kind of business most of the time. So, I'm sure that Thoma about... They're looking at this going, you know, there's five other pieces of technology you can bolt on here, sell to the same customers, do the kind of thing that frankly PE does well. To some extent I would say better than us, which is just, you know, figure out what your top customers want, go buy the other little things, bundle it all through, get more share of wallet from, you know, the top 500 restaurant chains, and just build a business here.
- HSHarry Stebbings
Jason, does this make you more or less excited to be an owner, seeing this happen?
- RORory O’Driscoll
Um, neu- neutral. Um, I mean, owner, o- o- o- owner is even smaller than Toast, right? So, it, it's core customer today. There's a lot of overlap, right? But it's smaller. So, it just reinforces the non-obvious thing that when you're selling to end consumers, the long tail is sometimes where the biggest dollars are, not... I've been on too many boards and with SaaS VCs who are always like, "Go more enterprise. Why aren't you going more enterprise?" When they don't understand certain end vertical markets, right? And sometimes, like service, like, like ServiceTitan, it is very enterprise, right? It's not obvious. Like, ServiceTitan is not a bunch of plumbers paying 20 bucks a month out of their own pocket. But more this B2B2C that hits consumers, the long tail's where the money is, right? It took Shopify... Even today, Shopify is very enterprise. Only 25% of their revenue is, is in enterprise. So, to go into Rory's point, um, I don't know. I'm sure the game is one way or another to combine those two with two or three players, right? And build something that's three times the size. So, I assume that's the playbook.
- HSHarry Stebbings
Guys, when I listen to this, and I'm a founder, okay? I hear crazy payments being made for venture funds. I hear PE come in, I hear massive meme stock price rises, and then I look at Carter's data. VC deals at eight-year low and it's hard to raise money for a lot of founders. What world are we living in? And how do you think about these two kind of paradoxical statements of everything we've discussed combined with VC deals at eight-year low?
- RORory O’Driscoll
I think they go together and it's tough. I think what's happened is there's a whole bunch of things all pushing... I think T- was it Tama- somebody used a really nice phrase, a flight to consensus or a flight to quality. The truth is, there's a small number of things that are working really well and everything else looks dull in comparison, right? And it's struggling to get attention. We're a- you know, we've beco- it's become a very consensus bet. And there's a whole bunch of reasons for that. You know, we've talked about this before, the whole staying private for longer means a much smaller number of companies are gonna get all the way, and they tend to get all the attention. Second entirely separate comment, I think the early AI market, the running in the early AI markets has been very much attention begets more attention, begets more attention. So, if you start to pull ahead, provided you continue to execute, it's very hard to catch up. I mean, the, you know, there, there's this... I mean, you know, let, take, you know, coding for example. You know, I mean, just cursor pulled ahead. It is better, but there was 20 people trying to do it. You get that early lead and it builds on itself, right? And then the other people are just left in the dust. And it doesn't matter that they're nearly as good because the sad truth is no one wants nearly as good, right? So, it's a very steep fall away from the small number of things that everyone wants to a much wider number of things that might just be okay but they're not amazing. And that's a very hard ti- in fact, I find it's a very hard time as an investor.... if you're not in one of the amazings, you kinda have your sad face on. You're working hard, you're doing your job, but some, nothing's exploding, right? And that's when you gotta keep your head, keep the companies moving forward, converging on, you know, acceptable growth, acceptable profitability. But it's a, it's, it's a weird time if you're... 'cause you're reading about all this amazing stuff, and then you're going back to your day-to-day job, which most of the time
- 37:02 – 47:47
Why Triple, Triple, Double, Double Is No Longer Sexy
- RORory O’Driscoll
is a grind.
- HSHarry Stebbings
Is it really a sad face though? 'Cause before, I've said it's the end of triple, triple, double, double. And you, I remember, said to me, "Oh, I'd take triple, triple, double, double all day long." But triple, triple, double, double bluntly is boring today. That's not zero to 100 million in a year. That's not Lovable, Bolt, Ratplit, and Macaw, any of them.
- JLJason Lemkin
But you know what it is? It was funny, this weekend, I was, I was talking with an entrepreneur that was on the triple, triple, double, double path in a s- in a space I know well, part of GTM that I know well. And nothing to criticize, right? And frankly, with the little data I had, the deal size was right, the, the, the constru-... like if this was even early 2023, I would have done this deal probably. Probably, right? But today it's just, there's so much competition. The differentiation's less clear. Great founder, but is he generational? I hate this term. I mean, I put hate in quotes. Harry, you use it a lot. It's a fair criticism, but are they really a generational founder, right? It's just, I would, I, I...
- HSHarry Stebbings
Oh, so what was the, what was the criticism towards that generation then?
- JLJason Lemkin
I di- I just, I just passed... I hate this term. I just... I, I said to the founder, "There's n- I got nothing to criticize." You have the numbers, you have a great approach, you have... it's interesting. It's just... I just... in 2025, my brain, I just... this isn't... I only have so many shots on goal. I don't want to take this shot today, right? And it... that's... I think it ties to the Carta data, right? People wanna swing more for the fences. Either it's there, like it's left to the... it's off to the races, right? Or they gotta believe it, and it's just, it's just people have just got to swing harder. Nothing negative to say about this triple, triple, double, double deal. Nothing. Nothing. (laughs)
- HSHarry Stebbings
Rory?
- RORory O’Driscoll
Yeah. No, I, I agree. I mean, I think, yeah. Nobody stays down on the farm when you can go... when you can play in the gold rush. I mean, the, the attraction of that kind of upside, the truth is, it draws everyone's head. If there's two games.... let me put it this way. If there's two games, and one of them has that embedded 10% chance of amazing, like 20 billion, a cursor outcome, and one of them just doesn't, it's actually a very interesting math question to say, how much less, how much cheaper does that other non-cursor embedded upside deal have to be to cover for the fact that it doesn't have that kind of outsized tail outcome on it? And I fear the answer is either it has to be a lot cheaper or, even worse, there's no price at which you'll do it.
- HSHarry Stebbings
But like the triple, triple, double, double, less AI centric, are not realizing that they will have a discounted price because they are not this new wave of company. And, and it's hard, and I'm sorry for them, but it's just the truth.
- RORory O’Driscoll
Agreed. And I think that there's a price at which you can make your target return. I actually look... I remember looking at a deal that was strong founder, good economics, good growth, mid-sized market, no amazing element. There's a price at which you'd say, that has... you know, you want your base case return to work there, right? But it's such... it's, it's quite a big disconnect.
- HSHarry Stebbings
It's interesting there, Rory. If me and you were partners at Scale, and I'm... I hope I'm not overstepping here, but I would be like, "1000%, let's stick with triple, triple, double, double," because we have a much higher certainty of winning there versus going for the AI halo moonshots competing against Thrive and Foundrs and Andreessen, where the Scale enterprise brand doesn't carry the same weight that their glossy brands do. And you have tiny chance of winning versus massive chance of winning in the triple, triple, double, double where most people have left.
- RORory O’Driscoll
Provi-... but you're a- assuming they... I mean, and I will absolutely look at deals where y- y- you have that profile, but it has to have that profile, that valuation, that... it has to have that upside and that, and that kind of pricing such that you can pencil out the return, right?
- HSHarry Stebbings
Mm-hmm.
- RORory O’Driscoll
And, you know, it, it's... the- there are... and more than anything, I would say, actually, and this is... I've been thinking, processing on this. One of the problems with the private for longer dynamic is you can do those deals at... when they're already at scale, if they're at 50 or 60 million and they're on that trajectory, right? The problem is when you go super early and you predicate it on follow-on rounds, some of your destiny's outside your control. And if people aren't willing to fund it, right, you, you're taking that risk then. So you either have to have... you have to have existing small S scale or you have to have sufficient traction that there's... you know, or you have to have confident profitability, right? 'Cause it's not just enough that you have to like it. Enough people have to like it along the way to be able to raise the money and get there.
- JLJason Lemkin
I'm more intimidated by the deceleration at Scale of folks I did not expect to decelerate. So I want to know earlier that you are clearly differentiated in a way that can win, right? Which we gave up on in 2020, 2021, 2022. We didn't, we didn't care what the difference was between a lot of B2B players. I'll do the triple, triple, double, double, but it's got to be durable for real. You got to dominate some segment of your market for real, for a real reason that is enduring.
- RORory O’Driscoll
Everyone who's been in the business five or seven years, did a whole bunch of deals that were growing like crazy, man, in '17, '18, '19, 2021, they've all decelerated at scale and they now have a bunch of deals at 100 to $200 million with 10 to 20 to 30% growth rate, and most of their waking hours are spent figuring out what the frick should they do with those deals. It's human nature. The, the one thing you don't say to yourself is, "This is so much fun. Let me add to that collection." The other comment I'll make is this. The industry as a whole is probably making the same mistake with AI deals.... that it made in 2021 with a range of other SAS fields, which is the extrapolation of the current growth rate to the sky. And you have to have some theory of the case on how it all shapes out. Now, you know, across the lovelables, across the c-... And that's why, you know, I deliberately mentioned data center spend slowing down. You at least have to contemplate that and say to yourself, "In the 20% chance where that happens, is the... you know, am I done?"
- JLJason Lemkin
The scar tissue from those 2020, '21, deals may be a small part of this car to slow down."
Speaking of riding momentum, we saw Vanguard adding PE exposure. To, to a Jason point here, is this the top?
I think it's a terrible sign. (laughs)
I think it's a terrib-... I mean, i- it always... Look, the, uh, we discussed this before. The industry keeps looking for new sources of capital, in part 'cause some of their standard sources of capital have issues to deal with, most obviously endowments. So that's probably not as true for PE, they're just bigger, but pension funds. So yeah, people continue to look at other stuff. Um, uh, you know, it's high fee bearing, which, you know, breaks your heart as a, you know, Vanguard, uh, uh, ETF and mutual fund investor. But- So what does it actually mean for venture? For me sitting in my venture seat, Vanguard adding PE exposure, how much more money is going to come into the industry?
- RORory O’Driscoll
A bunch of the... All the PE shops have been doing some version of this. We talked about Coatue doing it and that crossover. All the, you know, the, uh, the, the, um, you know, Blackstones that all those guys have been doing. So this is a category, this is a trend that's gonna happen. You know, u- I don't, I don't think it's gonna be the same wad of money as, you know, sovereigns or pension funds. It's just another source of capital, another, pick a number, 20% more, what the heck? And, you know, I think structuring it for venture will be harder because, you know, you, you have to make all these kind of partial liquidity assumptions, which will get tricky for venture. Right? I don't know if you saw, but the, I can never pronounce the name, Elsie Stefanik, who continues her, you know, crusade to make Harvard's life misery, is indirectly going to make PE's life a misery 'cause she's been saying, "Hey, Harvard, your accounting is incorrect, because half your, um, assets are PE and other private assets and they're not marked correctly." So that's... kind of process is ongoing. So the whole process of private marks is challenging, and the less sophisticated the investor or the less able that investor is to take the long view, the more challenging it becomes. And my guess is the retail investor is least in a position to do that. So-
- JLJason Lemkin
(laughs) Listen, here's a bad sign. They're partnering with Blackstone on this, right? And they wanna (laughs) offer PE access into target date funds. I mean, listen, we can talk about the pros and cons of target date funds. They, they have their place in a non-taxable account.
Wha- wha- what's a, what's a target date fund?
Target d-... Is, is... Harry, you don't even need to know anything about investing. When do you want to retire, Harry? I mean, I know, I know you're studdering. What, what year would you like to retire?
80 years old, so 2074?
Well, we have a 2075 fund for you, and it will start off today at 95% equity, 5% bonds, and each year it evolves, and so... And you, you... When you're, when you hit 78, you'll be... I mean, Rory, you can correct me if I'm wrong, but you'll be 95% bonds and liquid and 5% equity, right?
- RORory O’Driscoll
Clearly seeing that you're not spending any time thinking about retirement, Harry, which entirely sensible at your age, but yes, Jason's exactly right. These are the structured products for the mainstream market. If it wasn't for the fees, they're a broadly good idea, which is you don't know, Mr. or Mrs. Whatever, how to think about equity versus things, so we'll just make one big decision and we'll land the plane for you. The returns... Sometimes part of the issue is the fees are high relative to what you get, but it totally makes sense. But Jason, to your point, you're putting these in there and, you know, one thing we know about venture is you can't target your return date. Right? If you could, it would be easier. So it's a hard asset to fit into a liquid individual portfolio, and I think they'll try. I think it'll be hard.
- JLJason Lemkin
To Terry's point of Vanguard has 10 trillion, putting 10% of that into venture would move the needle, but I, I just don't think ordinary investors should be doing this stuff. (laughs) I don't know. There's just l- there's just, uh... I just... I, I, I... It's just, it's just part of greed, too much greed.
- RORory O’Driscoll
I mean, it's chasing return, and that's always the nature of it, so. But yeah.
- JLJason Lemkin
The hunt for alpha continues.
- RORory O’Driscoll
The hunt for alpha always continues 'cause, you know, that's what we're all paid to do.
- 47:47 – 53:02
QSBS Hack: The Billionaire’s Tax Loophole You’re Missing
- JLJason Lemkin
(laughs)
Uh, you, you mentioned Harvard there and life being hard for them. There was a billion dollar funding gap and Stanford are doing layoffs. It wasn't huge layoffs, but layoffs still the same. How do we feel about the health of where they're at, how concerned one should be for them, and how we should think about it?
- RORory O’Driscoll
There's three levels of question here. If you're asking the impact on venture investing as in ventures as a source of capital, that's an easy question to answer. They're obviously going to be a lot less active. You know, uh, next level down, are you asking, you know, the impact on the institution, th- kind of the wider societal things? But it looks tough. I mean, you know, y- you know, it's, it's a terribly unfortunate way of making policy 'cause a whole bunch of humanities kids yelled in the, you know, in the close about political issues, you're firing the poor guy who's been in his lab for 10 years trying to cure cancer. It's a very awkward way...... to make public policy and punish the wrong people to punish the institution. But, you know, I don't envy anyone running one of those institutions, and I hope they can figure it out, 'cause they're... A lot of what they do is really good, not all, and not some of the most visible things, it's quite annoying. But when you look at the things that have been cut, as distinct from the things where you kinda go, "Oh, that's a waste of money," the administrators ain't getting whacked at scale. These programs are getting whacked that are cutting science, that are cutting small grants to graduate students to do amazing freaking things, just when they're most productive and useful. So, I think it kinda sucks as an outcome.
- JLJason Lemkin
I just thought it was interesting, I mean, not in a good way, but, you know, um, Stanford blamed its 140 million budget cuts on federal research funding, right, which is the issue that you're talking about. But they also said that a potential increase in endowment taxes. There is a cost to these endowment taxes, right? Taxing venture in a sense, by taxing endowment, it isn't free. It'll lead to decline in investment and a decline in humans. (laughs) We did get a QSBS break in the new tax bill, I do like that.
- RORory O’Driscoll
We did. And I- I would like to know-
- JLJason Lemkin
I do like that, I do like that.
- RORory O’Driscoll
... I do wanna ask that question.
- JLJason Lemkin
Everyone got a little... The deficits may ruin us, as Elon said, we might all have to move to Mars, but I got my piece. I got my QSBS to 15 million and I'm excited for it. I got my piece, I'm- I got bribed in the tax deal.
- RORory O’Driscoll
And- and what I'd really love to know and I just don't is, I have this vision of this crazy sausage-making machine. And, you know, there's a whole bunch of agendas, you know, to pound it to the solar guys, to pound it to the universities. You know, I mean, this is an administration that has its hate list and works down through it pretty methodically. And then somewhere, someone crops up at a meeting, I can see it. "But despite all this, guys, let's cut a deal for the QSBS guys." And I... Whoever that person is-
- JLJason Lemkin
Knew that was coming. (laughs)
- RORory O’Driscoll
Whoever that person is, next time he's running through San Francisco, all he has to do is email me and I got him dinner. Right? Whoever was in the room and said, you know... 'Cause, you know, you're sitting there, and the way it works is, they have a target to make in terms of money and every time they stick it to someone and charge them money, you know, endowments, another 20 bill. Getting rid of the EV subsidy, another 20 bill. And then someone had to say, "Let's go backwards, 15 bill to give it to these guys on QSBS." So, whoever was... Had the juice to push that through, maybe it's, you know, Peter Thiel and the Bilderberg con- you know, whatever conspiracy.
- JLJason Lemkin
It's not where it came from.
- RORory O’Driscoll
I love it. I'm in.
- JLJason Lemkin
How much... Listen, we can explain it to it for folks, but Rory, I'm curious, at your fund stage when you write checks, if you had to bo- spitball or ballpark it, how much QSBS benefit do you get in the end at the GP and LP level? Like, 'cause some of it isn't gonna qualify, right? Some of it's gonna be too big, right?
- RORory O’Driscoll
Too big. Some does, some doesn't. It's not a... As big a thing for us beyond-
- JLJason Lemkin
50%?
- RORory O’Driscoll
If that. Less than that.
- JLJason Lemkin
If that.
- RORory O’Driscoll
Right.
- JLJason Lemkin
Yeah. For folks that don't know, and Harry, you might not even know, in the U- in the US... I mean, my taxes in California are 50%. I know all you Brits are complaining about taxes. I think Rory and I pay more than you. But we get one weird quirky tax break, which is if you invest in startups or small companies below, it was 50 million in assets, now I think it's 75, you don't pay any federal taxes on the first 10 million in gains. Now it's 15. And every LP, to the extent they're individ- to the extent they're taxable, every LP gets 15 million on their distribution too, no federal taxes. And California taxes it, which is pretty annoying, but most state- a lot of states don't tax it at all. So you could have no taxes at all on startup gains. And, um, for whatever goofy reason, it- it got increased 50% in this tax bill. So, we all- we all got our little taste. (laughs)
- HSHarry Stebbings
That's mega. So, for... Basically you have no cap gains on angel investing if you're investing with-
- JLJason Lemkin
Correct. Not on angel investing. Yeah, up to 10 million, now 15. And- and frankly you can stack it with trusts. Like, for me it's probably 40 to 50 million per... 'Cause I have five trusts on this. So that means for each exit I get, 50 million has- has no taxes. Um, y- it's possible to do it to 500 million but it's really compli- it's now 750 million, but it's complicated. But, um...
- HSHarry Stebbings
Rory- Rory, h- he has a big condo in Yellowstone just to-
- RORory O’Driscoll
He clearly has a big condo in Yellowstone.
- HSHarry Stebbings
Just to let them know. Yeah, with- with his trusts. Yeah, yeah, yeah. I have- I have five trusts, I own them all.
- JLJason Lemkin
Well, it's the only tax break if-
- HSHarry Stebbings
I got 'em.
- RORory O’Driscoll
Got it.
- JLJason Lemkin
I mean, Rory makes the point is you'll take the nickels and you might as well pay 50% tax in California 'cause it's the best place. But for me, this is my quiet motivator to do early stage investing. At least I- at least I can avoid, you know, 15 million of taxes per
- 53:02 – 55:54
Microsoft’s AI Layoffs: Salespeople Are Dead, Long Live Engineers
- JLJason Lemkin
deal.
- HSHarry Stebbings
Okay, we're gonna do a final one which is Microsoft. Microsoft laid off 9,000. I know in the grand scheme of their, you know, workforce, it's not huge. It's still 9,000 people replacing general salespeople with solutions engineers. I was walking with a- a Clay founder the other day, they don't have salespeople either. They have pretty much the same. Is this the future for everyone? How did you see this?
- JLJason Lemkin
This bothers a lot of generalist sales folks. But, um, we could have a longer discussion about thoughts on how much of sales will be replaced with AI. My rough sense is it's 30 to 40% of like one to two call sales reps are gonna be replaced by AI. It won't- it won't be the same as with support but it'll approach it. It'll be relatively small in the enterprise, okay? Everyone's like, "Oh, well you can't go, you know, you can't go to Pepsi, uh, and AI's not gonna show up." But you know what's gonna happen? It's what Clay talked, or forward deployed engineers or solu- or what Microsoft's doing. We're not gonna have a guy that doesn't know our product in the age of AI show up to big deals. I would rather have a solution engineer that knows this cold that partners with somebody or is less good in sales. And so I think you better be worried if you're a generalist sales guy that thinks being a relationship guy wins today. It... That's Microsoft's point, we don't need relationship people. We need folks that s-... Like, AI has raised the bar for customer expectations. Here's the important point, it has raised the bar. Microsoft's doing what everybody wants to do, replace folks that don't know my product with folks that do.
- RORory O’Driscoll
What's interesting is it wasn't couched as a replaced with AI story, it was couched as a replaced with better people story and it's hard to argue with that. I mean, it's always impressed as a random comment-It's always impressive to me that these companies with 40% operating margins are still willing to grind another point out of it, you know? (laughs) It's just so capitalistic, it's- it's just great to see.
- JLJason Lemkin
Just related to it, I thought this, I can tie it back, but I thought it was super interesting, I didn't see many folks talk about it, but Canva's doing an AI discovery week this week.
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
Where their, all 5,000 folks are released from their normal jobs to learn about AI, because a lot of employees were saying they're too busy to learn AI. They're too busy. They're too busy at their daily work at Canva to learn AI, so there's teach-ins and- and the CPO was very clear, "Cameron, you've had free ChatGBT for a year, you've had free Claude, you've had access, you can pick from a bevy of tools for a year, but you're still, uh, too busy to learn AI. So here's your week, guys. We're gonna have classes, teach-ins, sit-ins. We're gonna have a hackathon." And it sounded great, and- and this is, the angst I hear from- from folks that have been around, Rory, for a while in B2B, the angst, and you see it on LinkedIn and in person, is, "I- I, Rory, I need to be re-skilled. I'm frustrated, I need to be re-skilled." I- I think no one's gonna, I think re-skilling doesn't work, and I think Canva's basically saying, "Shit or get off the can, guys. Here's your week."
- 55:54 – 59:06
“If You Need a Week to Learn AI, You Should Be Fired”
- JLJason Lemkin
(laughs)
- HSHarry Stebbings
I'm really sorry, they're twofold. I think one, if you need a- a discovery week for AI, you have people who aren't curious enough to want to progress and learn in their job. And I mean serious.
- JLJason Lemkin
(laughs) It's a kind way, it's a kind way to say a lot of things.
- HSHarry Stebbings
No, I'm- I'm- I'm- I'm- I'm- I'm really sorry, I'm on the board of a public company, and I got asked the other day, "Well, Harry, what do we do with employees who are not embracing it because they are fearful of it and don't want it?" And I said, "You fire them."
- JLJason Lemkin
Yep.
- HSHarry Stebbings
I'm sorry, it's- it's super unfortunate, I do not say that happily.
- JLJason Lemkin
Yeah.
- HSHarry Stebbings
But if you don't want to embrace it, you are going to make this ship sink. If you need a week for rediscovery week, I promise you, you're not going to work, and you're gonna go and take the kids to the playground and go eat chocolate in the cinema. And you know what? You've gotta be curious yourself. This is not the way to do it.
- JLJason Lemkin
Well, it might be in that it is, I think a lot of leaders are trying to do gentle- gentle messaging, right, and stage it. And I think this- this may, this may work for Canva or it may just be their warmer way of doing it, right? Here's your week. It's note- it's no-, it's also notice, right? It's notice to those folks too, isn't it?
- RORory O’Driscoll
Yeah, I agree. I mean, in many respects you're both correct. To me, this was the performative, we're letting you all know expectations. That way, you know, two months from now, to Ha- to Harry's point, when, you know, if you're deciding as managers that you- you, some people are surplus to void, you know, we're all humans, you can sit down with them in HR and say, "Look, you had your opportunity, you didn't take advantage of it. You know, we're going in a d-" (laughs) as they say, "We're moving in a different direction, and here's your package." Right? Big picture, zoom in, it doesn't matter, like, there's lots of different ways to do it. You can, you know, if you're managing, let's just say, we're not talking about the new curse of startups where it's all, you know, people who are AI native, but all these large tech companies who have, you know, 10, 20 years of employees, and you know you gotta get on the AI journey. One of my big ah-has is, it doesn't matter how you do it, don't over agonize it. Some people might just fire the people out of the gate, some people might do a training week, some people might do a training month. We know the direction of travel, right? Two, three, four years from now, you know, you- you're not gonna have people who say, "I'm too busy to use AI." They're gonna be long since gone, right? You're gonna have people been automated away, and then you're gonna have people who be, who are using the products and are doing the automation, right? How you do it, maybe Harry's just meaner than the nice people who run Canva, who seem to have done very well, by the way, by being nice, so let's not have any complaints about that. But-
- HSHarry Stebbings
Oh, by- by the way, I, I, yeah, and- and Cliff is amazing. He's the co-founder and CEO. He's super nice, lovely dude. Um, always been great to me. So that wasn't a shit on him.
- RORory O’Driscoll
No.
- HSHarry Stebbings
It was, uh, a shit on his people.
- RORory O’Driscoll
I was more just saying, how much time do we all get to get with the program, right?
- HSHarry Stebbings
Totally. Right. Uh, well, one- one thing, one thing that we did here at 20VC is every Friday everyone has an hour from 4:00 to 5:00 where they get to try new tools. Every Friday. It's much more nice to do it in a continuous way where it becomes a habit and it kind of becomes fun. But you also do in the office together, and then we do a show and tell from 5:00 to 6:00 on what we've learned and what's cool. Really cool way to do it.
- RORory O’Driscoll
Agreed, that's nice. It doesn't matter how, as long as you just keep moving forward.
- 59:06 – 1:12:06
Kalshi Quick-Fire Round
- RORory O’Driscoll
- HSHarry Stebbings
Okay, so we're gonna do a Cal sheet quick fire. As you know, this is like a speculative marketplace. Um, there's bets. You always want me to say the exact odds, R- Rory, quite rightly, so I will exactly for you this time. Um, number one, this one's a good one. I love Sean and so I'm gonna get in the firing line here. Sean Maguire tweeted some controversial things recently again about your New York mayor thing. Uh, sorry about that. Um, and everyone's really quite upset about it. The question is, will Sean Maguire leave Sequoia this year? Yes, 344- $348. No, $115.
- RORory O’Driscoll
In other words, highly, and the market is saying highly unlikely not.
- HSHarry Stebbings
Exactly.
- JLJason Lemkin
Highly unlikely not, that he's not going to leave, right?
- HSHarry Stebbings
Yeah.
- JLJason Lemkin
I'll take the bet then that he will, and- and I'll take this actual bet with you, whatever the money is. I'll do the bet for real.
- HSHarry Stebbings
I'll 1,000% do that. I'll 1,000...
- JLJason Lemkin
Am I understanding this that there's almost no chance he's gonna leave based on this bet, right?
- HSHarry Stebbings
Pretty much, yeah.
- JLJason Lemkin
Yeah, I'll t- I'll- I'll- I'll, I can tell you why, I'll take the bet that he leaves this year. Well, I- m- I don't know him. I- I don't know him, right? I'll take the bet.
- HSHarry Stebbings
Do you know his investments?
- RORory O’Driscoll
Same could be done...
- JLJason Lemkin
What's that?
- RORory O’Driscoll
And- and then, cl- I- I see what you're doing.
- HSHarry Stebbings
Do you know his investments? 'Cause if you knew his investments-
- JLJason Lemkin
Yes.
- HSHarry Stebbings
... you would never take that bet.
- JLJason Lemkin
I know, I know that. And it, there's different ways to leave. You could tran- I just don't think, listen, we're in the age, one great thing about X is we- we- we see the grouchy billionaires. We see just how unhappy so many billionaires and mid-centi-millionaires are. The happy ones go off and leave their venture, multi-billion dollar venture fund and join Meta, right? The unhappy ones just- just use this as an endless megaphone, right? And- and listen, I get his points, and, um...... uh, they're just so amplified, right? They're just so amplified. But, uh, you could leave as an investing partner, you could become a venture partner, you could transition. I'm giving myself credit for all of this bet, Harry, that it's, that the answer is nuance. It's most favorable to me that I'm not saying he's, like... is, is, like, expunged from, from the website. I'm just saying if this keeps going week after week after week, I just think it's a sign his head is not into the investing.
- RORory O’Driscoll
I, I think all his ret- a lot of his returns have come from working with Elon, and Elon loves his shit. So, he's actually giving... He's giving his client what he wants, right? He might get promoted for this, right? "Congratulations. You were r- you know, you pissed off two million people, and the owner of X, SpaceX and Tesla, loves you. You're in." So, I actually think... so, I, I mean, on the, on the merits, quote unquote, of whether or not what he said or did is, is going to result in anything, I, I, I don't see it. I'm on the no side. I mean, the only argument for taking the yes, Jason, is, is more, look, statistically, X percentage of people seem to leave every year. So, at some point, the bet's not priced in. But then, there are-
- JLJason Lemkin
That's what I'm telling you. I think this is a tell. There's a higher than otherwise chance he leaves this year. That's all I'm... I'm not saying anything more clever than that, right? I'm just looking for the tells. And as we've learned, we know a lot of folks in B2B that have quietly retired over the last year or two, that it's not clear on Twitter they have. We know folks that have, right?
- HSHarry Stebbings
A state of the economy at the end of 2025. Soft landing, 76%. High unemployment, 16%. There's no actual, like, dollars tied to this one for some reason.
- RORory O’Driscoll
This is easy, right? Roughly one year in seven, the economy is in recession. So, you should say... If someone asks you, "Is there going to be a recession at the end," the, the, the default probability is about 16 to 20%. What this is saying is the, the economy is no more likely than not. Like, is it a normal probability of being in recession? And I'd say that's about priced right. I don't know what would cause it, um, things in, you know, in the short term. Well, so my perspective on that, it's a roughly correctly priced bet. You should wake up every day and say, "With no new information, the Bayesian prior is there's a one in six, one in seven chance that 12 months from now things will go to shit." And when things... When you start seeing the VIX climb that one... the... And that's why you saw it when the tariffs come in. When the VIX starts to climb, that one in seven chance goes to one in four or one in three, and then when things calm down, it goes back to normal. What this bet is saying is we think things are, quote, "roughly normal" now, and that's probably a fair description.
- HSHarry Stebbings
So, do you... do you think end of 2025, are you saying soft landing or high unemployment then?
- RORory O’Driscoll
I think it's priced about right. I'm actually indifferent on the bet. I think it's priced right, so I take it or not. It's, it's... No. So I wouldn't... I would... if I... I would pass on putting money in that bet, because I think it's priced... There's... I don't have differential information other than, like... If it were... May- may- maybe a better way to say it. If it had been-
- HSHarry Stebbings
Well, then forget the, forget the bet. Just tell me which one you think it's going to be, wise one.
- RORory O’Driscoll
I'm not gonna tell you, because the whole point... Actually, that's why it's a dumb... That's why you're asking a dumb question, Harry. All you can say is-
- JLJason Lemkin
Kalshi is worth $2 billion. There are no dumb questions.
- RORory O’Driscoll
There's no evidence that anyone can-
- JLJason Lemkin
There are no dumb questions on Kalshi.
Episode duration: 1:12:56
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