Databricks at $100BN, CoreWeave’s $11B Debt Bet & Nubank’s $2.5B Profit Shocker - Ep.19

1. 0:00 – 1:25

   Intro

   1. JLJason Lemkin0:00

      Snowflake had a billion-dollar quarter, growing 26%. Databricks just said they're crossing 4 billion, growing 50. It actually makes Databricks sound undervalued.

   2. HSHarry Stebbings0:09

      Now, this episode is a cracker. We discuss CoreWeave, Nubank, Databricks hitting $100 billion, and much more.

   3. RORory O’Driscoll0:15

      One thing I've learned about large amounts of money, what people say they'll do is meaningless. When you get the 10 million or $100 million offer from Meta, it rocks you back, and that's real competition. At some point, you gotta match the dollars.

   4. JLJason Lemkin0:28

      I think we're all gonna live in AI 24/7, and we're all gonna use 10 times the tokens and 10 times the compute we are now in 24 months. Like, help me do the math. How much more do we need to spend on infrastructure?

   5. RORory O’Driscoll0:37

      One of the things I'm learning, especially on this podcast, is to not to try and feel the need to have an opinion just to fill the space. That's why we have Jason.

   6. JLJason Lemkin0:46

      Ready to go? [upbeat music]

   7. HSHarry Stebbings0:59

      Guys, it's the holiday edition. I am dialing in from Greece. You guys are dialing in from the office, but we still get to do this. My mother is sitting outside, and she's like, "Are you recording the Rory and Jason show?" I'm like, "This is the one show of mine you listen to these days." She's like, "It's my favorite." So-

   8. RORory O’Driscoll1:15

      That's 'cause we're mean to you, Harry, and ev- you know.

   9. HSHarry Stebbings1:18

      I, I, I think she li- actually likes you. She says that you bring me down a peg or two, Rory. [laughs]

   10. RORory O’Driscoll1:23

       It needs doing, Harry. It needs doing.

2. 1:25 – 4:14

   Databricks hits $100B: Bubble or just the beginning?

   1. HSHarry Stebbings1:25

      Listen, I wanna start with Databricks, now at $100 billion, worth more than Snowflake. I wanted to start with how we thought about news of it hitting $100 billion, and we can touch on that first before we move on to what it means in terms of founder-led companies and them inherently being better or more valuable.

   2. JLJason Lemkin1:43

      Well, I'll tell you, it's funny. When I saw it in the Journal, um, it, [laughs] it, it shows the times we live in. It seems small. [laughs] I mean, Snowflake's worth 60-something billion. So the private worlds and the public worlds are like two different worlds. [laughs] But this is the f- if I'd seen this a year ago, m- I, you know, I would've fallen out of my chair. This is just f- f- for fun. Then we can talk about its relative, whether it's a good ... Rory will help us figure out if it's actually a bargain. But, uh, it's funny how I don't blink a, blink an eye for 100 billion at, at, in the day, age of AI. Just didn't even blink an eye.

   3. RORory O’Driscoll2:17

      Yes, it, it, that is the meta comment. You know, exactly what it's like, "Oh yeah, Databricks is a hund-" I mean, if you'd said five years ago it's gonna be $100 billion market cap private company, you'd be like, "No way." And you know, you got Anthropic at 170. You got, um, SpaceX at 360. You've got OpenAI at 500. You're like, the correct response is, "Yeah, like whatever," you know?

   4. JLJason Lemkin2:37

      [laughs]

   5. RORory O’Driscoll2:38

      Exactly. So another $100 billion outcome. It's awesome. So yeah, that, you're exactly right. That is the first comment. And then, you know, the second thing to Jason's point, again, is y- you just have to size it on the cup. And you know, I, I, I will admit I saw the announcement, and I didn't have time to dive in and read the numbers, so I haven't had the, you know, the most recent update, but roughly-

   6. JLJason Lemkin2:58

      They said they'll hit 3.7 billion ARR. Uh, or they've crossed almost 4 billion.

   7. RORory O’Driscoll3:04

      Yeah.

   8. JLJason Lemkin3:04

      They've crossed almost 4 billion.

   9. RORory O’Driscoll3:04

      Yeah. And, and what that means is, versus Snowflake, the growth rate is higher. I mean, I'm, I'm doing this on the wing. Uh, so you have that perfectly positioned infrastructure provider to everyone who's messing around in AI. You have the growth. It's a healthy multiple, to say the least, um, but provided the growth's there, it, it, on a comp space, it's, it's not entirely crazy. You know, going back to my, you know, what value do you get in the public market versus private market, you know, I've always said if one gets out of whack with the other, things go the other way. The, you know, m- people gravitate to where the cheapest capital is. This feels roughly right. In other words, this feels like roughly where it would price in the public markets. In a world where, what, Snowflake's market cap is 60 or se- 50 or 60, um, you know, if this is bigger, growing faster, okay, it was like, yeah, that's probably what it's worth. You know, obviously-

   10. JLJason Lemkin3:53

       Yeah, they've arguably, actually looking at it, I think they've crossed over. Uh, Snowflake did a, had a billion dollar quarter, so that's 4 billion, uh, growing 26%. Databricks just said they're crossing 4 billion, growing 50.

   11. RORory O’Driscoll4:06

       Yeah.

   12. JLJason Lemkin4:07

       50 and 26 are pretty [laughs] they're pretty dif- it actually makes Databricks sound undervalued, if you think about it.

3. 4:14 – 13:27

   Is Databricks actually undervalued at 25x revenue?

   1. HSHarry Stebbings4:14

      This is what I was just gonna go and say, which is like, it actually feels undervalued. At 25 X revenue, given the growth rate, given the fact it's founder-led, given the macro trend where it sits, it really feels like actually very reasonably priced.

   2. RORory O’Driscoll4:28

      I just love it. Just another cheap stock at 25 X run rate. Um, again, it's all about growth persistence. I mean, 'cause i- i- you know, it wants to ... The interesting thing is every one of these bets is some version of ... If you're paying 25 X run rate for anything, you know, what you're really saying is, you know, the only thing you know for sure is that when things level out in growth rate, they get valued like normal companies. So implicit in that is some statement about how, how long this company can continue to grow at that kind of rate. So you know, if, you know, two more years at 50, 60%, you're golden. You've earned your way into the company, into the valuation. If that growth ever kind of plummets down, then you're, you know, you're high and dry like many of the '21 deals. So the valuation totally makes sense, provided that growth rate goes 50, 40, 35, 20, you know, not some precipitous growth rate decline. It's, that's the bet. So a- a- and again, it resolves its- self again to the, if the AI boom continues for two or three more years, all this will f- you know, it will be trading at, at that point eight or nine times run rate, and all will be fine. That's the bet in a sentence.

   3. HSHarry Stebbings5:36

      I actually interviewed Ron Gabrisko there, um, CRO. Um, astonishing guy, by the way. Zero-

   4. JLJason Lemkin5:42

      Best. He was there from almost the beginning, right? Almost the beginning.

   5. HSHarry Stebbings5:45

      Zero to 4 billion in revenue, uh, as head of sales and CRO. He said they were five years ahead of Snowflake in the show. I thought it was just an inch. I said, like, "Technologically, how far ahead are you?" He said, "Five years."

   6. JLJason Lemkin5:56

      Yeah.

   7. HSHarry Stebbings5:56

      I thought it was interesting of him to state.

   8. JLJason Lemkin5:59

      Yeah, it's ... You know, I'll tell you a couple things. The one ... So the one thing I thought it was, is cheap. The other thing I was thinking is, you know, Sam Altman said this weekThat, uh, one, they're gonna spend trillions in infrastructure, but also that a lot of folks are gonna lose a lot of money in AI, that there is a bubble. He said two different... two, two things that aren't completely incongruous. But the other thing I thought when I looked at Databricks is, like, obviously w- w- it feels very bubbly right now, right? It feels like the best of times. But it might get better, and not just because OpenAI is gonna continue to grow, but because let's look at comps, okay? Databricks hasn't IPO'd yet, right? Databricks compared to Snowflake, growing twice as fast at 4 billion. Figma and crazy IPO we just had, right? Um, one of the reasons Harry's in Greece. But Canva might be even better. Canva might be even better, and maybe Stripe is accelerate. I don't know if Stripe's gonna be better than Agian, but let's imagine it's accelerating because of crypto and AI and mobile. We might get the next wave of IPOs that are even better very quickly, and the amount of froth that that could create in the ecosystem, the amount of r- just re- returns to LPs could create a, a, a, a, a bubble on top of a bubble, because times might just get much better in the next 12 months.

   9. HSHarry Stebbings7:15

      There's an interesting question to be had here, which is, given what we've seen with Figma, CoreWeave, and Circle, if you had the likes of Canva and Databricks go out-

   10. JLJason Lemkin7:23

       They're better

   11. HSHarry Stebbings7:24

       ... the public reception would be even more inflated.

   12. RORory O’Driscoll7:28

       M- maybe. You could also argue that, um, watch the... just to make the counterargument, you could argue that a little bit of what's happening now is scarcity value. There's very few high growth companies in the public markets because all that growth has been annexed by the, by the private markets as a bizarre outcome of, you know, ill-informed regulation. So all the wealth creation is taking place in the private, in the pr- in the private side. If all those companies were to go public, as you say, if the Canvas of this world, if the Databricks were to go out, it's not clear to me that they'd get that 3X pop. Instead, you might what have is, okay, they'd probably trade at the very high, quite deserved values, but I think the scarcity premium would go out of it, right? For example, I, I can't remember, it's been two weeks now. Like, you know, Figma at f- a, a Canva equivalent were Figma priced at 15X forward, yeah, sure. A Canva equivalent and a Databricks equivalent then popping 3X, probably not. Because at some point, you know, they would all be just wonderful public companies trading at appropriate growth-adjusted multiples. But it would... what it really would be is taking a trillion dollars off the private balance sheet and putting a trillion dollars onto the public balance sheet where it could easily digest it. 'Cause yeah, you know, U- US stock markets are, you know, 40, 50 billion, so another tril- at, in fact, early 50 trillion, it can digest another trillion. So you want... you could shove off onto the public markets an amount of equity that at no, at, you know, appropriate multiples is, would, as you say, Jason, lead to a huge amount of LP capital return and be totally digestible by the public markets, probably without the frothy super premiums. Just, you know, it would be the return of high growth companies to the public markets.

   13. JLJason Lemkin9:17

       Let's look at... So, so Snowflake, uh, Databricks is growing twice as fast as Snowflake at the same ARR, which is stunning. Figma growing 48% at a billion.

   14. RORory O’Driscoll9:26

       Yeah.

   15. JLJason Lemkin9:27

       Pr- pretty crazy.

   16. RORory O’Driscoll9:28

       Yeah.

   17. JLJason Lemkin9:28

       Worth 40X ARR today. Could change. I mean, it's frothy, right? But if Canva IPOs next year at 4 billion instead of a billion, growing 40%, and Figma's at 48%, I mean, that's a much better co- I mean, Figma's one for the ages, but that's an even better company, isn't it, Rory? [laughs] If it's growing 40% at 4 billion, I mean, it, it, it could be a jaw-dropper if, if mark- if multiples and market dynamics are consistent through, for today, with today.

   18. RORory O’Driscoll9:55

       Yes. Again, as I say, and it would trade like a wonderful 40% growth co- Look, the absolute number would be bigger. The multiple would be growth adjusted. As I say, my comment is merely the speculative... I mean, you know, the speculative side of it that took it, you know, from what e- from the IPO valuation, you know, probably would not be there as to, as, as more stocks come out. But it's still... Look, it would be the aha here at the high end of the private market, there's a s- a significant absolute sum locked up in private markets that at some point is gonna seek a public market where a number of them will be worth 50 billion, which is unprecedented. A few will be worth 100 billion, and maybe one will be worth a trillion dollars in the private markets, and your little head would hurt. 'Cause I remember, I mean, it was only 2018 that Apple... If you think about it, this is a weird comment. It was only 2018 or '19 that Apple touched a trillion dollars in the public markets, and seven years later, you know, they're arguably, I'm not sure I buy it, it might be one or two private companies that touch a trillion in the private markets. That's just bizarre.

   19. HSHarry Stebbings10:56

       I go back to this, and I've said it so many times, and I've said it in this show so many times, but David from BankApp, who said that the biggest mistake we make is that we look at today's fund sizes and today's outcome sizes and think that is what it will be in 10 years' time. We should be looking at the outcome sizes of 10 years' time and thinking, "Are these fund sizes rightly correlated for those?" I always think back to that, because if you were to do that, y- you might actually have a more reasonable and nuanced mindset towards the fund sizes we're seeing today.

   20. RORory O’Driscoll11:22

       Yes, you do make that point very consistent-ly, and, and it's a point-

   21. HSHarry Stebbings11:27

       [laughs]

   22. RORory O’Driscoll11:28

       And, and, and, and again, I think it's true, but you also, you're probably also guilty of overextrapolation, but that's okay.

   23. JLJason Lemkin11:33

       I mean, listen, the IPO floodgates are open, right? W- even a couple months ago, we could have debated it. But if you think about it for a minute, the IPOs we've had this year, they're, they're just, uh... they're not the epic ones, are they? They're not the epic... The epic ones are still to come. Like, we have a, a... What is the big epic... I mean, we've had, we've had a few fits. We've had the Rubrics and, and the Clavios and Figmas, but the mega ones, I think, I, I... it could just be a, a, a force of nature coming. These are small, these are... Look, CoreWeave has a huge market cap, but CoreWeave, Circle, Hinge Health, uh, you know, these are, these are, these are still niche plays, aren't they?

   24. HSHarry Stebbings12:09

       Tranmere Rovers. Yeah. Yeah.

   25. RORory O’Driscoll12:11

       I got it. A, a, a, a reference that's wasted on your audience, but yes. I, I, I, I just wanna, um... but I do wanna... Yeah, I, I don't think they're just niche player. I think they're the bread... I mean, look, the truth is-I mean, both are-- They're the bread and butter of what will make most venture firms money, so I'm not gonna denigrate them with niche or tranmerovas appellations. But you are right, Jason, in a power law wor- I mean, look, it's nothing more than saying, in a power law world, the longer you let things cook in the private markets, the bigger one or two of the outcomes will be. And things have been cooking in the private market for, I mean, yeah, it's... I think SpaceX is almost twenty years old. They've been cooking a long time, so it totally makes sense that there was going to be five, seven north of a hundred billion dollar outcomes. It's just the math. I'm super happy with Tokyo as a company in our portfolio for detection, growing at scale, many hundreds of millions of dollars, profitable, accelerating growth rate. We're in on a wonderful basis. He said, smiling happily, you know, um, about a hundred and twenty pre, so feeling very good there. And that's, you know... And, and, and to the point, and I wanna go back to, yeah, in the context of what Jason says, it, it's a niche play. It's not doing four billion dollars. In the context of a mid-sized fund with a good ownership position, a company like that with a trajectory like that, I feel great, right?

4. 13:27 – 19:13

   Can Andreessen’s Databricks bet return $30B+?

   1. RORory O’Driscoll13:27

      And, you know, there, there's going to be ten or fifteen companies that, you know, are that ten billion plus, fifty billion plus outcomes. But the real point, the venture bankers will only work for a few funds if they're the only outcomes. For the venture business to work for us all, you, you're gonna have to see more of these five billion dollar market cap outcomes. Yeah, as you say, the Hinge Healths, the Onos of this world start to take place, and I think it will.

   2. JLJason Lemkin13:50

      If Databricks IPOs next year at two hundred billion, which makes sense because that's the implicit goal of this valuation, Andreessen led the Seed A. How much do they make in what fund, and how does that change how we think about fund dynamics? Um, could they own fifteen percent of Databricks? It's possible, right? I mean, it's hard these days, but it's possible. So if they make thirty billion on the Databricks IPO, how big was that fund size, and how much does that further reinforce the cycle we're in? It seems like a lot, thirty billion.

   3. RORory O’Driscoll14:24

      I- i- it... Thirty billion is a lot.

   4. JLJason Lemkin14:25

      [laughs]

   5. RORory O’Driscoll14:25

      That's exactly true. No, and look, again-

   6. JLJason Lemkin14:27

      [laughs]

   7. RORory O’Driscoll14:30

      And if the growth slows and it grows and it has to go public at eighty billion, which would be a heroic win in any man's terms, it'll feel like a real Debbie Downer from where we are now. You're exactly right, Jason.

   8. JLJason Lemkin14:40

      I'm just thinking through what... I'm trying to figure out what fund size that would be in, talking to-- just going to Harry's point of the mega rounds and things that make sense today, uh, 'cause we're going back in time. Because the beauty of these types of investments, like Andreessen leading Databricks in twenty seventeen, is you get the benefit of, of the mul- of the, of the, of, of the VC economics of its day. They probably overpaid in twenty seventeen, right, as an inception investment, and it would probably be seen laughable today by the same tokens, right?

   9. RORory O’Driscoll15:05

      I think it was even earlier than twenty seventeen, 'cause I remember-

   10. JLJason Lemkin15:08

       Oh, you're right. I got it wrong. Twenty... Yeah.

   11. RORory O’Driscoll15:09

       Yeah, you're doing... Because I remember we were, we were trying to talk to... We were in a conflicting investment. That's, um... But-

   12. JLJason Lemkin15:16

       That was the D in twenty seventeen. A decade ago. They led it a decade ago. Better part of a decade ago, right?

   13. RORory O’Driscoll15:20

       More than a... Now I'm saying twenty thirteen, twenty fourteen. I could be wrong. 'Cause, you know, Snowflake had just started out. But yeah, I mean, look, what it says is, shock horror, if you do the best de- if you do the best infrastructure deal of your generation, and you hold it for a decade and a half and it compounds, it turns out you make a lot of money.

   14. HSHarry Stebbings15:37

       I go back to a statement that you say, which I, I love, Rory, which is like Josh Kushner, phenomenal investor. Goes to the best block or the best house on every block.

   15. RORory O’Driscoll15:46

       Yeah.

   16. HSHarry Stebbings15:46

       AI, OpenAI, data, Databricks, Stripe, FinTech, and buys the best asset.

   17. RORory O’Driscoll15:51

       Yeah. Buy the quality asset, hold it. I mean, look, the only risk is, I mean, all these, and I'm not saying this to be a Debbie Downer, but just to point it out, uh, the interesting comment is, in the public markets, when things start going south, because there's liquidity, everybody can have a stop loss of ten percent and get out, and then someone else can come in, think it's gonna turn, and, you know, yeah, yeah, you can hold it all the way down, but you can also get out along the way. What's interesting in the private markets, you don't have that option, right? If you're wrong at a hundred billion, you know, you'll own the th- and, and obviously it won't go to... It'll be... I- if you're wrong on price by fifty, sixty percent, you'll own it the whole way down. So the only risk you're running is a one big large ass pricing risk, right? And I don't think you'll have preference to save you. But so far that risk has worked. And it, it gets back to my comment on growth persistence. If you-- if they continue to grow for two or three more years and you have a run rate business at, say, ten, twelve billion in, you know, ARR or GAAP revenue, then you're kind of money good on normalized multiples, which is how I think about it. Can you get from where you are, which is crazy multiple, in three or four years to being money good on normal multiples for normal growth rates? And provided you can visibly see that growth rate, you're good. And if you're doing four and you're forty percent growth, what you're basically saying is, this infrastructure investment AI keeps going for two or three more years, and then I have ten billion of locked-in contracts with JPMorgan, BofA, OpenAI, everyone. And even if the world, you know, slows down from there, I'm good. That's the bet.

   18. JLJason Lemkin17:25

       Harry, not to do w- too much time on this, but just thinking through it for a minute. If Andreessen invested, did the A, Seed/A in twenty thirteen out of a six hundred and fifty million dollar fund at the time, trying to line this up through AI, it's probably not perfect, right? But if they did it out of a sixty mill- obviously, they probably invested in multiple funds, cross funds, right? But boy, they've got some good funds.

   19. RORory O’Driscoll17:48

       Absolutely.

   20. JLJason Lemkin17:50

       [laughs]

   21. RORory O’Driscoll17:51

       No, they've got it. They've got it. Yes, again-

   22. JLJason Lemkin17:53

       [laughs]

   23. RORory O’Driscoll17:53

       And I think, you know, I, I think you're probably because... And this is, this is David's point, um, for Vega. You're probably... I'm, I'm willing to bet they have the guts of a billion dollars in that deal. Could be wrong-

   24. JLJason Lemkin18:03

       Yeah

   25. RORory O’Driscoll18:03

       ... but half a billion at least. 'Cause when you have something like that, you follow it the whole way up, and you put a lot in. And, you know, the interesting thing is, yes, you probably have a couple of hundred X multiple on your first investment. You have some t- twenty X multiple. You might have some late stage three X multiple. But if you've turned a billion, billion and a half into thirty billion dollars, you're gonna feel good in the morning.

   26. HSHarry Stebbings18:25

       The one thing I also think we don't take enough into account is just how many people make money when these go out. And what I mean by that is there are so many LPs who are in SPVs, FPVs on SPVs. There are dentists who are gonna make 5X. And I'm saying that positively, and we always pick on the dentists, which is unfair of us. But the multitude of winners when the SPVs are as sprayed as they are in these mega companies will make a lot of people a lot of money in a great way.

   27. RORory O’Driscoll18:53

       Yes.

   28. JLJason Lemkin18:53

       Yeah. Buy, buy a house now in the Bay Area. That's my main recommend. Buy a house now. They're all going up. [laughs] They're all going, they're all going up. [laughs]

   29. HSHarry Stebbings19:02

       Weekly real estate with Jason Lemkin. [laughs]

   30. JLJason Lemkin19:04

       It's all I know over these cycles is you buy a house before the next massive IPO wave. [laughs] Why is everyone paying

5. 19:13 – 29:24

   Is the return of Chamath’s SPACs the ultimate bubble signal?

   1. JLJason Lemkin19:13

      cash? [laughs]

   2. HSHarry Stebbings19:14

      Speaking of which, guys, I wanna, I wanna, uh, usher this along. And Rory, you're gonna fricking kill me because it was a bit of a late addition. But it's like peak bubble time, some might suggest, when you see the return of the SPAC. And Chamath announced his new SPAC today. And in the prospectus, it says, "If they do lose their entire capital, they will embody the adage from President Trump that there can be no crying in the casino." I respectfully thought this was peak bubble. I would love to hear your thoughts on is it peak bubble and, and, and am I being too moralistic?

   3. RORory O’Driscoll19:54

      You won't know it's peak till it goes down the other side. So you're not gonna... You know, I mean, 'cause it's interesting you say that. And as yet, I'm listening to two of you in your euphoria five minutes ago saying, "Oh my God, this is just the hors d'oeuvres and the op- you know, the entrée is coming later in terms of the public markets." If that's the case, then it's not peak bubble. He'll be selling into strength like he did in 2021, right? So that's the first comment. Uh, so I, I don't know if it's peak bubble or not. If I did, I wouldn't be wasting my time talking to you. I'd be trading the QQQ and making money, right? It does definitely... I mean, what, what, so what can you say? You can say a couple of things. One, it does seem to remarkably correlate. [laughs] The return of Chamath to the SPAC market does appear to correlate with-

   4. JLJason Lemkin20:38

      [laughs]

   5. RORory O’Driscoll20:38

      ... the most recent bubble in 2021 where it worked in the bubble and didn't work after. So there's definitely correlation there. I'm loathe to impute causation, right? And, you know, the serious comment is, 'cause you know, way more serious people... You know, I remember Bill Gurley talking a little bit about SPACs. It's, it's not a crazy alternative to, on its face, to the problems around IPO and mispricing. But I believe when you parse through it, it's a bad structure. And I think it's been validated to be a bad structure in 2021. Relatively few of them worked. Though, to give credit, one of Cham- I think SoFi did work. I think it priced at 10, it's now 23 bucks. Most did not, 'cause you have all sorts of weird adverse selection, right? So especially in bubble times, it's a pretty iniquitous and, um, expensive vehicle to, to raise capital in public markets. So I'm just not a wild fan of SPACs. I think you get adverse selection in terms of who decides to do the deal. And you want-- And the other thing is, yeah, the incentives aren't aligned because the person doing the SPAC effectively crystallizes their entire gain once the deal gets consummated regard- And you know, obviously, if the outcome is great, that's wonderful. They make even more money. But provided they have an outcome, they make some money. So the structure is all wrong. You effectively get paid as the promoter the day you get a deal done. And you know, one thing you learn in any investment management business is if you pay people to do deals, deals get done regardless of the quality. So I just think it's an imperfect vehicle for fundraising. And therefore, rather than personalizing it on one person, you know, be he ever so great or not, I just think it's a bad structure. And the fact that it's back is indicative. The fact that the structure is back is indicative of a bubbly time. That was me being nice.

   6. HSHarry Stebbings22:33

      Jason, is it below your line?

   7. JLJason Lemkin22:35

      I only know Chamath from a distance back as a founder, watching him back in the day, and then as a initial VC investor at Social Capital. I don't, I l- I, I, I, I do have ton of respect for all of them, but I've honestly never listened to it. Um, but I, you know, I know s- I know David and Jason a little bit. I don't get why he cares. This seems like a lot of energy for someone reasonably rich to be, going to Rory's point, to be doing weird shit like SPACs. It's not a criticism. I just, it just, it seems... I, I... Maybe he'll make 50 million bucks off this. Help me do the math, right? As the sponsor in this. But, but why? Why, why not do something more meaningful with the world rather than do something like a SPAC which is at the edge of grift? Like, no crying in the casino. I appreciate the disclosure, but this seems to me something better for someone on the way up, like for, trying to get their first 100 million. This might seem like a good strategy. [laughs] But I don't get why the, why the, the, uh, billionaires are maybe approaching... I don't know. You know, it's none of my business how rich he is. It doesn't seem... It j- the juice doesn't seem worth the squeeze here. The drama, it doesn't seem worth it.

   8. RORory O’Driscoll23:37

      Agreed. 'Cause I think you're right, by the way. And the n- my mental model is the amount you raise, 20% of that, so you get 50. But you have to gamble five up front on fees. So that's it. It's a 10X. The day you get a deal done, it's 50 million bucks, and then you hope to hell it goes up, not down. You probably get out. If it goes down, you probably get 25, but that's it. You're right. It seems like a lot of pain and drama. And also, on the disclosure, and again, I'm gonna get moralistic, is that I th- at, at first level it's cute, 'cause I do like the fact that there's humanity creeping into these disclosures versus, you know, I remember back when there was no founder letter and there was nothing except bland legal speak. So I love the comment on crying in the casino, but it's not a casino. The point of Wall... I mean, it may feel like a casino to some of the marginal players, but the point of Wall Street is to funnel, and even these IP- is to funnel money from the savers of ordinary people, managed by people like Fidelityinto profitable long-term investments. That's why we have the whole damn thing, Wall Street, all of us getting highly paid to allocate capital. It's not a freaking casino, which is a zero-sum game where only the house wins. It's about allocating, you know, about $2 trillion worth of savings into ca- every year into great new investments in companies like Figma. It's not a casino. So it's a cute statement, but I personally would never let anyone manage my money who thought it was a fucking casino. Excuse my language. Who thought it was a casino. It's not a casino.

   9. JLJason Lemkin25:02

      Is stuffing, uh, retail investors' 401Ks with PE a casino issue? With PE investments they don't even understand, they have no financials for, no- don't know what the markups are. [laughs] Does, is that, is that cas- is that at the edge of a cas- crying in a casino?

   10. RORory O’Driscoll25:16

       I understand what you're saying, which is, is that it's the more unsophisticated the investor and the more complex the instrument, the more likely it is that the investor will lose and the promoter will win. It's one of those life rules, you know? It's why... Even IPOs, there's complex things, and you kinda go, "Mm, whenever it's complex," your rule of thumb should be, whenever a bank was explaining something complex, you're losing money, right?

   11. JLJason Lemkin25:40

       [laughs]

   12. RORory O’Driscoll25:40

       Um, so I do th- I don't think it's as bad as, quote, the casino, 'cause I think on aggre- I mean, 'cause stepping back, the casino comment is this. In the casino, the, the median expected return is negative because the house takes a take and, you know, the median is a loss. Even PE, look, the long-term returns in PE aren't, are good. The long-term returns in venture are good. So in theory, allowing evenent- in- individual investors to access those returns might have meant some individual investors would have got the Databricks exposure that Andreessen got. So it's not a bad idea, but to your point, Jason, the problem is often the more complex the instruments are, the more likely it is to go wrong, the more likely it is to be, to be adverse selection, the more likely it is that, you know, the good parts of the PE and venture value chain don't get allocated to the retail investor. So I, I just, I don't think it's casino level. I do think it requires a fair amount of disclosure and monitoring.

   13. JLJason Lemkin26:40

       There was an example on X, Twitter, I wish I'd saved it. I think I saved it. Um, I'll look. But it was a PE firm that had to do public disclosure about, uh, a secondary position it'd bought. So it had bought another position with 50 investments in it and disclosed it and got it at a 20% secondary discount, and the next day marked it up.

   14. RORory O’Driscoll26:59

       Yeah.

   15. JLJason Lemkin26:59

       Right? And the disclosures were in like three-point font and asterisks and daggers at the end of the disclosure, and the point was a retail investor would think there was... Well, I mean, the IR would be insane for the next week. The, but a retail investor would think they had a 20% gain this year. They bought, uh, Scale 7 or SaaStr 1 at a 20% discount, immediately marked it up because the inv- uh, to, to, to, to mark to market, and the fund's up 20%. How would a retail investor even understand what the hell was going on there or if that's even legitimate?

   16. RORory O’Driscoll27:30

       It... I mean, I think, and the interesting... I mean, and again, Harry, you're right, I am annoyed at you 'cause I hadn't thought about this at all, so I'm working on the fly here. But I think it gets to an interesting philosophical question. There's two approaches. There's the, if I disclose everything, it's buyer beware, right? Which in this ca- uh, this is an example of that, and SPAC's an example of that. 'Cause it is true to say every single thing you needed to know to stop yourself getting screwed over was available in the prospectus. And so there's one school of thought that says, "On your head be it. You made your own decisions." And there's another school of thought that's a little more nanny protective and says it's just not realistic for individuals to all do that level of analysis on something, managing their money, where they spend, you know, 3, 5% of their time, and therefore individuals, quote, "need to be protected or regulated." And I think, you know, what we're seeing right now is probably by virtue of the over-regulation, I think, in the last... where, you know, no one could get cr- There's, there's a feeling now that we're gonna wrench the needle back the other way to perhaps a lot less protections. I think it's a happy medium. It's a hard thing to decide, 'cause, you know, in protecting those individual investors from the grift, as you put it, Jason, of a fund that has an arbitrary markup that's not there, you also, quote, "protected them" from being able to invest in that Databricks round, that, you know, 500 pre that's now 100X. And getting that... I mean, rather than doing what I think we do a lot of, which is this g- you know, black or white thing, it's pretty tricky. It's a tricky regulatory balance to say, how do you allow people a fair amount of freedom to, yeah, pursue what they wanna do, treat them like adults, assume the disclosure is there, while at the same time avoiding those horrible stories of, you know, little old granny gave her money to XYZ Wire Co., and they just lost all her savings, and now she's penniless on the street. You know, so

6. 29:24 – 35:44

   Should OpenAI staff be cashing out billions in secondaries?

   1. RORory O’Driscoll29:24

      it's tricky.

   2. HSHarry Stebbings29:24

      I am gonna take it back to regular programming, Rory, 'cause I don't wanna piss you off too much. Uh, my mother can't be too thrilled to see me getting a beating. Um, I wanna go... Actually, we said there kind of about the, like, extended period of privatization for companies, SPACs being a different mechanism of getting liquidity. There's a $6 billion secondary for staff at OpenAI. Um, and a lot of them are gonna make great money, uh, at scale. What do we think of staff secondaries at this level of scale, which is in the multiple hundreds, if not low thousands now, or low thousand, um, getting this level of secondary? First start there.

   3. RORory O’Driscoll30:03

      Good for them. And it's, you know, uh, they... I mean, and it probably speaks... Look, again, it speaks to willing buyer, willing seller, a couple things, and informed buyer. And it also speaks to... Look, gi- we've talked about this. Given the competitive pressure that Meta has exerted on AI salaries by being willing to offer people cash positions, you know, allegedly, and I haven't... you know, 10 to $100 million. If you're sitting there in OpenAI, yeah, you can talk about the mission till you're blue in the face, but it's gonna help a lot.If, if you can also take off 10 million bucks, so you're going home... I mean, you know, 'cause it's all the... One thing I've learned about large amounts of money, as I see this in acquisitions, is one of my rules is this: what people say they'll do when faced with a large amount of money is meaningless and bears no relevance either way to what they'll actually do. Predicting who wants to sell their company based on what they say in the abstract is a waste of time. When you get... So taking these offers, when you get the $10 million or $100 million offer from Meta, it rocks you back, I'd say. And, you know, you go home, you talk to your spouse, "Do we wanna do this? This changes the rest of our life." And that's real competition. So if you're OpenAI, you know, you can preach the mission, but at some point you gotta match the dollars. And that's... I mean, you know, if you think about it, $6 billion, it's only 60 $100 million engineers. It's only 600 $10 million engineers. I mean, stunningly, you know, to Za- to Zuckerberg's comment, it ain't that much, which is hilarious, but wow.

   4. HSHarry Stebbings31:38

      Jason, he's turning into you.

   5. RORory O’Driscoll31:39

      [laughs]

   6. HSHarry Stebbings31:40

      This is, this is the full-scale transformation of Rory.

   7. JLJason Lemkin31:43

      Well, you know what? I... There's the competition issue, which is critical. Rory's... I, I, I just think stepping back for a minute, it is nice that, um, as companies get bigger, stay public a little- private a little longer, if, if literally this is institutionalized. I mean, we talked about tender offers and all that. I think more if it, if it ac- if they actually act more like the public markets where every month you vest, right? And you gotta stay to your cliff and, and all that stuff works. But, uh, if it's, it's pseudo public, right? And so you make it 13 months, you sell a 48th of your stock, or a 60th, or whatever it is. That is, um, it sounds, uh, audacious, but if you step back for a minute, that would be a nice outcome, right? Where it just works that way as a late-stage company. Forget about tender offers. It was just almost automatic every month you could sell your vested shares.

   8. RORory O’Driscoll32:30

      Agreed. I mean, to, to, to use a silly example, uh, but we just started early. In 2000 and... As I say, Apple was 800 billion market cap going into '18. So let's go back to about 2014, it had a $500 billion market cap. You didn't have an objection to those people selling in the public markets. The only difference between this $500 billion market cap and that $500 billion market cap is, for stupid, absurd reasons, it's still private. So I'm totally with Jason. If we collectively wanna recreate the entire mechanism of the public market at massively more expense, massively more transactional cost, then more power to us, and part of that is being able to sell.

   9. HSHarry Stebbings33:07

      When suddenly a large portion of your employees are multi multi-millionaires, does that impact the cadence of their work?

   10. RORory O’Driscoll33:16

       I think money brings out what people really are, because it stops you having to do things you don't wanna do. So the people who love their work are gonna work just as hard or harder because they'll be able to throw money at all the other little problems that take up your daily time, right? And there'll be peop- And, and then other people who have, maybe have other dreams in their life will go do other things. That's what always happens. And if you look... And, you know, it, 'cause it's not a binary thing. People ask this question. You know, we see founders get rich and then just keep on trucking, not sell a single share, and just compete aggressively the whole way through. And then you see other people go, "You know, I never thought I'd have 20 million. I have 20 million. I wanna go teach high school." And that's just the way it's gonna be.

   11. JLJason Lemkin33:58

       I do think what we're seeing, to Harry's point, I do... And I don't know, th- saying this is bad, it is a cultural change or a tech change. I do think the, essentially, the, the handcuffs of staying at a startup for a while so that you can see it through a liquidity event, so that... And you would stay longer. If you left, you might not have the money to exercise. If you left, other things might happen. I think at the margin, those things are all weakening, as are implicit tenures for employees. It's all changing, right? But as VCs, like, you know, historically, we've used the pool as, as kind of a retention weapon. You know? "Guys, if you stay, if you stay, you'll make a lot of money. If you leave and you can't afford your exercise price, well, great, I get half of it back. I get all of it back for my pool to give to the folks that stay," right? And the, some PE firms are extreme there. Like, they have a lot of lever clauses. You leave, you get nothing. [laughs] And we- This is kind of the opposite, right? Um, and I don't know if it's bad, but it is different as a way to lock employees down with illiquid equity.

   12. RORory O’Driscoll34:57

       I, I, I totally agree, Jason. It is di- I love that. It is different, I love it. And you're right. And I think the, the kind of we're all locked in this, and you, if you leave, you get... It made sense where it was a four or five-year sprint in the mid-'90s and you would go public at 50 million in revenue. I don't think it's realistic to have that attitude in a world where you can be 12, 15 years. So I think this evolution, you know, to allow people to access their capital is just a more realistic... And, you know, and other things like refresh grants get into the same thing. It's not just a four-year sprint anymore, it's a 15-year marathon, and you can't expect people to put 15 years of their life on hold, and you have to allo- you know, and, and not, not be able to do the things you wanna do in life. And so you have to have these kind of events. I totally agree with you.

7. 35:44 – 38:40

   Founder raises $130M… then walks away. Is this the new normal?

   1. RORory O’Driscoll35:44

      I mean-

   2. HSHarry Stebbings35:44

      Is it, is it, is it a 15-year marathon when Story founder raises 130 million and walks away? Ex-CEO-

   3. RORory O’Driscoll35:52

      Well, it's only a marathon if you finish the marathon, Harry. It turns out, if you punch out after the first mile [laughs] then it's not a marathon anymore. Yeah, it's a failed marathon.

   4. HSHarry Stebbings36:01

      How did we think about that? It was a big announcement, $130 million raised, and he leaves pretty abruptly.

   5. JLJason Lemkin36:09

      Well, look, it makes sense in this era. We should see 10 or 15 Hoppins, not just one, Harry. It just makes sense. We should see... It ju- If, if Hoppin was our... I mean, there's other Hoppins. We can talk about some other ones. Well, that one's just a, a, a prominent one. We can think of several folks in the SaaS boom of 2020, '21 that walked away with too much money, right? Um, but it makes sense there should be double digits in this era, right? We, there should be 10, 20 founders who walk away with nine figures, whether they're, whether they're WeWorks or Hoppins, there's, there's gotta be 20 or more of them, and it's, it's a cost of doing deals over the... I, I find all hot deals now are done on Saturdays.They're all... This is the new founder vibe. You get an email, even if I know them, uh, "What's going on?" "Well, we're, we're taking meetings on Saturday." And I'm like, "Can we..." You know, I, I, I work hard. You- we all three of you do, but, like, this Saturday I can't [chuckles] do... Like, well, we're... I mean, it's, if you're gonna close every deal on a Saturday, we're gonna lose a few hundred million here or there. [laughs]

   6. HSHarry Stebbings37:05

      I, I find that hilarious. Um, I, I'm with you on the Saturday deals. Um-

   7. JLJason Lemkin37:09

      There's gotta be 10 Hopkins, doesn't there? Just mathematically there has to be.

   8. RORory O’Driscoll37:12

      And maybe just stepping back to just-

   9. JLJason Lemkin37:14

      [laughs]

   10. RORory O’Driscoll37:14

       ... you should explain, 'cause pe- not... 'cause most people might be like me, where, like, I haven't spent a second thinking about Story, right? So implicit in that is it's a company that raised 135 million. Sounds like the founder took off significant money, and lo and behold, as of today, he's a- he's not at the company anymore. Is that the summary?

   11. JLJason Lemkin37:33

       Well, he's, he has a new passion. He wants to start something different, Rory, all over again. And, uh, he'll... He, he might cons- sell it, sell the rest to Windsurf or somebody, but he's, he's moving on to his passion project.

   12. RORory O’Driscoll37:44

       Yeah. I, I... And now you're being a snark. I actually thought your first res-

   13. JLJason Lemkin37:47

       Sort of. [chuckles] Sort of

   14. RORory O’Driscoll37:48

       ... No, but I thought... Genuine comment, I thought your first response was the correct one, which is, "I didn't even know about this. There's gonna be tons of these."

   15. JLJason Lemkin37:55

       Absolutely.

   16. RORory O’Driscoll37:55

       I didn't even break sweat thinking about it, Harry, right? It's like, I'm shocked to discover that some deals don't work, some founders end up either leaving or getting transitioned out, and some money gets lost. Uh, to me, it didn't even rise to the level of a story. I mean, it's fun to snark, but, like, literally, it's like Jason's right. You know, your typical venture loss rate, you know, your 30% of your deals don't work out on... And that's on the, kind of where we play, As and Bs. It's probably 50% plus in C. So, you know... And I remember in 2001 and 2, the loss rate spiked to 60. So the fact that loads of companies that have raised $100 million go bust and, you know, in tawdry circumstances, yeah, whatever.

   17. JLJason Lemkin38:36

       [laughs]

   18. RORory O’Driscoll38:37

       Didn't even rise to the level of interesting.

   19. HSHarry Stebbings38:39

       Okay.

8. 38:40 – 52:36

   Nubank’s $2.5B profit: The best FinTech in the world?

   1. HSHarry Stebbings38:40

      Speaking of rising to the level of interesting then, one for me that really did, which I, I love, is Nubank reported earnings on Thursday. Blowout quarter. Net income reached two and a half billion, up 42% year on year, 123 million customers. It's incredible. I'd love to hear your thoughts on this blowout quarter for Nubank and how you feel.

   2. RORory O’Driscoll39:03

      Sure. And I'm not gonna do so much the quarters, just stepping back and talking about these FinTechs. And maybe, you know, it's interesting and obviously as people, I'm sure know, Nubank is a dominant FinTech, which is a next generation bank in Brazil, Colombia, and Mexico. And it's just interesting to kind of sweep up with Revolut, a dominant, you know, um, FinTech bank and next generation bank in Europe, and maybe even Chime in the US, right? And I've, kinda... You, you pinged me on this, and it got me thinking, you know, what do all these have in common? What do all these have different, right? I think what they all have in common is in the last decade, they found the weak, soggy, badly run, unprofitable parts of the existing banking infrastructure and attacked them voraciously, right? And, and if you look at the three companies and the outcomes, you know, Nubank is public and worth 60 billion. Revolut, private, maybe worth the same. And Chime, you know, in the public in the US, worth 10. The interesting thing is they're all different. They all found a different weak spot and, uh, and... 'Cause in each of the three continents, there's a... You know, it's a different dynamic. And in my view, it's no surprise that Nubank is the most profitable, and perhaps we can talk about Revolut in a second, the most stable, because frankly, the incumbent banks were weakest in LatAm. They were old. They were stodgy. They weren't serving their consumers. And pe- they were... These guys came in over the top, and they didn't just build a deposit base like Chime did. They've done the who- the full monty. They do deposits. They do lending. They've basically built a next generation bank. They've cleaned the clock on the average middle-class consumer in Brazil versus the old guys, and as a result of that, they are now, depending on the day, the largest or second largest market cap bank in LatAm, right? So I th- what I like about Nubank in the context of the other two is that's what winning looks like. 'Cause banking is inher- inherently geographical. So what you can now say truthfully is a fully developed bank that doesn't just do deposits, does... but does the full, you know, gamut of financial services can end up with a market cap equivalent to the largest bank on the c- on the continent, right? Although it's probably still 5X smaller in terms of assets. That's winning, right? And if you contrast that, I mean, you know... And it's, uh, take Chime now, the o- the other extreme, right? $11 billion public outcome, great outcome, great company, but the US banks are pretty well run, right? Their niche, there wasn't as big a niche there, right? So where were they able to thrive? Two things. One is with the Durbin amendment, they had this arbitrage on deposits, and they were able to, you know, make money on debit cards and, and, and therefore, without ever doing lending. The interesting thing is unlike Nubank, they've built a profitable business without ever doing lending, which is the bread and butter of most banks. They've built a perfectly good business on deposit accounts and debit cards, living off the interchange. Now, it's at $11 billion. Despite the US being, you know, I don't know, the day 10X larger GDP country, it's... Chime is only an $11 billion market cap company 'cause... And I think that speaks to they were playing in a less profit rich environment. There just wasn't as much money. I mean, JPMorgan might have seeded some of their, you know, mid-tier customers, but these guys didn't roll over everybody 'cause they, the banks here just weren't as in- inefficient as in LatAm. And then Revolut, obviously their edge very much in Europe was trans-country, moving money between different countries initially, and now obviously I understand... Yeah, I've seen the numbers, Harry, don't worry. They're roughly similar size to Nubank. Less lending, more FX, more crypto.And a-another wonderful business, 'cause I think the European banks frankly weren't as efficient as the US, and the opportunity for Revolut, slightly different than, than Nubank, but was big. And that's why it kinda take-- and it's-- if you look at all three together, you kinda go, "Wow, big outcomes here."

   3. HSHarry Stebbings43:03

      I think when you look at all three together that you do actually go, wow, Nubank is an incredible business. Uh, Chime, respectfully, just much different scale. 123 million customers for Nubank just really shows the scale difference. Um, I would say that, as you said, the FX and the crypto being the core, uh, revenue driver for Revolut versus now moving more and more into secured and unsecured loans for Nubank being really, really hard and such a defensible growth driver for them, which is so impressive. And not-

   4. RORory O’Driscoll43:32

      And honestly, the p- the punt is Nubank is all bank. It is a ma- I mean, both Revolut and Chime exist, and I don't mean this m- on the fringes. The opportunity, right. Whereas Nubank is like, no, we're-- If, if the CEO of Bank of America in 1908, Giannini, went to Brazil today, he'd be like, "I know exactly what these guys are doing, the bank and the middle class, top to bottom." Right? You know, it's, it's an incredible story. Interesting as you size up the Revolut opportunity, I mean, I-- it's, it's a very crude metric, simplistic, but the fact that Nubank has a larger market cap than or equivalent market cap to the largest market cap bank, I think it's Unibanco, in LatAm, just speaks to the opportunity when you can make it happen.

   5. HSHarry Stebbings44:13

      At sixty-three billion, do you not still think it's actually quite underpriced given where it could be?

   6. RORory O’Driscoll44:19

      On an earnings basis, I can see why you say that. In the end-- But again, back to-- The only negative about being all bank is in the end if you're not careful, you end up trading like all bank. And you know, traditional banks, once they become mediocre, mature businesses, they trade on a multiple of book, and Nubank would be very overvalued on that basis. So I do think there's upside there because y-you know, they're only in three Lata- um, LatAm countries. There is, yeah, th-there are other countries to... Th-there's more room to run. So from a revenue and OI perspective, yes. I-- you do, you do wonder when do the dynamics of just being a bank start to catch up with them. You know, do they get regulated? Do they start doing bad loans? You know, do they do, do they all-- I mean, invariably banks at scale do dumb stuff. It's kind of their genetic disposition. And as-if they can avoid-- Maybe the, maybe the better answer is this: If they can continue to do what they're doing and avoid doing dumb bank stuff, yeah, you could see a two X from here. Which would be wow. Which would be, you know, just a wow outcome.

   7. HSHarry Stebbings45:19

      I, I agree, and I, I think much more. I, I actually, I think when you look at Revolut's product expansion versus, um, Nubank's product expansion and how few products Nubank have compared to Revolut, and they could have very much similar, and also in terms of revenue potential with each of them, wow, it could actually be a three to four hundred billion dollar company.

   8. JLJason Lemkin45:37

      These are, these are at the edge of consumer investing. It's not my strength. But the one thing I think about and, and why I'm especially impressed with the seed investors, right, is if, if Nubank has thirty-five percent market share of Gen Z in Brazil and Revolut's all across Europe, but if tw- almost twenty percent of everyone in the UK has a Revolut account, right, y-y-you don't wanna be number two or number three. [laughs] And, and, and, you know, if ch- and, and ch- you can compare it to Chime, but if Chime has, uh, less than five percent of US holders having an account, it's very different. So these are incredible outcomes. Predicting this at seed or pre-seed may be beyond my skill set. It's pretty impressive because you wanna see... This is massive market share in the largest part of the economy, right? This is like a double-- You-- On the two by two, you wanna be number one [laughs] in, you know, in, in the entire plumbing of, uh, of a nation's, uh, financial ecosystem. Uh, that's an S-tier bet to make at seed, isn't it? You're not just rolling up to the latest plumber software and seeing eighteen percent month over month growth [laughs] in their AI-fueled agent and saying, "Let's do this one." This one is knocking it out of the park from the, uh, pre-seed, seed stage.

   9. RORory O’Driscoll46:48

      But I think the smart thing all of them did was, you know, obviously have huge aspirations, but find a very profitable entry niche. And I think for Revolut, it was definitely, you know, trans-country money movement. You find so- the way it described, you just find something that just the banks just do so badly, and they're just robbing you blind as an individual. Like I'm, I'm not a Revolut user, but I'm a TransferWise user when I'm sending money back to Ireland. It's just so much a better product than the banks. It's just you type it in, the money goes, right? And Revolut just... What they've done really well is starting off with a niche product that is very, you know, gross margin, CAC to LTV positive, and frankly gets a bit of consumer love. 'Cause you just hate getting ripped off when you're moving money, and then suddenly it's good. And then building, I, I-- what Harry said is you just build, you know, for year after year, for a decade plus, just add all the other shit over time, and you wake up one day and realize, oh my God, it's not my account for moving money overseas, it's my account for money. And then it's my account where I do my crypto, if you do it, and then suddenly you just, for that, as you say, for that next generation, it becomes their primary bank. It takes, it takes a generation, but it's unstoppable.

   10. HSHarry Stebbings47:57

       When I had Nik on the show from Revolut, he said, "We think about banking like snacks."

   11. RORory O’Driscoll48:01

       Yeah.

   12. HSHarry Stebbings48:01

       "We want you to s- with a little snack, which is, you know, FX."

   13. RORory O’Driscoll48:04

       Yeah.

   14. HSHarry Stebbings48:05

       "And more, more you use it, and you see that actually this snack's great, and I can, I can, I can have this really routinely." And then suddenly the snack becomes the meal, and then the meal becomes the whole meal. And now it's reported that thirty-five percent of users have it as their primary account, which is interesting compared to fifty percent of Nubanks, but still really impressive.

   15. RORory O’Driscoll48:22

       And what's also interesting about this is in a world where banks were tied to physical infrastructure, you couldn't have a bank for a specific demographic type 'cause you had to have a bank for a specific geographic type. You know, if you're the bank for Northern California, you're the bank for Northern California. You deal with old people, you deal with young people. On the internet, instead of slicingBy geography, which is how banks have been, you know, for time immemorial and how US banks are regulated, you can slice based on demographics or based on propensity to buy a certain product. And it really just turned the table and, you know, you're seeing it... And you also see it in Europe. Instead of being the, you know, there was a bank for the UK, there was a bank for Germany, they catered to Harry, they catered to his mother, they catered to his grandmother, they c- catered to the local SMB. Revolut was just able to carve out, this is the niche, people who wanna move money from A to B, regardless of what country you're in. Uh, within reason, obviously, some regulatory issues. So it was... I mean, the big aha is the acceptance of internet, which has taken, frankly, 15 years longer than all the people who funded the neobanks in '99 and 2000, and I remember being there, thought it took, you know, 20 years longer than people thought, or maybe 10 years longer, for people to get accepting of it. But once they did, you just, as you say, Jason, had this opportunity to disrupt significantly, you know, o- o- o- one of the top three market cap sectors, fintech, uh, financial services on the planet. So it's, it's, they've, there's been great compounders.

   16. HSHarry Stebbings49:49

       Final thing and then we'll move on, but it just astounded me this. Revolut internally has 26 new products that they are kind of baking in their venture lab, and they have insane testing, metric testing every week with Nick to determine what makes it to main stage, and they run them like little venture teams with d- different funding goals. It is where Nick is truly world-class. Out of all the founders that I've interviewed, and I've interviewed, you know, Jason, me and you've both interviewed thousands, you know, hundreds and thousands, um, he's the best I've ever met. Unbelievable.

   17. JLJason Lemkin50:20

       I'm pretty impressed. You know, I, I... This playbook, I'm impressed with how many of the S-tier founders can run it where they get 20, 30, 40 X founders together and have them run, be little GMs of their product line. I mean, it, uh, uh, you know, we've all had... I mean, if as founders w- I, I'll... Everyone had one or two of these. Like, they'd find one founder, and they'd trick them into coming and running something for them. But, uh, the, the, the, the Ripplings, even Owner or I'm on the board, others where you're seeing double-digit numbers of CEOs join to be GM. Sounds like at Revolut too. It's, it's a disruptive way to build a company at scale. It's... And get... And it's a superpower to be able to convince them to join. It's a superpower to get to, for CEOs to do this. It's not easy.

   18. RORory O’Driscoll51:05

       Yeah, absolutely. We've seen some of that in the portfolio too where we're like-

   19. JLJason Lemkin51:08

       Yeah, getting like 10 or 20 of these guys to join. [laughs]

   20. HSHarry Stebbings51:12

       You said about the edges of consumer there. I, I, you know, consumer, you know, fintech's been super hot for a while now. We're seeing it now with Revolut's and your new banks of the world and your Circles, and we can continue. Um, consumer's been shit. Everyone has been shitting on consumer, um, and especially consumer goods. And On seems to be the anomaly that just keeps on giving. They have 4 billion of sales, up 38% year on year. A software like margin, 61 and a half percent. They're worth $15 billion. Is this a shining light in a beacon of darkness for consumer, or is there a pathway for consumer brands in venture?

   21. RORory O’Driscoll51:53

       I don't know how you get from On to c- brands in venture. I mean, look, uh, it's clearly an amazing company. You look at the nu- the story, founded in 2010, public in '21. You know, just killing it in their, you know, high-end running shoe marketplace. I, yeah, I, I think it's a thing. I don't know... And look, but I don't know how applicable that is. I don't know is the insight from that that I sh- you know, someone should raise a fund doing consumer goods or, or in particular are they going to... Or is it just... Yeah, not everything in life is knowable, predictable, or lends itself well to venture type investing. I think some things are categories of one, and they're very hard to access, and that's the kind of deal where you just go, "Good on them." I'm not sure you build a repeatable venture fund around that.

9. 52:36 – 1:12:07

   CoreWeave takes on $11B in debt: smart bet or ticking time bomb?

   1. HSHarry Stebbings52:36

      Speaking of categories of one then, CoreWeave is up to 11.2 billion. I know I'm switching, but I'm just interested. Uh, and I'm, I'm on schedule, Rory, so, like, to be fair, it's in the notes.

   2. RORory O’Driscoll52:48

      Before we go to CoreWeave, I actually, a better thought there, because I lost which... I should think a little more about your comment on On s- versus Jason's comment on fintech. I think one of the things venture, most venture, not all of it, most venture needs is some kind of mega trend that's pushing these companies along where you can say, "These things are happening at a wider scale, and therefore companies will be formed in this space," and you can have some a priori belief that they'll be big. And I think even though it was hard to predict, I think the Chime/Revolut opportunity was knowable. You have digitization, you have the internet. You know, you could see there was this kind of forming consensus that there would be stuff in fintech. I remember looking at Simple, which is a predecessor of Chime. It didn't work out. Banco Santander bought it. But there was like, yeah, this thing could happen over the next 10 years, and venture can think about it, form a little thesis, you know, a- and someone will be there ready to intercept the Chime or the Revolut ball, 'cause the trend makes sense. I think something like On, it's very hard to predict. There's not a whole set of trends. It's very much, you know, category of one. You can say, hey, running is a trend, or high-end shoes are a trend, but it's just not as scalable. So I think that's po- I didn't explain it as well the first time. That's perhaps a better explanation of why consumer fintech can be an investable venture trend and high-end running shoes are gonna probably be a one-off anomaly. Sorry. You can go back to CoreWeave now, but I... Just, it's just so much more interesting than high-end... Yeah.

   3. HSHarry Stebbings54:17

      Um, CoreWeave, uh, 11.2 billion in debt. Um, we're also seeing a load of other players join them or join the model. Uh, Nabias being one, um, which is kind of a weird structure. Mistral is moving more and more close to them. First, how do we feel about the news that CoreWeave's up to $11.2 billion in debt first?

   4. RORory O’Driscoll54:38

      The quick answer is duh. And I'll tell you what I mean by that. If you just look at their... I love their very succinct, uh, whatever's Q2, Q3 investor presentation. It's like, "Here, we did a billion this quarter."We're gonna do $4 or $5 billion for the year, duly noted. Loss of $800, $900 million, not that much. And then you look next, CapEx plan for the year, $22 billion. Hmm, okay. They're spending... I mean, you know, once you decide to spend $22 billion in CapEx, you're gonna have $11 billion in debt. I mean, the way you think about CoreWeave is they're the guys that are doing the pointy end of the bet that Meta, OpenAI, Anthropic, all these guys are talking about, "We want to deploy a shit ton of GPUs in a sh- lot of data centers." CoreWeave are stepping up and saying, "We will be the financing vehicle to make that happen." I love the Barron's headline. The Barron's headline said, I think it was Barron's, they said it all, "CoreWeave borrows $5 billion in debt. It won't be the last time." Right? This model, I mean, it, it... And there's nothing wrong with it. It's a real estate company. They're in the business of a s- very s- very sophisticated, clever, risk-managing real estate company. They're in the b- business of borrowing large amounts of money, building data centers, signing long-term leases. If you're going to grow revenue from $5 billion to $10 billion, you probably have to grow CapEx from $10 billion to $20. So they're gonna be doing more of this.

   5. HSHarry Stebbings56:00

      Does the debt matter? And what I mean by that is, just pause, when I interviewed the founder, he was like, "We borrow when we have long-term demand."

   6. RORory O’Driscoll56:10

      Yes.

   7. HSHarry Stebbings56:10

      What's the issue?

   8. RORory O’Driscoll56:13

      I think obviously if he can match his debt structure with his demands from customers who will c- do take or pay, then it doesn't matter. I mean, it's all... Look, risk management is all a matter of degree. There's no hard or fast, and people are trying to do hard or fast. It's just not kind of doable. It's absurd. You can't do this business without debt, right? But, you know, what will kill you, and I, I actually, I can't remember who did it on Latent Space, but someone did a really nice discussion on this. If you have long-term expenses and your customers are, you know, short-term inference customers, then you've done the classic banking thing. You've, you know, you've borrowed long and lent short. Um, yeah, you've lent long and borrowed short, and you can be caught short, right? Your customers can evaporate in a month, and you still have a 10-year lease. If these guys really are signing up Microsoft and OpenAI to a seven-year contract, and they have a seven-year debt profile, then provided they match it, they can manage. Which of the two is going on, I don't know. I don't have visibility, right? But that's the bet you're taking is that, you know, I'm sure they disclose things like what percentage of your long-term fixed charges are met by take or pays. Now, you know, implicit in that is the c- company at the other side of the take or play is willing to continue to take it or play it, right? If times got tough and people didn't want all that capacity, it's been my experience that people fight really hard to avoid paying it. So it's not riskless, but they strike me as having a fairly w- they seem to well understand the risk they're doing, whether they can in fact fully hedge activity. Sorry, Jason.

   9. JLJason Lemkin57:48

      My, my only question or my only... I'm just watching, I'm just learning. Th- they need this debt. They're gonna take another $10 billion this year, they already said, right? They gotta buy the GPUs, and they gotta... The hyperscalers are offloading some of this risk to CoreWeave, um, and they're guaranteeing it as part of it. There, there's, there's a slightly cynical view of offloading your risk but guaranteeing it, put it in air quotes. But I'm really just to learn, I just see it as the canary in the coal, coal mine, right? OpenAI will find the capital it needs. Microsoft will certainly find the capital it needs, right? But CoreWeave, if, if CoreWeave struggles, if it, if it can't service its debt, if it can't raise more debt through this weird, uh, through, through the, through the, through the hyperscalers guaranteeing it, that's where we'll see. Even if there's just a bump in this, in this cycle that's not, that, that doesn't last, what, what... I think we'll see the, the bump in CoreWeave before we see it in the folks', uh, one level up market. You're not gonna see it in Microsoft. OpenAI isn't public, right? You're not, you'll, you're, you'll... You're not gonna see it in Google. They're too big. But you could see that canary in coal, in the coal mine right in this public w- one due to ex- exposure.

   10. RORory O’Driscoll58:51

       That's very true, or even in the, uh, to, to Harry's point, even in the wannabe CoreWeaves, 'cause CoreWeave at least has public liquidity. But yes, it, it's, i- in a downturn it's amazing how quickly liquidity evaporates for this kind of product.

   11. JLJason Lemkin59:04

       Yeah, so if they have a really rough quarter, we'll, we may see something there that you wouldn't otherwise see, right, in their end customers. We might see it a quarter or two early and not show up, right?

   12. HSHarry Stebbings59:13

       I, I'm, I'm sorry, teach me, Rory. Why would you see the supply of cash go away in a down market for this type of product given the quality of customers that are guaranteeing revenue being micro-

   13. RORory O’Driscoll59:29

       A- a- agreed. If they have... Well, what? If they have the customers... For, for the companies who have... If you have a seven-year, if you have a seven-year contract... Easy, Harry. If you have a seven-year contract with Microsoft that's a take or pay, and you have a seven-year debt, and it's perfectly amortized, and the contract's ironclad, you're right, there's no risk on that contract. Let's just say you're three years in, and Microsoft is not using its take or pay, but it's still paying its commitments 'cause it's Microsoft. It's the only triple A credit out there, better than the government. It pays its bills. So you're fine on that asset. But I'll tell you one thing you won't be doing. You won't be building another one, right? And that's my point. So in other... It's not like, perfectly matched businesses will be fine, but if there's some up-and-comer who's maybe built another data center a little bit on the con 'cause they thought they'd get some contracts 'cause Microsoft was gonna continue on s- expanding, and then suddenly that's not there, that's the guy who'd be struggling, right? So to be very clear, if, again, if, if you're, if they're well-matched, then despite the debt they'll be fine. But the point is, it, it, it comes right back to the Databricks discussion. All this depends on three to five more years of continued AI CapEx expansion. If that's the case, everything works, and if that's not the case, all bets are off.

   14. JLJason Lemkin1:00:42

       Yeah. Or even if, listen, it's, I, uh, obviously, uh, I think a lot of this is disclosed in a way that's most favorable to the company, right? Um, if they say all their c-cus- customers are four-year or longer contracts, 98% are take or pay, that sounds great to the public markets.It, m- one, going to Rory's point, there may be asterisks and daggers in those agreements, right? No matter what it says. They may not be as ironclad as they look. Two, even if they're not, if they pay rather than take, that's a canary in the coal mine, right? If the quarterly release is [laughs] OpenAI has determined it's cheaper to pay [laughs] rather than, than to take, um, that would just be an interesting canary to see that maybe there's a bump, maybe there's a bump in the road. Even paying is a canary rather than taking.

   15. RORory O’Driscoll1:01:23

       And, and you always feel kind of a bit of a Luddite even raising this risk, or at least I do, 'cause I know now that the, the, the, the trend is so strongly expand, compute, you know, and people are talking next year bigger than this year in terms of hyperscalers scaling. So I'm not like saying it's the most likely outcome, but it is simply true, you have to at least encompass it as a possible outcome. I mean, you have to have two scenarios. One, continued enormous growth, and then what would it look like if it didn't? And when that happens, you just don't want to be the marginal player, 'cause not everyone will go to the wall, but the marginal player will. You want to be Goldman Sachs, not Lehman Brothers.

   16. HSHarry Stebbings1:01:57

       I was speaking to the CEO of one of these largest players. I can't name them, otherwise they will literally sue my ass. But he was like, "Harry, you, you literally just don't understand. The only thing that is limiting me now is, like, supply, like, supply of com- uh, compute. I am so- I'm so voracious for it. You don't understand. I feel like a drug addict, chasing, chasing, chasing. Nothing is enough. And the scale of my demands is so much more than anyone knows."

   17. RORory O’Driscoll1:02:24

       Yes, that would be true today, and it would be true, uh-

   18. HSHarry Stebbings1:02:28

       So if we then were to extrapolate that to a little game, Rory, 'cause I know you love games, is CoreWeave over or under 60 billion market cap next year? It's at 43 today.

   19. RORory O’Driscoll1:02:43

       I don't, uh, I don't, I don't have a meaningful answer to that question. Um-

   20. HSHarry Stebbings1:02:48

       Well, you're a venture capitalist. We don't always have to. That's-

   21. RORory O’Driscoll1:02:51

       But, but actually, one of the things I'm learning, especially on this podcast, is not to opine, like, it, it, it is to not to try and feel the need to have an opinion just to fill the space. I, I would say the logical answer is there's probably a third or, or more chance it doesn't, right? It's not 100%. Like, it's not, I d- I'm not determined, you know, I'm not, like, absolutely certain. But I can contemplate at least a one in three chance that sometime in the next 12, maybe 24 months, that demand slows down just enough that people penciling stuff out to the sky suddenly realize maybe it will taper down, and at that point, a lot of these multiples could compress. So I'm not gonna say it's going to, 'cause that's the question you asked, but I am going to say the probability of a, of continued infinite AI demand, the probability of Sam Altman's trillions might be high, but it's not more than two-thirds. There's at least a one-third chance that we end up in a period of time where, you know, demand slows, and at that point, some of these stocks probably wouldn't trade at those valuations. That's all.

   22. JLJason Lemkin1:04:00

       Not that I'm an expert in public market investing, but I would just say, look, o- obviously CoreWeave is riding the right trend, right? It's, it's, it, it is, it is, you know, it is inherently tied to, to [laughs] Microsoft as its dominant customer, um, and, and OpenAI, who's guaranteed it 12 billion of revenue, so it's got a run. But this thing just went IPO, and it peaked June 20th at $183 a share. It's half that today. It's half that today in two months. So the variability here, the beta, the alpha, it's very confusing because, um, you know, uh, my knee-jerk response is, sure, bet o- bet on CoreWeave. The, the trend's there. Sam Altman just said he's gonna spend a trillion bucks on infrastructure. He's got to extend a few of those nickels to CoreWeave. But it's already down 50% since its peak, even though the macro trends are strong, and we're all investors in NASDAQ QQQ. Like, we're all up massively. If, if, uh, just in our 401ks or our pri- we've all, we're all making so much money off AI just being in Nvidia, Microsoft, uh, and, and, and, and, uh, the top seven. Why, why CoreWeave doesn't seem to be doing better if it's down 50% from its peak? So, um, maybe we're fine just all living in our, in our QQQ. [laughs] I mean, that's the only... You know, the weird thing about the stock market today is that's all the gains. The long tail is not doing well in the US. It's a weird world. It's not the long tail, and we're, so we're all, this whole economy is being inflated in a good way. We're all living in the bubble. It's not just, it's not just the VCs. We're all living... Anyone with exposure to VTI or QQQ is living in an AI bubble, whether they realize it or not. We're all benefiting from this one. 'Cause of the hyperscalers, right? We're all, we all have Microsoft stock, we all have Nvidia stock, we all have Google stock, and we even have Meta stock, even if we don't realize it. I think n- isn't Nvidia like 15% of QQQ or something like that?

   23. RORory O’Driscoll1:05:52

       Yeah. See, N- Nvidia and Mi- and I think it's Nvidia and Microsoft are 15.8%.

   24. JLJason Lemkin1:05:56

       15.

   25. RORory O’Driscoll1:05:57

       Yeah.

   26. JLJason Lemkin1:05:57

       Yeah. So we're all, we're all deep in it. [laughs]

   27. RORory O’Driscoll1:05:59

       And it's 35, 36% for the top out of five or seven. I can't remember which.

   28. JLJason Lemkin1:06:04

       Yeah.

   29. RORory O’Driscoll1:06:05

       No, it's, it's, it's astonishing. And, you know, what do you do with that in- I mean, so the question is what-

   30. JLJason Lemkin1:06:09

       Well, do we need CoreWeave? [laughs]
10. 1:12:07 – 1:26:43

    Will AI spend really hit trillions—or is it all hype?

    1. HSHarry Stebbings1:12:07

       To me, to me it all goes back to this very wise statement that you said, Rory, which is the only thing that matters in this next wave is that we are gonna see the transition from technology budgets to human labor budgets. And if you see that transition, you've got $10 trillion of value unlocked, and then spending trillions over a long period of time becomes a lot more feasible or rational. Um, and if not, then absolutely not.

    2. JLJason Lemkin1:12:31

       It's just early. That one is so interesting and I... Listen, I'm only so smart. I was skeptical a few months ago of that. I was skeptical. I'm not seeing it in B2B software. I'm not seeing... We're gonna have, uh, we're gonna have Mark Benioff, which will be great, right? But I don't think he's gonna tell us half of Salesforce's growth is gonna become replacing humans with Agentforce today, right? So if we look at our portfolio companies, I know we can, we can make up some stories. We're not seeing trillions of human replacements with, uh, AI robots today. Not yet.But man, I can, I can see it much more than I could 90 days ago. I, I can see it so much. I mean, we have 10 AI agents at our little team that have replaced five humans, and it's gonna go up. And we only had one person at our standup yesterday because it was all AIs and us, and it's just... It's, it's early, but it, this wave may accelerate in a, you know, this, I think six months ago it was VCs talking their hand, right? In six months, this could be what all CIOs want. All CIOs could be like, "You gotta be AI first." Not just the Tobys and the others. They all could be like, "I'm not giving you a dollar of budget until you find me an AI solution first, then we'll talk about humans." This could become mainstream.

    3. RORory O’Driscoll1:13:39

       I think it's a pace question, 'cause I will admit, I, I'm... One of the reasons I like doing this is I come on and I change my mind, and Jason, your comments, I thought last week on Shopify were the bomb, you know, the numbers, and then your comments on your own organization and how you've been able to automate have really made me pause my thinking, right? And I, I, I've become convinced that at the pointy edge, the really smart comp- you're definitely seeing this labor replacement, right? And I agree with Harry then, you know, if you can contemplate that at scale, then you can talk about trillions of dollars. I think it's a pacing issue. So now, and what I try and take away from here is what am I paying attention to right now to figure out, you know, my investment strategy, and it really is on all my companies that are selling AI to products, B2B products, how well are they doing with forward-leaning customers and overall in terms of driving adoption and then driving efficiencies? And they're doing well, and you can see it. It doesn't happen quickly, though. It's still, you know, it's like, I think... And the, and, you know, you have the high propensity to buy customers like you, Jason, and then you have the big dollar customers with a much longer time horizon to ramp, you know, in corporate America. So I think the trend is real, but the pace is, to me, the big question at this stage. And it turns out if you're spending 400 billion a year, pace really matters, 'cause the time value of money is gonna eat your ass at four billion-

    4. JLJason Lemkin1:15:06

       I'll tell you an interesting, just for venture that I realize it, I'm a little slow here. Now that we have 10 real AI agents productions replacing humans, um, bef- the pace is slow, but also consolidation may happen before the pace accelerates. And what I mean is we added up the nominal list price of our 10 tools, right? $500,000. $500,000 and going up, right? So you could imagine that could be a million dollars by the end of the year. You know what, you know what folks are gonna say? "Maybe we'll just, let's just use the ones we have. Let's use..." Because what, there's a weird, you know, it took... We, we did the math, $500,000 already that we're using, and every B2B startup out there raised, you know, with these gigantic growth rates, not, not, not the prosumer stuff like Lovable and Replit, but a lot of the ones we look at, they're all trying to charge 60 to 100K a year. That's like the list price. It's like 60K a year to start, plus 40K for onboarding, so that's 100K, and then we wanna upsell you in year two, right? So the, it's so exciting and there's so much budget out there because this is the only thing CEOs are putting budget for, right, is these AI projects. But I don't... We may see a wave of consolidation like we saw in 2022 in AI even next year or the year after, 'cause it's just too many AIs that are six figures and up. It's too many, right? And for us, 500K, a million bucks. I mean, Harry, if your, if your team was spending a million dollars a year at 20VC on AI agents, would you be cool with the million or would you wanna have a meeting? [laughs] And you might say, like, this gongification consolidation, you might wanna do it. We, we may see a lot of these folks who are excited about it in our portfolio get consolidated out sooner than happened in the SaaS wave, sooner than it happened.

    5. RORory O’Driscoll1:16:42

       I think, I think that's actually, again, I try and come out of here with insight. I think that's a real insight, Jason, 'cause I'm wrestling with that. You're seeing... Exactly. It's the everyone thinks their thing is gonna save labor, but you can't all get credit for the same labor. So you might see, like, I think stories like the Rippling story happening much quicker, which is, "We're gonna give you five agents and an orchestration layer. We'll make it all happen, 'cause if we just do one, it's just not enough." I think that's actually an interesting point, which, you know, may mean a much quicker consolidation story across these-

    6. JLJason Lemkin1:17:13

       Yeah

    7. RORory O’Driscoll1:17:13

       ... plays.

    8. JLJason Lemkin1:17:14

       Like in, in sales, do I need an AI tool, an SDR tool, a BDR tool, a C- a, an AI CS tool? These are all five folks trying to get five, six hundred thousand of you. I think, and we're actually already seeing this, going to our conversation tonight, we're already seeing this consolidation in e-commerce, if we wanna chat about where they're becoming one tool already. I think it's a real risk for all these cool ones. Like, we, we just don't need five of them, going to Rory's point. We may... Rippling's a good example. We may want everything from one vendor in 12 months, and maybe the most, most AI startups can't keep up. It seems so easy in the beginning, but I don't know if they can keep up with that, with that Rippling pace.

    9. RORory O’Driscoll1:17:49

       Yeah. And by the way, that also goes back to the myth of the one-person billion-dollar company. I think economics works really well at competing away excess profits. This trend basically says, "You think you might be able to get away with that, but this other company is gonna have five of these agents and compete against you." And I think it just, it speaks to nobody allows billions of dollars of enterprise value to go unclaimed and uncontested. And as, as I'm thinking now, and genuinely what many of my AI-forward B2B companies are wrestling with, th- this resonates. You know, picking, you know, having enough surface area of value. 'Cause one of the things we learned actually in robotics, which was very clear there and maybe it applies here too, is that it's not enough to say, you'd see it a lot in robotics, which is, "Here's this product that can automate this particular problem and can reduce the labor by half, two-thirds." It's wildly efficient. It pencils out in terms of ROI, right? But in a warehouse with 300 people, you're only automating two workstations. It doesn't matter. You know, one of the reasons we, we have done very well with Locus, one of our companies, is picking is actually the number one thing people do in warehouses, so your automation attacks a much larger percentage of the labor. And my learnings have been it's not enough to be ROI efficient. There's also so many... There's only so many things you can get your head aroundAs the CFO or the chief of operations in a year. So you have to have a quantum, you have to be able to n-not just have a high ROI, but have a high ROI on a fairly large quantum of headcount. Does that make sense? Uh, 'cause it's just the brain death of doing it.

    10. JLJason Lemkin1:19:28

        Yeah, I think everyone for the last couple years has been cutting the number of SaaS apps-

    11. RORory O’Driscoll1:19:32

        Yeah

    12. JLJason Lemkin1:19:32

        ... in their organizations. Every, no matter how well they're doing-

    13. RORory O’Driscoll1:19:35

        Yeah

    14. JLJason Lemkin1:19:35

        ... they get around the table each year, we've gotta consolidate. The last 18 months it's gone the other way. They're saying, "We gotta consolidate our SaaS apps, but do the AI stuff, guys. Go pick a few of those. Here's o- here's our budget." I think s- it's either next year or the year after they start to consolidate them. It's gonna h- has to happen faster in this trend. It just has to happen faster.

    15. RORory O’Driscoll1:19:52

        It's not, you're exactly right. It's not gonna be 10 years.

    16. JLJason Lemkin1:19:55

        Yeah. Now I've got 200 of these AI apps my team bought. [laughs] 100 SaaS apps and 200 AI agents, it's just too, it's too much, guys. Pick your favorite 50 and we're done, and you gotta cut 150. It wouldn't shock me because there's so many paid agents running around now, more than SaaS. It's soon gonna be much more than classic B2B apps. Everyone wants an agent for their department, don't they? Or five, they want five or six agents.

    17. HSHarry Stebbings1:20:16

        Does this increasing trend towards consolidation of budgets and assets that you want to engage with, does that harm vertical SaaS in a way that we should think about investing in vertical SaaS today?

    18. RORory O’Driscoll1:20:33

        I don't think so because to me, I mean, 'cause by the way, some people often use the word vertical to mean functional. I s- like sales is not a vertical, it's a functional. Um, vertical means like for insurance or for healthcare. In those areas, what I think the trend is that once you become the dominant solution, it's actually easy for you to vertically integrate. Like give you an example, Veeva in healthcare in the prior SaaS generation, they started off with a single-point product, but once you earn the trust of a vertical where typically there might only be a couple of hundred key customers, if you're selling them A and you have a really good product team, it's much easier to sell them B, C, and D as well, all tailored to their specific market. So I think what you'll see in these verticals is, I think you'll see it, it's good for the dominant player, and they'll just be tucking in and adding in other shit, for lack of a better term. Is that, you know, if you're the king of revenue cycle management in healthcare, you're just gonna add a whole bunch of other insurance claims processing related stuff. Ditto across all, you know. If you're doing... And we're seeing a lot, actually, it's interesting. Voice bots, for example, you know, obviously voice is now doable. Voice is a wedge in hundreds of different verticals where you can go, you know, we pl- uh, 'cause the ROI is really compelling. You used to have all these phone calls, some of them don't get answered. Now you add a person, now you add a, a, a voice AI, and it deals with all that. It's really compelling to see fast growth. But in every case, we believe two years from now, this is just a wedge point, and you better add way more functionality such that two years from now you're not just handling the call, you're handling the booking, you're handling the refund, you're doing whatever it is the customer wants on that call. So I think it's, it, it gets back to the same thing. You find these cute little wedges, but then you gotta scurry really fast to add breadth to the product in a world where your competitors are doing the same thing.

    19. HSHarry Stebbings1:22:26

        If you're in Abridge, are you shitting yourself when you see Epic announcing their transcription plans to go against your core product?

    20. RORory O’Driscoll1:22:35

        If you went into Abridge thinking Epic wasn't going to do this, you are a baby and your money will be parted from you sooner than you can say, "Gone, baby, gone," right? Abridge is the most impressive profit extraction machine in the healthcare industry, so they partner with a... Sorry, not Abridge, Epic. Sorry, Epic, which just to remind everyone is, you know, extraordinary privately held company founded in 1979 by Judy Faulkner. Um, it's just astonishingly successful, has f- like 40%-plus market share in the electric, in the healthcare records marketplace in large US hospitals. It's dominant. I think it does five or six billion. It's a magnificent business, private, wildly profitable, incredibly tough to deal with and partner. They partner with a, I think it was Abridge to do, um, to have this new scribe product that Abridge has, but I'm sure Abridge went into this eyes wide open going at some point, you know, Epic's gonna announce their own product, and you better have the best product, right? Are you nervous? You're darn right you are. But there's only one thing worse than partnering with Epic and getting smacked around by them, and that's not partnering with Epic and not even get a chance to get smacked around. Because if you're not with Epic, you don't have access to 40% market share. So, I mean, again, turns out that no one rolls over and dies and gives you five billion of market cap.

    21. JLJason Lemkin1:23:57

        The whole issue in general, we're on a maybe for, you know, these platform risks like you talked about. There's, there's many of them. These are ones we used to shy away from in venture. These are one of the many risks we're ignoring today because the growth is epic. We're ignor- we're ignoring so many risks, and platform attaches all over AI B2B. There's so much platform risk, and we've given up worrying about it. We've given up worrying about it.

    22. RORory O’Driscoll1:24:19

        That's actually a great point, Jason. You're exactly right 'cause, yeah, 'cause you should be sweating that. I mean, I love that platform risk is everywhere, and this is just one example of it. I mean, I think, yeah, no, it's the whole cursor and Tropic discussion we had before, but-

    23. JLJason Lemkin1:24:33

        Yeah, we just, we're just, we don't, we're gonna... Listen, gross margins pro- we got, we, the growth, the top line is so attractive, we're gonna ignore the top 10 traditional venture risks today. That's what everyone's doing. And I'm not saying it's bad, it's just so different to ignore. These would be classic, you'd, you'd debate this for weeks in 2019, where we'd be at the partner meeting at Scale, "Rory, I'm, I'm real concerned about Abridge b- and if Epic goes, it locks their API access down. Let's pass on this one, Rory. I just don't see, I, I, I've never done well on these platform-adjusted risks. But I've heard good things about Klaviyo. But Klaviyo and Sh- uh, the dishes, Veeva and Salesforce, we gotta pass on this one, Rory." And that conversation doesn't even happen on Mondays now, does it?

    24. RORory O’Driscoll1:25:13

        It's stunning to me how good that was, Jason, and how true that was, and you're exactly right. I, I remember those sentences, and you're right, we're not having those sentences as much today, and it speaks to something I said, I think we said shows ago, we're way out there on the risk curve, every one of us right now, right? And the only thing between us and Armageddon is AI adoption. If AI adoption keeps happening, this whole wagon train keeps on rolling, and we're all gonna be fine, and we're gonna get through to California. If AI adoption slows down, then it's gonna get ugly real fast across the board. You're exactly right. And, you know, 'cause Abridge's bet is, yeah, Epic has a product, but our product is so good that the doctors will want it, and they do, and they'll want it, and they'll love it, and therefore they'll be able to parlay past the platform risk, right? And intrinsic to that is this belief that the magic is so good that, you know, you'll be able to... And it's not a crazy bet, that you'll be able to overcome the inertial resistance of bundling, and you know, because I think doctors do have a say in this because, you know, we have a play in the kind of smaller medical space and a similar thing. I think doctors give a shit about this 'cause it impacts their time, and the entirely rational Abridge bet is if you have a good enough product, maybe medical will say, "We'll stick with this. We won't go with the bundle product 'cause our poor doctors are spending hours taking scribe notes." But it's all dependent on the magic and the end user adoption being a strong enough lever to just, as we, as you pointed out earlier, pull the entire US economy

11. 1:26:43 – 1:34:47

    Kalshi Quick-Fire Round

    1. RORory O’Driscoll1:26:43

       up the hill.

    2. HSHarry Stebbings1:26:43

       Boys, speaking of platform risk, and we mentioned Anthropic, OpenAI, um, we're gonna do a Kalshi quick-fire round. As we know, Kalshi makes these bets, and there's kind of predictions on them with weighted variables. Um, will Anthropic release Claude 5 this year? Rory, I'm giving you odds, 100 if you bet yes gets you $322 back, and if no, 100 only gets you 17 back. I would say yes. Given those odds and given the need for speed and given GPT 5, I'd say weighted that's a pretty good bet.

    3. RORory O’Driscoll1:27:21

       By the way, it's interesting 'cause it's always hard to do on this kind of soundbitey podcast 'cause what you're really saying is, in a 50/50 shot, probably not because of the pace of their prior things, but the odds are so good, right? And the other problem is then people go, "Well, you said it would happen, and it didn't." And it's hard to remember, it was a r- I agree. Probability-adjusted, you do it even though it probably won't happen, but the odds push you that way.

    4. JLJason Lemkin1:27:44

       Th- there's no chance, I think.

    5. RORory O’Driscoll1:27:46

       Yeah.

    6. JLJason Lemkin1:27:47

       Because, and listen, I, I say this only because I'm a Claude power user. I mean, I, I, I, I love ChatGPT, but I'm in Claude n- at least 90 minutes a day, maybe two hours, right? Um, and I'm vibe coding the other two hours. So I'm either in Claude or I'm in Sonnet or Friends, right? And they're t- and my point just is there's two different worlds. The Anthropic's revenue is so driven by programming, coding, all that piece, right? And they don't need their... And, and, and listen, Claude the consumer app does feel a little dated compared to ChatGPT. It, it, memory barely works. Imaging doesn't... Th- like there's parts of it that are dated, but I think the market share is so low, they don't need this big consumer press release like Sam Altman. What they need is Sonnet 4.5 to crush the limited advancements that ChatGPT, that, that, that, that, that OpenAI has made, right? And so that's what they need is to win in their core market, and I don't think they need a consumer, um, uh, spike in the ground to do that. They need the next version of Sonnet to be awesome, right? That's all they need. They've already won that market. Now they need to keep up, right? Now they need to keep up.

    7. RORory O’Driscoll1:28:54

       Jason's vision is ChatGPT calls itself 5.0 but doesn't be awesome. Claude Sonnet calls itself 4 dot whatever's next, 4.6, and is awesome. Got it.

    8. HSHarry Stebbings1:29:04

       I think so.

    9. RORory O’Driscoll1:29:04

       You may well be correct. It's not a crazy answer. Okay.

    10. JLJason Lemkin1:29:07

        It doesn't seem like they really care about the consumer app, even though I love it. Like, they care, but I, it, it, it's not, it, it doesn't seem like there's a lot of... And I don't, I, I follow 'em. They just added a Twitter account for Claude, the consumer one, in the last 30 days. [laughs] And it, and it said, "We don't respond to this account on Twitter." So that suggests to me it's not a priority at the moment if it's brand new and they're not gonna respond. [laughs]

    11. HSHarry Stebbings1:29:30

        Mistral. Will any company acquire Mistral this year? Yes, $100 gets you 420. No, $100 gets you 113. So again, pretty shitty odds on no.

    12. JLJason Lemkin1:29:43

        I, I think if you're not even at 100 million in ARR, you gotta make a play right now, right? You either gotta sell or you gotta do the inverse one like, uh, with Windsurf and buy. You gotta do something to get scale. So if you're, if you're at less than 100 million in revenue and someone wants to buy your team for 20 billion today, I say take it. I say, like, spend the weekend thinking about 20 billion for your 100 million in revenue, but I, I would still take it even if you leave the VCs and the sales team behind. I would still do it. [laughs] There's moments in time, right? And these moments are not gonna last, these crazy deals. They're not gonna last, and we, you gotta take, you gotta take 'em if you're not, if you're not crushing it.

    13. RORory O’Driscoll1:30:20

        It's very telling that Jason's question is whether they would take it, and my question is whether they would get it. 'Cause I agree with you. If you get it, you should take it. [laughs] That to me, which actually is an interesting gu- If, if, if you're not, it's hard to imagine getting critical ma- I mean, you could be wrong. Cohere just raised a bunch of money, but it's hard to imagine getting critical mass as a fourth or fifth player, but can they get it? I don't know. I don't have data.

    14. HSHarry Stebbings1:30:46

        If they got it, they would take it.

    15. RORory O’Driscoll1:30:48

        Yes.

    16. HSHarry Stebbings1:30:49

        I think the question is will they get it, to your point exactly.

    17. RORory O’Driscoll1:30:51

        I, I would agree with that.

    18. HSHarry Stebbings1:30:52

        100%.

    19. JLJason Lemkin1:30:53

        Well, there's just gonna be some weird deals, right? Scale's bought for whatever we call it, 15 or 30 billion, depending on how you look at it, right? With, with a billion something in revenue that's instantly abandoned, right? But yet is the anchoring points for price in the last round. There'll be other folks that are sub nine figures in revenue, if that's what Mistral is, that get a similar, like, multiple or something. They, you gotta take that arbitrage. Like, none of these things quite make sense. You're abandoning the revenue. Does the revenue count? Is it proof of concept reve- Like, what does revenue even mean for some of these deals? It's confusing what the revenue even means if you're leaving it behind with the sales team. [laughs] Like what, is it, is it just to justify the deal? 'Cause sometimes M&A is about justifying a price. I mean, Rory, we've all been through a lot of deals. Uh, so many times the deal is a justification. Two X the last round, three X the last round, 10 X revenue, 50 X, but it, it, it's just a justification, isn't it?

    20. HSHarry Stebbings1:31:44

        Final one. Jason, this, this is for you, but, like, be nice. I- I've told you we have to be nice on this one.

    21. JLJason Lemkin1:31:51

        I'm nice.

    22. HSHarry Stebbings1:31:52

        Will Deel or Rippling IPO first? Final one. 100 bucks gets you only 121 if it's Rippling. 100 bucks gets you 174 if it's Deel.

    23. JLJason Lemkin1:32:04

        Well, I'll just tell you, Rory probably has better thoughts. I'd wanna know your thoughts, Harry, because, um, you, you know the folks overall even better than I do. On the one hand, Deel says it's profitable. That certainly helps to go public, right? I mean, Rippling is in investment mode, so it, it's hard for me to believe ... I mean, Parker's an incredible CEO, but it's hard for me to believe they would IPO in anything less than 24 months because they're doubling down on an, on investing, right? The top line over the bottom line. If Deel's profitable, you have more flexibility. The quality of that, I, I've, I've, I'm not ... N- no knock on Deel. I've always b- uh, but it ... I'm not, I've always been a little, I don't have the financials. I don't know how much is software revenue versus PO revenue versus others. I've heard different things, right? So the quality of the revenue might be lower, but I only, I'm putting this in air quotes, but at the end of the day, the bottom line is the bottom line, right? So Deel's quality of revenue probably isn't gonna change that much, unlike, say, a Palantir that just before it went public had, like, 20% margins and then went to 70. Assuming Deel's consistent, might as well IPO now while they're profitable. But Rippling needs another two years is my guess in the oven to get to that w- we're going, we're, we're, we're, we're, we're going, we're getting to break even this quarter. I don't, I don't think Parker's gonna be there for 24 months. That's just a guess, and it's not a criticism. It's just investment mode.

    24. RORory O’Driscoll1:33:16

        I think Jason's assessment of the two companies is correct. One of them has a more transactional-oriented business that is more profitable more quickly. The decision to go there public there or not is a function of, you know, internal readiness, let's be honest, any pending litigation angst. But, you know, if you could get liquidity on that one, you probably should. I think in Rippling's case, you're right. They're in heavy investment mode. It's a very ambitious task. There is an argument that says that's precisely why they maybe should go public if they are worried about, like, if they continue to need lots of capital, if there's ... Again, I'm always a worrywart. If you worry that the private markets get weird, having public capital wouldn't be a bad thing. But you're right. It would be less a fully baked story and more an ambitious continuing to grow story. So if you believe that the markets stay as they are for the next two years, broadly receptive, then the logical thing is what Jason said, Deel to go now and Rippling to go when ready, right? If it were to change, it would be 'cause Rippling decides preemptively, "I'd just like to take one risk out of my life and just have a billion dollars in cash and a tradable stock." And again, as I say, I'm always a little, you'll see a continued bias here, a bit of a scaredy-cat, and I, I always de-ri- when, when the capital markets are this frothy, there's a little part of me that always wants to de-risk anything.

    25. HSHarry Stebbings1:34:38

        Chaps, brought to you from Greece. This was a pleasure. My, my mother is, is beckoning me, otherwise I'm gonna get killed.

    26. JLJason Lemkin1:34:45

        Have some baklava on us. I'll, I'll, I'll, I'll Venmo it to you

Episode duration: 1:34:58