Elon Musk vs Sam Altman | The Implosion of Thinking Machines | Can VC Survive Public Pricing?

1. 0:00 – 0:48

   Intro

   1. JLJason Lemkin0:00

      If Figma isn't good enough, what hope is there for the rest of us in software? I look at my portfolio. What the hell am I gonna say at board meetings this week, Rory?

   2. RORory O’Driscoll0:09

      But, but hang on, I'm just gonna say something. You know-

   3. HSHarry Stebbings0:11

      This is 20VC with me, Harry Stebbings. This week, my word, we have a lot to discuss. We've spoken about the breakup of teams. I have to jump to the ultimate breakup of breakups being Sam versus Elon. How do we see this playing out?

   4. RORory O’Driscoll0:23

      It's going to be the gift that keeps on giving. If you're the kind of person who slows down at a traffic accident, in other words, if you're like 90% of humanity, you're gonna be slowing down every time the depots come out. It's gonna be great.

   5. JLJason Lemkin0:33

      In some ways I feel like venture and tech is a bit of a scam. Our job is to convert very high revenue multiples into cash almost unnaturally, through M&A, through public offerings, when they haven't earned it in free cash flow.

   6. RORory O’Driscoll0:45

      You describe the system correctly, but you kind of imply

2. 0:48 – 14:01

   Can VC Survive With Public Market Prices Today

   1. RORory O’Driscoll0:48

      it, quote, "a scam." I don't think it is a scam.

   2. JLJason Lemkin0:50

      How would 99% of humans feel when you're like, "F- if I just stayed at Stripe and just played Minesweeper, I could be worth $10 billion"? And I think that haunted him.

   3. RORory O’Driscoll0:59

      Elon's in an asymmetric win-win situation and OpenAI is not. The only way it doesn't matter is if every investor looks at this and says, "I'm not worried about the risk. In the end, Elon will lose."

   4. JLJason Lemkin1:10

      Well, isn't that what they said? Ready to go?

   5. HSHarry Stebbings1:16

      [upbeat music] Team, I am excited to be back. I'm excited to be back. We've got a lot of stuff to go through this week. And I wanted to start with a really optimistic view of public markets, which makes me question whether venture today as a model can still make money. Because when we look at Figma down to pre-IPO levels, when we look at Datadog now 20% down, even Cotach, Monday killed. You know, we, we talked before about, um, [lips smack] um, PagerDuty. Consistently, we're just in the dumps with public markets. How do we analyze this? And do public market multiples today make the venture model increasingly challenging?

   6. RORory O’Driscoll2:05

      No, they don't. Because the public markets... Actually, it's almost the exact opposite. Those multiples, what they say is when companies go ex-growth, they get much lower multiples, right? Slow-growth companies get low multiples. High-growth companies get absurdly high multiples, right? And, you know, you could have also cited at Palantir, at 70 times forward sales, right, for a 45% grower, every venture capitalist is gonna make a trillion dollars. So what you're really saying is the markets are just basically doing what they always do. They're shifting, and they're basically saying, "Low growth, we're gonna, you know, w- w- we're gonna devalue them very low and perhaps too low." And we can come back to that in a second. And so that's what's really going on here. So it's not a, "Oh, tech is doomed." What it is, is it's a sifting and a sorting. Things that look like they're going ex-growth are getting thrown out. Yeah, are get- getting discarded at pretty low valuations. And things that are perceived as exciting and on-trend are getting very high valuations. And venture is nothing if not a trend business. So I would argue for venture, it's, it's pretty good. It just reinforces the dynamic of this business. It's the always be in the hot stuff and you'll be fine. If you're in the trailing end stuff, you're toast.

   7. JLJason Lemkin3:14

      Goodness. Here's how I think about it, just being more pragmatic. If Figma isn't good enough, what hope is there for the rest of us in software? I'm not saying that there aren't folks that are exploding, the ones we know, the, the, the ElevenLabs and the Replit and the Lovables and the Higgs Fields and others. But w- uh, the, I feel like none of the, of the unicorns are better than Figma, almost none of the prior... And, and if Figma isn't good enough, it's not good enough. It is, it is not a great IPO. It is... I'm not even sure it's a great public... It's a great product, right? I'm not even sure it's a great public company. And I look at my portfolio. What the hell am I gonna say at board meetings this week, Rory? "Great job, guys, but have you seen Figma?" [laughs]

   8. RORory O’Driscoll3:56

      But hang on, I'm just gonna say something. You know, part of it-

   9. JLJason Lemkin3:59

      "Good job, boys. Great job, lads." [laughs]

   10. RORory O’Driscoll4:01

       This is the problem with anchoring, right? You know, like Fig- it's a little... Figma, it's a little bit down from its IPO. It's obviously at... But then all the screen, it's hugely down from when all retail priced to the day after the IPO. If you look at it versus the IPO, you're right, it's still down a little, but it's not nearly as catastrophic. It's twel- still a $12 billion market cap company. It's still growing. You know, it's still trading at 10 times forward sales, growing at 30% plus. It's a awesomely good company. Um, that's just the value. In other words, 10 times sales-

   11. JLJason Lemkin4:31

       Maybe not if you invested at eight or six, though.

   12. RORory O’Driscoll4:33

       What?

   13. JLJason Lemkin4:33

       Maybe not if you invested at unicorn valuations. It's not as good as you thought, right?

   14. RORory O’Driscoll4:37

       That's exactly right. It's, it... Again, the le- the message is really clear. When you pay up for high-growth companies and the growth slows even a little and the belief goes out of the multiple, you're in for a long, hard haul, and we'll come back to this I think a few times, before you can be valued on free cash flow. It's a long journey from the hope and the sizzle of a revenue, a forward revenue multiple and a high growth rate to the steady anchor of, you know, 12 times free cash flow. It's a, it's a, it's a long and tedious journey, and there's a long flat period for the stock while that happens.

   15. JLJason Lemkin5:10

       I feel like, um, you know, one, one analysis I, you know, it's Bill Gurley and et al. There's just windows when there's lots of liquidity and high prices, and then it, then, th- then it's crap 80% of the rest of the time. Another version I've always thought is, I don't want folks to take this the wrong way, but in some ways I feel like venture and tech is a bit of a scam. And what I mean by that is that we are attem- our job is to convert very high revenue multiples into cash almost unnaturally, through M&A, through, through public offerings, when they haven't earned it in free cash flow. Our job is to find companies worth 20, 50, 100, 200 times revenue and magically convert that to cash. And when it does, that's how we build 5X or higher funds, and that's how we make money. If we have to go to an EP- if we have to go to an EPS world, we're dead. I feel like we- we're waiting for these moments. And not, and it's even worse because when multiples are way down like today, no matter what any, no matter what the card data says, there is no liquidityIt evaporates from the system

   16. RORory O’Driscoll6:08

       But, but, but, but you, you say that, I mean, you describe the system correctly, but you kind of imply it's called a scam. I don't think it is a scam.

   17. JLJason Lemkin6:15

       Yeah. Air, air quotes.

   18. RORory O’Driscoll6:15

       Let me just play it back and what's really... 'Cause, you know, one level more sophisticated analysis here says what's really happening is everyone has long since internalized the following sense. In the end, the surviving tech companies at scale are astronomically good businesses, right? Microsoft dominates the PC era, and it's a, a, going back along, it's an astro- So therefore, you know you wanna own that, and therefore you just work your way backwards that says, "Okay, at the point in time when I don't know which company is Microsoft, I can't wait until it's trading at 10 times EPS to buy, so I gotta take a chance," and as you say, buy a basket of things that might be Microsoft. And you price them long before they have EPS, so you price them on forward sales, right? And the truth is, four out of five of them turn out not to be Microsoft. No one even remembers what Borland Software does. If I put a gun against Harry's head, he couldn't tell me about Corel, VisiCalc, Lotus, et cetera, et cetera. And all of those stocks traded high and then went down, but it doesn't matter a damn because in the end, the s- as a, as a whole, the system, the venture guys, the public markets were correct, which is this is a big-ass trend, and the winner will be worth $4 trillion. And if the losers, if you write off half a trillion in guessing to get there, you get- That's why it's very hard to fund an old-school SaaS company today, 'cause people are just saying, "Look, you're great. You're going two to five. You're great. You're a profitable company." And again, this is the thing. I, I, you know, these people who rain down a little bit of con- VCs who kind of project a little contempt, "Oh, your little $100 million revenue thing doesn't matter," it can come across as a little callous, and a fairer statement is this: Your $100 million revenue SaaS company is an awesome entrepreneurial achievement. You are to be hugely congratulated. It's magnificent. It's just not something that we can properly finance because we're just not gonna make our public market venture return here.

   19. JLJason Lemkin8:04

       If I am a founder of Linear or RevenueCat or any of this generation of companies, maybe five to 10 years old, in that broad range, and I'm at 50 to 75 million of revenue, and I'm not an AI-first company particularly, and maybe AI helps a little bit, but I'm 50 to 75 million. I'm growing maybe 75 to 125%. What do I do when I look at these models?

   20. RORory O’Driscoll8:31

       You, uh, Harry, you know, you've, you've been too up- Like, I think the truth is if you're growing 75 to 100%, you're fine. Stop. You know, like, this idea, like, uh, uh, 'cause if you're growing s- look, if you're growing s- 100% at, at 50, you're gonna be at 100, then your growth decays to 80, you're gonna be at 180, then your growth decays to 40 or 50, you're at 300. You're gonna get to scale. So I, you, you've got your funny face on for l- listeners who can't see it. Harry's got on his I disagree face. So come on, just-

   21. JLJason Lemkin8:57

       It's not that I d- I'll tell you, or re- Listen, I don't wanna get lost in the weeds. The, I, I only disagree with you for two reasons, Rory, and they're just structural. One is as someone with a relatively modest amount of cap- capital and a concentrated strategy, I haven't bought 20% of a startup in, like, seven years.

   22. RORory O’Driscoll9:13

       [sighs]

   23. JLJason Lemkin9:13

       So, and I haven't done a round at a million in revenue growing quickly in the teens in a decade. Now, if I could buy 20% of these companies, um, for re- in the t- in the w- high teens pre-money, like I used to do when Harry and I met, then I would be pretty zen about today. I'd be like, whatever the Lord brings. Uh, 500 million, 200 million, three billion. If I have to own 5% at 50 million post at demo day, uh, the, the math works out in the aggregate. Gary's got it all proved. No criticism. But it really ratchets the pressure when the valuation's three times higher and the ownership's at 25%. I think that this is where the Figma thing gets stressful, right? I mean, you're not quite as... You're good as Figma. I'm gonna end up owning 4%. You're gonna be worth 4 billion if everything goes well. 5 billion. I, I... Guys, I don't know. How? Teach me about crypto. I, I'm so sorry. I push back again. 75 to 100% for the biggest and best funds is not enough. When you have an ElevenLabs or you have a Lovable or you have an AirWallet or a FewGoodbits-

   24. RORory O’Driscoll10:15

       Well, let me, let me answer your question specifically though

   25. JLJason Lemkin10:17

       ... you have way better growth rates. Yeah, I, uh, and then, and Rory can challenge it. I agree with you if, if that is all you have, and Rory will disagree. I, I'm very worried about you today, right? The question is your job, and for some folks, you're dead in the water. For other folks, it's f- it's not too late. Your job is how are you going to attach to AI trends? So if you look at RevenueCat, right, the whole vibe coding mobile thing, I think they tripled the number of developers on their platform in the last four months or three to four months of the year. So their job is to do what WorkOS and others did, which is directly linearly convert that to revenue. But they have the, they have the, um, a RevenueCat has massive tailwinds, which it didn't even have at the start of last year, okay? And there's a lot of folks like that that have, that have AI tailwinds. Um, if you have none, you, you sure better figure them out right now, right? And it, and, and this is the answer. For example, uh, I have one of my first investments. I mean, it's been around for a decade, okay? And it's not even at 10 million yet for a decade, okay? I'm the only investor. They're cash flow positive. I love them. It's a very specific use case with limited competition. They finally added a way to do deep AI analysis on their data and reports that for their niche was impossible until December. Blew up. They were more than double this year after a decade of, [chuckles] of, like, 10% a year growth, 20% being pretty good. So if the... It doesn't fully answer the Figma question, but this is your job right now. Like, sit around your company. Those kids in YC built an agent for your space. Why the F wasn't that you? There's no excuse. They all, we all use the same LLMs. There is no excuse for you to not have an agent as good as the, as the new kids. There's no, there's... I honestly don't think there's any excuse.

   26. RORory O’Driscoll11:56

       Agreed. And going back to your pushback, Harry, I mean, I think it's in the framing of your question. I know what, I know... Let me tell you precisely why I think you're wrong. Um, you said if you were the CEO of X, Y, or Z and you're growing at 70%, and then you kinda did the throwing your hands up in the air thing. I think you're wrong for them, right? I mean, what is true is this.If you're growing 50, 70... If you're at 50 million, growing 50 or 70%, you may struggle to get venture capital because you're right, everyone's focused on, correctly, on the things that have the embedded upside of potentially exploding to hugeness, and you're probably at a stage now where that kind of mega growth is not going to re-accelerate from there. So the probability of a mid-stage SaaS company exploding into something amazing is rounding error zero. So as an investor, that's not attractive. As the person who owns that asset, and maybe you own 20% of it, right? Um, you can't just say, "Oh, I wish I'd done something different with my life, and now I wish as an icon..." You gotta play the hand you're dealt, and Jason's exactly right. The first thing you do is say to yourself, "I may not be able to raise much more venture capital on attractive terms. Run my business accordingly." I am now... Just like we- I thought we were gonna talk about the public SaaS stocks here, like you hinted in your questions, but you took us offline. Um, but it's the same thing. Live in the world you now find yourself, which is where capital is no longer free for your sector. You know, if you, if you describe that negatively, you can say it's because venture capitalists are fashion chasers. If you describe it in a logical way, you can say it's because the kind of extraordinary growth has vanished from SaaS and has now reappeared in AI land. Run your business the way you do it so you don't need capital. Then, as Jason said, look at what these next generation people are doing and find a way to attach it to your business. And if you grow at 50%, then 40, then 30, and you get to 200 million of revenue and you sell it five times, that's a billion dollars. And if you have 20% of that, you have $200 million. It makes you one of the probably... 200 million, I've done this ma- about in the top 5,000 richest people in the world. It's okay. But it's a grind. And the reason it's a grind, and that last sentence, because it's a grind, explains exactly why venture guys aren't investing, because grind is not

3. 14:01 – 24:32

   The Implosion of Thinking Machines

   1. RORory O’Driscoll14:01

      in our MO.

   2. HSHarry Stebbings14:02

      We'll, we'll come back to new rounds. You mentioned the grind isn't in our MO. When the grind isn't in your MO, you, uh, you move on.

   3. RORory O’Driscoll14:09

      Yes.

   4. HSHarry Stebbings14:09

      And, um, you ever seen the Home Alone movie cover, which is like Macaulay Culkin-

   5. RORory O’Driscoll14:14

      Yes

   6. HSHarry Stebbings14:15

      ... screaming at the bad guys? I feel like someone needs to do that for poor Mira Murati, because I think she's the only one left in Thinking Machines after everyone else this week. Uh, we've seen the implosion of Thinking Machines, um, with, you know, now two co-founders leaving. Barrett's off-

   7. RORory O’Driscoll14:30

      Yeah

   8. HSHarry Stebbings14:30

      ... leaving last week. Um, they have raised significant amounts of money at $50 billion valuation last. How did we analyze this news and what's left of the team?

   9. JLJason Lemkin14:42

      It happens with seed rounds.

   10. RORory O’Driscoll14:43

       [laughs] That's a great answer, Jason.

   11. JLJason Lemkin14:45

       It's just part of the risk.

   12. RORory O’Driscoll14:46

       Y- that is a g- that is... I was gonna come up with a whole bunch of other things, but Jason is exactly right. You have to remember, despite the big d- Jason, that's a great answer. This is a seed round. And why Combinator do this thing is that the number one cause of failure at the seed stage is, you know, founder incompatibility. And this is just seed rounds with extra commas, and they discover after a year they don't wanna be doing this and they wanna go back to the big company. Jason, you're exactly right. That's the big insight. It's a se- it's a seed round. Just treat it like a seed round.

   13. JLJason Lemkin15:16

       I'll tell you one niche thing I never understood about this company. Um, on paper, I get it. Andreessen, Sequoia put in $2 billion. You're basically taking, uh, Mira's taking, uh, OpenAI co-founder, a whole bunch of the team, and it's just gonna be Anthropic again, right? They're gonna recruit some of the best and they're gonna do it a- That... You, you... In theory, you should do that bet in 15 minutes if you have the capital, right? It's just take, take the best, bunch of the best guys and go do a, a modern... It worked at Anthropic, right? Good God, it worked at Anthropic. The part I never got, here's the weird part, and maybe this has nothing to do with the tensions. I mean, her background is not technical, and this is the part I never got. Um, a degree in arts from Colby College, um, and some engineering product manager at Tesla. I'm not saying she's not, doesn't have 50 IQ points on me. I think she does, but I don't know how you run a lab if you're not, if you're not Ilya in the early days of OpenAI or Greg at least. I don't know how you get, get the respect of the team if you're not on their level as a researcher. And it's a challenge for a lot of other B2B companies. How do you recruit this S-tier AI talent if your team isn't at that level? Who the hell would wanna go work there? Comp aside, right? The best... Why do folks leave a- OpenAI, like, after a year and leave 5 or 10 million? They're just so smart, they just wanna work on smart problems, right? And so this one I felt was unstable. People loved her, I think, but I'm super skeptical of technical companies where the CEO isn't one of the greatest technical visionaries in the industry. I'm just, I'm just... I'll never do that investment again. I'll never do an investment again where, where, where it's not like Databricks or better as CEO. I just won't do it.

   14. HSHarry Stebbings16:51

       What happens in this situation?

   15. RORory O’Driscoll16:53

       There will be some version of the following clause that says, if, you know, more than X team members leave, then you have the ability to call for redemption and just basically wind the company down and say, "You spent 20% of the money, so you either..." You know, if you can't get an M&A outcome where you get a 1X, then you can wind the company up. You give them $2 billion, they spend $200 million, you take another $200 million to bribe everyone to go along with it, and you get $1.6 billion back and you say to yourself, "That was a risk that didn't work. I only lost 20 cents on the dollar. I can recycle that money into the next OpenAI round. Everything's fine." Right? That would be a far better outcome than, "We're gonna commence the long and bloody march, trying to fix this thing, trying to hire new people." Um, 'cause Jason's right. It ju- I mean, it's, uh, such an insight, Jason. It's a seed deal that went wrong. What do you do when you're, when the core premise you invested in turns out not to be true and you spent 10% of the total money? If you're smart and you don't have another compelling idea, you give the money back, you incur the respect. You know, everyone was says, "Okay, I got it." You moved on. You, you, you call bullshit. From the investor, investor perspective, I wonder whether they're sitting there going, "It would be totally fine to, you know, take a 20 cent haircut and be done."

   16. HSHarry Stebbings18:04

       Do you think they'll do that?

   17. JLJason Lemkin18:06

       It probably felt safer when they made the investment that worst case Meta wanted to buy them. Worst case, we exit for five or six or 10 billion to acquire the team. We don't quite make as much as you might think on paper because of how the de- deal is structured with employees and retention, but, but worst case we make, we make some return on this deal. So it's not a- that was probably a thing. It's not as crazy as we might think from the outside because with the quality of the team, we're gonna get high chance we get our two billion back. Seems lower odds today. [laughs]

   18. RORory O’Driscoll18:34

       The way I described it, if I was on the board, we're not gonna get our 2X from the M&A outcome, but if we get our 0.8X to a rounding error, it doesn't matter, especially if you can quickly recycle the capital, because this happened so quickly that it's all in the current fund cycle. So just so listeners know, if you wire- if you're in the investment period for a venture fund, you wire a billion dollars into investment A. Instead of waiting 10 years and getting 0.8 back, if you get 0.8 back in 12 months, you can reinvest that 0.8 and very quickly just move on. It's almost like it didn't happen.

   19. JLJason Lemkin19:05

       It's so much better.

   20. RORory O’Driscoll19:06

       So much better. It's like whoopsie-

   21. JLJason Lemkin19:07

       So forget about IRR. You can put that money to work.

   22. RORory O’Driscoll19:09

       Yeah.

   23. JLJason Lemkin19:09

       You can put that money right out the door.

   24. RORory O’Driscoll19:10

       And listen, you can literally... I mean, ask yourself the question-

   25. JLJason Lemkin19:12

       You might not even... The loss is a bummer, but if you're trying to get 10X outcomes, you almost don't care. Just give me the money back and let me invest it tomorrow.

   26. RORory O’Driscoll19:18

       'Cause watch this. If you got that, if you g- if you put out a bill- if you got the 0.8 back six months ago and you put it in the last round at Anthropic, that 0.8 is now a 1.6. So on your initial billion, you're actually ahead 60% despite having lost 20, right? The whole trick, and when you... Remember, this is why at heart venture is a capital allocation business. You are trying to stuff your money into the place where it will grow the fastest. Once they start going down, venture guys, it's brutal, but the s- the rational thing to do is reallocate to success and away from failure.

   27. JLJason Lemkin19:48

       I think we underestimate the challenges and the wars for AI talent.

   28. RORory O’Driscoll19:51

       Yeah.

   29. JLJason Lemkin19:51

       And we talk about it being compensation-based and brands, but, um-

   30. RORory O’Driscoll19:56

       It's mission-based. Yeah
4. 24:32 – 43:25

   Elon Musk vs. OpenAI: The Legal Battle

   1. HSHarry Stebbings24:32

      We've spoken about the breakup of teams. We touched on OpenAI a couple of times there with Mira. I- I have to jump to the, the ultimate breakup of breakups being Sam versus Elon going to trial. How do we see this playing out? Who wins? What do they actually win consequentially? What does this look like?

   2. RORory O’Driscoll24:50

      It's-- Look, it's going to be-- First of all, let's be honest for the, this is-- It's going to be the gift that keeps on giving. If you're the kind of person who slows down at a traffic accident, in other words, if you're like 90% of humanity, you're gonna be slowing down every time the depots come out. It's gonna be great. So first start with it. So now I'm gonna start with an utterly different idealistic comment. As we get into this whole mess, and we will for a few minutes, it's worth pointing out, it-- when I, I reread a lot of the stuff, and they did all start by making a charitable donation for something they passionately believed in where they weren't trying to make money. You know, Elon chipped in thirty million-plus, Sam Altman chipped in ten, Reid Hoffman chipped in... They genuinely believed, actually, and we'll come back to that statement because some might say it's a lie, but it appears that everyone genuinely believed at the start that they were doing something for the good of the world, they were doing something for charity, and they were trying to understand what AI could do and head off existential dangers at the pass. So [chuckles] as is so often the case in life, I think everyone's intent was pure when they forked over real money to try and do something. So I want to start with that. You know, thank you everyone for trying really hard to save humanity, and then the old rule applies, no good deed goes unpunished, right? So the whole thing is now a mess. 'Cause just to give the, kind of the zoom out comments here, it was a not-for-profit com... At some point, it became obvious to the management team around 2017 that the costs to build what OpenAI was to become was such that you couldn't keep going as a nonprofit. You have to become a for-profit entity. During the period when that ha- when, when that started to happen, Elon had his demands on how he wanted that to happen. Sam and Greg Brockman had their perspective on how they wanted it to happen. They ended up, as it were, breaking up. Elon resigned from the organization. Fast-forward past the drama of '22. In late '25, the conversion to a for-profit took place finally, and it was approved by California and Delaware. And now OpenAI is a for-profit corporation with a largest individual shareholder is the foundation. And the argument that the Sam and Greg would make is, "Hey, you invested money in a charity, and that charity now owns 30%-plus of one of the most powerful, o- o- one of the largest companies on the planet. So you kind of got what you paid for." That's the argument they're making, right? And Elon's, uh, a- a- and therefore you, you're entitled to nothing. You made a $30 million donation. You created a 300, well, probably a, a hundred and fifty billion foundation. Congratulations, you've helped humanity. You got what you paid for. And Elon's comment, which is gonna be tricky to prove but it's gonna be messy, is not just, "I don't like that," but, "All along you guys were planning to cheat me and planning to make it a for-profit company," and therefore... 'Cause his ask is not just, "Hey, I want my thirty million back." That's, you know, ch- chump change in the back of his couch, right? His argument, which is a very aggress- He's saying, "Hey, you guys planned this all along, and therefore my damages claim is not just give me my thirty million back, and it's not stop the conversion to a for-profit," 'cause that's already happened now. That can't be stopped. It's like, "You guys took my thirty million under false pretenses, therefore I'm owed roughly what thirty million would own out of that company now," which is a, a $100 billion of value. He's basically saying, "If we're gonna go for profit here, guys, and you guys were lying to me all along, then I want my share of that now. So you all gonna have to take dilution such that I get my 100 mill..." The, the, the damages claim is $70 to $130 billion, which would come in the form of extra shares of OpenAI to Elon, and everyone else would have to take that dilution. That's the ask. That's what's going on here. It's an, in the end, it's an economic argument on the basis of fraudulent intent from day one.

   3. HSHarry Stebbings28:34

      Is Elon doing this to slow them down? Is he doing this for the s- I don't think he's doing this for the $70 to $100 billion.

   4. RORory O’Driscoll28:40

      Yeah, I think he's doing it 'cause he can and it's fun. I mean, he's p- look, billionaire's going to billionaire, and near trillionaire to going to near trillionaire, right? It's, he feels shafted. I mean, it's a win-win. He feels shafted because of-- 'cause he does feel that, you know, he got mistreated in this process. And it, you're right, it's good for Groq if it slows it down, and he might win $100 billion, and there's not a ton of downside other than a bunch of legal fees because, you know, n- they got no claim on you, right? So it's a asymmetric win-win situation for him, provided you have the couple hundred million dollars of legal fees it's gonna consume here, right? 'Cause we are litigating over $100 billion, right? And look, and then the other thing that happens is, and he's lived through this on the Twitter litigation, deposition and discovery is a sucky process. 'Cause you write down stuff in your email, in your diary, and then it suddenly comes out, and it's always embarrassing, right? There's al- look, the truth is that if I spewed out your last 10 years of emails, I'd find some embarrassing stuff, right? And it's happened to E- if you remember, it happened to Elon in the Twitter litigation. I mean, some of that, those e- texts just look juvenile. You just, "Oh, wow, you're the richest man in the world and you sound like an idiot. That sucks." In this case, they were able to... I mean, if you look at already what they've got on the record, they've got poor Greg Brockman, who kept a diary in 2017, you know, writes in this diary, as one does, "What does it take to get a bil- what does it take for me to get to a billion dollars?" And now that's come out, and now they're doing some version of, "Hey, you were cheating me all along. You wanted to do a for-profit." I mean, I'd-- Can you imagine, Harry, having to get your diary from eight years ago? And then you had Ilya, who had to do a 10-hour depo, and this comes back to m- the whole Mira thing, right? He had to do a 10-hour depo on the 2022 CEO d- or was it '23? Dra- CEO drama, which is not really relevant to this because-the quote-unquote "alleged fraud" happened in 2017 or '18. But again, it's just a fun chance to get all the mess out there. So they depot Ilya for 10 hours, and we finally got to hear what he thought about the great fiasco, and it's kind of embarrassing for everyone. Everyone looks like an idiot. In 2023, the board looks stupid. Ilya looks a bit naive 'cause he relied on Mira. She looks a little naive 'cause she was... It just looks like amateur hour everywhere. So if you're Elon, you're like, "I can torture these folks who look stupid," maybe it postpones... If there's any kind of credible case, and remember, a judge was asked, uh, th- th-... 'Cause, uh, what do you call it? OpenAI did go for summary dismissal, which is what you do. You say, "Hey, there's no case to answer here. Just dismiss the charges." And the c- the case, I should say. They're not charges. Um, and the judge said, "No, there is a case to answer here. I'm not saying it's right, I'm not saying it's wrong, but there's a credible discussion here." So now they gotta go to a trial, right? And I don't know how that impacts fundraising, but for the next one, two years, there's the potential of every fi- financing of OpenAI now has, hmm, you might have to take 10, 15, 20% dilution if they lose a jury trial. The intent of the other founders, Sam and Greg Altman, wasn't day one to q- I think Elon's case is built on a slender conspiracy thread, but it'll sound compelling to a jury when you also have all this dirt about, you know, like, w- who the hell knows wh-

   5. HSHarry Stebbings31:57

      What, Ro- Rory, Rory, what happens, and Jason, what happens?

   6. RORory O’Driscoll32:00

      It drags on a long time, and it gets in the way.

   7. HSHarry Stebbings32:03

      And, and, and who wins?

   8. JLJason Lemkin32:04

      Elon wins no matter what.

   9. RORory O’Driscoll32:06

      Yes. That's the right answer.

   10. JLJason Lemkin32:06

       This, there are, this is a jury trial, and again, we're not experts, but a jury trial is unpredictable, and there are bad facts on both sides.

   11. RORory O’Driscoll32:14

       Yes.

   12. JLJason Lemkin32:15

       Like, it, this is the social net- the movie The Social Network to... I know they're making another sequel at Meta. This should be the next social network. There are bad facts on both sides, and if Elon was not the richest man in the world, he would settle for 30 billion or f- or five, whatever that Winklevii got, he would do the same deal. Give me 5%. They would settle on the eve of trial for 5% to Elon. They, they would say, "We're just doing it to move beyond." They'd give him 5% or 4%, and if it were about money, he'd move on, just like the Winklevii got their 4 or 5% of Meta, Facebook. That's what would happen if it was about money. The fun, the fun thing about the sequel to The Social Network is they ain't gonna settle [laughs] for, for fi- for that. Now, and he's gonna go to trial, and he's gonna win, and Elon has bad facts, but this man has already been bad facted the last couple years in public. His worst fact, forget about that it's in Oakland. Now, Oakland is very liberal. Elon's worst fact was that Trump hated him for about six months. He fixed that issue. Now he's back in the inner circle. Get a couple MAGA folks, Republicans on the jury. We don't know. Sam Altman fired by OpenAI board for reasons not fully disclosed. I have one strong theory. Greg Brockman, and I, you know what I think really happened with Greg that I think maybe people missed? This is my theory. The guy really partially regretted leaving Stripe as the CTO and the fourth employee. He leaves. Sam recruits him from Stripe at a th- when it's worth 3 billion and says, "Don't worry. We'll, we'll make it up for you at our nonprofit. Come do this thing. We're gonna change the world," to Greg, and it's very exciting, and Greg really doesn't wanna work on the Stripe API anymore. He's already gotten, uh, payments to work. Uh, it's, it's kind of boring, right? And he leaves it just, he leaves it in th- in 2015, Rory, when the world seemed very f- flat and simple, right? And he left, and he turns around and he's like, "My God, I left billions behind." How would you feel as a human being that didn't, that didn't make the money Sam had already made? Sam's already become... He wasn't a billionaire then, but he's on the path, right? He's raised hundreds of millions at his own venture fund to invest in YC startups. He personally owns 2% of Stripe. How would 99% of humans feel when you're like, "F- if I just stayed at Stripe and just played Minesweeper, I could be worth $10 billion" [laughs] ? And I think that haunted him, and I think that's where these journal entries come from. It's not him being douchey and saying, "Man, I wanna..." It's him haunted by Sam getting him to leave Stripe at 3 billion, haunted by it. We've all, I've been haunted by some mistakes I've made, too. I, I think he's haunted by it, and, um, and I think that creates, gonna create a whole bunch of bad facts the deeper we deal that Greg was haunted by leaving the, the money at Stripe.

   13. RORory O’Driscoll34:44

       First of all, interesting and insight- yeah, I'd, I'd be haunted too. I, haunt- haunted [laughs]

   14. JLJason Lemkin34:49

       [laughs]

   15. RORory O’Driscoll34:49

       I'm, I'm not going to speculate about-

   16. JLJason Lemkin34:51

       Even I think you would be haunted if you left a couple billion behind [laughs]

   17. RORory O’Driscoll34:54

       Yeah, yeah. Yeah, yeah. No, I mean, one of the things that, that's also sucky about this when you're in litigation is suddenly everyone, including Rory O'Driscoll, who I think has never put eyes on you, has a fucking opinion about you.

   18. JLJason Lemkin35:03

       Yeah.

   19. RORory O’Driscoll35:03

       That's the really sucky thing, and the great... But I think e- I'm not sure I agree you on Elon in terms of the jury. I wanna come back to that in a second. Um, but I do agree on one thing, is he is post-pain when it comes to public shame and obloquy. We are, there's nothing left to do for him, man, right? So basically everyone else is gonna have to get down in the muck, and he is already so far in the muck that, you know, on various different parts of, of the last three years, 40% of the country have hated him, and it's been a different 40% each time. There's nothing left for him to do, which actually gets to the how do you think, uh, you asked how do you think it ends, right? I think, Jason, you're right. If it was normal people, they'd settle. If it goes to jury, I think two, two comments I will make. From a facts perspective, I think in the end, Elon has to prove his case, and it's a high bar to prove, right? Because you gotta not only prove, you gotta prove right when they were raising the money charitably, they were all along intending to swipe it and, you know, build a for-profit, and I think that's very hard to do 'cause Altman's money went in as a for-profit, a not-for-profit too. So I think it's, fundamentally I think Elon's wrong on the core assertion. I don't think this was a cunning device to cheat everyone, 'cause if they wanted to do that, they could've just done a, what Entropic did, which is the totally sensible interim stage of a public benefit corporation, and saved all this fricking drama. So I think stripping aside all the bad facts, I think the core assertion he's m- Elon is making, which is they misled me into giving them 30 million for this thing which was never gonna be a charity, and therefore I get my money back, I think that's wrong, right? So but to your point, you still gotta prove it to a jury. Now-The other companies, remember, he has to prevail. So as long as there's one person on the jury who hates him more than he hates Sam, he ain't gonna win. You know, actually civil trial, it might be 10 out of 12, but I think in the end it's going to be hard. Like, first of all, it's going to be a, a very unattractive cast of characters in a, if it is an Oakland ju- an Oakland courtroom, you get Sam to come in and say, you know, "Hey, talk about how you said this is gonna make everyone unemployed." Then you get Elon to come in. They're gonna hate the whole being on the stand thing, which everyone's gonna have to go on, right? And I think the jury will get... If they get into that room, they're gonna go, "Wow, I don't like any of these people. Why should..." You know, right? But the problem is this, for Elon to win, he has to get them to v- all vote for him. And a, a, a, a, a kind of hung jury is fine for the, the prevailing wisdom. Unless Elon prevails, he doesn't get it. So I think way down the line, two, three years from now, at the end of a long and bloody trial, the probability is he doesn't win the case. But Jason, you're right. He's already won the ca- If, if what he wants to do is get kind of psychic revenge, this is gonna be the best tool. This is like Peter Thiel's spend on Gawker, you know? Right? Sometimes a billionaire just wants to spend a couple of hundred million bucks, in this case, to grind the other guy and make him sorry.

   20. JLJason Lemkin37:56

       I think he wants every bad fact about Sam to come out, every bad fact in this trial. The boar- We haven't even heard why the board fired him, right?

   21. RORory O’Driscoll38:03

       If someone sequestered m- dep- my diary for the last 10 years, and if you keep notes on days when you're feeling like shit, you know, you're like, "Hmm, that's not great." So that's the problem with litigation. That's the problem with convoluted structures. You end up in litigation. That's why keeping it simple is step one. And once you didn't keep it simple, trying to get Ev- keep everyone in the tent. When you don't do that, you end up being sued by the richest person on the planet who's angry and mad at you. It's a tough place to be.

   22. HSHarry Stebbings38:30

       If you're Sam, do you not go, "Hey, I'd rather have the dilution, not go through three years of distractions and actually get him off my case, bring the enemy inside. I don't have the stock anyway"?

   23. RORory O’Driscoll38:44

       Don't settle at five, settle at 100. To, to, to J- Yeah. In other words, give them-

   24. HSHarry Stebbings38:48

       I don't have stock anyway.

   25. RORory O’Driscoll38:49

       Th- this is true.

   26. JLJason Lemkin38:50

       Well, sort of. I, I think that was, that was dishonest.

   27. RORory O’Driscoll38:54

       Yeah. Let's not even worry about that. Let's, let's... But you're right. E- 'cause the truth is this, even if it doesn't, uh, you're right. Actually, how, you're right in the big question is, like, if, I mean, maybe to put it, if this is getting in the way of the next financing and it being seen as a credible risk, then would you be better off, even if it's extortion, to cough up? Which again, is why, again, Elon's in an asymmetric win-win situation and OpenAI is not. The only way it doesn't matter is if every p- And I don't know, if every investor looks at this and says, "I'm not worried about the risk. In the end, Elon will lose, so therefore we can ignore it." And that-

   28. JLJason Lemkin39:27

       Well, isn't that what they said? They said, "Our, our, our, our exposure is capped at Elon's donation of 30 some odd million." That's was, that was the public announcement, right? Or pseudo-public leaked, right?

   29. RORory O’Driscoll39:37

       And that's why his aggressive claim is for, uh, i- is on the facts very contestable. I mean, it's, it's, it's a real reach. The claim is a reach to say, "It's not just my 30 million back, it's the... It was a..." Basically what Elon's saying is, "It was a for-profit all along. You guys just didn't tell me. And if it's a for-profit all along and I put in... If I was the 30 million seed in what was a for-profit company, then I want what a 30 million seed would get." It's a stretchy claim. You're right, Jason. And OpenAI are gonna say, "There's simply no way from a point of law perspective we're gonna concede that. And even if we lose a jury trial, we'll go in on appeal," right? And they're just gonna say they're gonna litigate it the whole way down. But you're right. That's fine, and this is actually c- ties, funnily enough, to the ads comp and everything else. What I don't... The key question that I don't know is, how will the investors look at it? And, you know, do you have to take, if you're writing a check right now, you know, do you think, "I, I'm, am I paying 600... If I'm paying 600 billion pre or 800 billion pre, do I need to say it could be a trillion because it could be 20% dilution?" I don't know, right? Or do you say-

   30. JLJason Lemkin40:43

       You said last week there was no existential risk to OpenAI. Said there might be some structural economic risk. You said it could be-
5. 43:25 – 1:01:42

   Can OpenAI Win Ads?

   1. HSHarry Stebbings43:25

      I, I think you're being way too nice. Like, at a time for OpenAI, where you have Gemini killing you on consumer, Anthropic killing you on enterprise-

   2. RORory O’Driscoll43:35

      But you're, you're, you're, you're, you're just lumping everything in together. You know, y- y-

   3. HSHarry Stebbings43:38

      Well, because you have to. This is the world.

   4. RORory O’Driscoll43:39

      Yeah, but I mean, look, the litigation-

   5. HSHarry Stebbings43:42

      'Cause this... I can't isolate things in [laughs] like-

   6. RORory O’Driscoll43:45

      You, you, you... But you actually, funnily enough, you have to, in the sense of whenever you have that kind of litigation, I've been to companies that occasionally have it, what you have to do is to say, "This..." The one thing, the really dangerous thing about litigation is if it kind of subsumes the whole company. 'Cause the thing about litigation, it gets your blood up, and you start trying to win, and you just get emotionally vested in it. If they're smart, they'll have a great GC who says, "Other than depositions, none of you talk about this ever again. We will deal with it, and our $100 million worth of lawyers," right? 'Cause you can't let that get in the way. So let's assume you do that. And now, now you're still running a wildly successful business with a whole bunch of competition. And you're right. You've got to deal with Gemini. You've got to deal with Anthropic. You've got to get ads out the door. You've got to start having a convergence plan on profitability, which is, I think, why the ads are coming out. Yeah, you've still got lots to do, but, you know, it's, it's no... With the exception of the litigation from the world's richest man, nothing's changed from two weeks ago. [laughs]

   7. HSHarry Stebbings44:39

      Is ads coming at just the wrong time? As Gemini is killing you on consumer and producing better and better models, and Google are really feel, feeling tailwinds, to come out with something that does deprecate the product, even in a small way, is it coming at just the wrong time?

   8. RORory O’Driscoll44:53

      But I think you do... I mean, I think it actually speaks to something. It... Why do you introduce ads? I mean, if you look at, there's three big ad... The two biggest ad businesses are, was Google and Facebook, and both of them agonized for about a year before introducing ads, Google in 2002, 2001, 2002-ish, and Facebook in '05 or '06. And then everyone goes to the following logic: There's no other way to monetize. There's simply no other way to monetize. And the cost to serve a free Ja-GPT, ChatGPT customer is higher than either Facebook or Google, and the conversion rate to paid... 'Cause Facebook and Google... So you, so what are you gonna do for business model? Facebook and Google didn't have a paid tier. So one argument could have been s- a certain percentage of the free people will just convert to paid, and that will be enough to make the business work, right? Um, but the truth is, consumer conversion tends to run well under five, you know, 10%, probably 5% or less. You just don't get enough conversions to serve the free tier. You've got no choice. Once you recognize you've got no choice in the end, just like... I mean, Facebook hated ads. Google hated ads. You can hate ads till you're blue in the face, but America wants free shit, and the only way consumers get free stuff is if you run ads. So there's no choice. So I think it's kind of a, "It's inevitable, so rip the bandage off," especially if capital's gonna get more expensive. You just got to go do it.

   9. JLJason Lemkin46:20

      I, I think the ads will be great.

   10. RORory O’Driscoll46:22

       Yeah.

   11. JLJason Lemkin46:22

       I generally think they'll be, they'll add value to, to ChatGPT, um, because I think... I, I don't have the numbers on it. I know for myself, I do my vendor discovery using LLMs. I do my vendor discovery on Claude and a little bit on Google. That's... When I want to find a new tool or a new product, that's where I start. I start with LLMs, especially if I'm the free product. If I get my, my rich response of which, which, um, OAuth product to use in Founderscape, and at the end there's a little ad from WorkOS, and I choose to click on WorkOS instead of the one I chose, and that, that was a great option too, that's a win-win. And I think, I actually think they're gonna... I don't... So one, I think it's a win-win for free people. Two, I suspect in the beginning, unlike the... You know, we, we, uh, we wanted to blow our minds out with Google 'cause it was 11,000 pages of blue links before the one natural thing, and then a lot... Like, it's just, it's so polluted with ads, we can't even figure out what's an ad. If OpenAI, if the ratio is, say, 10 to one, like a, a lengthy analysis of what's best for you and a little ad in a different color, I think the, I think the, the, we... I think it's a win-win for everybody. It makes, it makes the product, uh, more profitable, better margins, and we get some value. A- advertising is not valueless to consumers when it's perfectly executed. It's not valueless.

   12. RORory O’Driscoll47:39

       I, I think that's a great point, Jason. I really do. And there was a period of time, Jason, to your point, when the Google ads were awesome. You know, early on when there was only a few, um, you know, paid links, you remember on the, on the side. And it was like, okay, that was, uh, you, you exactly right. That was marginally additive, right? Now, obviously they've swamped it, and you can barely find out what's going on, and, you know, all these things tend to, that wonderful word, enshittification at scale. But you're right. This could be the period where one or two ads at the bottom of that, um, are additive in terms of information, especially when you auct- I mean, the beauty about the auction process for the ad placement, right? It's gonna sound weird. Is that, um, because they run this kind of... Because Google has run, Facebook runs these very efficient auctions, you actually end up selling the ad to the person who values that real estate the most, which usually is someone who's got something very precise to sell you. So to your example, Jason, you're exactly right. If you write this long query on some kind of OAuth, at least the ad you're gonna see is someone who says, "It's worth spending 20 bucks to get in front of Jason and say, 'Dude, you should buy my OAuth instead of that one.'" There's, there's net information added here, right? Which won't be true when they have 40 of them, but that's-10 years from now

   13. JLJason Lemkin48:50

       Plus, I think we're, uh, we're forget- we're underestimating how much better LLMs are for discovery of what to buy. I mean, I find Google unusable for discovery, unusable today. It is all random a- I can't... Look, I, I, it's great to see vendors. I can't figure out which product to use or buy. Google's useless. Amazon is frankly more valuable, but it only works for the goods Amazon is selling. It's still exhausting, right? And LLMs are gonna, are, are a gift if you use properly for discovery. I think we try to... Um, look, some, uh, Instagram's full of ads, TikTok's full of ads, but it's pretty mediocre for discovery. It's just well-targeted, right? Um, this is brilliant, I think, and, um, b- bring it on. Br- bring it on. [laughs]

   14. HSHarry Stebbings49:32

       Jason, do you think it will be an unbelievable, massively significant needle mover in terms of revenue very quickly for OpenAI?

   15. JLJason Lemkin49:40

       I think it... Listen, uh, first of all, there's a lot of products we've talked about, like OpenAI's web browser we've never discussed again. We may never discuss even Claude Cowork again. I don't know. Things, they try stuff, okay? Um, I think it has the... I think we are way under-discussing the power of discovery in LLMs. I think this is the way we will buy everything in the future as L- as we are embedded in LLMs. I don't know why I would use anything else other than the best of ChatGPT or Claude or Gemini to find a product to buy. Why would I use anything else? It's so powerful, and so the ads will be great.

   16. HSHarry Stebbings50:09

       And you think in a quarter this will be a billion-dollar-plus revenue business?

   17. JLJason Lemkin50:15

       I'm not, I haven't run the ma- You'd have to give me a moment to run the math, but it's why, why can't a billion dollars go to it? If there's any ROI, it only has to be, like, a 1% of ad spend going to TikTok and Instagram to move over there. Like, uh, marketers will just have to try it. Like, the first billion may not be impressive because you gotta try it.

   18. RORory O’Driscoll50:33

       Agreed, and a couple comments on that. Uh, there's just a ton in this. So first of all, uh, yeah, it's hard not to imagine it's a billion dollars very quickly, and Jason's right. Remember, it's only 5% of the... They're, they're doing around $20 billion in revenue. It's only f- only... Did I really? It's only 5%. It won't be a needle mover. I mean, what are the differences between this? When Google and Facebook added ads, each of them at the appropriate time for them, 2002-ish and 2005-ish, they had significant but manageable cost structures, no other revenue source, and very quickly they became profitable, right? On near, you know, profitable as CapEx. Even a billion dollars is a drop in the bucket compared to the spend here, so it better do a billion dollars pretty damn quick, 'cause if it doesn't do a billion dollars pretty damn quick, it's not gonna do $20 billion, you know, reasonably quickly, right? So, um, uh, my gut is it is because they're just gonna fi- find a way to make it work, and I think Jason's right. It is prime real estate, and it's worth pointing out on that, Jason's comment, is that, you know, we've all been in this oma- you know, e- every- everyone kinda went through the Google is doomed a year ago, and then Google executed competently on a bunch of things, and now we've all gone to, "Oh, Google's amazing, and Coté was so stupid for leaving Google out of their amazing AI companies." And I think they are amazing in terms of their AI, but Jason's comment is really significant. He doesn't go to Google anymore for search, and that's the mother lode. So the, the, a little bit-

   19. JLJason Lemkin51:54

       For discovery, for what to buy

   20. RORory O’Driscoll51:55

       ... for discovery. You, exactly, for discovery.

   21. JLJason Lemkin51:57

       Discovery. For search I do, not for discovery.

   22. RORory O’Driscoll51:59

       Which is the best search real estate, right? So even though Google's doing amazing and all this, it is worth pointing out that their cash cow, which kicks off 240 odd billion a year of revenue, which is the ads business, isn't the best product on the market anymore, and some of those dollars will go to OpenAI, and because it's better real estate. So it's not all s- it, i-i-it's not all one-dimensionally good for Google today, just like it wasn't all one-dimensionally bad for Google 12 months ago, right? They've done an amazing job of getting relevant in all the spaces and winning some of the product wars, but they still face the core problem, which is search is not the best place for discovery anymore, like Jason said.

   23. JLJason Lemkin52:33

       Okay, just for fun, just for fun, I asked Gemini so that we're not biased in here. For OpenAI to do $25 billion in search revenue, which is really Rory's point, like, to open the floodgates, at a $50 CPM, which I think is possible because it's about discovery, right? They just need .22 ads per prompt. They don't need 11 million blue links where you can't find it. .22 ads paid per prompt to do $25 billion at their scale. Does that sound implausible?

   24. RORory O’Driscoll53:00

       .2... But every one in five, every one in five s- prompts ch- search ChatGPT's interactions has to be a discovery ad monetized. No, it does not sound m- plausible.

   25. JLJason Lemkin53:11

       Yeah, at a $50 CPM, so it has to work. This can't be garbage ads.

   26. RORory O’Driscoll53:14

       It's not, no.

   27. JLJason Lemkin53:14

       But I think it's very, I think it's pretty plausible, and going to, Rory, we may be upside surprised. This may turn into Facebook or, uh, Google back in the day. Like, within a year, our jaws might drop.

   28. HSHarry Stebbings53:24

       I think this, this clip will be used, I think, in three years' time when they are at $100 billion in revenue, and you'll look back and go, "Wow, we underestimated the size of this."

   29. RORory O’Driscoll53:33

       No, I, I, I'd push back and say I don't underestimate it, right? I actually think that, that this is the co- this is the money, right? Um, 'cause if you look at intent, look, intent, with the except- Facebook isn't about intent because it, it's about consumer knowledge, right? But Google was about intent, right? Amazon ads, which has exploded from, you know, we don't talk about it because it's buried in their bigger business, but all their gross margin now comes from ads. The retail business is just an excuse to sell ads that makes all the margin, right? On the, on the retail side, to be clear, not the cloud side. And that's exploded to, I can't remember the numbers, and I should have it, you know, tens of billions of dollars. It's sub 100, but tens of billions of dollars because they have intent. And you're right, Jason. At least one time, I mean, I'm just looking at my search. I mean, not my, my chat history. At least one time in five, I'm going... I, I bought a TV. I hate buying a TV. I just did ChatGPT, five or six queries. What's the best TV? Why is it the best TV? How should I peg it on the wall? How big should it be? Here's my room size. I got a name. I remember the name. I went into Best Buy, and I said, "Do you have this thing?" And they said, "Yes," and I bought it, right? Um, you know, if they'd given me a click, I'd have probably said, "Can you deliver it?" And I'd have paid the extra money. It's prime real estate, right? Because it is the best way to interact for complex purchases, and it's not 'cause it's inventing anything. It's just synthesizing the shitty internet into the actual answer. Now, sometimes the answer's wrong, which is a little bit terrifying, but most, it was right on the TV.You know? So I think this is a great business for them, and I think you're right, they're gonna go at it. Jason's exci- By the way, Jason, I gotta give you a little push here. It is why the deals that you had, you know, Harry and I kinda like this market. He's got a play in it with Peak. I don't, 'cause lost on one of the deals with Profound, oh, my sadness. But, um, the SE- the, the AE or the, the an- answer engine optimization is going to be a vitally important business. All those companies are gonna matter.

   30. JLJason Lemkin55:24

       I, I agree with you that someone is gonna build a massive business making, connecting these ads to the LMs. I'm not convinced it's from the snake oil that I have seen in the GEO, uh, products that I've used to date. I believe they're snake oil. They're telling you, th- they're telling you to do very basic things that, that, that maybe work. Where I tell you what we should do, let's all p- this is, and this is risky. Let's all put a bunch of money into AppLovin and The Trade Desk right now. That's what we should do. I don't know whether they will... Listen, I'm not a total ad tech guy. I don't know if they'll be fully open to OpenAI, but if they are, if they are open for ads, if you can run your ads across these platforms, um, especially The Trade Desk, maybe you make a lot of money. The Trade Desk beaten down.
6. 1:01:42 – 1:11:58

   ClickHouse's $15BN Deal: Analysed

   1. HSHarry Stebbings1:01:42

      Um, uh, there's a couple of big rounds that went down that I, I do wanna hear your thoughts on. There's ClickHouse at $15 billion, there's Replit raising at $9 billion, and there's Cerebras raising at $22 billion. Which one do we wanna focus on?

   2. JLJason Lemkin1:01:56

      Listen, I, I wish I was a total ClickHouse expert, but I tell you what is kind of interesting about it. Um, maybe we could gloss through it. Um, you asked w- it- it's an extreme example of how do folks take advantage of AI, uh, tailwinds. ClickHouse is basically an in-house open source product built at Yandex, which is now Neebus, built in Russia. Uh, just like everyone has an open source product, right, that has, that has gotten scale, LinkedIn and others. And it's a very clever way to, to mine massive amounts of data and make conclusions from it, and they built their own for their own. I mean, Yandex was w- you know, whatever, the Yahoo or Google of Russia. They built their own, and it sort of works, and then timing's perfect. They spin this thing out in 2021, right? They build, they take an open source product, they turn it into essentially a proprietary cloud product, and then boom, AI blows up and folks are already using it. Tesla already figures out this works 'cause they're early in AI. They've... Everyone's already figured out this is best of breed, but they nail the conversion from free open source to closed source hosting, and then fast-forward today, Anthropic and everybody needs it. But this is not a product that was born at the start of this year. This is a, this is, uh... So I'm not a total expert, but man, just go find your ClickHouse. I mean, it's har- easier said than done, but this is not a brand-new product. This is... That's a, you know, Replit's 10 years old too. These are old products that found their AI tailwinds and blew up, right? Blew up. I think it was only doing $50 million a year ago, right? ClickHouse or something like that, or less. Blew up.

   3. HSHarry Stebbings1:03:30

      Jason, when you're doing ClickHouse at, at $15B, it does feel pretty expansive when you compare it to a Snowflake or even a Databricks in some respects. What are you underwriting it to?

   4. JLJason Lemkin1:03:40

      I guess Databricks is your comp, right? Which is, I guess, is a large assumption, that it's even better because everyone, everyone in AI is gonna use ClickHouse. You're assuming one way or another you're gonna get, like, 100%, almost 100% market share, and some will be directly competitive with a Databricks or even Elastic, where the, where this, I think, the CEO was in others. Others will be quite complimentary. It's not. But you're just assuming. I think the bet is... I, I don't know. I, I didn't see the deal at $15 billion. Maybe, maybe Rory did. But, um, I think you're just assuming everyone uses it, which maybe is a rational bet. One, once in a while these products come into market where just every single person uses the product. Every s- and if you... And, and open source, it's actually common. It's just hard as heck to monetize it the way ClickHouse does. That's the clever part, right, is that... And I'm not even an open source expert, but it's brutal if everyone just goes around and hosts it yourself and builds their own version [laughs] and forked it, right? They nailed this. They nailed it.

   5. RORory O’Driscoll1:04:31

      Whenever you pay up for these high growth companies, what you effect- I mean, you, you, you, you... I can use three different words to say the same thing. You're effectively saying, in math terms, you're saying the most recent growth rate is gonna continue for a long time. Duh, right? 'Cause you're paying an absurd revenue multiple, but it's not an absurd revenue multiple if the growth rate continues for two or three years. So you're basically underwriting growth persistence, right? So next level down from that, what does that mean? What you're basically saying is this is a category, they're the winner, and it's a big enough category to keep going for two or three more years, at least at this growth rate, and then deaccelerate slowly, right? And is that crazy? No, it's not.

   6. JLJason Lemkin1:05:06

      Yeah, two to three years at 3 to 4X growth at $350?

   7. RORory O’Driscoll1:05:09

      Yeah, you can do that.

   8. JLJason Lemkin1:05:09

      That makes sense. It ties, it pencils out, right?

   9. RORory O’Driscoll1:05:11

      Yeah. Yeah.

   10. JLJason Lemkin1:05:11

       It pencils out.

   11. RORory O’Driscoll1:05:12

       And again, you know, we have examples of this absolutely happening if you look at the Anthropics of this world. And then we have examples in SaaS of people, you know, where you underwrite a growth rate and then, you know, suddenly that growth rate deteriorates and you're high and dry. It's just that simple. There's, there's no other magic. There's... What I always say to, I actually say to our investors, and I probably said this on the show before, is that first of all, you have technical and founder risk. Then you have business go-to-market execution risk, which is typically where we invest. And then at the end you have valuation risk, right? And valuation risk expands to fill the gap. Once the other risks are taken out of the deal, you're left with valuation risk, which is all about growth persistence and market size. And the good thing for ClickHouse is it is a category, right? 'Cause step one, what you don't wanna do is find you the third-best random database. But if you look at one level deeper, what they do, OLAP, which is... And this category has existed in prior generations too, right back to the East India Company, Harry, right? Um, in every database, like way back in the 2000s when, you know, Oracle is the relational database king, right? Then there was kind of some of these obscure AI-type databases even back then that would be equivalent to, say, a Databricks today, which is obviously a bigger category. But then you have these transaction, these analytical processing databases like Teradata. And think about that, like it's not about writing transactions to a database. It's all about you have a million, and now maybe a billion or 10 billion data elements there, and you wanna s- quickly scan down a column and add them all up. How many clicks? How many, you know, how many, um, you know, people traversed your website? Large amounts of typically read-only data. I wanna... And if you use a standard Snowflake database, it's fairly inefficient because that's written to be able to write transactions where you write in a transaction, like here's my, you know, uh, typically, you know, a debit or a credit or... And so the, so Snowflake's optimized for that. And analytical, um, uh, column or database is like, um, ClickHouse are optimized for analytics processing. It's a different category of databaseAnd, you know, data warehouses back in the '90s and 2000s, the same thing. You, you, you have your production database where you run your system, your banking system, your ERP, your PIC, you know, whatever it is. And then you have this analytical da- place where you put off all the transactions. 'Cause some analyst is gonna wake up and say, "I have a really obscure question. How many people bought this product in this district two days after they did this online on the website? I need to know how many people did that, 'cause I wanna do attribution." Some weird corner case like that, right? And in AI, the number of those queries has gone to infinity, 'cause if you have that information in AI, you can use it to predict things. So Jason's exactly right. You have this optimized special tool for a very clear use case that's kinda different enough from Snowflake and from Databricks that you have this separate category. It's become important because AI eats that shit up, so you have this explosive growth. And it's a category... So then the only question is, can the OLAP market support a 30, $40 billion outcome? You know, you squint and you look at Snowflake at 80. You know, it's, for transactional database, you look at Databricks, 100, 110, maybe it can. I mean, it's, it's a... Typically, i- if you look back in the prior generation, the data warehouse category was smaller, significantly smaller than the relational database part of, n- than the transaction processing part of the marketplace. Because, you know, your airline, for example, concrete example, you're running your airline reservation system. That's a transaction processing system. That can't go down for a single minute because you lose billions of dollars. The analysis at the back of that, American Airlines wants to run an analysis of how many premium customers flew last week on thing, that could be a little more, little less performant, and therefore not as big a market. So these markets have existed before. It's typically a, not a multiple of the database, of the Snowflake-type marketplace, but a, what's the word for below one? A fraction of it. But a pretty appreciable fraction. So if Databricks and Snowflake are worth 100 to 200, maybe you get a 30 to $40 billion outcome here, and that's the bet. Sorry, long-winded answer, but it's a category. They're the leader. Demand has gone up because of AI. You squint one way and you say two or three more years of growth, you feel like a hero. If it turns out to be a smaller market than you think, then you're high and dry. Welcome to late-stage investing.

   12. HSHarry Stebbings1:09:30

       Would you rather be in Databricks at 130 or ClickHouse at 15?

   13. RORory O’Driscoll1:09:34

       Basically what you're saying is, is the OLAP category more or less than 10% of the core... Well, Databricks isn't really relational. It's much more about AI-enabled data manipulation. Shit, when you look at it like that, you say it's not crazy that if, that, that it's worth, that the cat- the subcategory is more than 10%. It might be 20 or 30. So yeah. If they were both public, you could have a fun, you know, kind of macro trade of short one, go long the other, but that's not the way the world is now.

   14. HSHarry Stebbings1:10:04

       Okay. Final one. Um, actually, fuck it. Let's do a quick fire and just cram a couple in one.

   15. JLJason Lemkin1:10:10

       Wait, we're... Oh, God.

   16. HSHarry Stebbings1:10:12

       Oh, it'll be fine, Rory. Don't worry. Uh, so Sequoia are going big into Anthropic. They're also in OpenAI. Are we seeing the end of competitive investing, no one gives a fuck about competitive investing anymore, in 2026?

   17. JLJason Lemkin1:10:27

       Well, didn't I, didn't we talk about this last week when I said, um, Andreessen should target 50% market share, not 10, to Rory's insight? I said they can get past the com- the competitive issues.

   18. HSHarry Stebbings1:10:37

       So yes.

   19. JLJason Lemkin1:10:37

       Sequoia's passed it. [laughs] Different partners, different funds.

   20. RORory O’Driscoll1:10:41

       I, I don't buy any of that, but I think the truth is, at this, when you're piling in at 350 billion pre, um, you know, you're not on the board. You don't have meaningful information rights. It doesn't matter. Again, going back to the first principles, this is really Fidelity mid-cap growth. Well, actually, it's large cap growth now, but just in the private markets, which again, I repeat, is absurd that we're in this place, but whatever, right? Given that, Fidelity Growth is always gonna buy if they believe in a category. They can totally buy two or three different things with no conflict, 'cause they're not in the d- in the room when decisions are happening, right? And I think these late-stage investments, if you're not in the room, it doesn't matter, 'cause you don't, you don't have meaningful information rights. You're not getting the board deck. You're not there for the strategic stuff. So I think you couldn't do, you couldn't do the Series A of OpenAI and do the Series A of Anthropic. That would be stupid. I would assume one of the CEOs would stop you. But getting at 350 billion pre, where your billion dollars... It's just worth saying this, where your billion dollars gets you .3% of the company, which is about what you'd hire a director for at your Series B, right? No information rights, no nothing. It doesn't matter. I mean, you know nothing. You get the two... You get one email a m- a quarter from each of the two companies. You know where they are and, you know, as I say, you are just, you are a public market investor in private assets.

7. 1:11:58 – 1:23:01

   Replit's $9BN Deal: Analysed

   1. HSHarry Stebbings1:11:58

      Jason, I'm intrigued for your thoughts on this one. Replit, 9 billion bucks.

   2. JLJason Lemkin1:12:01

      Oh, yeah. I wanna hear Jason.

   3. HSHarry Stebbings1:12:02

      That's, that... It's, you know-

   4. JLJason Lemkin1:12:05

      Well, listen, uh-

   5. HSHarry Stebbings1:12:05

      ... Loveable, Loveable was 6.5 as a last vantage point. I think they're neck and neck in terms of revenue, really

   6. JLJason Lemkin1:12:11

      ... let's imagine they, they're at 300 million this year, and when they did the round before, they were at 100 or 100 something. You can justify the step-up based on that. You could also challenge it using Rory's math. What I think people might not get, um, this product's, like, 50 times better than at the $2 billion, $2.5 billion round. It's not a little bit better. It's like f- like when I, when, when we f- started doing the show, I was trying to use the V1 of Replit. I could not finish an application. I couldn't finish anything, and it almost blew up on social media, you might remember, right?

   7. RORory O’Driscoll1:12:40

      We do, Jason.

   8. JLJason Lemkin1:12:40

      It was unfinishable, and it, it just wasn't there. And one of the founders of a competitor called me up and said, "None of us are there in the industry. None of us are there." Over the holidays, for fun, I built an incredibly complicated game. I've never built a game in my life. I built a startup simulator that simulates everything from going through YC to IPO-ing toControlling all the global power and GPUs and tokens in the world. People love this game, and what's interesting isn't that I built it, it's that it works.

   9. HSHarry Stebbings1:13:08

      Yes.

   10. JLJason Lemkin1:13:09

       Nothing worked at two billion, two and a half billion or whatever the round was. Nothing worked, and the joke was all over the internet, everyone's got a project they 80% finished in lovable Replit. Everybody did. They couldn't finish it, and it was a joke because they thought they 80% finished it, but there was no chance to go from 80 to 100. Literally, I built this thing over the holidays, and I probably put 100 hours into it 'cause it was over the holidays, right? This was not a one-shot deal, but it's magic. And so if the revenue growth justifies it and the product is literally more than an order of magnitude better, I, I would argue... I know this is the, the math that we're gonna look back of and make fun of ourselves, but I would argue this is a much less risky investment today, whatever it is, within reason, than it was at two and a half billion where I didn't even think this was a stable product. Like I thought it was cool, but it didn't work. So mu- And by the end of this year, man, it's gonna be even better, right? So we're just getting so much benefits of these improvements. Like we're-- If, and everyone that's like, oh, you know, if you watch the Ben Affleck, uh, Matt Damon one on Joe Rogan, pretty fun and, and Ben's like, "Well, nothing's really improving anymore in LLMs." And maybe it isn't in Hollywood, although I doubt it. We've just started with agents. We're so-- And it's just so much better. So I, I think Replit's 100 time-- I know the math, venture math doesn't work this way, but if it's 100 or 1,000 times better product, it's probably worth two to three times more if the revenue is growing at outlier rates.

   11. HSHarry Stebbings1:14:27

       Well, I mean, they, they, they'll be at two, they'll be at $250 million ARR now.

   12. JLJason Lemkin1:14:30

       Yeah.

   13. HSHarry Stebbings1:14:30

       And then if you assume given their growth rates, they'll realistically be at 700 to 900 by the end of the year would be a-

   14. JLJason Lemkin1:14:39

       Yeah.

   15. HSHarry Stebbings1:14:39

       Yeah? Well, God, you're paying-

   16. JLJason Lemkin1:14:40

       Sounds like a better deal than a, a lot of other portfolio companies. If it hits the number [chuckles] , if it hits the number, it sounds like a pretty good deal, right?

   17. RORory O’Driscoll1:14:48

       I, I, I... Yes. Im- implicit is a huge amount of belief in growth persistence, but yes, agreed. If they do that, then yes.

   18. HSHarry Stebbings1:14:55

       What was your question gonna be to Jason, Rory?

   19. RORory O’Driscoll1:14:58

       Um, actually genu- as a Rep- I, I, too Replited over the holidays. I'm inspired by your example-

   20. JLJason Lemkin1:15:03

       Incredible, honestly

   21. RORory O’Driscoll1:15:04

       ... right?

   22. JLJason Lemkin1:15:04

       Yeah.

   23. RORory O’Driscoll1:15:04

       And it was fun, and what I did find though is I used to use it wh- when I was doing my Python lessons. They're very much driven now to a much higher level. It's all agent-based. It's basically you don't even need to see the code, Mr. M- M- Mr. Designer. It's all about, you know, it's you interacting with the chat... I, I'm actually trying to get down to the developer level and understand the code base, and it's like it's almost hard to find and it almost resist. You have to decide to-- The interesting thing about it is you have to embrace a world of you don't need to know the code, Mr. Rory, and once you do that, just describe what you want. It g- it's a whole new scale is my, uh, it's almost like it's not programming at the programming level, it's describing at the describing level. And if you, and if once you embrace that, you get stuff done, but it's really hard to go back to first principles and say, "How does it work?" Right?

   24. JLJason Lemkin1:15:49

       Yeah, you can view... But you're right. You can view the code pr- and some folks use it that way, but it's, it's basically abstracted away. It's hidden, right?

   25. RORory O’Driscoll1:15:55

       Agreed. And you can find it, but it resists and then you get into-

   26. JLJason Lemkin1:15:57

       But the more you do it, the better you'll get at-

   27. RORory O’Driscoll1:15:59

       Agreed

   28. JLJason Lemkin1:15:59

       ... understanding how the agent thinks and works, right? And, um-

   29. RORory O’Driscoll1:16:03

       No, ex- exa- and this may be like a, a dude when spreadsheets were invented saying, "I like to add the numbers myself to know they're right, and maybe I just need to let go and say the spreadsheet's right and I, and, and just stop worrying, don't be an idiot." But yes, it was super interesting and extraordinarily powerful once you use it. The final just comment, 'cause you know, you had it in there, Sequoia doing Anthropic and Sequoia doing ElevenLabs. You know, I just was reflecting on this. Obviously, given the changes they had, clearly the mission of the new management [chuckles] in charge is we're gonna execute an AI.

   30. JLJason Lemkin1:16:32

       New management of Sequoia, you mean?

Episode duration: 1:23:12