Figma’s IPO: The Full Breakdown & Why Melio’s $2.5BN Acquisition is “Discouraging”

1. 0:00 – 0:59

   Intro

   1. JLJason Lemkin0:00

      My rule is if you haven't grown because of AI, (upbeat music) you've failed.

   2. RORory O’Driscoll0:03

      The amount of money we're investing in AI right now are $300 to $400 billion a year in CapEx. Will you get the near-in ROI? Will it be an economically rational decision when you look back two, three years from now? I don't know.

   3. JLJason Lemkin0:14

      I think venture's just gonna rip. You're getting a lot of money back as an LP, right? Just massive amounts of cash coming back. I mean, if Oracle can get AI native by June 30th, and your portfolio, your startup can't, I mean, I'll smile, but I'd give up.

   4. HSHarry Stebbings0:27

      Ready to go? Well, listen boys, I am so excited for this. This is (laughs) the holiday edition. Uh, we have, uh, some travels from two of us. So listen, thank you so much guys for joining me on the travels, Rory and Jason, for staying up late and making this happen.

   5. JLJason Lemkin0:53

      Very exciting. It's a lot- a lot going on in the world of AI and, and more.

   6. RORory O’Driscoll0:58

      Absolutely.

2. 0:59 – 2:48

   Figma's IPO: Rule of 80, $1.5B in cash, 40% margins

   1. RORory O’Driscoll0:59

   2. HSHarry Stebbings1:00

      All righty. Let's kick it off. So Figma filed for their S1 last night. Numbers were pretty phenomenal. You have, um, uh, 821 million in revenue, 46% up year-on-year growth. You have, uh, a billion five in cash, no debt. There's a lot to like about this. And so I wanted to hear your thoughts on where you think it will go out at, and how you analyze this S1 dropping.

   3. RORory O’Driscoll1:24

      There was a lot to like. I mean, awful lot to like. I mean, I went through it literally on my phone late at night and gone, went, "Wow." And you didn't even mention one of the more impressive ones, which is kind of the profitability and free cash- free cash flow margins last quarter, like 40% plus. So op inc positive, free cash flow positive, growing 46%. So again, rough math on an i- on an iPhone on a small screen, it's like rule of 80, right, plus. So it's a company clearly tracking a billion dollars at rule of 80, plus or minus. I think it's gonna get a great reception.

   4. JLJason Lemkin1:57

      I mean, for sure. It's- this- this is just games to figure out what the model's gonna be, right? Is it gonna be 20 billion or 25 billion or 30 billion. And, um, will- will they listen to Bill Gurley? (laughs) I don't think ... I mean, Figma is not, uh, i- is not consumer, but it's got a big enough brand they don't need to leave money on ... I doubt they need to leave money on the table, right? So it's a minor issue, but world of trade. I- I- it's, um ... You know, the only thing is at 20 billion, it- you know, which is just what Adobe was gonna pay almost 24 months to today, 20 billion's 20 times current revenue, right? Um, it's not ... Even at 20 billion, it's not cheap, right? It's not cheap. So, uh, you know, the- the overall NASDAQ's on fire, but, you know, um, you know, Bill McDermott from- from ServiceNow just joined. That's about as good as it gets in the enterprise. They're not trading at 20x.

3. 2:48 – 14:17

   Adobe Screwed the Deal: Should They Have Just Bought Canva?

   1. JLJason Lemkin2:48

      So I actually am not smart enough to know exactly where it will tw- where ... how much it will trade above 20, um, and how that compares to the IRR of selling to Adobe for cash and having no lockup (laughs) -

   2. RORory O’Driscoll3:01

      (laughs)

   3. JLJason Lemkin3:01

      ... and- and calling it a day and going to work as a junior SVP at Adobe for four years (laughs) .

   4. RORory O’Driscoll3:06

      Yeah, I- I think the last sentence says it all. Look, and to your point, it's probably not a better IRR, 'cause by definition, you know, bird in the hand t- two years ago is better than a bird in the bush now. But it's a much better way to live your life. I mean, for the team, frankly for the investors. I mean, it just looks like a great company and presumably gonna have a great run. I- I think it's a, you know, great acacult firm.

   5. JLJason Lemkin3:27

      You know what also, you know, I mean, Scott Belsky was right. They should've bought 'em. People made fun of 'em for pay- overpaying, right, 20 billion, right? Um, but I think the beauty is if you're Adobe, you can be a little patient. It's okay if you pay two years ahead if it's a winner, right? It doesn't really matter. And people just thought they were paying through the nose and that this was a flashback to a 2021 deal. Fast-forward to today, if Adobe bought it, they ha- would have a pretty good deal, especially because there's synergies. They would have a pretty good deal. (laughs)

   6. HSHarry Stebbings3:54

      J- J- Jason, what would you pay two years ahead of if you were Adobe today?

   7. JLJason Lemkin4:00

      You know, I'm not ... I- I'd ha- I- I'd have to do my homework, but, um, you know, when I was reflecting, you know, you- you kind of joked about questions you should ask Marc Benioff when we did this last time, right?

   8. HSHarry Stebbings4:11

      Yeah. Yeah.

   9. JLJason Lemkin4:11

      And when I interviewed him, I- I dug deep on the M&A. And, j- you know, years ago, John Samordjai, who's run Corp Dev there since like ... He was a- I think he was like a double-digit employee, right? He's been there like 20 years. And I caught with him, he's like, "We're just really good at the big stuff. We're really good at buying a billion dollars or more of revenue, and not ... and growing it," right? MuleSoft, Slack and others. So, uh, maybe that's the same lesson here. Adobe should buy, should stop screwing ... You know, if you don't have the talent, don't screw around on the little stuff, and what else can you get that's approaching a billion of revenue that's synergistic, right? Um, I mean, Adobe's at 20-something, right? So that would've been another 10%. That's something. But I don't know. I'd have to look. What else could you buy at a billion? I mean, I guess, I mean, I don't want to say the obvious dumb answer of Canva, um, but, um, you could do worse.

   10. RORory O’Driscoll4:56

       I think the beauty of the Figma acquisition was it was market expanding for Adobe. And, you know, reading even the S1, I'm- I'm- I- kind of, well, I think they said something like, uh, two- is it 30% of their c- users are developers. Only 30 or 40% are designers. I mean, it really has become a pretty pervasive piece of software for anyone involved in building software products. So I think probably you're right, what you said. The first thing you said, Jason, is absolutely correct, which is it was a great call by Adobe to try and buy it, right? And, you know, even the current ... I mean, you know, there was a little bit of a thing for a while there when the deal cratered that, you know, Adobe's mentally moved on to gen AI. And obviously they have and, you know, figuring out their gen AI strategy and how that reflects in media and how that reflects in video is really important. But the more you look at these numbers, the more you realize that could have been a really central key plank, a separate cool key plank for what they're doing. In other words, that kind of exposure to developers, exposure to designers in the software industry. So yeah. It was a great acquisition, and...You know, I'm sure they're looking at it going, "Damn, wish that one hadn't got away."

   11. JLJason Lemkin6:10

       You know, it's funny. Looking back on it, I'm sure... Reflecting on it now, I'm sure Scott Belsky talked him into doing it. Dylan, Dylan talked him into doing it, right? Scott Belsky... Our, our, our startups were acquired almost the same time as Adobe, but he went back from Benchmark, right? He resigned being a general partner at Benchmark to be chief product officer at Adob- I never got the call, by the way.

   12. HSHarry Stebbings6:29

       (laughs)

   13. JLJason Lemkin6:29

       I never... I wasn't, wasn't even like fifth in the line. I never got the call to go back to Adobe. Um, even though I built a much larger business by revenue, maybe not by impact. Never got the call. But, um, you know, Al... You know, everyone said he put his, put his career on the line to do that deal at an insane price, right? But my... But I think he had to talk him into it. I don't think... What does Dylan care 20 billion, 18 bil- He don't care. It's just so much money, right? So... And then the, the, the life lesson for founders, it's tough is look, Scott's gone now, right? It's always a weird thing, um, when you do M&A and it's not with the CEO because (laughs) there's a good chance you outlast them. (laughs) There's a good chance you outlast your sponsor as a founder when you're acquired. (laughs)

   14. HSHarry Stebbings7:11

       You joke, but it reminds me of like actually venture deals and the biggest problem that I see getting done say, which is, you know, companies being orphaned and junior partners moving on and then having no champion in the firm, and actually being bluntly up shit creek without a champion internally.

   15. RORory O’Driscoll7:24

       You're right. Across the board, you're seeing a whole bunch of change. You'd think that any partner would, yeah, stand up for the firm and represent the firm, but it is funny. When it's not your deal, that willingness to go the last mile to make it happen, to, you know, get on the plane, to hassle the VP, you know, the CEO, to try and get a round together to save the company. You know, m- There's an argument that says the new person's actually a little more clinical, and maybe they only actually invest in the very best per- companies and maybe the other guys should die. But there's no doubt that when you become an orphan as a company, your ability to get something done in that venture firm does go down. And, you know, parenthetically I would say some people, you know, wrestle with the choice. Do I stick with the p- If the company is s- Do I stick with the partner who's moved on but is still willing... You know, the com- The VC firm is still willing to say, "Hey, they can keep their board seat"? In general, I found that doesn't work over time, because you need to be in the room where the money is allocated, 'cause I'm realistic enough to say that even if I... You know, if you have a venture board member who's an amazing board member but can no longer speak to the money, because he's no longer at the vent- at that venture firm, then to a rounding error, they're useless. If you want a great independent board member, put him on as an ind- or her on as an independent board member. But you need to have people in the room to speak for the money when the money is needed, and that frankly is one of the top jobs that a venture firm has to do.

   16. HSHarry Stebbings8:54

       Okay, so I actually know a firm and they say, "Hey, reserve decision-making is so broken that we have a different partner that makes the reserve decision." And I think that's useless because they don't have so much of the historical knowledge and data of how that company's progress changed, and then you come in as a net new investor. They say, "Oh, it means you come in without bias and without any lagging indicators," which could bluntly determine your decision-making. Who do you think-

   17. JLJason Lemkin9:22

       I think it's great idea to have... To not have the partner make the reserves decision, right? I like this because when I worked at a third party venture capital firm, when I... I mean, just people would just wanna do the pr- like, just bail out their Bs and Cs all the time. All the ti- Like, e- ev- Like, half the partner meetings were like, you know, "But, uh, you know, Stebbings Lemkin Corp's gr- back to 20% growth. Let's put in another four million." (laughs)

   18. HSHarry Stebbings9:49

       (laughs)

   19. JLJason Lemkin9:49

       And those checks would often be gone in a year. Like, the company was going under anyway, right? I'm not even talking about one and twos. I'm talking about three and fours people want to put money into, right?

   20. HSHarry Stebbings9:57

       Jason, I, I didn't get that confidence though, 'cause every additional dollar you sink in, you're putting your name more and more on the line. If I don't have something that I don't feel great about, how I... I don't feel so good about concentrating more and more if it's my firm or not my firm.

   21. RORory O’Driscoll10:11

       I think th- this, this is a minefield. Not, not, not on the agenda today, but a minefield, 'cause Harri, to your point, I think first of all, everything goes back in life to incentives, in my opinion. So your, your incentives as, you know, the ostensible leader of your firm are very different than your incentives if you are, you know, the, the fifteenth most senior GP in a much larger firm. Well, you know, you're gonna rise and fall in keeping your companies alive, right? And frankly, the overall return profile of the firm as a whole, I'm not gonna say it doesn't matter, but it's hard to weight it highly, right? So you, as that junior partner, have every incentive to, you know, find every marginal dollar for your companies, keep them alive, 'cause, you know, something might turn up. So it's a very different decision in that case, right? Um, which might argue for Jason's comment. I can't imagine having someone else make those decisions, but equally, it shouldn't be the partner making those decisions. I mean, you have to have a combination of partner recommendation and a fairly robust group process, because it becomes... I mean, it's a very interesting discussion, reserve allocation, 'cause it's a finite process, and, you know, you, you wanna allocate as much as possible in your good deals at the high prices. But at the same time, and this... At, at, at... Uh, sorry, the lower prices when you can. But at the same time, there is some value if you end up naked and defenseless on all your deals, on all your... On anything other than your best deals, if you don't have any capital to play, well, you do stand a chance of losing significant economic value if, you know, you hit into a tough time.

   22. HSHarry Stebbings11:44

       And my only point to add here is when I did Fund One, I put out my five top performers that would be fund returners after about an 18-month deployment period, and none of those five are actual fund returners in any way, and the five that will be, I never had as the fund returners. And so bluntly, I think we overestimate our ability to predict our winners. And I said this on Twitter, and, and Roger Ehrenberg at IA very much agreed with me, and so I think it fundamentally challenges actually reserves as a model entirely. At seed to A.

   23. RORory O’Driscoll12:15

       Because what?

   24. HSHarry Stebbings12:17

       Because you're unable to predict your winners, and so when you do allocate reserves, you essentially allocate to the fastest growing, not necessarily the best long-term sustainable capital value drivers.

   25. JLJason Lemkin12:27

       Well, that's for sure. You put it, you... When you have limited reserves from a s- seed or smaller fund, you put it all in your fastest growing companies (laughs) like a 100 fucking percent. (laughs) There's only one criterion. (laughs) Triple digits growth, you know, double digits per month, that's it. What do they do again? SaaS for haircuts? I'm in.

   26. RORory O’Driscoll12:46

       I think your statement is p- uh, possibly true at the seed level, which is not where we play, right?

   27. HSHarry Stebbings12:52

       100%. I think between B and C, you have a lot more to play with on this round.

   28. RORory O’Driscoll12:56

       Exactly. I mean, you know, even if... The truth is this, what I say to people is, you know, we do it when you have product-market fit. Once you have product-market fit and early acceleration, most of the time, if you get what you get, if you get what you underwrite for the first two years after the investment, you're probably gonna make money. And if you don't, you're going to struggle. I mean, we've done, we've done that. And I think I shared with you before, is that when I look back two years in, right? If, if the art are within 25% of the underwrite plan, you know, our probability of making a 5X goes from 30% to 70%, right? At the product-market fit stage, right? I think what you said is not true. In other words, you can in fact tell your best, quote-unquote, "your best deals." Not with 100% certainty. I would have said 70%, and I'll come back to that. I'm not sure it is 70 anymore. So that is when reserve allocation gets tricky, because you have, one, the incentive to put a lot on the good deals. On the other hand, there is some value in having capital even to defend your mediocre deals with small amounts of money, where financings get tough. Because you can impact, you know, you... It's not gonna change your life, but you can take a 0.5X to a 2.5X by nurturing it along. I mean, uh, and, you know-

   29. JLJason Lemkin14:07

       That's

   30. RORory O’Driscoll14:07

       ... and finding a way to make a big difference and avoid a big hole in, uh, uh, a big hole in the fund. So there is some value in having some capital there, but the vast bulk of it should go into winners.

4. 14:17 – 19:01

   Pay-to-Play Deals: Heroic Hail Mary or Guaranteed Write-Off?

   1. RORory O’Driscoll14:17

   2. HSHarry Stebbings14:17

      Rory, have you ever had a pay-to-play work out? I was doing a deal the other day and the lawyer's like, "Hey, you could lose your rights." And so in a pay-to-play, you could get fucked. And I basically responded and I said, "I've spoken to many of the greats, and all of them have told me very simply that in pay-to-plays when they participated, it hasn't worked well." Has it ever worked well for you?

   3. RORory O’Driscoll14:38

      First of all, it never works well. I mean, my first rule of thumb is this, when you find yourself going to look at the legal documents in a venture deal, you're probably on your way to losing money, right? So the minute you start down this road, you've made a mistake. So first of all, let's start with that. So you definitely go from the, you know, if your chance of a good outcome in a normal deal is 30, 40%, uh, uh, a great outcome is 30%, you're definitely going to a different place. You're... Whenever you're in this kind of trouble, your probability of making big money i- i- is very low. Famous example, however, it's worth pointing out, he died last week, FedEx. There was a down round in FedEx, like six or seven rounds in. And I think Weisbeck and Greer, which was the antecedent of LightSpeed, played pretty aggressively there and made out like bandits. So that is an example of a down round in a network business, where it was the tipping point round and the people who played made out like bandits. So it can work occasionally, but you're right, the statistical rule when you're dealing with, um, these troubled situations is you're probably not playing for... The likelihood of a home run win is low. It's not zero, it's low, right? But I think... So what you're typically doing with a small amount, and that's why it should be a small amount of money, is you're saying, "Can I manage this thing to get it to a decent exit, versus just letting it implode and blow up?"

   4. JLJason Lemkin15:54

      You know, the second startup I worked at, Harry, had a pay-to-play and it IPO'd.

   5. RORory O’Driscoll15:58

      Which one?

   6. JLJason Lemkin15:59

      Unfortunately, went bankrupt between that round and the IPO, so-

   7. RORory O’Driscoll16:03

      Yeah.

   8. JLJason Lemkin16:03

      ... everyone lost all their money. So w- you could argue whether it worked out for the VCs, uh, uh, d- uh, only the ones that did the bankruptcy round, but it did work, like it bridged them to the IPO, but they did have to go bankrupt. (laughs)

   9. HSHarry Stebbings16:17

      Um, uh, and then you've got the challenge of the opportunity cost of that cash though, Rory, being like, "Hey, do you wanna put in that money to do the 0.5 to 2X?" Which, don't get me wrong, was an incredible transition, but versus putting two to three net new lines on the portfolio?

   10. RORory O’Driscoll16:30

       Yeah. No, uh, uh, you're right. Uh, actually, the real opportunity cost is the time.

   11. JLJason Lemkin16:34

       Yeah.

   12. RORory O’Driscoll16:34

       And I wrestle with this. Like if I... I would say it's a weakness of mine. I would say sometimes you spend too long working with a company trying to work it out. But you know, it's funny, um, partly I think you get connected to the entrepreneur and you want to help them, right? I think if they're... My, my, if, if they're willing to keep on going and they have a credible plan to keep on going, you kind of want to try and fi- find a way to help them. And you're right, probably on a cold-blooded basis, you shouldn't, right? And, but sometimes this busi- part of this business is not all cold-blooded. You form these relationships with people, they crank for six, seven years, they hit a tough spot. For them, remember, the difference between going bust, um, spectacularly and laying off 100 people and maybe getting a 2X for the money might well be 10, 20, $30 million for them personally. So I will admit that weighs in. My, my rule of thumb is, I tell the founder, it's like, "I'm totally willing to help." And I've run... I, I'll come back to the analysis. I've run the analysis on the money. Overall, it gives a decent return. It's not amazing, but you don't... You tend not to lose money on the bridges, you just don't make as much as you'd think. So my rule of thumb is don't make this time hard as well. If you have a clear plan that you're gonna execute and you're gonna get it done and you're not gonna dink around, you're gonna figure out a way to cash flow positive, figure out a way to build value here, I will support you with a finite amount of money. If on top of that you're gonna make it drama, I don't need it, 'cause it's the time that kills you. It's the time.

   13. HSHarry Stebbings18:00

       Rory, you are gonna have even more fans after this. Uh... (laughs)

   14. RORory O’Driscoll18:04

       Well, I'm, I'm actually thinking of one deal where, you know, we've eked it along for three years. I haven't had to put money in. And the guy's just literally survived on fu- fumes and the promise that if he ran out of money at short notice, we would cover his shutdown costs. So I haven't even had to put the money in, and I'm just so impressed with the guy for surviving that long. And I'm glad I did it. Who knows? We might make 0.5X, but-... that guy kept going, and I give him all credit.

   15. JLJason Lemkin18:28

       I remember a founder I had to completely bail out from fumes with more money than I had, um, and that company's doing over 300 million today.

   16. RORory O’Driscoll18:35

       Nice.

   17. JLJason Lemkin18:36

       Um, and I caught up with the founder the other day, he forgot.

   18. RORory O’Driscoll18:42

       I'm actually mentally running through my ... I will say-

   19. JLJason Lemkin18:45

       He forgot. I have a second story like that too.

   20. RORory O’Driscoll18:47

       I, I, I ha-

   21. JLJason Lemkin18:47

       If it's ... I wish it was the only one. I could tell you another one that the founder forgot, but this one really stunned me that literally had no ... It wasn't like sort of forgot, literally did not remember that that was the way history had occurred.

   22. RORory O’Driscoll18:58

       It's like childbirth, you just for- you just forget the pain.

5. 19:01 – 24:22

   How Index Is Returning $3.5B on 2 Deals

   1. RORory O’Driscoll19:01

   2. HSHarry Stebbings19:01

      The other thing that's just insane with this, guys, is it's gonna be three-and-a-half billion back to Index between this and Scale in a pretty compressed amount of time. I mean, I know there's obviously the hold and the lockup, but it's pretty fricking phenomenal in terms of liquidity and numbers back. I mean, uh, we have a lot of the numbers, the two firms that are able to see 3X DPI on s- fi- fund sizes this big is Founders Fund and Index. Unbelievable.

   3. JLJason Lemkin19:27

      I think venture's just gonna rip. I mean, Dave Clark said on LinkedIn the other day that just massive amounts of cash coming back mass ... I mean, you've gotta be in the good ones. Like (laughs) you can't be, you know, you're only gonna get, you're only gonna get so much back on the Superhuman deal. But if you're in, if you're in those two, you could have so ... I mean, if you're in Kleiner and Index and, uh, and Sequoia, you're getting a lot of money back as an LP, right?

   4. RORory O’Driscoll19:52

      Yeah. And I think, uh, there's two things. One is at the macro level, you're right, cash is coming and it ... Though at the macro level what's happening here is the fewer bigger winners comma, and it's what I always say to people, it's fewer, bigger, winners, but you're seeing less winners as less IPOs, but because they've grown so much longer, they're just so much bigger. So when you're in a winner like that and you're in early, right, instead of getting 400 million or 500 million, you're returning $2 billion plus, right? So it's exactly, it's, it's an, it's the inevitable outcome of the concentration on the longer holding periods. Now, second comment, the real skill is making sure you're in one of those that get it. And you're right, all credit to Index. I mean, it's an amazing achievement to get that. Accel just had Scale and, um, the, the, the, the, the stablecoin deal. Absolutely, it's a great time to be right, and I always tell people in this business there's lots to like about this business, you know, the terms, the hours, the money, et cetera, the, the, the intellectual interest. There's only one problem, in the end you gotta be right. You gotta pick the right deals and be in them. And, you know, these guys did.

   5. HSHarry Stebbings20:55

      I think this is the problem though when we look at fund sizes of today and saying how large they are, and not actually picturing 10 years out what our outcome sizes will be in 10 years time, because bluntly, you know, $30 billion exits for your Figmas or potential $30 billion or $25 billion IPO would have been inconceivable 10 years ago when the Figma investment was made honestly.

   6. RORory O’Driscoll21:16

      Yes.

   7. JLJason Lemkin21:16

      Inconceivable. I- i- really inconceivable, I th- for sure, inconceivable.

   8. HSHarry Stebbings21:19

      And so what is that outcome size in 10 years time is a trillion dollars more likely.

   9. RORory O’Driscoll21:24

      People always make mistakes, Harry, when they extrapolate trends ad in- ad infinitum, right? I don't think you extap- ... I don't think just because the outcome here is 30 billion and it used to be one billion, the outcome, you know, 10 years from now is 900 billion. I just don't think the math works like that. I think there's been a step function change in, you know, the stage at which companies go public. I doubt it will, you know, I, I don't think it will continue like that. I think you're seeing, you know-

   10. HSHarry Stebbings21:47

       Listen, R- Roy, you don't need to get salty just because my friend Sam told me that you're in this shitty messy middle thing, your shitty, shitty middle fund size.

   11. RORory O’Driscoll21:55

       I, I am not shirty, I am not shirty.

   12. HSHarry Stebbings21:58

       (laughs)

   13. JLJason Lemkin21:59

       I just ask Claude now-

   14. RORory O’Driscoll22:00

       Yes.

   15. JLJason Lemkin22:00

       ... to do these numbers for me. I did it t- I did one t- today, I could see it on my screen, I asked Claude today to do this exact analysis.

   16. RORory O’Driscoll22:06

       Ah, that explains the mild hallucinations we occasionally see from you.

   17. JLJason Lemkin22:09

       It is. I tell-

   18. RORory O’Driscoll22:10

       Got it.

   19. JLJason Lemkin22:10

       ... him there's an investment today, it's worth 544 million nominally, right?

   20. RORory O’Driscoll22:14

       Yeah.

   21. JLJason Lemkin22:14

       Um, h- what's i- uh, he- I uploaded all the financials and the investor report from today and I said, "What will it be worth in 2029? And give me, give me, g- give me a sensitivity analysis." It told me 3.6 billion. That's the most likely outcome from Claude. So I feel better.

   22. HSHarry Stebbings22:27

       (laughs)

   23. RORory O’Driscoll22:28

       Yeah.

   24. JLJason Lemkin22:28

       Like it's in the bag. I just ... All I have to do is hang out, hang out at the beach until 2029 and it will get to 3.6.

   25. RORory O’Driscoll22:35

       Good, good to know. I mean, serious comment here. This is still a cyclical business, right? And, you know, and you s- what you should not do is extrapolate a cyclical trend. I mean like what you see is th- th- the investment, the eye p- the window opens intermittently, and when it does, you know, if you have the assets, you can do really well, but I don't think you can extrapolate as I say from where we were to where we are and keep that line going for another 10 plus years. But you don't have to. The truth is y- I mean, you, you, you mentioned fund size, I was thinking about it this morning, is that, you know, uh, seeing the g- you know, the strong performance from Anthropic in terms of top line growth and then just looking at the burn, you know, five last year going to three this year, I mean, I, I, uh, to some extent the fund size argument has been answered by the burn argument which is, you know, you, y- some of the most compelling opportunities here require a level of capital to be, you know, significant in terms of their cap table such that it warrants at least some of the larger fund sizes. You know, I think that there is definitely a place to put large slugs of money, whether it will have ... I don't think ... Look, it's never as good as when you go in expecting a billion dollar outcome, you price accordingly which is what all the investors did in Figma and then on, end up with a $30 billion outcome. That's the amazing result 'cause you get, you know, 10, 20, 30 times what you expected, right? You know, now that, you know, maybe perhaps people are more adjusted to higher outcomes and bidding accordingly you'll probably see some deals miss to the downside. So I, again, I don't think it extrapolates on forever but it's definitely ... I mean, we're definitely playing on a bigger stage with bigger dollars and there is at least some justification for being able to deploy those dollars.

   26. HSHarry Stebbings24:17

       W- we talk about kind of bigger fewer outcomes but the meaningful nature of them. The thing

6. 24:22 – 33:08

   Melio’s $2.5B Exit: Insane Growth… So Why Did They Sell?!

   1. HSHarry Stebbings24:22

      that I also found really encouraging though was like Emilio-... a company that is very good, but not in the top 0.0001%, uh, bought for two-and-a-half billion dollars by Zero. I thought that was really encouraging to see this kind of mid-level, or not even, I don't mean that badly to them, but this kind of slightly smaller, but still very meaningful outcome. I'd love to hear, how did you guys think about this? And how did you break that one down?

   2. JLJason Lemkin24:46

      I thought it was discouraging. Um, what I mean is that, um, Melio gets acquired for 2.5 billion. Look, that's a lot of money by, uh, you know, hopefully p- folks will watch this and mock me for, for like not thinking that's a lot of money.

   3. RORory O’Driscoll25:02

      It's, it's a lot of money.

   4. JLJason Lemkin25:03

      But, but they, but, but guys, they're at 153 million in ARR growing 127%. 127% at 153 million. Like why, if you knew nothing, would you advise your portfolio company to sell growing 127% at 153 million for two-and-a-half billion? I mean, we all have, we all have, you know, I just got pitched an AI startup at two million ARR at, you know, that's only growing that fast worth the same amount. How, how, it's not, I don't think this is a big, like I, I, I could imagine what happened, if, if you guys know the story, but this is not a deceleration story. This is crazy.

   5. RORory O’Driscoll25:38

      I d- I'm not convinced that the growth rate was that high on a sustainable basis. I'd be surprised. I mean, maybe it is. It's a market-

   6. JLJason Lemkin25:47

      Might not be sustainable.

   7. RORory O’Driscoll25:48

      Yeah.

   8. JLJason Lemkin25:48

      But I'm literally reading Zero's slides where that's, where they're selling their own shareholders on it. That's what they claimed, right? 153 million in revenue, whether it's growing a hundred and twenty- twenty-seven percent or a hundred percent, this is not the greatest multiple of all time, is it? That, that, that intimidates me, that it's not a great multiple. That I find it intimidating as an investor, actually. 'Cause I have plenty of deals that are great and not as good as Melio.

   9. RORory O’Driscoll26:09

      Yeah, no, it, look, yes, it's like 13 or 14 times, and depending on NTM revenue, I thought it was a, honestly I thought it made a ton of sense. I, I had, I had it pegged for a lower sustainable growth rate, and I think, you know, we were investors in Bill.com, very happy investors in Bill.com. It's public, it's much bigger. You know, the market's been tough to it recently. And I could-

   10. JLJason Lemkin26:31

       Yeah, not, it's a tough comp today, right?

   11. RORory O’Driscoll26:32

       It's a tough comp today, right? And I think that, you know, that kind of bill payment, accounts payable space is fairly crowded. There's a number of plays. There's a lot of go-to-market, and, and consolidation and, and being acquired by the ERP adjacent competitor kind of made industrial sense to me. So to me, I was like, "Yeah, that's about the right price, and that all makes sense." Again, I, I'm, I'm disconnecting from the growth rate comment, and you have the advantage over me 'cause I haven't read the press release. And no one, I'm sure, would ever lie in a press release. So, uh-

   12. JLJason Lemkin27:03

       No, I think the num- I, I don't think Zero can lie in what they're saying.

   13. RORory O’Driscoll27:06

       No.

   14. JLJason Lemkin27:06

       But I, but they're not showing the forward growth.

   15. RORory O’Driscoll27:08

       Yeah.

   16. JLJason Lemkin27:08

       So, so your point, I'm sure, is correct. But, uh, trailing velocity's a force of nature, right? It's just-

   17. RORory O’Driscoll27:13

       I think they had some interesting strategic deals that are always challenging at scale, but yes. But I think the other interesting comment about it, and-

   18. JLJason Lemkin27:21

       It just worries me for M&A-

   19. RORory O’Driscoll27:22

       Yeah.

   20. JLJason Lemkin27:22

       ... that this is, that, that like-

   21. RORory O’Driscoll27:23

       Hey.

   22. JLJason Lemkin27:24

       ... we all throw around, "Oh, they'll buy my portfolio company for 900 million or 2 point billion." But are you sure you're better than Melio? (laughs) I'm not so sure.

   23. RORory O’Driscoll27:32

       I think the interesting thing also about that one was that, you know, they'd raised a couple of rounds significantly above that in value. And I think they'd raised in '21 two rounds, the last of which was four-and-a-half billion, all right? So, you know, you look back on that, and you go, look, on the one hand, it just shows what a lovely rigged game the late-stage business is. If you always get a, if you always get a 1X on your, um, losers, and you have enough winners, by definition, you have a positive IRR. It's, it's a nice thing. On the other hand, it just shows how wrong you can be. You know, you sat there in 2021 thinking, "I should buy at four-and-a-half billion," and the expectation of making a two or a 3X, which implies, you know, 13 billion plus. And, you know, you fast-forward three or four years, and you're happily taking two billion.

   24. HSHarry Stebbings28:18

       I mean, the pref stack here was 650. So it was 650 total pref stack, and then the last round was four billion by GC. And so, uh, to your point on like pref stack to outcome size being the risks that you're taking, like 100% here, like you have pretty minimal risk when going in at that, I think.

   25. RORory O’Driscoll28:35

       Yeah. I agree.

   26. JLJason Lemkin28:36

       Yeah, you're still getting a 0% IRR, but yeah, you're, I, I guess it's li- limited, yes, but-

   27. RORory O’Driscoll28:40

       Agreed, but you're getting a 0% IRR on your losers, again.

   28. JLJason Lemkin28:43

       The, the interesting thing to me, I guess this is Captain Obvious, okay, I'm a little slower than the two of you. But this is actually a little bit good for founders, okay? Last round at Melio, four billion, okay, 500, 500 times revenue or something like that, right? And then there was a corporate round at two-and-a-half billion. But like, if you'd, if you're getting your preference back, you know, and it's below your four billion, you don't really care what the price is (laughs) . Like, you know, when I, I, I mean, I mean, I, I, I, I, I almost killed myself as a founder fretting I had to like at least quintuple my investors' money, right? But as long as y- if it's, if they're only getting 1X, they don't really care what the headline number is, do they? Like, in a way, the pressure's off a little bit.

   29. RORory O’Driscoll29:19

       Well, they don't, I mean, but the prob-

   30. JLJason Lemkin29:21

       Yeah.
7. 33:08 – 40:14

   Massive Penthouses and the Death of Focus: AI Founders Beware

   1. JLJason Lemkin33:08

      (laughs)

   2. HSHarry Stebbings33:08

      I'm just gonna say one thing, I might get in trouble for this, and then-

   3. JLJason Lemkin33:11

      Yeah.

   4. HSHarry Stebbings33:11

      ... we can put a pin in this one. The founder always gets chastised for founder secondaries. I remember when he was being forced to take cash off the table by hungry growth investors who were foie gras-ing the shit out of him. And he was going from 49 to 42% or whatever it was, and it was a completely rational decision.

   5. JLJason Lemkin33:29

      I think it's okay if the, if the investors got to sell, too. Like, listen, you're not the founder, but my point is, if he's being foie gras-ed, okay? And that does happen. Like, it's happening again today. People are getting foie gras-ed, right? For folks that s- when there's so... Even though the investors want you to be conservative, they wanna put so much money in the hot company that they... The only way they can get it is by, by giving it to the founders, right? Buying their stock. But it sure would be nice if the investors had the same option. I had this happen to me just once, Harry, where, where there was a foie gras, and I said, "Listen, if you're out, I'm out." This is what I said to him. "Whatever... I just want proportionally whatever you're gonna do. If you're gonna sell more than 10 million bucks, that's, like, you're making the right decision. I just wanna sell, too." That, uh, I mean, it makes sense to me. That was my only ask. Me too. (laughs)

   6. RORory O’Driscoll34:14

      Reversing my comment earlier, I would point out to you both that we do ha- you do have that right. That's a co-sell right, right? Uh, re- read your da- uh, Harry, look, you-

   7. JLJason Lemkin34:23

      Yeah, it's not enough. Like, you can't always-

   8. RORory O’Driscoll34:25

      But, but, but-

   9. JLJason Lemkin34:25

      ... get as much as you might think from-

   10. RORory O’Driscoll34:26

       No, you can't get-

   11. JLJason Lemkin34:26

       ... a co-sell, but you're right.

   12. RORory O’Driscoll34:27

       But you're, but you're right. You have a co-sell right, and it's-

   13. JLJason Lemkin34:30

       Yeah.

   14. RORory O’Driscoll34:30

       ... relative to the pro- and, and, and the reason it's there is for exactly this purpose, where if a f-

   15. HSHarry Stebbings34:36

       I think you assume we have any rights, Rory.

   16. RORory O’Driscoll34:38

       No, no, the-

   17. HSHarry Stebbings34:38

       I think the challenge with 21 is that we, we, we didn't have any rights.

   18. RORory O’Driscoll34:41

       But typically there would've been a co- I mean, look, it comes up because, you know-

   19. JLJason Lemkin34:44

       Can't they be waived by the majority of the investors, though?

   20. RORory O’Driscoll34:46

       Yes, you can, if you choose-

   21. JLJason Lemkin34:47

       Yeah, but I'm getting waived by some, by some guy bigger on the cap table than me, I guarantee you. They don't even a-... The last deal had less, they didn't even tell me- (laughs) -

   22. RORory O’Driscoll34:54

       Got it.

   23. JLJason Lemkin34:54

       ... when my rights were waived.

   24. RORory O’Driscoll34:55

       You guys are bo- you're both sounding a little punchy and a little bitter. Remember, no one's gonna cry for either of you.

   25. JLJason Lemkin35:00

       Not bitter, but good, good, good criticism, actually. You have a, y- y- you're, you're lucky to be able to invest, right? Um-

   26. RORory O’Driscoll35:05

       Exactly right. Some stuff works, some stuff doesn't. You know, move on.

   27. JLJason Lemkin35:10

       But I would like a super co-sell in that situation. That's all. If you're selling-

   28. RORory O’Driscoll35:13

       But no-

   29. JLJason Lemkin35:13

       ... more than, like, 20 million-

   30. RORory O’Driscoll35:14

       Look, it's, it's a g-
8. 40:14 – 43:06

   Chime, Anthropic, Menlo & The Art of Selling LPs the Future

   1. HSHarry Stebbings40:14

      We said about kind of getting incentives right, I think an interesting one on that perspective is Menlo raised another billion and a half, uh, record re-platforming in venture, um, and when I looked at that I was like, amazing, like, for Menlo, fantastic. And my question to you is, one, sure, how do you think about that just generally, but two, do you think LPs are more excited by incredible returns driven by Chime and some other historical great investments, or by Anthropic and a forward-looking AI glance that Menlo I think have pioneered well?

   2. RORory O’Driscoll40:49

      I think it's good to have both. I think they've done a great job and deserve the money. End of. Right? I think Chime is a big asked return, all credit for that, it's hard dollar money on the table. And then on top of that, I agree, I, Menlo has done an amazing job glomming onto Anthropic, doubling down on Anthropic, and you know, telling a strong AI story. I, it totally makes sense. They've... All credit to them. There's... You know, you win, you get the prize. That's how America works.

   3. HSHarry Stebbings41:16

      Totally agree with that. Jason, anything to add there?

   4. JLJason Lemkin41:19

      No, the only thing I would say, and listen, you guys have a broader LP base than I do. I think the LPs that I talk to are acu- maybe, certainly even more than me, acutely aware of the math we discuss here. They're acutely aware of what it takes to return these size funds. They're acutely aware that their managers, uh, what their managers ask is, and what the commitments are in terms of the size of returns they need to do, and th- I, I've certainly heard skeptics, right, uh, that these outcomes are there, but they get where the market has to go to with the outcomes, they know the math on the back of their hand, and so they're participating, right? They're participating in this, and it's the game on the field. Right? It's the game o- You wanna sit out index and, uh, and Kleiner and Sequoia after, uh, after Figma? Probably, you probably don't, you're not allowed to sit it out. (laughs) So, but acutely, they can... The math that you do, Rory, that I mean, w- and you're my favorite here, the m- ma- uh, you know, m- se- my LPs can do versions of that instantly, right? Instantly, right? Uh, they, they're, they have an encyclopedic memory of every company I've invested in somehow, right? 'Cause they have a lot of managers, and they know everything, and they know the AI issues and the challenges, and they know the exact amounts of how the, all this capital has to play out, right? And they get the risks. They get that it, the, th- that you need huge outcomes to make this work, right? It doesn't work looking backwards.

   5. RORory O’Driscoll42:32

      Yeah, no, agreed.

   6. JLJason Lemkin42:33

      They know it.

   7. RORory O’Driscoll42:34

      And the only proof you can have that someone will be in the deals in the future, there's only two proofs. Either you have some kind of story for a new fund, or you can say they've been in the deals in the past. And, you know, you, you, you can look at Menlo and you can say, Uber, you can say Chime, and you can say Entropic. You can join the dot on those three sentences and say they probably will show up in the right place at-

   8. HSHarry Stebbings42:55

      We mentioned like the numbers needed to make it great. (laughs) It's an unsexy discussion topic, but it did actually again give me hope. And Jason, I hope you don't dash my hopes on this one like you did on Emilio.

9. 43:06 – 46:45

   Couchbase Acquired: PE Buyers Are Back… Or Are They?

   1. HSHarry Stebbings43:06

      But Couchbase, a company most people actually haven't heard of, acquired for a billion-five. Again, not massive, not huge, but still very important and meaningful. And the question there is like, hey, will we see a plethora of these PE buyouts or PE-led buyouts at similar scale which will actually drive a meaningful amount of liquidity? Or is this a relatively one of few?

   2. JLJason Lemkin43:29

      I'm hoping.

   3. RORory O’Driscoll43:30

      I, I think, yeah, I mean, I, I, I, I don't think it's indicative of a trend. I mean, I think that, you know, I, I took a look at it, and, you know, Couchbase was bought by Halellay. I think it's the firm in Austin, which is the former co-founder of Vista, Brian Sheed, who was, you know, extraordinarily good investor at Vista, and then spun out in 2020 after a split with Robert Smith. And, you know, talented guy, looks like he's building a very concentrated thematic portfolio, kinda going out with a, you know, certain number. I get the impression went out to find that asset 'cause he has a perspective on what can be done in this space with that particular product. I don't think it's a, hey, every $200 million so-so infrastructure company with 16% growth is gonna get hoovered up at 5.7 times. I think it's much more a thematic, I think this can be relevant in AI. They have a, they have a newer product that's growing much more quickly. So I think it's someone taking a very rifle shot bet, um, which may be right or wrong, we'll see. But I don't think it's indicative. If you, if you have 10 other $200 million database companies, don't hold your breath waiting for PE to come along. I remember, we, for example, we were in Datastax, which is similar size private held company. Sold to IBM, great outcome for all concerned, very happy to get it done. But yeah, there wasn't a plethora of PE buyers. It's not typically a PE asset because it, you know, they're complex technical products. You always wonder about-

   4. HSHarry Stebbings45:03

      The thing that encouraged me here was it was 215 million-

   5. RORory O’Driscoll45:06

      Yeah.

   6. HSHarry Stebbings45:06

      ... revenue, growing at 12%.

   7. RORory O’Driscoll45:08

      Yeah.

   8. HSHarry Stebbings45:09

      So not stellar growth, and no-

   9. JLJason Lemkin45:10

      I love how PE firms will do those bets with the-

   10. HSHarry Stebbings45:12

       And, and not, and-

   11. JLJason Lemkin45:12

       ... with the mediocre growth. Bless them.

   12. HSHarry Stebbings45:14

       ... and not, yeah, and not profitable. Which I'm not-

   13. RORory O’Driscoll45:17

       Yeah.

   14. HSHarry Stebbings45:17

       ... dissing them at all. I'm, I'm encouraged that this is-

   15. RORory O’Driscoll45:19

       Agreed.

   16. HSHarry Stebbings45:19

       ... PE one of them.

   17. RORory O’Driscoll45:20

       No, I, I agree, and that's why I said I don't think it's typical. I, I think it m- it was much more a, hey, there's a perception that this asset that they have is of value. We'll see. You're, you're exactly right, 'cause they're... I mean, look, every, every venture firm you know, including us, including everyone, has lots of one, two, $300 million revenue companies. Sub-scale for the new world of IPOs, and you know, sub-scale in terms of growth, and trying to figure out where they go. I'm not expecting PE to save all of us, put it that way.

   18. JLJason Lemkin45:50

       This is such a small number, it's, it's, it's barely useful other than anecdotally, but I have two portfolio companies that are kind of in that intersection where, where, uh, a tech company and a PE buyer might buy them, right? And they both got mediocre M&A offers recently, mediocre, right? Not bad, uh, not, not great. And the first thing I asked the founders, "Well, what did, what have the PE firms said to you?" And no one's contacted them (laughs) like, ever. You know, even two years ago, it was like every week you were getting a call, right? Who, who's Driscoll Stebbins & Limited, right? (laughs) They, neither of them had gotten any calls from PE firms, none, zero, right? So, uh, that is, um, that worries me, like Rory said. Like these are, these are ones that like could... You could go either way, right? They're cash flow neutral. They have good growth. Um, they have strategic and non-strategic value. You could mash them into somebody- the point is you could mash them into somebody else, right? And, uh, you'd think you'd at least be getting the, the, the VP or the analyst, uh,

10. 46:45 – 52:02

    Why No One’s Buying These 9-Figure SaaS Zombies

    1. JLJason Lemkin46:45

       calling them, right?

    2. HSHarry Stebbings46:46

       I'm surprised we haven't seen more Bending Spoons-like models in SaaS. Bending Spoons obviously does consumer subscription roll-ups for sub-scale outcomes for venture firms-

    3. JLJason Lemkin46:55

       Yes.

    4. HSHarry Stebbings46:55

       ... but also for too-small outcomes for PE. I'm surprised we haven't seen that more in venture.

    5. RORory O’Driscoll47:01

       I think you're gonna see a lot of it, right? I think that, you know, you, you had mentioned, is it Visma, which is a company that's going public in the UK, and we'll come back to that. But the, the aha prior to that is it's a roll-up of, you know, hundreds, literally hundreds of sub-scale software companies. And there's, you know, Constellation, you know, out of Canada does the same thing. There, there's, there's gonna ha- it's gonna have to happen once the sellers are willing to take price, because all these assets can't go on forever sub-scale. And, you know, the interesting thing about something like Visma or Constellation is at scale, they're interesting, right? Is that $100 million revenue business in Wordle on has nowhere to go, but if you assemble 20 of them and you're at two billion and you have 10% EBITDA, it mightn't be the sexiest business alive, but the market will price it, it will value it, and you'll be able to get liquidity. And that, yeah.

    6. JLJason Lemkin47:53

       But Constellation wants to pay 2X is the slight hint.

    7. RORory O’Driscoll47:55

       Yes, yes, I'm-

    8. JLJason Lemkin47:56

       That's their model, 2X, right?

    9. RORory O’Driscoll47:58

       I know that, yes.

    10. JLJason Lemkin47:59

        Yeah, I had them even present at SaaStr Annual this year, the team came, and then it was, that was their, tha- I think that was the title of their presentation, 2X. Who el- who wants 2X show up 2:00 PM on the, on the west lawn (laughs) . I mean, uh, quite a few people came, right?

    11. RORory O’Driscoll48:13

        Yes.

    12. JLJason Lemkin48:13

        Um, quite a few people came, which is maybe telling, right? But it's like, they'll do some deals at 3X, but 2X is the-

    13. RORory O’Driscoll48:19

        You're right, it, it-

    14. JLJason Lemkin48:20

        It's just, it's just the model, right, is 2X revenue?

    15. RORory O’Driscoll48:21

        Agreed, 'cause they've been able to build a model whereby they can take all the risk out of the deal on their side, right? And the question is, you know, going back to even the, the, uh, the Couchbase acquisition where it's 5.7X, is there something more sensible, you know, a little more growthy that you can do with these assets combined together, maybe with a more thematic approach than just Constellation, such that, you know, the clearing price can be three or four? I don't know, but s- you're right, Howie, someone's gonna have to figure this out, 'cause these 300, 400 companies aren't going anywhere until somebody does.

    16. HSHarry Stebbings48:54

        I think, I think someone who's really well placed to do it is actually Grammarly.They've got a-

    17. JLJason Lemkin48:58

        (laughs)

    18. HSHarry Stebbings48:58

        ... no, no, no, n-

    19. JLJason Lemkin48:58

        Just keep going.

    20. HSHarry Stebbings48:59

        Yeah, I'm- I'm- I'm-

    21. JLJason Lemkin49:01

        Just keep going, yeah.

    22. HSHarry Stebbings49:01

        I'm being serious. If you can build a next generation productivity suite and do a number of great acquisitions, hopefully Superhuman being the start of them, then, you know, maybe you can piece together something exciting. Don't jump outta your seat, boys. Okay, fine. Um, I'm hopeful. Uh, my Gramaly stock is going to the moon.

    23. JLJason Lemkin49:19

        Good for you.

    24. HSHarry Stebbings49:20

        Um, thank you.

    25. JLJason Lemkin49:20

        Well, I do... Listen, we could talk about it forever. I- I just- I wanna believe in Rory, but, uh, for as long as I've been in tech, I've heard this story. Like, it's gonna happen. Like, someone's gonna ... This is gonna happen. These- these- th- more f- more of these companies are gonna get rolled up and mashed up, and it's, uh, VCs say it's gonna happen over lunch and cocktails. But, um, I don't see, I don't see anybody stepping up. Th- uh, just 'cause it makes sense on paper doesn't mean it happens in the real world, right? True.

    26. HSHarry Stebbings49:46

        It doesn't mean it happens in the real world.

    27. JLJason Lemkin49:46

        But I- I don't know if it's stepping up and pl- uh, I mean, there's two people that have to step up, the buyer and the seller, right?

    28. HSHarry Stebbings49:51

        Yeah.

    29. JLJason Lemkin49:51

        So from the buyer side, look, throughout tech people have made money doing this. You know, s- Computer Associates way back in the day, in kind of mainframe land, made money doing this. You know, you're right. You've Constellation, you've, you know, GOL's Platinum, you've a bunch of others. So there is willingness to do it on the buy side at the right price. The question to your point, Jason, is what is that price and is the se- is that price one at which sellers are prepared to transact? Don't you think roughly everyone that hasn't raised rounds since 2021 that's still doing okay- Yeah. ... that's north of nine figures- Yeah. ... is cool with selling for 5X? I think everyone's gonna write it... They've already rationalized the 2021 valuation away, just like the Melio example, okay? And listen, I don't want to move off that mark, right? But everyone, like, it's grown 18%. Like, it's a 5X. Like, w- let's- let's just sort the public companies. It's a 5X deal, guys. I think, I think they'll take that deal. I don't think anyone's saying no after four years of this money sitting there making no interest in the bank, are they? I think, uh, on average you're probably right at five, 6X. I don't know, right? But yes, um... But no one's buying all these 100, nine-figure B2B companies for 5X. No one's rolling 'em up, right? Yes, and what you're saying is, you know, the- the market thought... What you're saying is the owners thought they were worth 10X to 20X plus. Now they think they're worth 5X, but the buyer still thinks they're only worth 2X, so there's still a gap. That worries me. I think a lot of 'em would sell for 5X right now without arguing. I think they would sell for 5X. Yeah, well, you know- Right. ... as I always say, price clears all market. We wi- we will find out 'cause, you know, in the end- (laughs) I mean, look, as you get into these older and older funds, and as the growth rate becomes more locked in, then, you know, your willingness to get realistic has to just go up. 'Cause, you know, as I mentally run through, you know, even my portfolio and stuff I'm involved with, you know, there's stuff that's, you know, growing mid-teens where I know why it's growing mid-teens, and there's a credible story of re-acceleration, and then there's stuff that's growing mid-teens, and it's never gonna re-accelerate. And, you know, y- you don't know at 100% fidelity but you should know to a, you know, you should have some sense of what that is. And for that latter category, you're right, you should just seek an exit.

11. 52:02 – 53:42

    If You Didn’t Grow from AI By June 30, You’re Already Dead

    1. JLJason Lemkin52:02

       Yeah, I just worry that- that AI changes so many markets that, like, a lot of these candidates are just viewed as hopeless now. It was one thing in 2021 when the software hadn't changed in seven or eight years, right? That's true. No, you're right. But man, like, uh, you know, I- I- i- it's now, it's the second half of 2025. I mean, if you don't have... My rule is if you haven't grown because of AI, you've failed. It's not just that you have a copilot, you have to have grown, you have to have done an Intercom, you have to have re-accelerated your busine- you had 18 months since ChatGBT launched or whatever it was to do this, right? And if you didn't get it done in these 18 or 20 months, you ain't ever getting it d- No, you're right. It ain't gonna happen. So I like your line, Jason, that's just really... If you're not r- if you're not accelerating, you're losing, right? Because someone else- Okay. ... is accelerating. So by definition on a, it's a good point, on a relative market share basis, you're nowhere. So if you don't have... So if you don't have A, that story, and B, some of those facts, you're nowhere. I'd buy that. Yeah, it's like th- I know we're, uh, it mixes numbers, but Iconic just put out this- this set of metrics of how everybody's growing across like 300 B2B companies, right? And- and- and- and it's not, this isn't causation, it may not even be correlation, but roughly 300 or 400, including all the AI leaders, all the hot AI startups, all the Harveys and Shmarveys and all the other ones, growth is exactly the same as it was 12 months ago, (laughs) just about, when you throw them in. So I know we're not r- like, we are stealing budget from each other. We are. And- and yeah, sure, our- our CIO is adding, uh, an AI budget or this and that, but they're clear- it's net zero. We've learned it's net zero at this point, right? Not an A- uh, so if you haven't, if you haven't pulled yourself out of the now, I, you know, man. I mean, I don't mean to agree with Sam Leson, but you might be utterly irrelevant. It's probably too late.

12. 53:42 – 58:52

    Superhuman vs The AI-Natives: Who Wins the Replatforming War?

    1. JLJason Lemkin53:42

       (laughs)

    2. HSHarry Stebbings53:42

       Well, I- I think it consistently goes back to one of Rory's most prescient statements, which is, are we able to transition labor budget into technology budget in the next wave of AI? And if we are, let's make A, market's huge, and if not, then it's net zero. Uh, it's funny how I read it. Uh, I think the thing that I just think about is like being AI native is such an advantage. We are in a company that is similar to Superhuman, uh, that will be at more than their revenue in nine months for what it took them eight years to go to. And that's no discredit to Superhuman, just the benefits and the tailwinds that come from being AI first versus layering on is massive.

    3. JLJason Lemkin54:21

       And the other, you know, a fun one, and- and maybe you guys know more about this than I do, but Clio, which just raised at 3 billion, right? 20-year-old company. Great CEO, Jack Newton. They just bought a 25-year-old company, Vlex, out of rockin' Barcelona for $1 billion because it AI-ified its legal libraries. It did, it did AI-fy it by June 30th of this year. It did get the message for ChatGBT, right? It became this data source, right? I mean, I'm not a total expert but, uh, you know, in some minor ways it became a scale for legal, right? And all of a sudden it's worth a billion dol- it's- it's an AI leader, but they got it done, right? And- and Clio gave up a third of its market cap.... right? Or 25%, I guess, dep- depending on how you do the math. That's a big deal to do, isn't it, for a, a Barcelona company founded in 20, 20, 2000? Yeah, 2000. Oh, my God, 25 years ago. But they got it. They made the transition, right? But, uh-

    4. RORory O’Driscoll55:13

       I know you're say- j- just curious, Jason, 'cause you're not being clear. Are you saying, "I totally get that, that that's magnificent. Well done, Clio," or are you saying, "I can't beli-

    5. JLJason Lemkin55:21

       I'm saying that Vlex, a 25-year-old Spanish company, made the AI jump. They became AI relevant. They had the time.

    6. RORory O’Driscoll55:27

       Got it.

    7. JLJason Lemkin55:27

       They got it done, and now, now they're worth something again, right?

    8. RORory O’Driscoll55:30

       Yeah, so it's like moving... Yes.

    9. JLJason Lemkin55:32

       Harvey tried to buy them. Clio then bought them. They became a hot prop, right? But if your other, if your plain vanilla B2B company hasn't done it by June 30th, I don't think June 30th, 2026 or 20- or, or writing that bridge note or that Series C7 is gonna make it. (laughs) I probably would vote Harry in- Harry down at the, uh, at the, uh, (laughs) at the reserves meeting on that one.

    10. RORory O’Driscoll55:52

        But to be clear, what you're saying, which I think is, is, what you're saying is there are examples of, you know, pre-Gen AI companies being able to move quickly enough to become relevant in the Gen AI world.

    11. JLJason Lemkin56:03

        Yeah, I spoke too quickly. This one's amazing.

    12. RORory O’Driscoll56:05

        Yeah. Agreed.

    13. JLJason Lemkin56:06

        That Vlex, founded in twe- 2000 in Barcelona-

    14. RORory O’Driscoll56:09

        Totally.

    15. JLJason Lemkin56:09

        ... could become AI relevant today, right? I mean, it's, it's impressive, right? Uh, uh, at least superficially, it's very impressive.

    16. RORory O’Driscoll56:15

        And the interesting thing will be... I mean, and I, and I agree with that sometimes, yeah. And it, but it gets, it... But at the same time, I mean, you know, we're wrestling... I mean, stepping back, rath- rather than pretending certainty, you know, you're wrestling all the time with, can the company that has scale become irrelevant? In some cases, it can. And then the other hand, are you better off with a brand new company that's less than two years old that started off, you know, the day after ChatGPT was invented and doesn't know any other world? And, you know, implicitly, Harry, you're implying the latter. You're saying it's just easier to start at ground zero, Mi- November 22 and crank than it is... And Jason's example is the former. I mean, which is someone who was around beforehand and then just successfully inserted themselves into relevance. And I'll admit, I don't have a doctrinaire answer here. We've seen both work, right? But it is probably one of the big investing questions. Whenever we look at a deal, if-

    17. HSHarry Stebbings57:09

        I, I, mine's pretty simple. It's like for the vast majority, I want the AI native, except for the exceptional product builder that genuinely is like a Des Traynor. Like, I've interviewed the best product builders in the world. You just got Des is the, one of the best, the fricking best. Him and Owen I think are so phenomenal at this, like, transition. And I think the other... Sorry.

    18. JLJason Lemkin57:30

        But they got it done by June 30. They got it done.

    19. RORory O’Driscoll57:32

        Yeah, yeah. So how, basically, J- Jason-

    20. JLJason Lemkin57:33

        Whether it's Intercom from 2000 and whatever, eight, or, or Vlex from 2000, they got it, they had until June 30. They got it done, right? But the ones in our portfolio that haven't really, they're still talking about it, I've, I've given up on them.

    21. RORory O’Driscoll57:45

        Got it. Like, that, that's, that-

    22. JLJason Lemkin57:46

        They had their time.

    23. RORory O’Driscoll57:47

        Yeah. I- if you're not with... Yes, if you're still going to the board meeting arguing about you need to do something in AI, just stop going to the board meetings, right? Um, 'cause it's, it's no good.

    24. HSHarry Stebbings57:55

        You know who deserves credit as well, though, is like Howie at Airtable. Like, you know, TBD on whether it works, but like what he's done in terms of like the unbelievable shift in product strategy very, very quickly is impressive. Again, TBD it works, but to the Owen and Des really burning the boats to make it happen, bravo, Howie.

    25. JLJason Lemkin58:15

        Yeah, you gotta do it.

    26. RORory O’Driscoll58:16

        It's bold. You know, I mean-

    27. HSHarry Stebbings58:18

        Yeah.

    28. RORory O’Driscoll58:18

        ... I, I just know, I, I will freely admit to biases, cognitive biases, and I just know that's the board meeting where you get up with a sinking feeling. And you're like, you know, for three, four years, you thought you had a home run on the existing thing, right? You, you, you could smell the money, right?

    29. JLJason Lemkin58:35

        Yeah.

    30. RORory O’Driscoll58:36

        And now you're coming in and saying, "Oh my God, I'm in a 14 billion pre-startup, and I just want to throw up." I mean, I, I, I, you know, I, I just admire the courage of anyone who can... You know, there's a lot of cognitive dissonance for about a day there where you just go home and go, "Wow, that hurts. That hurts."

13. 58:52 – 1:01:01

    Oracle's $30B AI Deal: Larry Did It Before You Even Started

    1. RORory O’Driscoll58:52

    2. JLJason Lemkin58:52

       I mean, sorry, not to... Just, just to tie it back into one fun thing. I mean, if Oracle, Oracle just closed a $30 billion a year deal with, uh, OpenAI, right? An extra 30 billion. I mean, if Oracle can get AI native by June 30th and your, (laughs) and your portfolio, your startup can't? I mean, (laughs) I'll smile, but I give up. I, if L- if Oracle can do it, founded in 1972, they could become AI native-ish, right, and you can't, you're still working on it. Like, you're still, your, your team's still arguing, right? You're, you're not sure about hallucinations. Like, you're making fun of the, of, uh, of uh, of uh, what's a, what's, what's... A fixer? Is that what it's called? They're making... That's not real. That's stupid. Those emails don't really work. If, that, you're doing that, uh, what... Oracle, Oracle. (laughs)

    3. HSHarry Stebbings59:39

       Zero to 50 million in 12 months.

    4. JLJason Lemkin59:40

       Or- Oracle went and closed 30 billion with (laughs) with, with OpenAI. 30 billion a year, a year. Larry got it. Larry got the message, didn't he?

    5. RORory O’Driscoll59:50

       Yes. I mean-

    6. JLJason Lemkin59:52

       (laughs)

    7. RORory O’Driscoll59:53

       ... I'll say yes. Yes, he did, right?

    8. JLJason Lemkin59:55

       (laughs)

    9. RORory O’Driscoll59:55

       And you know what, one version of the message is he stopped brilliantly buy- as I said, he stopped brilliantly buying his stock back with his free cash flow and instead spent it on N- NVIDIA GPUs. Um, but it seems to have worked because it's converted into cloud business for Oracle. And-

    10. JLJason Lemkin1:00:09

        But he did it as early as Intercom-

    11. RORory O’Driscoll1:00:11

        No.

    12. JLJason Lemkin1:00:11

        ... and earlier than Airtable.

    13. RORory O’Driscoll1:00:12

        No, no, no, absolutely.

    14. JLJason Lemkin1:00:12

        Like, he did. He went all in, right?

    15. RORory O’Driscoll1:00:14

        He, he, he did go all in, and it's so funny. If you look at the P&L... I mean, in the P&L, it barely shows 'cause, you know, cloud and PaaS is only a small percentage of total revenues. And within that, AI is an even smaller percentage. It totally shows up in the CapEx budget because all the money's going out. So it's, he's got this... It's amazing. He's got this wonderful upside down AI business inside a wildly profitable old school business. But you're right, Jason. A, the market loves it because the market thinks it's leaning in. And B, if he can get this kind of revenue in the end, I'm gonna say this sentence here in Debbie Downer fashion, and the investment boom in AI continues for three or four more years, then it'll be a great deal.

    16. JLJason Lemkin1:00:52

        I mean, look at Oracle's stock price. I, I-

    17. RORory O’Driscoll1:00:53

        It's way up.

    18. JLJason Lemkin1:00:54

        This is, this is like the best stock I've ever seen-

    19. RORory O’Driscoll1:00:56

        Totally.

    20. JLJason Lemkin1:00:56

        ... just tr- watching, looking at Yahoo Finance-

    21. RORory O’Driscoll1:00:58

        Yeah, that's right.

    22. JLJason Lemkin1:00:58

        ... or Google Finance, yeah.

    23. RORory O’Driscoll1:00:58

        Absolutely.

    24. JLJason Lemkin1:01:00

        This is, this is

14. 1:01:01 – 1:05:34

    Scale Is Dead. Long Live Surge. The AI Data War Gets Bloody.

    1. JLJason Lemkin1:01:01

       (laughs) a dream stock.

    2. HSHarry Stebbings1:01:02

       Do you know what I also found interesting? I was actually reading this morning before this. Surge AI, which is a Scale competitor, is now raising first-time money at a billion dollars, at a $15 billion valuation. We had Garrett on from Handshake, who said literally he's staying up night and day. You know, I'm in Macaw, which is absolutely crushing (laughs) , uh, a raise ... Uh, reportedly raised a new round. Who knows? Um, and ev- there, there's a tailwind who's picking up the business of Scale. Does the Scale acquisition create an unbelievable net new economy for these businesses, an influx of cash, do you think, setting a benchmark?

    3. JLJason Lemkin1:01:41

       Short answer, yes. I mean, Jason said it last time, which, you know, w- which was literally the week or two after, uh, I think day or two after deal was announced, it's the remaining asset is an empty husk. Now, maybe we're wrong, maybe the new CEO figures out what to do with it. But as you ... Uh, it looks like all these ... I mean, and f- I, I think stop, Rory. Forget, forget the end of that sentence. It's a bullshit sentence. Two weeks ago, you could maybe have said, "Maybe perhaps the new CEO of Scale AI will be able to figure out what to do with the business and build it back, and get relationships with the other LLM companies and continue to sell training data," blah, blah, blah. Since then, the 49% owner of Scale AI has spent their time stealing your best people and offering them kazillion-dollar packages. No one from any of the other high, uh, kind of cloud providers are gonna give Scale AI the time of day. Why would they? They're not gonna give them confidential information. Why would they, right? So no, there's no business there, which by definition means all the business that was there has just gone to someone else. So, I assume a billion dollars in revenue has been allocated out between, you know, Turing, um, Surge, Merco- Macaw and home- Handshake, and whomever else got there. Now, again, once that's reallocated, then you're back to kinda equilibrium again, as it were, you know, y- And then, then the bet remains, the continued growth of CapEx spend on the AI boom, and that's what all these companies are riding, just minus one player. And if Surge did a billion dollars last year, boo- bootstrapped, right, or pseudo-bootstrapped, did everybody know about them except me?

    4. HSHarry Stebbings1:03:17

       Uh, dude, no one knew about them. I didn't know about them.

    5. JLJason Lemkin1:03:19

       Well, what, what excuse is there for, for, for venture capitalists and technologists to be talking about the 800 million one, uh, just because it raised all the money and not know about the one that did a billion without any outside capital? Shame on everybody-

    6. HSHarry Stebbings1:03:32

       Totally.

    7. JLJason Lemkin1:03:32

       ... for, if th- for not knowing (laughs) about a billion-dollar competitor, and everyone talking out of their arse on social media about Scale like they even know what it does. I'm sure you'll find that all the big firms had ... I'm willing to bet that the guys at Insight had a call placed to Surge once a week for the last three years. I would hope so. 'Cause all the big p- Yeah, once every- Their website is badass. Yeah. Look at it. It's nothing. (laughs) This is a good company. Go to, go to surgehq.ai. "The quality of your data determines the ceiling of your ambitions." That's it in four paragraphs. "We're making so much money, we don't need anything." (laughs) "We don't need anything on our page." Look, and good for them. I mean, remember, it's, it, it ... I assum- Rewriting SaaStr funding we copied this. Look, genuine comment, I assume what happened here was they had a, like, all these, they had a small profitable business five or six years ago, and then only seven customers turned up and basically said to them, "We're each gonna spend 100 million bucks with you." You don't need to spend anything on marketing. You only need seven sales reps. It's like, why make a whole bunch of noise? Just put your head down, hire these people, and make some money. I mean, I assume that's what they've been doing. And now that the market is willing- Well, it looks like he's super smart. Yeah. He was Core Science at Google, ads at Twitter, Research at Facebook, founds this in 2020, right? Yeah, wins. And, um, just quietly gets it to a billion. Totally.

    8. HSHarry Stebbings1:04:48

       Dude, that, that is the most Thrive Capital Benchmark-style website I've ever seen.

    9. JLJason Lemkin1:04:53

       I mean, look at this web- Surge is doing a billion and it has a one-page website, which says, "What made Hemingway extraordinary? His life experiences, war, love, triumph and loss." This is the most badass startup. Let's get him on the pod next week. (laughs) War and love. Can you track him down, Harry? (laughs)

    10. HSHarry Stebbings1:05:07

        I can ... Dude, I'm gonna, I'm gonna track him down. I'm gonna get him.

    11. JLJason Lemkin1:05:09

        I like it. He only goes by Edwin C, which is badass too, right? He goes by Edwin C, founder. He doesn't even say CEO. He doesn't say, "I'm the COB," and this (laughs) is his web s-

    12. HSHarry Stebbings1:05:18

        Again-

    13. JLJason Lemkin1:05:19

        ... greatest website founder story of all time. (laughs)

    14. HSHarry Stebbings1:05:22

        Good for him. I, I go back to first principles.

    15. JLJason Lemkin1:05:24

        Twitter, do your magic. (laughs) Yeah. He on- When, when you only have seven customers and they're all desperate to spend money with you, you just don't spend a lot of time wasting time doing s- sales and marketing.

15. 1:05:34 – 1:12:14

    Asana CEO Move & the Great Founder Exodus of 2025

    1. JLJason Lemkin1:05:34

       Good for him.

    2. HSHarry Stebbings1:05:34

       Uh, listen, there's so many places we could take you. I wanna do one more topic before we do a quick fire. Um, we've got Launched Archly CEO quitting to be CEO of Asana. We've got Stamford layoffs with the 2.9% endowment tax. We've got Benioff saying about 50% of work, uh, being done by AI. Where do you guys wanna take it before we rack up, wrap up with the Cowshie quick fire?

    3. JLJason Lemkin1:05:56

       Th- those are three different choices, to be clear. If, if, if there's some mysterious parlor game where I'm meant to have something in common with those three, I just wanna put it out I failed. I don't see ... yeah. Listen, I think they're all interesting. We're running out of time. I do think this quitting is under-discussed. A lot of folks are quitting. A lot of CEO, CEO, CEO resignations-

    4. HSHarry Stebbings1:06:12

       I agree.

    5. JLJason Lemkin1:06:12

       ... founder resignations. I mean, quitting Launch Berkeley to go to Asana, I mean, it's weird, man. But, like, it's, I guess, it's okay today after two years.

    6. HSHarry Stebbings1:06:21

       Pause. Why do you think ... So, for context, LaunchDarkly CEO quits to be CEO of Asana. Asana's obviously a public company. LaunchDarkly's not. Asana's obviously much bigger than LaunchDarkly is.

    7. JLJason Lemkin1:06:30

       Yeah.

    8. HSHarry Stebbings1:06:31

       Um, (laughs) so why do you think it's weird, Jason, and how do you think about it, what it means more broadly for-

    9. JLJason Lemkin1:06:36

       Maybe it's not weird, it's just, uh, th- just the turnover everywhere is accelerating. And if it's not, you know, if you're not in the elite of the elite, people are just bailing faster and faster. And it, it, the, the capital's only going to ... Crunchbase did an article this week, there's no such thing as unicorns anymore, because forget about AI, only the money goes to five billion and up, it's gotta be five billion-corns. Like, 50% of all the unicorn money is north of five billion. So, it's either those, like even bigger than LaunchDarkly. I- Asana might not even be worth five billion today. Let's look it up. Um, but I bet it, I mean, it's probably above the line. Thir- three billion, okay? So, it's just, it's, it's tough, and, uh, it, it is the, the everyone going to join Meta for 100 million is mercenary, and it's just, it's the world we are, we're, we're living in, right? And, uh, and at the same time, AI's gonna-... it'll lead to a lot of layoffs. (laughs) I don't think Mark meant to say 50% the way it sounded, but that's what every CEO talks about behind closed doors of a public company. I, I, I, they say, "I don't know, I need to re-skill 20 to 30% of my people," but they really think, "I might not even need half."

    10. RORory O’Driscoll1:07:40

        I think there's a lot in that. And let's start with the, you know, the, the, the t- the turnover comment. There's a lot even there. I do think one thing we're seeing is founders... Look, if you signed up for a four to six-year journey and it turns into a 12 or 13-year journey, it's not surprising, but you see- you are seeing people say, "This is, you know, this is more than I thought. For a whole bunch of reasons, I can't keep doing this." Life reasons, exhaustion, whatever. So we're definitely seeing that as a thing, whereby founders are just saying, you know, "I, maybe I need to get a president, maybe I need to not be the CEO." It's just a lot longer and harder than I think it looked when you, you know, took, you know-

    11. JLJason Lemkin1:08:19

        Dusk in Moskowitz.

    12. RORory O’Driscoll1:08:20

        Yeah. When you took 500K from Y Combinator and said, "This is a fun journey," you know, fast-forward 10 years, you're not to probably a third of your working life. And if you're still five years from an exit, that's half your working life. If it's not your passion, it's almost impossible to keep going. And even if it is your passion, it gets hard. It gets hard. So we're definitely seeing that and, you know, we're trying to deal with that lots of different ways. Sometimes you have to re-incent founders, sometimes you have to accept that a transition's appropriate, and then you have to figure out, do you, you know, go through that h- you know, pain and hassle of finding someone else, or do you actually just say you should look for liquidity for the company? So, there's the founder exhaustion thing. And then separately, Jason, you're exactly right, there's this weird kind of, you know, concentration at the top effect, which is by only the winners seem to matter or the payouts of the winners are becoming so skewed. You know, I saw a tweet that said something like-

Episode duration: 1:15:39