The Twenty Minute VCHow Do All Providers Deal with Anthropic Dependency Risk & Figma IPO Breakdown: Where Does it Price?
EVERY SPOKEN WORD
95 min read · 18,527 words- 0:00 – 0:53
Intro
- JLJason Lemkin
This idea that, "Oh, woe is me, I can't raise a third fund. I've never returned any capital." [beep] Tough [censored] luck, right?
- RORory O’Driscoll
Almost everything about a big fund is good for the entrepreneur. Anti-portfolio regret is the psychological price you have to pay for being in the game, because it's literally the emotional tax you pay for being in good deal flow. The market for consensus is fully priced in and fully discovered.
- JLJason Lemkin
Ready to go? [upbeat music]
- HSHarry Stebbings
Guys, I'm so excited for this. As always, it's my favorite conversation of the week, and you know, Rory, we have a celebrity in our midst. I don't know if you saw social media over the weekend.
- RORory O’Driscoll
Yes, we do.
- HSHarry Stebbings
But our friend Jason here-
- RORory O’Driscoll
Famous Jason.
- HSHarry Stebbings
Went viral, baby. Um, so Jason, I would love to start with
- 0:53 – 3:49
Did Jason Just Kill Replit?
- HSHarry Stebbings
you and your experience over the weekend vibe coding. What did you learn from that experience?
- JLJason Lemkin
When we did this last w- I've learned so much in one week, it's crazy. It's the biggest fire hose. I, I, I think your investment in Lovable is, is, is better, even better than I realized a week ago, um, because the, these apps... Like, this is... The... You can't stop... It's really a tsunami vibe coding. It's just started. I mean, we're only six months into non-developer vibe coding, and we're less than a year into it for developers, right? And the things you can do on these platforms is something you could never do before, and that's where you make money in venture, and that's where you get the big ones, when you can do something you couldn't do before, right? So I'm in love, right? The flip side is what I, I'm embarrassed, Harry, that we've been talking about Cursor and Windsurf and Claude and Claude Co- We've been talking about all these big numbers and rounds, but I never understood the general topic of safety and what an agent can do and should do and shouldn't until of all this. This was the me- meta learning.
- HSHarry Stebbings
And for anyone who missed it, basically you had, uh, Replit and an agent base kill your database. Like, can you just explain what happened so people have the context?
- JLJason Lemkin
I was just using a vibe coding platform, um, that is used by many, and I did not, I did not understand that it, that the agent helped me build the website, build the platform, but also change any line of code, even when it was out in the wild, even when it was out in the real world. I did not understand. Obviously, for folks that haven't done it, they, it'll be new to them. They, we have preview staging and, and production servers. It's been done since the dawn of web software. You had three. You have preview, which is what us guys work on in the office, right? Then when you're ready to go, go out in the real world, you put it up on staging, so you carefully test it. It simulates the real world. It's locked down. Um, it's run as close to the real world as humanly possible, but you're not exposing it to customers and customer data. And then when you finally are comfortable on staging, you flip it into the real world production, and it's, that's locked the hell down. It can't be touched. And for these vibe apps to roll at the pace they do, which is f- I mean, I... Harry, I've been addicted, for real. Not, not a joke. You saw me. I, I'd miss board meetings when I was vibe coding. I... And even last night, I got a, a, a DM from the CEO of, of Gorgeous. They're coming up 100 mil. "Are you coming to the board meeting this week?" I'm like, "Well, there's... Uh, what?" This is not a joke. I forgot. I didn't read my emails. Okay? I was, uh, I was addicted. I love vi- I love a vibe coding. I love it. I love these apps. But one of the reasons they're so fast and agile is everything shares the same database. It all shares the same code. So that's really fun when you start a project, right? Because it works at light speed. I mean, it's magic, dude. Like, go to Lovable or, or, or any of these apps and type in, "I wanna build an app for VCs that do weekly podcasts and share data. I wanna see who's in what deal. I want you to research it. I want you to force rank them each week for fun, and then email, email everyone and tell them who's best." You can build that in 30 minutes. It's so cool,
- 3:49 – 6:28
Why Claude Lies To You and Cannot Be Trusted
- JLJason Lemkin
right? But I didn't realize, because I was taught from day one that you have these distinction, preview, um, staging, and, and, and it's all one. And so what I also didn't realize is that this is a feature and a bug. Cl- Maybe other AIs work differently, but Claude by nature lies. Claude is, and all Anthropic papers have it. It is number one goal is problem-solving, is satisfaction. And to, to summarize a lot of complexity that I've learned, if you ask Claude to do something once, it will try to do it, okay? If you ask... And, and, and if you ask it twice, it will begin to cheat. Even sometimes the first time. And when you ask it three times, it goes off the rails and makes stuff up hard. Lies. It lies the third time. And when you talk to a lot of people, they t- you'll hear things like, "After three, start a new window, start a new agent, start a new context window," because it goes off the rails, and that's also why it's so brilliant. It's why it's so brilliant is because it's re- it has all of the world's internet in it, every piece of open source software, everything that's built, and it's a heat-seeking missile to make you happy, and it lies. And the more you do it, the more it lies to make you happy. And so what you have to do is, like, the good... If you're using Cursor or if you're using Claude Code, it, it lies too. Talk to the developers. They'll tell you it lies. But you, you shut it down because you do one little test in your office and it does something crazy, and you're an engineer and you see that it's crazy, and so you fall back. You revert, you delete it. If you're a business person, you don't know. You don't know what's going on. You don't know. As Aaron Levie pointed out, w- you know, enterprises are terrified because an agent will just go out and change things in its database without telling you. It will, it will s- take data. And so it's really powerful, but as you build an application, you have to lock it down more and more and more over time. And these apps are getting better, okay? And Replit rolled out some really cool features. It's, it's much better than it was a week ago. Lovable's much better than it was in May. It's fun, right? But agents cannot be trusted, and everyone in the industry knows this, and I didn't get it until this weekend. You cannot trust an A- and every single person will tell you, you can't trust it. And if you can't trust someone that's really smart on your team, and you, you either fire them, which is what a lot of enterprises are doing. I'm out. [laughs] Or you have to put guardrails arou- like the tightest leash on you can. AndThe simpler your app is, the fewer the issues are, right? And the more it's internal, right? But, you know, I asked Claude this morning, "Can, can an agent ever be trusted with production data?" I asked Claude, and Claude said, "Of course not." Claude itself said of course not.
- RORory O’Driscoll
But if you'd asked it again, it might have said yes, just to make you happy.
- JLJason Lemkin
It might. Going to the point, if I asked it three times, it might start making stuff up, right?
- 6:28 – 8:48
You Cannot Trust Agents. Period.
- HSHarry Stebbings
So, so, so what, so what is the takeaway from this? That these, uh, applications need to fun- fundamentally get better at security? Is it we're gonna have a new wealth of security apps built separately to harness this? Or that-
- JLJason Lemkin
Yes and yes
- HSHarry Stebbings
... Anthropic needs to lock this down? What is the takeaway?
- JLJason Lemkin
Well, look, I, now I understand why there's already multiple folks north of 50 million doing security just specialized for this. Because there are a whole folk, group of folks who are trying to build guardrails around something that cannot be guardrailed. You cannot stop the agent. You can... As Aaron Levie said this morning, you cannot stop the agent from finding your data and lying about it and giving it to somebody else. It will try that if you ask it to, to make you happy. You cannot stop it, and it will lie to you about why it did it, and it will hide that it did it, and it will use the passive voice like it did with me. Path one is guardrails, right? And there's a, and VCs are gonna make a lot of money on guardrails, right? I just was literally reached out to someone that wants to come speak at our London event, where we'll be in December. They, I didn't know they're already at 40 million doing guardrails for, for this stuff, okay? So it makes sense. If, if the vibecoders are doing 300, 40 million for guardrails sounds like the first add-on I'm gonna add for a commercial app, right? Um, two, they're all, they're all adding this stuff, right? The platforms, right? They're all adding. They're all, they're all, they're better than they were 30 days ago, and they're better than they were a week ago. So they'll get better. But what is interesting, the more you get prosumer, the more you want the app to do everything. Not just review, well, not just build one little feature like in Claude Code, right? So the closer you get to an all-in-one solution, the harder these challenges are. That's tough. The good news is, the less of a thin wrapper you are. [laughs] Now, after a, after a week and a half of vibe coding, all these folks said, "Try these other apps," right? "Try this one for design. Try this one." I'm like, "That's just the same thing I just used." It's just Claude. [laughs] It's just Claude Code. But so, so the, uh, that's... In some ways, I think your investment level is even better than I realized a week ago because, and this goes to the Windsurf thing, it's more defensible. Windsurf without Claude was dead. That's why he had to find a deal that night, that weekend when OpenAI died, because he lost Claude when Open- when the OpenAI deal happened, right? And if he didn't get it back, he was dead. So they, the team jumped ship to, to Google, right? And then the remaining team instantly got access back to Claude that night, right?
- 8:48 – 11:43
Why Windsurf Was Dead Without Claude
- HSHarry Stebbings
And so, sorry, you think Lovable is a better investment than before because, well, they'll have to build that in-
- JLJason Lemkin
Because, no, sorry, my point is w- they're all th- they're all wrappers on Claude. They're all the same, right? And all these wrappers that are on top of Claude, they're this, they're, they're more alike than they're different, okay? They're more alike than they're different. But because Lovable's trying to do everything, from ideation to production, I, in some ways it's harder because it's a bigger job than just editing code, but it's also more defensible. Windsurf was not as defensible because the moment they lost Claude Code, they had almost no value to the community, right? They were, they were a sinking ship without it, because they were a thin wrapper. And I know this term's annoying, and I, I, I think these thin wrappers, uh, will endure, but if you lose access to what you're wrapping, you're, you're SOL, right? And so Lovable and Cl- friends are gonna build these thicker and thicker wrappers because they have to do security, right? They have to contain the AI. They're torturing Claude to do things it doesn't wanna do. Claude wants to lie and seek out things and share its information with its friends, and these guys are gonna build this, this armor around it that is, that armor's gonna be very defensible. A- and it's gonna be an ecosystem that lives.
- RORory O’Driscoll
Just, just curious on that, Jason. I mean, q- question on that because-
- JLJason Lemkin
Yeah
- RORory O’Driscoll
... uh, you know, do you think the Lovable Replit, you know, business developer person like you, right, where you're, you know, technically savvy but not an engineer, and they're gonna do, a- and they wanna solve the whole problem, so they have to do a lot for you. Do you think that's a better business than selling to the engineering, the software engineer like Cursor was doing, where the implied assumption is the software engineer understands a lot of the background stuff that maybe you and definitely I wouldn't, right?
- JLJason Lemkin
Yep.
- RORory O’Driscoll
So in one sense, you're right. It's a simpler task because you're building a tool for a proficient user versus Lovable's building a tool for a less proficient user. So y- which of those two businesses do you think is better and why?
- JLJason Lemkin
Really, the TAM for Cursor is larger than Lovable because every engineer is, is gonna get a $200 subscription to Claude Code, okay? Even one of my most advanced AI companies that I am, that's super early with his own autonomous agents, I was DM'ing with the CTO about this over the weekend, and he's like, they've already switched. Now his whole 200 engineering team is all Claude Code. So they just bought 200 seats at 200. So if I do my VC s- if I have my spreadsheet junkies on the Scale team, I'm gonna say go invest in, in those guys, right? Because I, I think. But if I, if I, if I, if I use my, uh, seed guy approach, I'm like, Jesus Christ, if I wanna build something that is enduring for a generation, I wanna do Lovable, because in, in six months, if these are wrappers, s- more, a new Windsurf is gonna emerge. It's just an IDE on top of the same models, right? So I think, I like... The, the spreadsheet says invest in Claude, I mean, or, or, uh, or, you know, Cursor, but if I wanna make the trillion-dollar bet, I don't know, I might go Lovable. [laughs]
- 11:43 – 12:49
Cursor vs. Lovable: What’s the Better Bet?
- HSHarry Stebbings
You have to go Lovable. On the, on the TAM expansion, Lovable's a much bigger TAM opportunity than Cursor.
- RORory O’Driscoll
Yeah, no, I, I think that's the sentence. It's not even a spread-
- JLJason Lemkin
In theory, yeah. If, if every human can use it, yeah, y- I get the Canva analogy, and then I can poke holes in it, but yes.
- HSHarry Stebbings
I agree, 'cause I say I'm, I'm ignoring the spreadsheet analogy b- 'cause I think your core point is the better one, frankly, which is when you're doing something totally new and empowering a whole new set of people, that's when you get a huge venture opportunity. I think you said that earl- I think you're spot on. So basically the bet is-
- JLJason Lemkin
And when you solve a problem that is unsolvable-
- HSHarry Stebbings
Yeah
- JLJason Lemkin
... I find those interesting. Those are defensible.
- HSHarry Stebbings
Oh, yeah.
- JLJason Lemkin
Unsolvable problems are defensible. We, every day you chip away at an unsolvable problem, and you get better and better and better, right? Versus-
- RORory O’Driscoll
FundamentallyI- if six months from now Jason2 goes back on and does y-- the same experience you had in the last eight days, which was, you know, vibecoding straight for 80 days without sleep, but instead you don't have those problems and you get the product done in 10-
- JLJason Lemkin
Yeah
- RORory O’Driscoll
... what you're saying is whichever company can do that will be a huge company because-
- JLJason Lemkin
Huge
- RORory O’Driscoll
... you know, not everyone has the persistence that you will to crank through for 80 hours. That's the bet you're saying. Which I kind of
- 12:49 – 20:24
Should You Still Invest in Cursor at $28B?
- RORory O’Driscoll
agree.
- JLJason Lemkin
There are so many tangential elements we've already kind of touched on there. The one that I do wanna touch on, we mentioned that kind of where the value lies, and we touched on Cursor. Cursor now approaching a billion in ARR. They're raising it $28 billion. As we mentioned, there's an incredible reliance on, on Anthropic, and then you've got Claude Code coming out and eating a lot of people's lunch right now. How do we think about where enduring value lies there and how you analyze that situation?
- RORory O’Driscoll
You struggle with it 'cause kind of two very countervailing forces. On the one hand, Cursor, you've got all these... You, you've got massive user love, intuitive... And you've got a bunch of model providers who when d- where there's more than one, so intuitively you kind of go, you can translate all that love into something, and as an investor you'd say, back to Jason's thing, "This is an amazing product. You've got mass adoption. You should lean into this." The scary fact is what Anthropic did to Windsurf, which is the minute you try and do an M&A, they cut you off at the knees, and it hurt, right? So you probably as Cursor are saying, "I can use all this momentum and all this venture dollars. Do I build my own model? Do I get a second source? Do I have to have a binding contract that applies to Anthropic? Um, do I have to have a second contract with OpenAI?" You have to de-risk the big risk. But on the other hand, the prize is such that you don't just say, "I can't build a business here 'cause of this fundamental risk." You have to de-risk it 'cause the m- the core market demand you have is just so attractive.
- JLJason Lemkin
Do you think you're being paid for that risk if your entry price is $28 billion?
- RORory O’Driscoll
[laughs] Uh, that's a different question. Um...
- JLJason Lemkin
You have to underwrite a $100 billion plus company there, right? So-
- RORory O’Driscoll
Well, you have to underwrite two things. You have to underwrite-
- JLJason Lemkin
I mean, listen, it's a great... If we go back to 2023 before all of this, right? Imagine you're in a partner room and someone came to you with a deal like Cursor and said, "I've met these, these kids. They're so smart," right? "But they're 100% platform dependent on another provider that will likely compete with them in the very near future and, and will raise infinite amounts of capital." Would you, would you have, in 2023, would you have agreed to that deal? This is like Venture 101. You don't do these platform dependent... I did a bunch of stuff in Shopify, right? I know it's old school, but, like, what happened in Shopify is everyone tried to go multi-platform, Rory, and it was pointless because Shopify has 99% of the B2B market share.
- RORory O’Driscoll
I, I agree, but that's-
- JLJason Lemkin
Right?
- RORory O’Driscoll
For example, uh, but there's a bunch of differences there. First of all, Klaviyo made it work. And secondly-
- JLJason Lemkin
For now
- RORory O’Driscoll
... Yeah. And sh- and Shopify wasn't just a back-end partner, it was a distribution point, too. But I'll still take on your point and take it. Would you do that deal? And this is why the 28 billion's interesting. What you say to yourself is, if the core giant sucking sound of demand is so strong over the next two to three years, then the forward momentum, you know, getting to a billion dollars faster than almost any other software company out there, is probably enough to allow you to have options. So you... It's a, it's a calculated gamble, right? You roll the dice, and in this case, as you've so eloquently pointed out, the AI adopt-- the magic of AI in coding is so strong that you've got that kind of lift. 'Cause even though you've still got this big existential risk out there, you got more leverage now. You p- there's a bunch of different things you can do. You're seeing licensing whereby you say, "Here is for the product," and then you get your API separately. You're definitely gonna see people building their own models. You know, uh, you're definitely gonna see multi contracts to some extent. So there's gonna be a lot of de-risking happen. But you are at the, at the founding stage, despite the platform risk, you're being paid for the risk. At 28 billion, it's... You've definitely got less... You're definitely taking on perhaps the same risk at just a lot higher price.
- JLJason Lemkin
For me, it's this brilliant question of, like, can Cursor create models before Anthropic cut them off at the knees? My only question is to that, if I'm Anthropic, I cut them off at the knees today and kill that lifeblood before they have the chance to-
- RORory O’Driscoll
I don't know if you would. I don't know if you would, for two reasons. I mean, uh, h- look, they didn't cut off Windsurf until they were going to be acquired by OpenAI. Yes, they now have a reasonably competitive product, but I think you, when you're the platform company and you're simultaneously, you know, you have customers and you start cutting them off at the knees arbitrarily, you are probably setting yourself up for a minimum investigation, which you don't need. The truth is, I mean, look at what Microsoft did in the '90s. You just grind everybody down. You don't have to cut them off at the knees. You take their revenue. Look, if they're d- if, and if Cursor's doing a billion, what percentage of that's going to Anthropic? What percentage of that explains the magnificent Anthropic acceleration in the last six months? You're like, "Knock yourself out. I'll have a slightly competing product, you know, for now. Everyone can boom." You know, let a thousand flowers bloom, as the Chinese Communist Party would say. And yeah, at some point when things get tougher, just like Microsoft did in the '90s, the platform provider starts to grind everyone's balls and, you know, take more of the share away. There ain't 10 versions of PowerPoint in 2025. So I think that's the movie, right? And I think you, you know, you... Especially at this hyper-growth explosion stage, I think it'd be very stupid of Anthropic to just cut off a l- probably the largest customer at the knees, and I-- and the one thing, they're not stupid. So I don't think they will.
- JLJason Lemkin
It's the, it's classic VC pointing. You're right. But man, it is a little chilling they cut Win- that, that, that they Win- they cut Windsurf off. It's chill- it's chilling. Usually you would expect... That's like ruthless Toby at Shopify behavior, and love him, right? But it's... I actually think it's ruthless rather than to de- pretend to degrade it, to de- de- to degrade, to, like, be all cuddly feely, and, like, you start throttling it back, and you come up with a... I mean-I would-- It's not that I wouldn't wanna do the same, like if I was a CEO, but it was ruthless. Like, it was ruthless
- RORory O’Driscoll
It, it was unrevealing, and I'm not sure that it will... I mean, in a-
- JLJason Lemkin
You gotta assume it's gonna happen again.
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
If you let the AI touch your production database once and it's an issue, it's gonna happen again. You have to assume things recur. I will say one other thing not to go, uh, to, to tie it back. You guys keep diving, but to the defensibility of Harry's investment, right, in Lovable, here's why it's a better investment too, for what it's worth. I didn't know this a week ago. When you use these vibe, uh, they don't even use Claude Opus 4. This is the power of these models. You don't need the latest model. Windsurf and, and, um, Cursor cannot compete with Claude Code unless they have access to the state-of-the-art thing that every developer wants, okay? I didn't e- I actually turned on when I was vibe coding, I turned on Opus 4, which is what all the developers are going crazy for, okay? I turned it on. It's called bankruptcy mode on Reddit. It costs seven and a half times as much. It goes up from like twenty cents a minute to a dollar fifty a minute when you turn it on. It's insane. And I'd be using it in every, like, hour I'd get an email, "You have another fifty dollar bit charge, another fifty dollar charge." No two hundred dollar cap here, okay? I was on track to spend eight thousand dollars a month. But what's interesting was it was worse. Using this was worse, the Opus 4. It took longer, it thought too long, and what I was trying to do was not, like, change the world. So everything was worse. So the, my point is, this, w- I don't think that Windsurf had an option. Uh, yeah, it had Gemini. It had-- I don't think it had a choice, but, but Harry's investment in Lovable can use the N-1 model pretty damn good. Like, that's pretty interesting, isn't it? It's pretty damn... In fact, it's better than the, [chuckles] the one everyone's going gaga over, and it, that's why it's turned off by
- 20:24 – 25:22
Would You Bet on Anthropic at $100B or OpenAI at $300B?
- JLJason Lemkin
default.
- HSHarry Stebbings
I wanna kind of move this along, but in a streamlined way, which is like, you know, Anthropic are raising now. Uh, they wanna raise it a hundred billion dollars. Unbelievable. Reportedly generating four billion in revenue. Um, to your point, Rory, I'm sure Cursor are nine hundred and fifty million of that, so to speak. My question to you is, are we seeing the clear divergence now in strategies between OpenAI winning consumer with ChatGPT and with the consumer apps that they have available, and Anthropic focusing on developers and enterprise, and this is the market makeup we're gonna see? Do you think that's how this is playing out?
- RORory O’Driscoll
Partially, not fully, in the sense I don't think anyone at OpenAI, which is the most ambitious company of our generation-
- HSHarry Stebbings
[laughs]
- RORory O’Driscoll
...is gonna say, "We surrender enterprise." I mean, look, they were about-
- JLJason Lemkin
We at least concede it. [laughs]
- RORory O’Driscoll
Yeah. They were about to buy Windsurf. So no, at one level, no, I don't think that's happening. But what is happening is Anthropic has picked a place where they can win, and in that space, they're clearly accelerating. I mean, they're grow... I mean, they're smaller in size, but if the numbers are correct, and again, if you don't see them, you don't know, is the accel- If they've really gone from one million ARR to four b- four, four... one billion to four billion in the last six, nine months, that's extraordinary acceleration, and it's significantly faster than OpenAI, which apparently is roughly plus or minus doubling. So they're clearly... They've found a vein in coding, and it's working. I mean, see the prior conversation on, as there are a huge number of conflicts of interest in that space between them and their customers. But they've clearly found something. They've clearly out... I mean, if you were to pick, you know, outperformer last six months, they'd get the prize over OpenAI. That said, you know, A, OpenAI is significantly bigger, has the whole consumer business where Anthropic doesn't, and is not gonna just give up on enterprise. It feels like the clear three... The two people who are clearly gonna be at the table of startups when this is done are OpenAI and Anthropic. It, it's hard to imagine beyond that. Beyond that, something different has to happen, right? I'm not saying impossible. You've got, you know, Groq, you've got xAI, you've got the new startups, but those two guys have made it. All the others of that generation seem to have fallen away, the Cohere's and people like that. These are the two players at the table, and yeah, it's a huge achievement for Anthropic 'cause they started later. If they, you know, they've clawed their way in, and then the next people you'd rank down would be Gemini, which would be Google, and people like that. So-
- HSHarry Stebbings
Yeah
- RORory O’Driscoll
... they've worked their vibe, therefore they get the hundred.
- HSHarry Stebbings
Rory, you can invest in Anthropic at a hundred or OpenAI at three hundred. Where do you go?
- RORory O’Driscoll
I think I'd do Anthropic at a hundred just from a back short-term momentum perspective. I mean, the, the execute... I mean, uh, if... They're cutting off gnaws at me, but the, the... First of all, there's cap table clarity 'cause you don't have the not-for-profit thing. You've clearly got a model where it's working. And interestingly, we're gonna talk about this, you're starting to see and exercise pricing power, which is what it takes to make, you know, massively unprofitable models converge. So I think it's a very tight deal, and I give them huge credit. You know, I would have... I'm drawn to the consumer aspect of OpenAI. I just think it's such an amazing thing to do. We're gonna talk in a second about that blog, but building a product that touches everyone and changes everything, it's just amazing. I mean, I think... So I'm making... I, I'm answering the question you asked at a financial level, just kinda trying to be canny as an investor, but I think step back, both of them are stunningly amazing, ambitious companies. And-
- JLJason Lemkin
I think you gotta take Anthropic at that.
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
Because An- Well, Rory, you would know the numbers even better than me. Just enterprise software is bigger than consumer. I would take Anthropic.
- RORory O’Driscoll
Yeah, but-
- JLJason Lemkin
I'm getting the bigger market at a third of the price. I know it's simplistic. Um, that's the beauty of seed investing. You get to shoot from the hip like this. But, um, but there's some, there's something to the fact that at the end, the enterprise software, somewhat counterintuitively, is larger than consumer, right?
- RORory O’Driscoll
It, it is. Well, but small numbers of consumer businesses are the biggest business on the planet, right? Is that... I think that's-
- JLJason Lemkin
For sure. That's the biggest business is SMB
- RORory O’Driscoll
... what's cool about enterprise is... And I should say it's not big or small. What I'm saying this is enterprises, enterprise businesses can find multiple profitable niches, and there's lots of ten billion, a hundred billion dollar plus outcomes. The thing in consumer is there's only one Google, and no one can even name the five other such competitors. The attractive thing about Anthro- uh, sorry, about OpenAI is it probably is that playerRight? So I, I, I think both have huge outcomes in the future, just different ones. When, when, when we've-- When someone's trying to value and was going public, you know, the vast bulk of the, the vast bulk of the value for OpenAI will be some estimate about what percentage of individuals and prosumers and probably enterprises will pay twenty bucks a month or two hundred bucks a month for general knowledge. And Anthropic will be all about, you know, what percentage of API businesses, you know, need, need Claude or relevant
- 25:22 – 28:44
Inside OpenAI’s Secret Weapon: The Calvin French-Owen Memo
- RORory O’Driscoll
things.
- HSHarry Stebbings
Guys, w-we're on OpenAI. What you me- you mentioned that kind of building and the importance of building for consumer, Rory, and you touched on the essay. Calvin French-Owen, who was a co-founder of Segment, he wrote a, a brilliant piece, um, and I know you read it, Rory. How did you reflect on this? He wrote about what it's like to work at OpenAI.
- RORory O’Driscoll
I just thought it was a well-written essay and a real insight to what it's like to be in, yeah, as I say, one of the most exciting startups of, you know, our generation. He made it clear how even in this big thing, it's just small numbers of people can get shit done. It sounded like a very impressive organization. Actually, that's the big takeaway, reflecting on it now, actually. 'Cause, look, all the weird psychodrama at the top, all the structural issues, it sounded like down, you know, when the rubber, yeah, ki- down at the coal face, shit gets done, smart people move in a non-hierarchical fashion, can make decisions and get stuff done pretty quickly. I actually thought that was actually the, the bigger half for me from that, which is regardless of what's going on at the top, it felt like a very functional product and eng organization and, you know, a great place to be at, right? So I actually enjoyed the essay just thinking, wow, if I was an engineer in '25, he's exactly right. That's exactly where I'd wanna go.
- HSHarry Stebbings
Hm.
- RORory O’Driscoll
Even apart from the salaries, which apparently are reasonably attractive, it's just the, the getting shit done part of it. It's like you can do big thi- It's, you know, he talked about the product that she had, was it Codex, where, you know, it was a ten, fifteen-person team, including product and eng, and they just got it done. I mean, that kind of excitement leading to a world-class product is, you know, an almost unreproducible part of any, a, a career. It was a great essay. It was like, yeah, this is a good company. This is a good thing. All noise be damned.
- JLJason Lemkin
It kind of took me back, I, when I, I, I just reread it quickly. I did read it before. It took me ba- This is, um, may, maybe it's, uh, a little silly, but it took me back to the vibe pre-IPO of Google.
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
I mean, I was, uh, you, Harry, this was a while ago, but before Google IPO'd, it was a little bit like it was a magical place and the internet was dead. There were no jobs, okay? Half of the folks I worked with in my first job were unemployable, and they all went to Google and made what was back then an incalculable amount of money by going early. And it was a bucolic campus, and it was all about doing great things.
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
And they-- And Google had built its own infrastructure, so it had access to capabilities no one else had. That article is like, everything's about GPU cost, right? You can do anything you want at OpenAI, you just gotta f- It's kinda like a, a, a rebooted version of this incredibly intense, but also... And you know, cer- when, when they founded, when they moved Google to, like, Mountain View, they designed it to be this bucolic campus to insulate you from, from the crap, so you could just do the greatest things in the world. And it feels like this is a 2.0 version of it that they're trying to build. But, but today, instead of people staying at Google for life, they stay for eight months. [laughs] So the analogy breaks down. But man, you read that, and if you step back for a minute, one, he left, co-founder of Segment, right? But where else would you wanna work?
- RORory O’Driscoll
Got it.
- JLJason Lemkin
Where, if you're ambitious and you read that, I mean, where, where the hell else? This is a moment in... I might even, uh, throw away my two billion dollar venture firm and go work at one of these places.
- RORory O’Driscoll
That's been known to happen.
- JLJason Lemkin
I might do... for real. I might regret it thirty-six, forty-eight months down the road, but I, I might do it.
- 28:44 – 35:08
Perplexity Just Crushed ChatGPT and Claude
- JLJason Lemkin
[laughs]
- HSHarry Stebbings
It's funny, you mentioned, you mentioned Google there, and you know, I'll never forget being told by a guest, uh, years ago that Google was successful because of their early partnership decisions in large part. And, you know, one of the big announcements this week was that, you know, Perplexity's raised another hundred million at an eighteen billion dollar valuation. Honestly, there was so much demand from the fifteen round that they upped it to eighteen. Okay? And they also announced partnerships with Airtel, making the number one downloaded app in India.
- RORory O’Driscoll
Yeah.
- HSHarry Stebbings
What do you think happens to Perplexity, and how did you think about that one?
- RORory O’Driscoll
They got something right early that now everyone figured out, which is, is that LLM on their own, you know, just with historical stale data, not nearly as interesting as LLM plus up-to-date search data, so you can get real answers to real questions. And they were the first to have that. That was, yeah, a real key insight 'cause it just, yeah, it answered exactly the question you wanted, um, in a way that, you know, we all have, y- a year and a half ago, all the, the, the early ChatGPT models just didn't have contemporary data. So you could do funny things like ask it who's the president, and it wouldn't know. It would say, like, whatever, pub-probably, president got it right. But it wouldn't know the Prime Minister of England, for example, 'cause they were changing every half an hour. So that would be a good example where Perplexity could go out and catch up on who your latest prime minister is, Harry. Um, so big insight, got great early traction on that. Um, obviously, everyone else has copied it now, so they're pushing their way through in a much more crowded space. A, I think, can you pull that off in a standalone? You know, you hope they can. B, as you point out, it always seems to me that you have the at-bat against Google, and there's a bunch of people you should be partnering with. Obviously, you know, Airtel is one, but y-y-you can imagine other partners where they too want a part of that Google money.
- HSHarry Stebbings
Rory, where does it land in three years' time? Where is Perplexity then?
- RORory O’Driscoll
Hell, I don't know. But look, th-there's a bunch of obvious players, um, yeah, Apple being one of them, and there's other pe- but I think the, the, the big wild card and the reason this kind of pontification is hard is the whole FTC process is just so painful now that... And 'cause this is not one to your poi-- Well, I don't know.Is this one of those where the acquirer could say, "All I want is the engineers and leave the empty husk"? I doubt it, because to some extent you're getting the app users the kind of roadmap. So I don't think that's that kind of thing. So I think any acquisition is at the mercy of the FTC, um, which, as we've seen, is beyond weird even now. So I don't, I don't know how to factor that in. In the absence of that, you gotta believe that there's any one of a number of players who wanna be relevant in this space, it could be Apple, it could even be Microsoft, who said they wanna do something here. So that would have been my gut in the absence of, yeah, government regulation.
- JLJason Lemkin
It's interesting. J- I, I don't know the... But it-- I just ran a quick experiment over here. I went to Perplexity, ChatGPT, and Claude, and I asked it a basic question, "Tell me about SaaStr and where it's going." That's a personal question to me, right?
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
Um, Perplexity was much better.
- RORory O’Driscoll
Yep.
- JLJason Lemkin
Much, much better. Um, ChatGPT, which I'm not a fan of for this use case, I don't think it's that good, um, got stuff wrong. Okay? Um, and Claude blabbered on and on, but w- but actually it had to pause and do web research, which Perplexity didn't have to do. So as from a user experience, I mean, it's, it's okay. Like, um, but, but Perplexity won. So I don't know what that... I mean, I don't know what that means for 2028, right? And I don't me- know how important that use case is. This, this, this-- And, uh, Perplexity is a broad platform now, as Harry knows, right? I mean, we've got Calm, we've got all these things. But this original idea of building a better, like, usable search, uh, it mu- it's, it, it-- for this, it's much better if, if th- if that's your focus, right? Um, and these are, you know, ChatGPT is so broad. This is the, the interface to all of knowledge.
- RORory O’Driscoll
Totally.
- JLJason Lemkin
Right? That's the thing. ChatGPT is very... I don't think it makes the best images. I can't use it for images. I use Reeve. I can't use it for a lot of things that it does, but it's not the best at. Um, but Perplexity just crushed this question. This is a real world thing that's important to me. Tell me about SaaStr and where it's going. It got it right. It got, it, it got the events right. It said AI first transformation, expansion of content and format, global community branding, stronger networking. ChatGPT got it wrong. It talks about what have we been doing since COVID. We're doing hybrid events, like hoppin'. I mean, ChatGPT, wake up. What, what, what, what year are you in, right? [laughs]
- RORory O’Driscoll
Mine said you're a Replit reseller.
- JLJason Lemkin
Stop.
- HSHarry Stebbings
[laughs] Stop.
- JLJason Lemkin
Stop.
- HSHarry Stebbings
[laughs]
- JLJason Lemkin
Stop.
- HSHarry Stebbings
T- t- I'll te- I'll take it. I'll take it.
- JLJason Lemkin
But I don't know. But someone that doesn't own their LLMs, right? It, who-- I just, I ca- I'm not, I just... A- at 18 billion, I don't know the answer to the question, right? I mean, it's, uh, it's, um... But I, this, this... I, I, I just fell more in love with Perplexity on this. I fell more in love with Perplexity 'cause it won. It won the bake off.
- RORory O’Driscoll
Absolutely. It's always funny when we, when we talk about these things that don't own their LLMs, we all get terrified, "Oh my God, you don't own your LLM." And then when we talk about the LLMs, people are like, "Oh my God, maybe it'll be a commodity," right? And you know, you-
- JLJason Lemkin
Yeah
- RORory O’Driscoll
... both things can't be true. I mean, the interesting thing is, you know, what's your belief set and the-
- JLJason Lemkin
Well, the, the, the vibe coding thing shows it is a commodity because I can use-
- RORory O’Driscoll
That's a good point
- JLJason Lemkin
... the N minus one model that is better than the current one.
- RORory O’Driscoll
Yes.
- JLJason Lemkin
That's a use case. If we debate is it a commodity, I just lived it for 80 hours straight, uh, with Celsius and no sleep, um, waking up with bad dreams the other night to see that I c- I can actually do better with last year's model than this year's model. [laughs]
- 35:08 – 44:36
Figma’s IPO at $16B: Outrageous or Fair Game?
- HSHarry Stebbings
which is-
- JLJason Lemkin
Yeah
- HSHarry Stebbings
... the other big news that we, we touched on before in another show was the Figma IPO. I was really shocked by this, guys. We were all really impressed by their numbers. You know, when we look at their numbers today, you know, 46% year on year, 28% FCF margins. Like, it, it's a great business. They've done very well. Fully diluted, that makes it about a $16 billion price. How did we think about that when we saw that news?
- JLJason Lemkin
Wait, what's the Perplexity round again?
- HSHarry Stebbings
18 billion.
- JLJason Lemkin
I see. So Figma dominated a category. Numbers w- we've never seen before in classic software. Close to it, not... Close to it. Is worth less than the last Perplexity r- round? Is that what you said?
- RORory O’Driscoll
Yeah, but I don't think that's the comparison. Um, and we could talk about why it's not the comparison, and we have a long discussion on public versus private. But let's just, taking the question right on its head, I wouldn't worry about it, Harry. That's indicative pricing. Every... This is how they do IPOs, and this is why sometimes money gets left on the table. Every time you sit there getting pitched an IPO, the bankers will say, "Start low, get people to the meeting, build up demand, we'll walk it up," right? That's the story you get. And to some extent I, I get it, right? It's not like they're looking for one person, which is what you do in a private deal. You're looking to assemble a book of business, right? And the way you do it is you put something on the table that's attractive, and you are at 14 times NTM or 16 times NTM. When I looked out, it's got better growth than all but one or two public companies, and it feels, you know, it's at the high end of revenue multiples, but growth-adjusted, it feels very cheap here. But what does it do? It gets everyone in the door. It gets them in to look at the, you know, read the prospectus, come to the meeting. If they build up the demand, my guess is they walk it up. And it, I would guess that, you know, you, you can walk it up a certain amount before you refile, and then above, above a certain amount you have to refile a higher number. So I look at this and I go, this is the classic Goldman Sachs, Morgan Stanley, get, get 'em in, walk it up. I don't think it'll-Price of that, and I definitely don't think it will trade at that
- JLJason Lemkin
Rory, how much can they walk it up? Twenty?
- RORory O’Driscoll
You know, there's, there's... Yes. There's a within the-- there's, there's an amount you can walk it up, and then above a certain amount you have to refile, which is not a big deal. It's just an extra day or two. I do think one of the reasons that, you know, Mr. Gurley is so right that you do leave money on the table is what happens is anchoring takes place, and this is the negative on it. You start low, and even without any nefarious investment banker, you know, shenanigans, yeah, everyone's been brought in by the attractive low price, and then the demand builds, and you can walk it up, but it's hard to maximize. So you, you'll be in this weird situation where maybe you walk it up, maybe you refile and raise the range, but just because you started at that price point per share, you probably wanna extract the last dollar and you'll, you know, you'll leave a pop on the table. You, you'll walk it up twenty, twenty-five percent, but then it'll price, and on day one it'll pop thirty percent from there, and then we'll all have the discussion about how much money we left on the table. And I think that's the unfortunate nature of the process. Interestingly, if you weren't raising money, primary capital, and you were just doing a direct listing, you wouldn't have to put up with any of this rubbish, and it'd be interesting to see where it would price then. If we're just kind of matching buyers and sellers and pushing it out the door without raising any capital, it might be a very different story.
- JLJason Lemkin
I get you in terms of building the buy book, building the demand, making people come to the table. The other thing, though, that was kind of a little bit less typical about it was how much shares they indicated they were gonna be selling on the sell side, both from the founder and from the venture capitalists. Dylan cashing out sixty to a hundred million, fine, but it's, like, double the normal allocation that's sold. Is that relevant? How did you think about that?
- RORory O’Driscoll
I don't think it matters that much. I mean, I think... Look, it's one thing when we used to have these IPOs of, you know, a company doing seventy million dollars. It's been around six or seven years, barely profit. These guys have done their time. They nearly got twenty billion bucks. I'm sure they all made mental models on twenty billion dollars. Now you're coming to the IPO, you know, two, three years later. It's a relatively small IPO of primary shares. I think they're only raising around six percent primary share dilution.
- JLJason Lemkin
Mm.
- RORory O’Driscoll
Some part of what might have happened here is they don't need a ton of-- I mean, look, one of the problems on the IPOs, you have to come up with a use of proceeds. They're profitable. They have a lot of cash. There's not a lot of obvious things to do with the money. So my guess is they were being fairly restrictive on primary shares, and then the bankers whine and say, "You need a bigger float." And part of what happened here is everyone said, "We'll do some secondary," right? I think we're long past the stage where the secondary is signaling anything. And if anything, my guess will be that the secondary sellers will look back on their price, you know, two days later when it's, you know, up thirty percent and go, "Ooh, that hurts a little." I mean, for example, on the Circle IPO, where there was a big slug of secondary, those people are looking and saying, "Oh my God, I sold a hundred million bucks, and it would've been seven hundred million dollars two weeks later." That, that hurts. So it kind of cuts both ways. I mean, there's this implied statement you are making, secondary's bad. But in fact, sometimes secondary can be [chuckles] a real cost to the seller, not the buyer.
- JLJason Lemkin
Yeah.
- HSHarry Stebbings
That's an amazing story, which is Calpers bought some of Yale's-
- JLJason Lemkin
I love that
- HSHarry Stebbings
... venture allocations, and then in that venture allocation-
- JLJason Lemkin
Yeah
- HSHarry Stebbings
... was Circle, which wasn't obviously priced reflectively of where it is in market today, and it's like a twenty percent immediate bump for Calpers given where Circle's priced today.
- JLJason Lemkin
I love it. I love it when in a secondary, like the person that sells makes a big mistake. I love that. It's just, you know. Keep your winners. I can't-- I just-- When an LP goes out and sells a winning fund on the secondary, I'm not into that, man. Like I, I'm not into it, Harry. Would you sell like a almost a five X fund on the secondary market without even telling the founders? Would you do that?
- RORory O’Driscoll
Those is-- But hang on, but to be fair-
- JLJason Lemkin
Sorry, I got, I got a little distracted. It's my vibe coding ten day. You can't hold anything against me after ten days-
- RORory O’Driscoll
Yeah
- JLJason Lemkin
... of vibe coding.
- RORory O’Driscoll
Yeah. Look, this is one where, you know, the seller-- Look, the seller transacted 'cause they had cash needs, and it, I think makes a ton of sense given all we've discussed about on diamonds. And yeah, the buyer, the buyer did well. I mean, it really reminds you the core lesson here is how little you know, right? The, the amount of variability in venture assets, it's very different, for example, even in PE assets, right? You can literally be wrong by a six X. And not only-- And to be fair, watch this, to be fair to Yale, they didn't know, but the sellers on the board who sold didn't know it was gonna pop either. In other words, nobody knows shit, right? To a rounding error. 'Cause let's be frank, if I was sitting on that board, and all the people who did opted to sell some shares, very wisely, very prudentially, none of them would have sold if they'd known that a week later their, that the shares that they sold would be up seven X. But you just don't know. This is an example of... Yeah, it's, it's a stunning reminder of the massive am- the massive amount of un- not even, yeah, not even risk, just raw uncertainty we have, you know?
- JLJason Lemkin
But, uh, Rory, just thinking about what, what you've said, thinking back to the Figma point, which is obvious, but I missed it. Thank you. Uh, which is the float's so small. They're doing the smallest IPO you can do to still IPO.
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
That's what's happening. They're profitable. They've got, I forget, a couple billion in the bank. The last thing they knew is-- need to do is dilute everybody, right? So I should know, isn't this a Bill Gurley case study where they should direct list? It's enough of a brand. It's a hot enough company. Why do the-- take the dilution, the headache. You can-- If you do a direct listing, there's usually no lockup, right? Everyone can sell anything they want.
- RORory O’Driscoll
And just a reminder, in a direct listing, you can sell shares, either primary or secondary shares. You just literally say, one day a couple of your bankers will say, "We now have public buyers and sellers. We're matching the price, and we declare the day one price to be a hundred and twenty-- twenty-four dollars," and away you go. I agree. It's actually one of the few companies that coulda done it. It's profitable. So it's not sitting there... I mean, one of the reasons you don't do a direct listing is either you need the capital, they don't, or you have this existential dread of screwing up your big debut.Right? I'm willing to bet that the people at Figma, having gone through what they went through with Adobe, they ain't scared anymore, right? [laughs] There's nothing that can happen in an IPO that's gonna make their head hurt. So yes, this is a company that actually could have pulled off a direct listing. I don't know why they didn't. Maybe they just decided no more drama, thank you. Um, do a small sale and get it done. But yes, this is one of the few companies that comfortably coulda done a direct listing story.
- JLJason Lemkin
I mean, Canva should do one, right?
- 44:36 – 52:40
90% of Seed Funds Are Cooked: Is Rob Go Right?
- JLJason Lemkin
right? But-
- HSHarry Stebbings
Uh, dude, you couldn't have, you couldn't have led me nicer into my next topic though, which is I, I disagree with you.
- JLJason Lemkin
Okay.
- HSHarry Stebbings
Seed founders care intensely. The five on 50s, the 10 on the 100s that we see at seeds because they're being offered by the multi-stage funds. Because that cost of capital is so much lower, it's their entry ticket to the club before they buy the table. And that led Rob Go, Nextview, to write a piece which many people picked up on-
- JLJason Lemkin
Yeah
- HSHarry Stebbings
... which I'm summarizing very, very badly, but essentially saying that 90% of seed funds are cooked fighting the mega platforms. YC, it's pretty much impossible for this generation of seed funds. I wanted to hear your thoughts on this because it did take a light in the ecosystem.
- JLJason Lemkin
Well, one, listen, he's been around. He, it's thoughtful, right? Um, it's a little dramatic, right? As someone who's just been through some drama, did not intentionally, uh, but I, it's a little dramatic. Um, I would, as someone who's done okay, you know, maybe not a generational seed investor, but he's 10X lifetime with a bunch of billion-dollar exits with a decent brand, I agree. I agree. I think, listen, it's, there's so much competition at seed-
- HSHarry Stebbings
Specifically, what do you agree with?
- JLJason Lemkin
I just don't, I think this, whatever, this low dilution $50 million seed competing with a multi-stage fund, you, you, as a seed fund, you just, y- you, you can do some of those deals to put 'em on your website, but you have to hunt. You either have to hunt ultra early, right? The, the, you know, the bold start vibe, you know. The, it, there's a point to what he's saying, to their saying. You have to hunt so early and/or create your own accelerator or do HFO or do whatever that, that it doesn't matter because you're hunting earlier than everybody else. Or you gotta, and I know this is trite, you gotta hunt where they're not hunting.
- HSHarry Stebbings
Yeah.
- JLJason Lemkin
You gotta hunt where they're not hunting. Um, and you can, and, and because even if you win that deal as a seed and even if you beat Andreessen-
- HSHarry Stebbings
You lose
- JLJason Lemkin
... and it, and, and Andreessen's offering 50, and you say, "Listen, the best I can do is 30," and I've done this multiple times because 30 is the highest price I pay. It is, it's on my website. So there's multiple deals I've done where the price has been 30, okay? Owner, we've talked about, and others, they're all 30 because I'm honest, like, and a founder, and they'll do it sometimes, but there's a limit to that. Even if it's the investor they want, there's a li- there's a limit, right?
- HSHarry Stebbings
But Jason, if I was your partner, I would legitimately push back on that and say-
- JLJason Lemkin
As you should
- HSHarry Stebbings
... Rippling Seed, Rippling Seed was done at 35.
- JLJason Lemkin
Yeah.
- HSHarry Stebbings
And I think it was Keith Rabois that didn't do it when Garry Tan did because Keith wouldn't pay more than 25 and Garry was willing to pay 35. Saying an arbitrary number like 30-
- JLJason Lemkin
It's not arbitrary
- HSHarry Stebbings
... then what?
- JLJason Lemkin
No, that's the difference.
- HSHarry Stebbings
Okay. Okay, but 35 versus th- 30 makes no difference.
- JLJason Lemkin
Um, and you're right. And listen, uh, I wish I'd invest- I'd wish I had invested in Rippling and it would, and, and, and I, I did know Parker then, and, um, I would've done it at 35 because if you know somebody or there's a reason, of course you make, y- you do, right? But Ro- I think Rob's point was in general, right? You do, you, you, you do... Fund construction still matters, okay? For the most part. Unless you're, unless you have a strategy where it doesn't matter, unless it's an ab- just absolute return, ownership doesn't matter. I do believe in that. I do believe in that. But if, if, but I'm not in that category. I'm in the category where fund construction matters. And you should make exceptions, uh, maybe even on every deal, but you have to come up with a framework where on a spreadsheet it still makes sense at the end of the day. And so for me personally, when I make an exception, right, it, it's an asterisk. It's a n- so that, what I tell myself when I make an exception is, "Jason, the next deal you can't." Like, I gotta go out and find the one that counts, and that's how I keep my sanity when I make an exception. It's like, "Okay, this one wasn't quite your model, but it, it's okay. But go find one that is." [laughs]
- RORory O’Driscoll
It, it's like a diet. I, I, I had chocolate cake today. I'll starve tomorrow. I got it. But-
- JLJason Lemkin
A little bit, yeah
- RORory O’Driscoll
... go, go back to the essay-
- JLJason Lemkin
And it's worth it. It's worth it
- RORory O’Driscoll
... 'cause w- we, we, we went off. I thought it was a great essay, right? Let's start with that, right? First comment, really great. Now, I'm gonna say a couple things. One is, yeah, the, as you say, the, the, the TLDR, Harry, is per your summary, via a combination of Y Combinator and the full stack firms, the average seed firm is cooked. That's, as you said, the summary of it. Let's get real here. As a seed, a smart seed for an investor, I don't think that's the way the second chapter of the book's gonna end because no one writes an essay that says, "I'm screwed. I'm going home." And he, the last paragraph basically said, "There are things you can do. See you next week." And I'm look- really looking forward to the second essay. So a more honest summary, forward-looking summary of that essay is you're cooked if you just do the same thing, right? That was my takeaway. And next week he's gonna tell you his strategy, right? And I 100% agreed with the take. I mean, what he basically said was, you know-Plus or minus Y Combinator has a market share of 20% of the seed business and has a structural economic advantage in making those companies. It's never gonna go to 100% because those founders who do Y Combinator, and then there's a lot of founders who you economically don't need to, right? But it's a brilliant product and it's taken plus or minus 20% market share. And then on top of that, you have a bunch of full stack, call it what you want, we call them conglomerates, but full stack firms for whom seed is not an independent... Jason has to live and die on his seed returns. For those guys, the seed returns are blended in a much bigger fund where it's all about access and power law distribution. We'll come back to that. So those guys are non ec- non entirely economic actors at that point. And his point is, the combination of those two players means at best the seed game is 30, 35% harder than it was 10, eight, 10 years ago. He's entirely correct. It was a really, it was just really clear.
- JLJason Lemkin
But the job's always been hard though, by the same token. That, that's the only concede in the article. That's the only concede, right?
- RORory O’Driscoll
But you're right, Jason. But I think it's always been hard, but, you know, you have to say to yourself like you did, like I, if you have been successful and it's 35% more har- more hard? Harder now, that's just a so- it's a sobering fact. I mean, I read it and I thought-
- 52:40 – 1:16:09
How Often Do You Meet a Founder Who Can Return the Fund?
- JLJason Lemkin
funds, are they?
- HSHarry Stebbings
I was walking with one today and I said, "Listen, my biggest lesson on '21 is twofold, actually. One, I just wish I'd sat on my hands and done nothing. Play the game on the field is a bullshit thing to say. It's not true. Sometimes you don't wanna play the game at all. And two, like, temporal diversification is always right."
- JLJason Lemkin
Yes.
- HSHarry Stebbings
"You never wanna blow your fund in 18 months. We were lucky we did three and a half years. We're saved because of the last five months."
- JLJason Lemkin
I don't believe in the temporal, but keep going. Doesn't make any... That, that doesn't even make any sense to me. Other than that-
- HSHarry Stebbings
Well, I gave-
- JLJason Lemkin
On, on paper it's totally logical, right? On paper you'll look at these vintages and you'll be like, the LPs are, like, just giving everybody a mulligan on their 2021 fund, right? Especially growth guys. Like, the, we'll, we'll give you a pass on it. But I've never understood this logic ever even... Because, like, great founders are born every week. I just don't get it. It makes no sense to me. It's your fault and my fault. Listen, I, I, I set out the game, Harry, as you probably saw indirectly, right? But I still screwed up. I still made my worst investment ever. And it w- now granted, it was a third check, not a first check, so it's a different dynamic. But I, I was too supportive of portfolio companies in 2020. That was my error, right? It wasn't first checks, it was third checks. But, um, there's great companies born every year. What excuse do we have as VCs to not find a great founder once a year?
- RORory O’Driscoll
I love you guys, but we, we, we, we, we, we, we, we pack so much things. I, I'm still on two thoughts ago on Rob Go. I'm now trying to comp temporal... And so I'm go- I'm kind of backing into all these thoughts, but let me try. Temporal diversification. I, I'm not sure. I think you guys are arguing about, like, in the sense of temporal diversification would say that there are founders born, uh, y- all the time. I'm not, I'm not sure that those two points are in contradiction. I think temporal diversific- you, you, you're contradictory too, Harry, 'cause you said, you said... Yeah. And the t- the, the base version, the base version of temporal diversification is you don't expect... You, you can't, you can't make the sentence, "We should sit on our hands," and then make the sentence temporal diversification. I think a sensible, a roughly sensible base case statement is, as an early stage investor, you should aim to be roughly consistent by year and, you know, you shouldn't get carried away in the boom years and you shouldn't get too depressed in the bear years because what's happening now is not nearly as important as what will happen 10 years from now. So a consistent, steady pace is probably the base case assumption unless you have an ability, unless you have some information about market timing over and above that. Which I would regard... And that to me is the definition of temporal diversification. Which you did. You took three years to take your fund out. We've taken three years on every fund since 2010. It's not that we're geniuses, it's just that you do roughly the same number of deals per year, right? So does that... I mean, that... Are we in sync on that?
- HSHarry Stebbings
Well, I mean, I d- I don't think sitting on your hands because you don't wanna play the game on the field and time diver- time diversification are at odds. You can be doing both at s- time diversification is I, I spread out the, uh, expenditure of my fund across a, a set number of years, and that is more-
- JLJason Lemkin
Yes
- HSHarry Stebbings
... I want to have a longer period.
- JLJason Lemkin
Yes, certainly.
- HSHarry Stebbings
That actually aligns to sitting on... That aligns to sitting on your hands.
- JLJason Lemkin
Yeah, I think it's a cop-out though, is my learning. Having done this, done it myself. Had to... Having done it myself, I criticize myself for that, uh, for, for using it as an excuse. Because I, I think every... I think if you're, if you are an S-tier investor, what, w- once a month you should meet a founder that could return your fund. This is just, this... Because you can't do all the deals. No, no, you, you... 'Cause you gotta do one a year, right? And so if you don't meet eight or 10 of these a year, how are you gonna make money?
- HSHarry Stebbings
Now, how many times do you both think you meet a founder that could return your fund?
- JLJason Lemkin
If I'm lucky, w- if I'm lucky, the highest ratio in my whole career is one, one a month. One meeting a month was worth it. All the rest was a waste of time. Not that isn't good, but can return your fund. It's a narrow box. It's a n- it's-
- HSHarry Stebbings
I-
- JLJason Lemkin
... tied to fund sizes and-
- HSHarry Stebbings
I would, I would say less than that. I'd say once every six months. Surely.
- JLJason Lemkin
Yeah, I'd say n- my highest velocity when I started, I met everybody in the industry, 'cause it was small, right? So it was once a month. Now, I would say I'm lucky if it's once a quarter, to your point, right? If I'm lucky it's one. And what it is, half the time it doesn't fit, right? I, I, it just, it, the check size is too small, the timing's wrong, it's just off, right? So do you force it and make the exception or do you push on to, to fit your model is what's hard when you meet. Even when you do meet them, it doesn't always fit, does it? You have a lot of flexibility in your fund right now, Harry, but it still isn't per- all the deals aren't perfect, are they? These 100K checks aren't perfect.
- RORory O’Driscoll
So a hard nose comment. The, the question is... I, I actually don't... I think when do you meet a founder that will return the fund? It... I always say this since I was grim. I think when do you meet a company that can return the fund? 'Cause at the stage we're investing at, I think it's, again, and I'm pushing against that only 'cause there's an implied statement that you can assess humans and their potential, and I think, yeah, human potential is very important, but unless it's linked to an opportunity, right? Uh, I think it's harder for me to assess that, right? Um, so I, I'm, yeah, I, I, I am very much the old Sequoia statement. It, it, it is really market first. So I'm actually making a nuance which is, is that I don't... I might... I, I think about how often do I meet an investment opportunity, do an, a market, an opportunity that can return to fund. So that's the first comment. And I think... So on that, I'm just trying to do the math here. You know, if you're probably as a firm gonna see that at most... Where, you know, our, our fund model says you wanna return at least half the fund in a great deal. You're probably gonna see that at most, if you're lucky, you know, 10, 12 times a year and you're gonna pick maybe... Like, the stunning thing is w- we've looked at it, like, the, you see about seven to 10 more good deals for every one deal you do, right? So despite everything, uh, access is really important, deal flow is really important, but it's always stunning and sobering to realize how often you meet a really great company and don't do the deal. So you, if you meet... My metaphor rule of thumb is if you meet 10 great companies, you probably will be lucky enough to do one or two, right? So, and if you need to do one or two great deals a year, you better be meeting 10 good companies a year. Otherw- great companies a year, I should say, otherwise the math's just not gonna work. 'Cause no one has a perfect stock in- picking percentage. No one has a perfect winning percentage, right? And in fact, one of the things I always say is, this kind of gets into therapeutic speak, is way back when I started out in the '90s, the best of our anti-portfo- anti-portfolio regret is the psychological price you have to pay for being in the game. Because it's literally the emotional tax you pay for being in good deal flow. 'Cause if you're not seeing 10 great deals, you're probably not gonna do one great deal, which means the psychological tax for doing one great deal is you pass on nine deals, or you don't win 'em, right? And they, that's what keeps you awake at night. But if you're not, I mean, if you're not seeing around that, um, yeah, if you're not seeing that percentage of the great deals, then you're, then you're definitionally in trouble. So you just gotta be willing to live with that.
- JLJason Lemkin
There's so much transparency in venture versus when I started, which is wonderful.
- RORory O’Driscoll
Yes.
- JLJason Lemkin
Right? Harry, you've contributed a lot. It's, it's really... To say it's different than when I started would be the greatest understatement of the year. There was no transparency when I started. All VCs colluded. In my first startup, I would go to a VC pitch, and I'd go to the next one, and they'd already talked, 100% of the time. They'd picked up the phone, "Hey, I heard you're meeting... Rory, I heard you're meeting Harry. What'd you think? What price do you want him?" And I'd walk in, and they'd already negotiated the deal down when I got to the second VC meeting, okay? The world is so much more transparent, um, and better today. Oh, I got... That's a pretty funny story. I got, I got off track. Um, I'm... You know, let me add one thing. I f- I, I usually... Going just back to the time diversity thing, I'll share... Sorry, d- go ahead, Harry.
- HSHarry Stebbings
No, no, please. I'm, I'm listening.
- RORory O’Driscoll
He's just, he's just sniggering at you.
- JLJason Lemkin
Well, I, I, I thought I was taking that somewhere helpful, though. It's, it, it's kudos to you for contributing to the... On the time diversity, I'll just share one s- one story if, if... I know it's a technical point, but people like... Oh, sorry, my point was, and then we talked. To founders, well, there's a lot of things that don't make sense to founders, and one of them is, like, how few times VCs see a deal they wanna do that works for them, right? Founders think this happens every day, right? And listen, there's a subset of VC which are, like, farming YC every quarter, I'm gonna do a third of the batch, okay? And they have a certain strategy, and they are seeing deals they wanna do because of that model, you know, uh, uh, constantly, right? But when you get even just a little later to, to the late seed A and B, and you talk to most VCs that are writing bigger checks, th- they're... Once a month, to your point, Harry, for all of, like, you're lucky to see that g- one where you run down the street once a month, where you grab the founder by the collar and say, "Come back to the office. We're signing the term sheet today." Right? And if everyone see... If you haven't done that move yourself in venture, you've watched it across your po... I mean, this is a classic Sequoia move to sit in the lobby of your office until the deal is done, right? And it's because you do- even, you don't see that every afternoon.This is the weird thing founders don't get. Well, why, why, why is the vent- VC stalling? Why have I been ghosted? Why didn't I... Like, at least understand what's happening is, like, you- you're lucky to see one a quarter that works... that where the two by two works out, right? You disagree, Harry?
- HSHarry Stebbings
No, I, I agree. I'm just like, Rory, are you getting your ass handed to you at A, sorry, by the multi-stage funds? Well, I, I went for this business, went from zero to six in a year. Good business. Not an AI business. Good business. Great founders. It started at, you know, thir- 30 on 300, ended up at, like, 50 on 500, with everyone and their dog coming in. And of course, we lost it. And one, we wouldn't bid 500. But I was just like, what a, what a, what a market. Are you getting your ass handed to you by these players in the same way?
- RORory O’Driscoll
I, I think, you know, to some extent, yes. I think it's w- wildly competitive, and I think that's why I like-
- JLJason Lemkin
But it's... S- sorry not to interrupt. Just to understand Harry's story, then I want to hear your part. Is that just because it, it, it's a multi-stage fund that even at 500, it's a bet on a bigger outcome? Is that the story, or is it just froth?
- 1:16:09 – 1:20:39
Which Seed Fund Would You Back Today?
- HSHarry Stebbings
Guys, you can both invest in one seed firm today. Which seed firm do you invest in?
- RORory O’Driscoll
Jason's, of course.
- HSHarry Stebbings
No, no, no, no, Rory. You... Not mine or Jason's. Very kind. I love the way you went to Jason's and not mine. That's very kind of you, Rory. It's okay.
- RORory O’Driscoll
You know, look, we work with lots of great seed firms because we're doing the A. And let me... Harry, uh, there's many things... Let me finish. Let me finish. There's many things I'm prepared to contribute to this podcast. What I am not prepared to contribute to this podcast is putting a gun against my head and blowing up my business model. Just like my children, I love them all equally. I love all those seed firms equally.
- JLJason Lemkin
It's a good answer.
- RORory O’Driscoll
You're not getting me on record on this one, big guy.
- HSHarry Stebbings
Do you think they ca- I'm so... Like, I would, like, happily say, like, Brian Singerman-
- JLJason Lemkin
I don't think anyone would take offense if they didn't make the list, but-
- HSHarry Stebbings
Like Brian, like Brian Singerman's new fund. Brian is one of the best investors, I think, of the last decade, and Roger Ehrenberg from IA is one of the best investors from th- the last decade.
- RORory O’Driscoll
Yeah.
- HSHarry Stebbings
I would do anything to be in both of their firms.
- RORory O’Driscoll
One of them, interestingly, of course, well, Roger, I wonder, is, yes, is a seed investor, but, uh, my, my sense of what Brian is doing is it's actually actively not a seed fund. Just to try and be consistent with the question you asked. He is... I mean, what I understand his pitch is, he's going to do Series B and beyond and do a f- portion of this business fund to funds investing in seed funds. So he probably has a very strong opinion on who the best seed funds are.
- HSHarry Stebbings
Jason, if Rory's not gonna, uh, as he said, delightfully shoot himself in the head or whatever it was, uh, what would yours be?
- JLJason Lemkin
Harry, list- honestly, I, I wanna answer your question, and if, uh, if it was even f- X years ago, I would've... I'd always had an answer, and I would always tell the LPs, right? I'm sure you're asked too, and it's like, it's the great way they get deal flow, right? Who would you recommend, Harry?
- HSHarry Stebbings
Sure.
- JLJason Lemkin
Um, I don't know. I'm, I'm... I just see too many folks, when you squint, they're chasing the deals. When you squint, I've see too many folks, when I actually see the numbers, they're not what I would have expected, right? That I just... I'm sor- I, I am a little, uh, I'm a little hesitant to answer your question because I actually don't feel competent to know. Ironically, I recommended, I, I recommended you in the early days, Harry. I recommended some... Like, I got off the ground when Christoph Janz from Point 9 recommended me. I've-- We've all benefited from that, from that flow, and I've, and I've recommended many managers. But if I was asked today by my anchors, I can't answer, I can't answer the que- And it, maybe it's a, a failing of mine, right? But I can't answer the question because too many things are not what I thought they were from the outside.
- RORory O’Driscoll
I would give the same answer but from a more positive spin, right? In the sense ra- ra- rather than, yeah, knocking them, it's like one of the things we have done is we've looked. Look, you want to partner with seed firms, so you say to yourself, you know, "Who has the deals you value, and is there someone that over-indexes?" About five years ago, we did this exercise. We literally took every seed firm, and we have our internal CRM of deals that we rank as hot or high, in other words, ma- marquee deals that we're really interested in, and we ran it against every seed firm, and the big aha was this. It's not like there's two firms that jump out at you and have most of the great deals you're interested in. It's so distributed, right? And the aha is there's f- you know, we, we had a, we ended up with a Goldilocks list of 50 or so, um, firms. In each case, only, I think the highest one, only 6% of the deals that they were in were things that we thought were interesting in enterprise software. So it's a small number of deals that everyone has that are good, right? And that's just the nature of the seed business. So the genuine answer to you, Harry, is this. Look, you have people you enjoy working with, you have people you just connect with personally, but the objective facts are there's probably 40 or 50 seed firms that we go, "Wow, they're really good. They have their shit together." I mean, and which of them gets into good deals? Hell, who knows? And you just gotta stay on top of it, right? I mean, that's just, that's... I- in many respect, it gets back to, well, this is a scarily efficient, competitive business. And the idea, as Jason said, that 20 years ago it was like, "Oh, those two or three people are great," now you're deluding yourself. There's a couple of hundred type A, wildly driven people competing for, you know, vast amounts of money here. You're not gonna find that you're the only good soccer player on the field.Sorry, Harry. It's not-- It ain't like that anymore. It's who's in the specific deal that you want at the specific time.
- HSHarry Stebbings
I'm gonna ask one final question before we do a quick fire, and that-- we just have to. It's, it's The Cultural Psych, guys. We promised we'd never go into politics, okay?
- RORory O’Driscoll
We don't.
- HSHarry Stebbings
And I'm sticking to that. We, we don't. But there's one I'm gonna ask.
- 1:20:39 – 1:22:55
Coldplay Concert: Astronomer’s Situation
- HSHarry Stebbings
Coldplay concert, Astronomer. Just one question, Rory, before you shit on me. Is Astronomer the company better or worse post what happened? Is all PR good PR?
- RORory O’Driscoll
I think they're worse off in the sense that they have to do a CEO search, which is always tricky and has a one in three chance of failing. So that's a real cult- that, that's a real momentum hit, and I gotta believe internally it doesn't feel great. And I'm gonna even say something here that's... I saw someone else say on Twitter. I'm like-- And even the two people involved and the families of the two people involved, there's been an amount of schadenfreu- It's quite a sad thing, really. There's the... You start with the humor, and then you quickly process to the sad, and then if you're on the board of the company, you process beyond the sad to the, "What a monstrous pain in the ass." I think you'd no choice but to make the change. Actually, t- so now I actually come back, because someone asked me, "If you were on the board, would you let that person go?" And I think the answer I gave reflects on the common question you just asked. I think you had to, not just 'cause of any policy issues, but because as a company you have to move on beyond it. If you don't, yes, you'll get lots of media, but if you, if you'd left the person in place, then every meeting he took for the next year, you know the overlay in that meeting. There would be a subtext. So I think the company, it didn't help him. Yes, it gave him some notoriety, but it's kind of a... it, there's a frictional drag, and the only way they could put it behind them was a CEO replacement, and that's a one in three chance of failure. So net-net, slightly worse off. I remember, I remember when... This is awful. I remember when Tiger Woods had that Go On via Tiger program with Accenture that launched literally the week after his, you know, extramarital affair came out, and there was about a day where they thought should they pull it or not. And then I think everyone went home to their spouse, and their spouse looked at them in the eye and said, "There's not a decision here. You're pulling that ad, dude. Or, or dudette." Right? And it was gone next day. Everyone recognizes personal tragedy. No one wants to be associated. It's just too, it's too shitty to touch. Move on. It's sad. Move on. Let them, let them pick their lives up. Everyone makes a mistake. Go do something else. But company needs to just put it behind quickly
- 1:22:55 – 1:26:32
Kalshi Quick-Fire Round
- RORory O’Driscoll
and clearly.
- HSHarry Stebbings
Okay, we're gonna do our Kalshi quick fire. Uh, Kalshi's the performance marketplace. They do the bets on real-time events. So number one, will the US tariff rate on Canada be at least 35% on August the 1st, 2025? Yes returns you 214. No returns you 144.
- RORory O’Driscoll
Who knows? It's a random number. It depends on what the episode of the reality show requires. 35%? I'm gonna go with no, but it's an uninformed opinion. But then frankly, everyone involved in this issue is uninformed. Why should I be the only one who isn't?
- JLJason Lemkin
I think we're just all at a phase culturally across borders where we're digging in now. Harvard's digging in. Everyone's digging in. So I, I say it's still there.
- RORory O’Driscoll
Interesting. Cool. Good thought process.
- HSHarry Stebbings
Will OpenAI release a web browser this year?
- RORory O’Driscoll
Yes.
- HSHarry Stebbings
Yes only, yes only gets you 125.
- RORory O’Driscoll
I checked.
- HSHarry Stebbings
No gets you-
- RORory O’Driscoll
Yeah, I looked at the, uh... I'm, I'm cutting you off only 'cause yes, I looked at the odds and I'm giving you... I'm actually interrupting you, but I'm the one who told you to read the odds. Yes, I think of course they will. No matter almost... It's hard to imagine not... the, a most ambitious company out there not doing something that, you know, Perplexity's doing, other people are doing. Yeah, my gotta be yes.
- JLJason Lemkin
Well, listen, the internet s-sure seems to think the answer is yes, right? Um, I, I just think that, um, they don't have to rush something here. They c- they can be a, a fast follower. So i-it seems 100% that it's gonna happen. Um, but, uh, this is a math bet, right? I'm, I'll take the no just financially, but I believe it will happen. I, like, I, I... If it was a, if this was a, a gentleman's bet, a 50/50, but I'm gonna, I'm gonna take, go for the money and just say that it, it might be, it might go back in the, uh, in the oven.
- HSHarry Stebbings
I'm with, I'm with Jason. I think GPT-5, I think agent mode, I think shopping productization. I just don't know if it'll be this year. It's August already.
- RORory O’Driscoll
Okay. Good bet.
- HSHarry Stebbings
Final one. Will xAI release a Grok macOS app before end of year?
- RORory O’Driscoll
Do you guys use Grok? Yes. As I said, whenever I want to talk like Harry, I talk to Grok. So I, I genuinely, I do use Grok. I u- I, I test it. Um, uh, you know, we're all a little bit Tw- sad Twitter addicts. We need to get over our addiction, but it's hard. Um, so yeah, I do use Grok as part of that. It's not my go-to, but yeah.
- JLJason Lemkin
Well, first, I think going to last week, I think Grok's wildly underestimated. Um, and I think when Elon says something, he's either upset... And I get upset. I get, I get, I get upset. I even get locked in, it turns out, when I'm coding, when I'm vibecoding. But when he, when he's not upset and he says something, just like Sam Altman, you should listen, right? So when a couple weeks ago he said, "You don't need to use Claude Code, just take all your code and stick it in Grok," this is what we do, and we find all our bugs and push to production. He's saying this is developer ready.
- RORory O’Driscoll
Interesting. Yeah.
- JLJason Lemkin
Okay? That's what he's saying to the market, okay? Now, have they built, um, an IDE? Have they built out all the pieces yet? No. So that was kind... The, no one, no one on the thread I saw said, "Hey, Grok, the c- Grok is not good enough for that." They just said, you know, that's, "We just don't want to throw all our code into a q- into a, a context window." But that says to me, this is real on the list. And so y- having a, a, a macOS app is ch- it's like the easy version of that. Like, you gotta do that, right? You gotta have a desktop app. So I'm gonna, uh, given that the odds are unknown, I, I'm, I'll, I'll put a grand on this one.
- HSHarry Stebbings
Well done, boys. We covered a lot of ground in that. Uh, I, I so appreciate it. Jason, thank you for putting your neck on the line with, with some of that, you know, stuff.
- RORory O’Driscoll
Yeah, it was awesome. I mean, genuinely, I would thank you very much for-
Episode duration: 1:26:43
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