Instinct Worth 30BN? | Microsoft Cuts 27,000 Jobs While Meta Taps Equity Markets for $95B CapEx

1. 0:00 – 0:49

   Intro

   1. JLJason Lemkin0:00

      As crazy as this may sound, I think folks are almost underestimating Anthropic.

   2. HSHarry Stebbings0:03

      [upbeat music] There is one story that matters more than any other this week. Anthropic, they finally dropped their S1. This show, we break down what you need to know, what you don't need to know, the questions that really come from it, and what we can expect when it comes to day one, and will that be the mega pop of all pops? This and so much more in the show today with Jason and Rory.

   3. JLJason Lemkin0:26

      I think that the Chinese Open-Weight Models are pretty much over in the US. How much money is there for instincts of the world? It feels infinite now. And I think we should put 20% of the fund into OpenAI at the $1.25 billion round. Ready to go? [upbeat music]

2. 0:49 – 2:18

   Anthropic Files S1

   1. HSHarry Stebbings0:49

      Boys, we are back. It is my favorite time of the week, and we have some big news to start with. Anthropic files its S1. It's the moment that we've been waiting for, 16.3 billion of first-half revenue. I just wanna hand over to you, Rory, 'cause whatever metric I give, you're gonna say it was the wrong one to cite.

   2. RORory O’Driscoll1:09

      No, I'm not. [chuckles]

   3. HSHarry Stebbings1:10

      So, so, so what, so which ones were you drawn to, and what is the takeaways for us from this?

   4. RORory O’Driscoll1:16

      It was a great S1. And, you know, um, all, all, frankly, all the haters and the worriers, at least for now, have to go pound sand. I mean, the burden of proof is most definitely, you know, on the side of the naysayers. In other words, the, th- these guys-- the S1 was great on almost every dimension. And, you know, it, it, it'll be widely well-received. I mean, it was a... You know, it addressed a... I mean, there's some pending open questions still. They didn't give the Q3 revenue number. But, you know, it was great on cus- I mean, on... You know, the overall revenue numbers are known, but they were amazing. It was great, better than expected on margins, op income, even op income after stock-based comp. It was great on customer concentration. It was great on compute efficiency. It was stunningly great on cash and cash balance sheet. You know, I mean, it's just on every dimension, um, it looked really good. I mean, you have to struggle to find questions. And there are questions, and we can come to those in a second. But it re- You know, it was, it was a, it was a really top-tier performance.

3. 2:18 – 4:49

   Why Anthropic May Still Be Underestimated

   1. JLJason Lemkin2:18

      You know, I think, I think, um, as crazy as this may sound, I think folks are almost underestimating Anthropic because, um, five years to IPO versus 24 for SpaceX. It's not just something we've never seen before. We'll see hints of it with OpenAI's IPO, right? It might be worse, it might be better. Probably slightly worse, right? Based on what we know, right? Less capital efficient, slightly slower. But J- JFC, to get here in five years from, uh, from, um, from a spite startup, it, it's just, uh, it's, it's, it's, it's beyond unprecedented. Time value to liquidity still matters. I mean, it's... Markups are fun, man. [chuckles] But getting out of the greatest IPO in our lifetimes in less than six years to distributions, I mean, goodness gracious. Why? I mean, you c- you... I, I know Rory will, will roast me for it, but you gotta think, why would I do anything else? Why would I wait, like-

   2. RORory O’Driscoll3:07

      No, uh, uh, uh-

   3. JLJason Lemkin3:07

      These C deals are, like, 18 years to full distributions, right? Um, why-- I could get to six years in full liquidity Anthropic? A- a- and, uh, uh, why, why would I waste my time with anything that's 10 to 12 years to IPO? Um, but I saw... But, but, you know, it was just one deal in the fund, another two years to distribute, you know. Um, you know, I... It, it just... Versus five years. [chuckles]

   4. RORory O’Driscoll3:32

      I, no, I won't roast you, Jason. I mean, I think that, you know, I saw a tweet that basically said the same thing, is, you know, every founder and every investor is looking, "Why am I bothering with anything else?" You know, right? These are such stunning numbers in terms of size, scale, and speed. And you're right. I mean, it's going to dominate the results for e- you know, for a long time to come. And everything else just seems a lot more work for a lot less return compared to it. And, you know, all credit to the, the founding team, all credit to the investors who got in early. It's just a great way to make money. Things going up into the right faster than anything else in human history for five years to add up to a trillion dollars. That's, that's as good to get in venture.

   5. JLJason Lemkin4:09

      Yeah, it was funny watching Byron Deeter from Bessemer on, uh, on, on the TV show saying, "This is the greatest investment in the history of Bessemer." I think Bessemer was founded in the 19th century or something like that. I don't know when the fund was, right?

   6. RORory O’Driscoll4:20

      Yeah.

   7. JLJason Lemkin4:20

      And their greatest investment and their largest checks, right? So to see that all happen now after 100 years, I think that's the end of... That's, that's the whole story, right? I mean, greatest, greatest investment, biggest check, fastest time to, to liquidity. Why are we doing anything else?

   8. HSHarry Stebbings4:36

      Rory, you said about questions there. There are always cynics in the audience. There are always people throwing peanuts. If you were to, to present the alternate view of, "Oh, here was a striking number or two," is there any that-

4. 4:49 – 7:14

   The Scariest Metric in Anthropic’s S1

   1. RORory O’Driscoll4:49

      No, the interesting one, you know, 80% of their revenue comes from models that are less than six months old, right? And then separately, they... You'll note they didn't give you a gross margin, an actual gross margin calculation. They just didn't lay it out that way, 'cause what... You can do that in accounting. You can just put all the compute costs into one place. And then they kinda give a, a, a footnote breakout that kinda 70, 80% of the compute costs are for training, not for inference. In other words, serve-- Once you've built... The models are wildly expensive to build. Once you build them, they're fairly wildly profitable to serve, and you only get to serve them for six months, and then you gotta invent another one. It's this kind of n- It's not like-- It's so not like software, where you're on this kinda, you know, you build something and maybe you can sell it for 10, 15 years. In this case, you invent something, you get most of the revenue from it in six to 12 months, and then you have to continue to invent masses of money to build the next one. And, you know, and then your question is, "So what do you make of that?" You know, 'cause the funny thing is that that's the facts, and you could look at it one way and say, "Oh my God, that's totally scary. If you miss even once, you're screwed." And on the other hand, you can say to yourself, "That might actually be great for Anthropic because they're best in the position to build new stuff, and they wanna build new stuff." And they said that very clearly, "We want to build new stuff," right? And- If all the time... You know, very few people are gonna be able to compete with this, right? Very few people-- Like, if the next turn of the crank on the model, I mean, they spent eight billion on compute, um, you know, year to date, June 26, and they're gonna spend, I don't know, 16 billion next year. There's very few people who can write a $10, $12 billion compute check. So they can continue to invent these new models, get masses of revenue from them, and then, you know, yeah, maybe at the back end, other folks have it. So even though that statistic was kinda weird and scary, "Oh, my God, the shelf life of your amazing product is six months," it's actually, I would argue, a, an advantage if you're the kind of leader and you're willing to just be aggressive on it, right? But it does point to the, the... So therefore, what looked like a negative isn't. It just points to the incredibly dynamic and scary nature of the game, right? This is a game where you have to spend, like, billions and billions and billions of dollars just to play.

   2. JLJason Lemkin7:01

      Yeah, that was Elon's point, that most of these Neo Labs are just gonna die after this, right? They just can't... It's not possible to raise the capital to survive, right? Um, I thought there was one bad metric that wasn't in the S1. I thought the worst metric wasn't in the S1.

   3. RORory O’Driscoll7:13

      Go

5. 7:14 – 8:04

   Is AI Debt Financing Starting to Break?

   1. RORory O’Driscoll7:14

      for it.

   2. JLJason Lemkin7:14

      The worst metric was that Broadcom had to bail out this, this debt issue so that Anthropic could buy its chips, that the market was saying, "It doesn't get mu- It doesn't get any better than Anthropic. We just read the S1, right? It doesn't get any better." But they weren't able to get this debt, um, uh, for this semi-circular deal with Broadcom, and Broadcom had to come in and guarantee most of it, and they had to pay even higher interest rates than expected. It's not that it's, it's terrible, but it certainly suggests that, that, that going forward fundraising, even for Anthropic and OPI, and even if it's somewhat indirect, is it's, it's getting harder, right? And, and that combined with the fact that it's getting harder and harder for the banks to lay off and sell the Neo Lab debt, it is... I think that's the real, the only one to be nervous about, that, that, that, that the debt isn't, is exhaustible

6. 8:04 – 9:54

   Why Equity Markets Could Keep the AI Spending Boom Alive

   1. JLJason Lemkin8:04

      here.

   2. RORory O’Driscoll8:04

      Pushing back on that, because I do hear you. I th- But I, because I would actually... Uh, I think the fact of the, I think the amount of debt the banks are digesting has hit the limit. But I actually think the interesting thing about this week and about the last few weeks has been we're, we're equitizing the issue. In other words, it was all debt. But if you look at it, Anthropic's about to issue plus or minus a billion, $100 billion of stock. You know, Meta issued $70 billion of stock. Earlier this year, um, Google issued about $80 billion of stock. Obviously, SpaceX did their IPO, right? What you're seeing is that there are a class of companies that has, that, A, have cheap cost of capital, and, B, are willing to take equity dilution to make it all happen, right? So my aha from that is, at the macro level, it's just gonna keep on happening, right? This trend is not stopping, and the people who wanna have it happen are willing to take equity dilution to keep going, so the spend will be there. You're right, Jason. I mean, Elon's doing his thing of, you know, cutting off the oxygen from the, from the other people. It's like, "Oh, you people who just have debt are screwed. Uh, you're gonna die. I, on the other hand, have the world's, one of the world's most inflated market caps, so I can issue equity and, you know, get access to all the chips I want." So it was very much a kicking someone else while they're down move, which is very vintage Elon, and you gotta respect.

   3. JLJason Lemkin9:25

      But they'll have, like, 200 million of total cash on the balance sheet or something like that after this, after this. Anthropic will. So that is, that's a lot of cash. [laughs]

   4. RORory O’Driscoll9:33

      I mean, let's be precise. I think it is either the first or second largest pile of cash in all corporate America, which is astonishing.

   5. JLJason Lemkin9:38

      I, I read it was the second, but it doesn't matter which one it is, right?

   6. RORory O’Driscoll9:41

      Yeah. This is a company going public. I mean, this is a company going public where it already has more money than every other company in America, bar one, at 110 billion on the balance sheet today. I mean, they've, they've done a masterful job of raising 130 and only spending 10 or 11.

7. 9:54 – 11:17

   Will Anthropic Have a Monster IPO?

   1. RORory O’Driscoll9:54

      Masterful.

   2. HSHarry Stebbings9:55

      Do we think it's gonna have an amazing reception?

   3. RORory O’Driscoll9:57

      I do. I mean, I'm not sure. I mean, hell, I don't know, you know? Um-

   4. HSHarry Stebbings10:01

      Oh, we're in the predictions game, Rory. Go for it.

   5. RORory O’Driscoll10:03

      I know. I, I know.

   6. HSHarry Stebbings10:04

      Go for it.

   7. RORory O’Driscoll10:05

      I know. I think, I, I think it should. I mean, I think it's an amazing company. You just can't argue with it.

   8. JLJason Lemkin10:10

      I- I mean, doesn't it, uh, uh, like, a SpaceX almost instantly have to go into the S&P 500?

   9. RORory O’Driscoll10:15

      Not the S&P 500. If you're listing on Nasdaq, which I think it is, I didn't check, you go into the QQQ index, but the S&P index takes pro- there's a profitability metric or something like that, so it takes some time. But yes, they will be in some index funds pretty immediately. But I don't think this is gonna need that lift in the same way arguably SpaceX did. I think this is gonna be just a stock people wanna own.

   10. JLJason Lemkin10:36

       But even just getting indexed into everything in the Na- it, it is a, it's just a retail boost, right? It's just, it's hard to bet against. They're not gonna miss a quarter. Like, I mean, it's in the, with the, whether it's 900%, uh, I mean, uh, with- within a range, like I, I... It's not that I don't think they could disappoint, right? But within the next two quarters, um, with, you know... And I th- you know, the, I think we have to be careful to use NRR as a, as a metric here, but it's still true, right? With 900% NRR, even if in reality it's more like 300 to 400% because it includes like pilots and trials, um, uh, I just think that plus the brand, plus being in the Nasdaq-100, um, it, it, it'll probably have a good retail run, plus SpaceX. I, I, you know,

8. 11:17 – 13:03

   What OpenAI Should Learn From Anthropic’s S1

   1. JLJason Lemkin11:17

      why would you bet against it?

   2. HSHarry Stebbings11:18

      If it's Sam Altman reading this, thinking about Q1 going out himself, do you think he takes away anything from it, changes anything as a result of it?

   3. RORory O’Driscoll11:27

      You can't change the past. I mean, hard... I think you, I probably think if you were the CEO of OpenAI, you would look at this and go, decisions that you made, you now regret because you've let these guys get away from you and do better. So I think there's pro- there's, if there, if there's any self-reflection, there should be a ton of that going on. Um, nothing you can do about it. You just gotta get your business together and converge and get out yourself. And in the meantime, obviously compete aggressively on price to try and screw up their Q3.

   4. HSHarry Stebbings12:00

      [laughs]

   5. JLJason Lemkin12:01

      I mean, yeah, I mean, n- never has such a successful startup maimed itself so poorly that I can think of as OpenAI. I mean, it would've killed almost any other startup, what they went through, right? With the CEO drama, all the other nonprofit-to-profit drama, um, despite Startup doing better than them, um, they basically let Anthropic control part of the market for almost a year, which is like five years or 10 years in AI time, right? Uh, I mean, um, so it's just, it, you know, everyone... I mean, there is, there is a certain amount of parity with Astra and the Open Weights models today, the best, but Anthropic owned the o- fucking owned the playbook for, I mean, the, the chessboard for almost 12 months. There was no point in using any other coding solution, and coding is the killer app, as Rory said 100 times, and the math is true. They literally, letting Dario walk out the door rather than build it in-house, and then firing the CEO and bringing him back over the night of long knives. I mean, my God, [laughs] I mean, it's all gonna be okay. Uh, but talk about own o- talk about own goals, right? I mean, every startup's full of them. This is just, uh, this is, uh, these are some epic ones.

9. 13:03 – 16:33

   Microsoft Offers Buyouts to 27% of Employees

   1. JLJason Lemkin13:03

      [laughs]

   2. HSHarry Stebbings13:04

      I, I had the joy of having Satya Nadella on 20VC, uh, earlier this week. Great show. It was a fantastic guest to have on. What an honor. Uh, Microsoft had some pretty big news that they were offering voluntary buyouts to 60,000 of its 223,000 employee base. It's an enormous amount of the employee base to get this offer, roughly 27%. Jason, you've spoken before quite vociferously about this topic. What are your thoughts?

   3. JLJason Lemkin13:32

      Well, look, uh, first of all, it, um... I mean, Rory, Rory may have observed more, more of these than I have. Maybe he hasn't. Hope he hasn't. But it's not like all 27% are gonna take it, right? And they've already been through a... I already think they already went through a 10% layoff round, right? So they've done, it's, it's, it's a, some sort of interesting, um, uh, game theory here, where you wanna offer it to everybody you don't wanna have, right? And then you gotta figure out what the yield's gonna be, right? It, but it's brutal because what it, it says one thing, no matter what the people are gonna say on LinkedIn, these 27%, we don't want them.

   4. RORory O’Driscoll14:03

      Yeah. I, I agree. I, that's exactly my-

   5. JLJason Lemkin14:05

      Whether 7% take it or two point, we don't wa- And you, it is, there is no... This is a worse scarlet letter than a layoff, than a pure layoff. At least a layoff you can kind of wave your hands. This is 27% of the country they said do not meet our minimum, but we, we don't want you. And I bet it could've been higher, but, but [laughs] I bet they got this done in a week. It's so, it's so damning that Microsoft doesn't want 27% of its people. That, that is the age of AI. They don't want them.

   6. HSHarry Stebbings14:28

      Why would you do that if you're Microsoft, though? What a culture clear. What, so you stay and then know that you're not wanted? Isn't that awful? Like-

   7. JLJason Lemkin14:35

      I think we're trying, I want to get Rory's... I think we're, you're trying to do this in a humane way, and I think what we learned is there's no... You know, when, when layoffs started, like, in late '22 or so, right? W- everyone fri- uh, everyone was fried for doing them on Slack or by email. "Oh, it's so inhumane. Go meet with people," right? Everyone was fr- Like, it's not that more h- h- humane to meet p- Have you seen office space? Like, it's not more humane to meet with someone in HR and get fired. And then they're like, "Don't do it over the holidays." So they fired people on January 1st. That was no better. There's just... So this is a way to, like, make it more humane. It's, it's great for folks that were thinking of leaving anyway. It's great for them, right? It is great for the folks that are at, at the t- either at the tail end of their career or they want to check out of the workforce. And that's why this is so hard to do from a game theory perspective, because you might get all the, the, the, the, the folks that were gonna leave anyway, right? But Microsoft has so much cash, who cares? Um, but it's an attempt to be humane, and I just, I've been on the other si- It's been a long time since I've been on the other side of a layoff. It's just hard to, it's hard. You c- try to be a good person, but you can't. It's hard to make it humane. It sucks no matter how you do it, and I think this is the suckiest way, 'cause 27% of the company has just been issued a scarlet letter. I think this is the le- in attempting to be humane, this is the least humane way to do it. Just fire another 9% in one day, do it on Teams, and move on.

   8. RORory O’Driscoll15:51

      It is rough. No, I, I think you're right. I, I, I, I processed the same thing. You've been told to go, but you decide to stay. The only winners are, as you say, the people who've got another job lined up and now have a call option on a severance package. But yeah, no, it is interesting they think it, they can do without, um, you know, if their take rate is i- 10,000 or 20,000 people. It's, it's clear, it's interesting they can do it with, you know, they have around 200,000 employees, so they think they can do without another 10% or 15%, which, you know, possibly is true. I mean, you wonder how much of it will be AI efficiency, how much of it is just you never needed them. It would be fun to find out. But yeah, no, it's these large companies, as the depreciation bill for the CapEx comes due, you're gonna have to find it somewhere else,

10. 16:33 – 17:43

    Why AI CapEx Could Drive Even More Layoffs in 2027

    1. RORory O’Driscoll16:33

       and we've talked about this. You know, we, uh, frankly, earnings this year, 2026, are in that golden period where the people who are selling the semiconductors are booking the gains, but the people who are buying the CapEx aren't booking the depreciation. So everybody's winning, but I think as you start to look to '27, that depreciation's gonna start hitting in Microsoft and Google and Meta and places like that. And, you know, to keep the operating income up, you're gonna be really pushing on headcount. And this is what, this is when the bill for AI comes due, and this is how it'll be paid.

    2. JLJason Lemkin17:06

       It's the brutal... In a sense it's, it's like it, it, it may feed the anti-AI frenzy because it, it, it, it, it's the direct narrative of the story, right? We're gonna d- to pay for all this in- infra, to pay for all these GPUs and infra and inference, we gotta get rid of the people.

    3. HSHarry Stebbings17:21

       And so you think 2027 we're gonna see that really crystallize even more?

    4. RORory O’Driscoll17:24

       Intuitively, as time goes by. You know, everyone's trying to call when the hyperscalers start kind of going down the other side of this. So yes, as, as the depreciation bill mounts up, like so far, even though free cash flow's been kind of going the wrong way, everyone's operating margins have been, you know, operating income has been going up, and yes, that'll get harder now. So yes, this will be the problem. This will be the

11. 17:43 – 19:27

    Cloudflare’s 20% Layoff: The New Playbook for CEOs?

    1. RORory O’Driscoll17:43

       issue.

    2. JLJason Lemkin17:43

       I'm just surprised that the, the Cloudflare layoffs aren't more discussed, because I think it's case study 101 for CEO MBA, right? Every, every Cloudflare Matthew comes in, epic year for Cloudflare. M- every quarter is growing faster, but on May 7th, they lay off 20% of the folks. Bam, we don't need it. We're too big. We don't need these folks. We are better off with 80% of the people than we were before, and it keeps accelerating. Like, every CEO that's arguing about this should just look at... I mean, you can say at Microsoft, some of it is the old c- company and it's, um, and we, we've got to pay for the, for, for, for, for, for all the AI, but Cloudflare is just like, "This is just holding us back 20%." It wasn't 8%, it was just, boom, we're just gonna do 20, and no downside to the business that, that is apparent yet. So I think it's just layoffs 3.0 or 2.0 is just gonna happen, and it's, and part of it's to pay for the infrastructure and part of it is just enough already. Enough of the performative AI, enough of this, and we just, we just... Because it's just so s- you know, think about every board meeting you've been in over the last week, or if you've been to every... No matter how well you're doing, it's just stressful. Ev- everything is moving even faster than the last board meeting. There's even more competition in every space. We just can't, we just can't carry folks any longer. We can't or we're gonna die. We're gonna be killed by that new company Harry just funded or Rory just funded. There's no, so there's no stability. You know, all, the thing, the tough part about the Microsofts and the Salesforces and the SAPs, and every SaaS company back in the day is we, we're all predicated we would get to a level, a plane of stability at some point, 100, 200, 300, 400, 500 million of, of, of AR where we could kind of breathe. There's no planes of stability at all. Maybe, maybe north of 10 or 20 or 40 billion, they just don't exist. So av- the, I just think layoffs are just gonna accelerate because we have no

12. 19:27 – 21:59

    Meta Taps Equity Markets for a $95BN CapEx Spending Spree

    1. JLJason Lemkin19:27

       choice.

    2. HSHarry Stebbings19:27

       Speaking of having no choice and where cash comes from, Meta goes to the equity markets. Zuck needs seven- $95 billion, uh, and this week on Monday, it launched a raise of up to 95 billion, 35 common, uh, and preferred, 60 at the market program. Um, and the thing to take from that in combination with the fact that chips lose 200 billion in a day and public markets in blood bath as neo clouds shit the bed.

    3. RORory O’Driscoll19:59

       I, I, I, I, I, no. I, the short answer, Harry, is no. I think there are two separate points that you merged there, and I'm just dealing with each of them in succession. I mean, I think the Meta thing, yeah, which is what we talked about, they, this was the first quarter where their actual CapEx dipped below their free cash flow, right? So they were free cash flow negative, right? 'Cause it, 'cause remember, their core business is one of the best businesses on the planet. It spits out money. It's awesome, right? So they have, yeah, 33 billion a year cash, of a quarter of cash flow, right? It's a great, great, great, great, great business. So, um, this is the first quarter they went negative, so they just did some equity. So that's that, and it's totally s- unrelated. The chip thing, first of all, yeah, I mean, chips moved last week, but let's be frank, since the Anthropic, and I don't know where they'll be when this show comes out, but since the Anthropic S1 hit, chips have been bouncing up because the consensus is that looks good, and, you know, it, the, the, one thing that the S1 was good for was chips because so those stocks are actually up. In fact, DRAM today is way up, which is the, you know, the definitive, the one I keep an eye on, just the list of the, um... It's the index of memory chips. And, and yeah, that's why g- Korea, Korea's up 10% today, Hi- SK Hynix, right? Bec- and this is Tuesday, by the way. So I actually think the news is if you're in the semiconductor CapEx business, it's been a good back half of the way. It was scary two weeks ago with CoreWeave, but you know, CoreWeave is a, I don't know, a $20, $30 billion company, and Anthropic's a $2 trillion company that has $200 billion when this deal closes, and they're gonna spend it all on chips. So chip be happy.

    4. JLJason Lemkin21:31

       The only slight counterpoint, not to get, uh, off chat, it, it's, it's all, it's all green, green, green, but it is just, it, I know it's a different ecosystem and I know you, it is apples and oranges, but the Star 15 China, which is their version of, is down 40% this year. So we, we do have interesting markets that are out of sync here for AI, right? Um, 'cause China is just as, is gang- gangbusters in its own way, but it is interesting that that one's down 40. Uh, different market, weird liquidity, um, while, while ours

13. 21:59 – 24:48

    Are Chinese Open-Weight Models Finished in the US?

    1. JLJason Lemkin21:59

       is on fire.

    2. HSHarry Stebbings22:00

       Speaking of China being on fire, DeepSeek raises about $15 billion, largest ever private Chinese round, by the way. Um, largest investors, battery maker, I don't know how to pronounce it, Catl and Tencent. Anything of note here?

    3. JLJason Lemkin22:15

       I think that, um, the, the Chinese Open-Weight Models are pretty much over in the US. I think it's the beginning of the end. I, I'm not sure. Um, DeepSeek, it's great that it raised this, but it's beginning to be banned across all federal agencies. And there was a horrific thing that happened this week that was over-sensationalized, which was this Cohere Qwen thing. I don't know if you guys saw it. It's pretty terrible, but it's terrible on a number of... but it's not as bad as it looks. Um-

    4. RORory O’Driscoll22:41

       Explain.

    5. HSHarry Stebbings22:41

       What, what, what happened, Jason, for people who don't know?

    6. JLJason Lemkin22:44

       Well, listen, Cohere is a f- now a fourth-tier, uh, LLM, right? Fourth-tier player that has only sovereignty on its side as near as I can tell. Harry, you, welcome to correct me or Rory, right? But, uh, it has sovereignty, and sovereignty is a, if you talk to anyone at the enterprise, it- it's in the top five list. And so they found, they, they, they found that over, that Qwen, Alibaba's existing Qwen model, was calling to Alibaba servers both in China and in Singapore, pinging them and uploading data to them when it said it wasn't, when it said it wasn't doing that on the internet. Um, and it's everybody's nightmare in the US that our data is being uploaded to China. Now, the, the, the, I think Cohere was more c- careful about how they did it, even though they're, they're talking their own game. You can't really trust anybody in AI. They're all talking their own game, um, because this is good for, good for them. I don't, I, there's no evidence this is a backdoor like social media thought, like this is built in. This is probably a training mistake in s- at some level, but it doesn't matter. It doesn't matter if one out of 100,000 times your da- your confidential data is being uploaded to Chinese and Alibaba servers in Asia, in China or in Singapore without your knowledge and without your consent when it's been directed not to. What CIO or CISO is gonna approve this model? I, I can't imagine anyone would, and if this keeps... And everything, this is it, you know, it, it's just, it's adjunct to, to Black October and all these cybersecurity issues. This is... And if this happens multiple more times, and Alibaba said nothing, you just, just, you just lose your job if you use these models. You're just gonna lose your job. You're just gonna lose your job. So it's pretty crazy. Um, and it could, it could, could have been much, much worse. Uh, it could have been much worse. So I... This got some press. I'm surprised it didn't even get more. It might be subtle, but, um, again, this is every- everyone's nightmare using these open-weight models based in China, is that your data goes to China, and it did.

14. 24:48 – 33:14

    What Happens to Modal, Fireworks and OpenRouter if Chinese Models Decline?

    1. HSHarry Stebbings24:48

       So what happens to the stack when the Chinese open source market shrinks? What happens to the gateway providers, the routers, you know, your OpenRouters of the world? What happens to the inference providers that thrive in large part because of a variety of models, often Chinese, your Modals, your Fireworks, your Base 10s? What happens to the stack if that Chinese model landscape shrinks?

    2. JLJason Lemkin25:12

       Well, what goes... As, as Dev said when he was on the show, what goes up that quickly with developers can go down that quickly, will change in a week.

    3. RORory O’Driscoll25:19

       There's going to be, there's some US open source options, right? The question is, given what we've seen about the expense of building a, you know, the compute expense that it's taken Anthropic to build their model and the fact that 75% of that compute expense actually goes to, um, building, you know, training a model, it'll be, it, it, it will be interesting to see how advanced a model a US company like NVIDIA can build and make available on an open source basis, but s- 'cause someone has to... If someone doesn't do it, then all you have is the closed source providers, and obviously their economic leverage goes way up, and you should buy even more Anthropic in the S1, in the IPO, right? Um-

    4. JLJason Lemkin25:57

       I, I think it's bullish for Anthropic that this happened.

    5. RORory O’Driscoll25:59

       Of course it is.

    6. JLJason Lemkin25:59

       I agree it's bullish.

    7. RORory O’Driscoll25:59

       Absolutely. No.

    8. JLJason Lemkin26:01

       And, uh, I just, I just, I, I, I think you'll know the moment Elon's able to get Cursor off, uh, these models is, is, is, it's the, it's the tipping point. If he could, he would. He just can't yet.

    9. HSHarry Stebbings26:12

       Why?

    10. JLJason Lemkin26:13

        Because Grok isn't good enough.

    11. RORory O’Driscoll26:15

        Yes.

    12. JLJason Lemkin26:15

        And he already kicked OpenAI out, partially out, right? But he can't, he can't yet because he, you know, he's got this, this bet has to work. But the minute it can, right... And, and he said when he bought Cursor, part of the reason was he wanted that team's DNA to make Grok more competitive, right? So there's multiple benefits here, right? But there's, there's some deep irony that a $60 billion, uh, core a- acquisitions running on China open source models primarily. It's, it's not going to last, right? I mean, again, Salesforce forced Fin to rip out theirs bef- before the acquisition closed, but Salesforce can tolerate a, a little bit more in Fin than, uh, Cursor can because Cursor's got a comp- it's in the most competitive space there is, right? Um, but as soon as he can rip it out, he's, he's gonna rip it out, right? It just, it's not... It can't run on Kimmy forever. It's just, it just doesn't, uh, this is, this is [laughs] this is not, it doesn't make any sense if you think about it. It's a temporary, it's-

    13. HSHarry Stebbings27:05

        But is this not just, like, highly illogical? If you, if you download and you run it locally, the security risks are limited to none. I understand that CIOs are CIOs-

    14. JLJason Lemkin27:14

        How is it li- limited to none when it's dialing China and uploading your data? And what if in s- instead of a, a 404 or whatever it was, there was a prompt injection sitting there? Very easy to do, and that prompt injection just uploaded your data. People, this has been here for several iterations of the model.

    15. RORory O’Driscoll27:28

        Yeah, no, I think people... I think the question you wrestle with, Harry, is what can you know, h- how much can you know with 100% certainty as to what the model's doing, right? You know, and then obviously s- separate from what the model does, you can try and to some extent block it, sandbox it from ex- you know, to prevent it doing that. But there's a... It's like having a re- you know, a recalcitrant and difficult employee who's actively trying to subvert you. Once y- that happens, your head hurts, right? You know, if, if, if, if you had an intern and you knew that part of their g- you know, that there was a risk that they would try and actively leak your guest list and your shows to your dreaded podcast competitor, you know, y- y- it would just get in your head. But it gets to this whole question of what can you know about what the model is doing? And if you read the S1 for Anthropic again, one of the risks they say is basically the models will lie to you. The models will tell you they're doing sh- not doing shit and they're doing it. So, you know, you get into this thing, what can you really know? And once you get to that point, it's really hard to... You do worry a lot about a Chinese-sourced open source model. So there will be that pushback, I think. I mean-

    16. JLJason Lemkin28:30

        Yeah, Quen- quen- Qwen lied. It says, "I'll call no tools." And, and Claude will lie and, and, and Astra will lie too, right? It said, "I'll call no tools." And what did it do? It, it called servers in Beijing and in Singapore and uploaded data. It said, "I won't do it." So you really have to go deep in these open weights and really test it, and depending on how you test it, like nominally what happened with Cohere only happened one in 100,000 calls. So a bunch of folks tested it a few times and they sort of found this issue a couple months ago, but you had to run it at scale. But a- at Sastre, we run 40,000 API calls a day. It doesn't g- take very long to get to 100,000. If you're GE or whoever in the Fortune 500, you're running millions and millions a day. That could be every hour, every 10 minutes it's uploading data. And again, this doesn't appear to be even, um, malicious per se. This appears to be a training error in a sense, right? But who cares? Like, if you're a for- if you're a CISO, who cares if it's a training error, uh, or if it's a spy, or even worse, if it's a training error and some other actor exploits it, which is the job of all of our intelligence services to exploit these things, right? To have pagers blow up. Um, so I, I don't believe Alibaba itself. It doesn't look like the engineers did it as an exploit, but the government could take it over and force them to. There's just... It's... Why do you want to have this meeting? Let's just use Haiku 5.5. It's pretty good. Guys, your budget this month's five million, and just, I just w- in Throp- I just, I, Anthro- and Anthropic, if you, the other thing if you look, Anthropic is, it's on the GSA list or whatever it's called again. It's back in the government's good graces. It's across all the GSAs with a 40% discount. That means, you know, a couple months ago they were persona non grata. Now every government agency can use it at, with a 40% discount and it's already pre-listed Why would you use, why would you use Kimi? Plus, I also think, and again, listen, these are great companies. I also think the fact that you have to pay Kimi, uh, what is it, 30% of your gross, uh, of your revenue to use it at scale for the inference providers, there's just a lot of complexity here. It may not be worth it at some level. It may not- the juice may not be worth the squeeze for many people.

    17. HSHarry Stebbings30:29

        I'm just trying to understand, though, last week we said that Modal at 15.7, "Oh my God, yes, you buy," and then you're saying, "No, no, no, Chinese open source is not, is gonna decline significantly. It's great for Anthropic and OpenAI." That is inherently bad for Modal. I'm just trying to-

    18. JLJason Lemkin30:48

        Yeah, it's bad for Fireworks, Modal.

    19. HSHarry Stebbings30:49

        Yeah, so I'm just-

    20. JLJason Lemkin30:50

        I don't know how bad it is for OpenRouter, I'm just not sure, right?

    21. HSHarry Stebbings30:53

        But I'm just trying to understand-

    22. JLJason Lemkin30:53

        'Cause it has limited use cases.

    23. RORory O’Driscoll30:54

        No, you, you, you, you make a fair point, and I, I didn't participate in the investment committee 'cause I don't. But, um, but I think to be fair, Jason, the, you know, the assumption is that there, uh, I mean, it, that there is demand for an open weight model, which is w- obviously the demand that inference providers primarily meet because... And you just gotta believe that there's a bunch more altern- that there will be some US alternatives. There will, and there also will be people for whom China's okay, and there will be people for whom they want, you know, the poolside/Nvidia one, right? And provided what, provided something exists in the US, that business is fine, and, you know, I, I do agree with you. I think you, it's not as clear a run as, you know, you have when you own your own close, you know, close s-source frontier model. But there is a role for inference provision just because there's just so much, you know, raw demand for an alternative other than the frontier models.

    24. HSHarry Stebbings31:49

        Mm.

    25. JLJason Lemkin31:50

        You know, to, to answer the que- I think Harry's got a good point. I think both are true. I think a while ago when, uh, Rory brought up that there probably won't be another deal like Manus, right? Which was a direct investment. I mean, I'm paraphrasing you, right? But after that one got unwound, no one wants to do that deal again, right? The sort of direct investment in an agent startup. Th- this isn't, uh, investing in a US-based folks running op- open weights but not open source models is not the same as Manus. But there is risk, and I think if 24 months ago, uh, most VCs would not wanna take that risk because it's a clear risk. Like you, it, you don't have to fast-forward to today with the Cohere Qwen issue to know it's a risk. It's just the reason on, on the IC thing, the growth is so phenomenal that we're, we're taking risks today that you wouldn't take if we didn't see growth that was jaw-dropping, and that's the job of venture today. And it's okay if, if it blows up. It's okay if, if Fireworks or whatever goes to zero in our portfolio at IC because we have other investments. That's the job. And we're taking risk. We wouldn't take this risk if it was a triple, triple, double, double. But it's not a triple, triple, double, double, right? But it doesn't mean that, uh, it doesn't mean that the risk level didn't just go up in the last week and, and, uh, between, you know, a, a lot. And these DeepSeek being blocked by the US government and this whole Qwen thing and dialing home and, and, uh, and, and this hype and, and, and Anthropic being, uh, on the GSA

15. 33:14 – 35:03

    Could OpenRouter’s Boom Be Just a Moment in Time?

    1. JLJason Lemkin33:14

       schedule, these are negatives. I think what we may look back is, and I still w- I still believe in the IC, we may, uh, this is just my sense, I think there's a 56.3% chance we look back on OpenRouter and this was just a moment in time. It was a moment in time, going back to earlier in the show, when OpenAI stumbled, so Anthropic was the only alternative for state-of-the-art coding, and then the, the Chinese Open-Weight Models got really good at coding. That's what, that's what Elon said. Like, it's really good. But, and he s- even said they'll catch up to Fable by the start of next year. So there was a gap that these models filled, and now OpenAI and others are gonna fill this gap, and the low-cost models are gonna fill the gap. Like, they, they each now have a much cheaper model that's much better, and we may see these Open-Weight Models go from 60-something percent of OpenRouter to 10% in six months, and that would not be an extraordinary amount of change based on what we've seen. That would not be, this is not sticky.

    2. HSHarry Stebbings34:05

       It wouldn't, but Jason, you've talked very well, I think, in the past about maiming markets in terms of kind of the Fortnite-ification, the shrinking land that's available.

    3. JLJason Lemkin34:13

       Yeah.

    4. HSHarry Stebbings34:13

       And to, uh, Rory's, I think, eloquent point, there will still be some companies, and there'll be some companies that want reflection and poolside, but it is a maiming of an open market.

    5. RORory O’Driscoll34:24

       I think you gotta look at it the si- I, I understand the point you're making, but I think you've just gotta look at it. The inference market is still so bi- big. I mean, we, we added up all the competitors, and they only had $5 billion, right? And, you know, we just agreed that the closed source 2 frontier models are 100 billion already, right? So as long as there's, you know, i- if 10% of the spend is willing to kinda do, put up with the brain death of open source to save real money, and you do save real money, then there's gonna be demand for that.

    6. HSHarry Stebbings34:50

       Mm.

    7. RORory O’Driscoll34:51

       So, you know, I, I, does it get to 30 billion? I don't know. But yeah, it, it, when the overall market is so big, 10% of it is still big. And that's the bigger hire. This is, it's the mother of all markets, so everything else works.

16. 35:03 – 37:32

    “Black October”: Why AI Could Expose Every Software Vulnerability

    1. HSHarry Stebbings35:03

       Jason, you teased Black October, but I do think it's significant.

    2. JLJason Lemkin35:06

       Oh, yeah.

    3. HSHarry Stebbings35:07

       OpenAI models and Wiz found two very critical, uh, PHP flaws, uh, hidden for more than a decade that have been exposed thanks to, you know, where we are in the cycle and the sophistication of AI and its models. W- what do we take away from this, Jason? How do you respond to this? What should we know that we don't know? Help me out here.

    4. JLJason Lemkin35:26

       Well, look, I mean, I mean, we, we said months ago on this, I said everyone's gonna be hacked, right? That's the, the biggest change is, uh, you know, back in the old days before the L- models got good, I remember my CEO said the only reason we haven't been seriously hacked is no one cared. Now anyone can be hacked in seconds. I've, uh, people attempt to hack Saastr every day. So everyone's gonna get hacked. And this PHP thing actually is worse than it looks because there's so many websites in PHP that no one's gonna update. It's great that a lot of stuff runs on WordPress or that Replit and Lovable and others immediately ran, like, gateways or barriers to protect you. I mean, the, uh, they're not all running on page, but they immediately ran. And, and, and a lot, there's a lot of stuff that went up, and people, people released patches and updates. But, you know, a lot of government and other sites and, and nonpro- they just took their websites down, and who, who's gonna fix it? I mean, PHP's still the, like, 40% of the internet, right? And I bet it's more of old crap. Right? I bet it's like 80% of old crap. So like, this is like Mr. Robot live. Like, all these old websites are running on PHP. No one's patched them since this happened. No one cares. The IT team was laid off three years ago. They're, they're not vibing nothing, right? And we're gonna find our way into all these... It's just gonna get worse. Everyone basically, including Sam, just said it's gonna get worse and worse and worse and worse, right? And, um, it's, it's, uh, I- I think we're still grappling with the fact that, that e- ev- everything that is a threat vector will be exposed almost in real time.

    5. RORory O’Driscoll36:50

       'Cause if you're not up to date with the latest stuff, you're way behind. So there's just... You're right, Jason, there's gonna be a year or two years of this, and it's just inevitable.

    6. JLJason Lemkin36:57

       I think the only thing that's gonna save us is there's only so many people that can pay large ransoms, and there's only so many systems that control dams and, and, uh, other natural resources. People are gonna give up on putting too much energy if they can't, if they can't make money or debilitate something, right? So it will actually, it may actually, uh, uh, uh, decline for a while when they realize, you know, hacking the 20VC Substack only gets you so much money, right? Um, but anything that can be stacked, hacked, is gonna be hacked. But, you know, ransomware is just getting more and more, um... It's, it's just get, it's, it's getting m- uh, more and more professionalized. It's just, it's just the next level,

17. 37:32 – 40:07

    Instinct at $30BN

    1. JLJason Lemkin37:32

       right?

    2. HSHarry Stebbings37:32

       There were a number of large private rounds.

    3. RORory O’Driscoll37:36

       Totally.

    4. HSHarry Stebbings37:37

       There was Ligora raising 550 million and 8.8 billion. We've spoken a lot about Ligora versus Harvey in the past, and passing 200 million NRO. Um, just in the last 24 hours, there were rumors, um, and we obviously never, never comment on rumors, do we, Rory, um, of Instinct raising at a $30 billion price-

    5. RORory O’Driscoll37:56

       Oh, I saw that. Yeah, yeah, yeah

    6. HSHarry Stebbings37:58

       ... um, which we can go into. We can have some fun with that one, 'cause a lot of people are suggesting that is peak, peak, peak. Um, 'cause the revenue multiple for Instinct is the same as it is the last round.

    7. RORory O’Driscoll38:08

       Which, as someone said, means the valuation didn't go up. [laughs]

    8. HSHarry Stebbings38:11

       There you go.

    9. RORory O’Driscoll38:11

       Yeah, no, exactly. It's just-

    10. HSHarry Stebbings38:12

        Um-

    11. RORory O’Driscoll38:12

        Yeah

    12. HSHarry Stebbings38:13

        ... uh, w- we have, uh, others like the ex-OpenAI research chief, Bob McGrew, with Arda hitting a billion five, raising 232 million.

    13. RORory O’Driscoll38:23

        Yeah.

    14. JLJason Lemkin38:24

        I'll tell you, can I ask one question on the Instinct thing? It's a question to you guys, 'cause you guys would know better than me. We can make fun of the 30 billion at token revenue, right, and, and, and, and, and, and say it's a sign of the times, which perhaps it is. The question I just kind of wonder is, when will we exhaust the equity here? We're, we just talked about equity versus debt for the public players, right? This, it, it, in a sense, the 30 billion doesn't surprise me. They need the capital to pay for, for, for, for the inference, right? They need the money. They... What are they raising? I mean, it's rumored. Let's say they raise three billion, right? They need it, right? They need it. I mean, for- forget about the rest. This, this isn't just a vanity raise. They, they genuinely need the capital to compete. But w- how, where... I mean, even if you're getting every dollar that every sovereign wealth fund has, that GIC has, that every... Like, how, how much money is there for in- the Instincts of the world? It feels in- infinite now, right? Um-

    15. RORory O’Driscoll39:11

        A, a lot more.

    16. JLJason Lemkin39:12

        Yeah, but how much is it? I just don't know how much it is. And, um, and when that, when that merry-go-round ends, we just have a structural issue in this late growth phase. We just have a s- because right now, it's, it's game on, man.

    17. HSHarry Stebbings39:24

        I, I did an, I did an Instagram on Instinct, and I had over 1,000 DMs, and over half of them were asking to invest.

    18. RORory O’Driscoll39:32

        I mean, yeah. Look, why are we surprised? We've just seen the most successful private investment in history take place. Four years ago, you know, Spark brilliantly put money into a pre-revenue deal that's now turned into, you know, hundreds and hundreds of times $75 m- million. Everybody reads about that and says, "Oh, that's easy." And there's gonna... I mean, when, when you have that kind of tangible evidence, there's going to be... Everyone's just gonna look for the next, you know, ticket. And everyone's gonna conflate, everyone's gonna think ev- 'Cause e- it's always true to say, whenever you look at one of these deals, you say, "Well, it could be huge," and we all have that sentence, and that's gonna be true of every one of

18. 40:07 – 45:10

    Could Instinct Become the Super App of the West?

    1. RORory O’Driscoll40:07

       these things.

    2. HSHarry Stebbings40:07

       I actually, this is why I would unwaveringly do Instinct at 30. If I was coming into the IC, I would unwaveringly do it. For years, we've been promising a super app for the West, a WeChat of the West-

    3. RORory O’Driscoll40:18

       Yeah

    4. HSHarry Stebbings40:18

       ... which handles your finance, your identity, your security, and finally, we have that with Instinct, where I'm not saying it's ga- but there's a small chance that it is the super app.

    5. JLJason Lemkin40:30

       Here's why I'm, unfortunately, Harry, I've got to override you on the, on the IC. Um, and I, I rarely-

    6. RORory O’Driscoll40:35

       Absolutely not

    7. JLJason Lemkin40:35

       ... I rar- I rarely do this, um, and I'm gonna put my little black, uh, pebble in, in here. Uh, it's not that I don't believe your argument. I, I do believe it, Harry. I've just, at this point, I need, I need three to four months of data. There's not enough data at Instinct. There's not enough data to prove to me for our fund, for our fund, given our reach, which is substantial, but not the same as our friends at Andreessen Horowitz. I need three to four months to believe there's, there's, th- that this momentum is real, and I'm not saying this isn't an exciting play. I just want... And, and I'm not looking, and I'm not looking for moats, but I am looking for evidence of that 900% NRR at Anthropic that is slightly durable, that is slightly durable, and I'm just not seeing it at 30 billion. And so I'm sorry, I've gotta, I've gotta veto this one. It's not that I don't, I don't believe in it in- intellectually, um, but I, I, I just, I, I want... I'm, I'm just tired of doing growth rounds with one month of traction, Harry.

    8. HSHarry Stebbings41:28

       Uh, so I, for me, it's like they, they'll have raised $4 billion. You're late preff on that means that given the quality of the team and the strategic nature of the market, you'll definitely get that back. Microsoft will buy this in a heartbeat, so would several, I think, other hyperscalers, including your Matters of the world, um, ones. Your downside, I do think, is protected, and I think your upside is really, as we said, the super app of the West, a movement into a subscription business, an ads business, a, a transaction business on all sales and e-commerce. Um, I, I, I think it's one of the most no-brainer deals for if we're an Andreessen of the world, Jason, for us to be putting money. Again, we've just raised a huge fund, and we need to get it out the door in 18 months. Amen, I wanna do this deal

    9. JLJason Lemkin42:14

       I hear you. And listen, I- I- I don't want this to break our relationship, but I feel like for our growth rounds, we need 100 days of traction. I feel like we need this rule. We need 100 days of... I'm willing to do the multiples, I'm willing to roll the dice, but I want 100 days of traction for a growth round. I just feel like we've had too many, too many stumbles when we do a round with two weeks of traction. I just believe there's too many, too much risk

    10. HSHarry Stebbings42:35

        Jason, what would you, what would you want to see? 'Cause I think the cohort data would be incredible, and the-- I haven't seen it, so I'm not commenting, but the usage will be incredible. I mean, I've heard it's unlike anything any investor has seen before who is doing it. And so what would you want to see? There's no revenue data for you to see. Usage data? Well, what do you want to see in usage data? DAUs, MAUs, replacement of ChatGPT? Help me

    11. JLJason Lemkin43:00

        With no revenue and an unclear business model based on, uh, travel, um, I just think we should unfortunately pass at $30 billion. I just wanna see 100 days of something besides negative gross margin growth of a fungible product. That's just, that's just me on the IC. It's just, if we lose the $2 billion, it will maim the fund, and I'm not convinced of the l- liquidation preference here. I'm not, I'm not, I'm not saying you're wrong. I just... This one might be a bridge too far for me

    12. HSHarry Stebbings43:28

        Jason, you don't get it. If we lose the $2 billion, it was Rory's deal [laughs]

    13. JLJason Lemkin43:32

        I'm, I'm comfortable with the Fireworks at 40. This one at 30 just makes me nervous. Fireworks has met my 100-day rule. It's got 100 days of compounding genuine, uh, growth, uh, that I don't believe is durable, to our, to our earlier point, but I believe is, is truly measurable and bankable

    14. HSHarry Stebbings43:49

        Wow, so you'd rather durable growth where you don't foresee it being better than not having that data, but where you do see it being better. That's, that's an interesting-

    15. JLJason Lemkin44:01

        I still think it's a better investment than Hopin, but I'm not comfortable with this, with this consumer negative gross margin bet. I'm just not comfortable

    16. RORory O’Driscoll44:07

        Look, I-- You ask an interesting question, Harry. Stepping back, you're right. What you're basically saying is, how do you compare known market, solid growth, growing nicely, you know, not nicely. It understates Fireworks. A ripping market where, you know, i- inherently it's not magic pixie dust. There's gonna be five competitors where, you know, your upside is real, but it's ca- you know, capped at some functional level because there are five competitors. And you're comparing that to, how do you think about this thing, where if it becomes everybody's thing, it's a $200 billion, you know, everyone uses Instinct. It's the replacement for iMessage plus, um, Fa- Yeah, it has that potential to it. And you're right, is that there is more uncapped upside in Instinct, and how do you weigh up... You know, what, what does your-- You know, you gotta do the three-way payoff matrix. You know, if it's amazing, if it's good, if it doesn't work, and look at the two. And, you know, it's what kind of action are you looking for on the table, I suppose is to some extent the question

    17. HSHarry Stebbings45:03

        Every big fund should be fighting their ass off to put as much money in Instinct today

    18. RORory O’Driscoll45:08

        Yeah. Okay

19. 45:10 – 46:55

    Why Investors Are Throwing Money at Proven AI Executives

    1. HSHarry Stebbings45:10

       So I'm voting for it. Okay, next one on the IC, Jason. You've got Kevin Weil leaves OpenAI Science to launch Warp Science with $215 million. It's a very early pre-seed, so you may not be comfortable with that 'cause there's no data. You've got the OpenAI research chief, Bob McGrew, where he raised a $232 million Series A. You have, uh, Lagoa's $550 million round

    2. RORory O’Driscoll45:36

       I mean, yes. I mean, they're, they're, they're odd things to put together. I mean, I was trying to s- make sense of this thing, right? It's a, there's a plethora of deals this week that I would describe as absolutely proven executive, big opportunity, hairy technical challenge, but big opportunity if it works, right? And that's to some extent is the Flapping airplanes thing. To some extent it's Arda, which is the, uh, Bob McGrew's deal. To some extent, I don't know as much about Warp Science, but it feels like the same thing. Big idea, talented executive. And there's just clearly a wild appetite for that at, you know, fairly high prices with relatively little de-risking.

    3. HSHarry Stebbings46:12

       Mm.

    4. RORory O’Driscoll46:12

       Right? And that's just one whole, you know, cl- I mean, there's f- four or five of those kind of deals here. And then the other type is the, you know, late stage, you know, known good company doing really well. You know, maybe Lagoa, maybe in a different way, BlackRock... Um, sorry, Bedrock, where, you know, it's not as binary based on a person, it's just how do you price these late stage companies, right? Which is easier. I mean, at some level it would be easier to get your, to figure out your head on Lagoa or Bedrock than it would be to do Flapping airplanes, Arda, or Warp Science, where all you know is the executive in question is talented and the opportunity, if it works, is amazing. Welcome t- welcome to the game

20. 46:55 – 51:21

    Put 20% of the Fund Into OpenAI at $1.25TRN?

    1. JLJason Lemkin46:56

       I'm gonna take a radical approach for, for the IC, Harry. I know, I know it might make you uncomfortable, and you should veto it too, like I, I wanna veto Instinct. Um, but I think there's moments, and, and I know you don't totally believe me, but I believe in a, e- even in many best startups, sometimes there's dislocation moments where the, where the market briefly struggles, and I think we should put 20% of the fund into OpenAI at the $1.25 bill- trillion round. I think that it is mispriced. It is a moment when there's a little market panic. Anthropic is on fire. SpaceX has done well. The, uh, models are wildly competitive today. OpenAI has closed all the competitive gaps. Um, it is a well-run machine, and it reminds me a little bit of that Anthropic round at $183 billion or so when, when it was dislo- when the, when the valuation made no sense vis-a-vis OpenAI. It was a dislocation. A lot of people are gonna made money on that round. This is a dislocation moment. This, this is folks m- misunderstanding. They're thinking OpenAI is struggling when the numbers clearly say otherwise. And we can fart around with these little 20, 30, $50 billion rounds. I think if we put 20% of the fund into OpenAI at $1.25 trillion, at least we can return the fund with that. Um, and, um, and then we take our upside with our, with some of our other exciting bets

    2. HSHarry Stebbings48:07

       Why do you say that? What is the upside on OpenAI at $1.25 trillion?

    3. JLJason Lemkin48:11

       Well, look, these are both going to be 10 to $20 trillion companies. Just look at, look at the growth and the scale. Look at Anthropic. It's only 0.1% of, uh, of the, of Fortune 500 budgets today. Clearly, it's going to be in the 2 to 3% range, even by the most conservative, uh, estimates that us and Coat together and Iconic have done, right? So going from 0.1 to 2 to 3%, I mean, I need, I need, I need, uh, Rory's help here. That, that's significant growth ahead of the investment. So getting... We, you know, getting... We need to... If it's 20% of the fund, obviously it needs to 5X, dilution aside, to return our fund. Um, there's a clear path to a $10 trillion outcome, 20, 30 trillion, the rest of the fund doesn't even matter. Um, it's, it's got a discount to Anthropic that I don't think it's gonna deserve. And so worst, just like worst case with some of your investments, you get your LIQ preference back. Worst case here, we double our money. Worst case. It's not that bad to double your money, worst case. This, that... And that's what you get from these, from these dislocation moments. You get to double your money when ordinarily these rounds like Inflection, uh, or Instinct are priced to perfection. OpenAI is not priced to perfection, and that's rare, and that's why I think we do 20% of the fund because that's the limit under our LPAC. Um, and we just tell the, we just tell the LPs because we can do that without LPAC consent. We just do the, the maximum without consent. We just let them know on Monday.

    4. HSHarry Stebbings49:32

       The other thing is the quality of Codex today is so significantly better than it was in a prior generation. I, I know every coding team that we work with has switched from Coolcode to Codex in the last three to six months.

    5. JLJason Lemkin49:44

       That's why we should put 20% of the fund in. People aren't getting it. They've achieved parity. This is when you go all in, but the markets don't see it. The markets are too, are, are too superficial to see it. 20% of the fund. But nothing smaller. It won't-- It's not enough. It's got to be 20% of the fund.

    6. RORory O’Driscoll49:58

       Interesting. And not crazy, I must say, Jason. It's like you're right, is that Anthropic will price, it'll be a 2 trillion and maybe a pop. You know, if you knew that this was the last private round and the trajectory of OpenAI was converging, I mean, you'd want to know that they kind of got religion and wanted to do something like what, um, Anthropic has done. Yeah, not crazy. If they, if they continue to say, "We're going to spend, you know, we're going to burn forever, forever" then, uh, you wouldn't want to do it if there's another private round in it. But not a crazy idea, because risk-adjusted, it's probably less risky than some.

    7. HSHarry Stebbings50:29

       Dude, I, I love that as an out there suggestion. My only combat to that would be could we not do Instinct and OpenAI and actually hedged? It's not a bad risk profile. Your point.

    8. RORory O’Driscoll50:40

       If you think that, um, if you, if that's your definition of hedging, please don't ever run a hedge fund.

    9. HSHarry Stebbings50:46

       Why am I, why, why? My friend Leo told me that was how you did risk management.

    10. JLJason Lemkin50:50

        In all seriousness-

    11. RORory O’Driscoll50:51

        [laughs]

    12. JLJason Lemkin50:51

        ... this, this, this may be my weakness. I, my scar tissue is I want 100 days, whether it's seed or growth, I want 100 days.

    13. HSHarry Stebbings50:58

        But Jason, you're just not g- I'm, I'm, I'm telling you, I agree with you, dude, but you're just not getting that today.

    14. JLJason Lemkin51:02

        I might not be. But that, a-and, and, and, and I don't want to lose you from the fund, even though it's, it's Stebbings and, and company.

    15. HSHarry Stebbings51:08

        [laughs]

    16. JLJason Lemkin51:08

        So if, if, if we have to do it to not lose you, I don't want to go all got y'all.

    17. HSHarry Stebbings51:12

        So just be company. [laughs]

    18. JLJason Lemkin51:12

        I don't want to go all got y'all here. We'll do it, but I, I just... I'm gonna use, if I can use one black pebble this quarter, it's going to be on this one, and I'll, and I'll take the hit when I'm wrong.

21. 51:21 – 55:10

    WarHounds at $1.5BN

    1. HSHarry Stebbings51:21

       Any other rounds that we think are worth bringing up? As we said, Flapping airplanes I thought was an interesting one. Um, they're building models that learn from far-

    2. JLJason Lemkin51:28

       How about super dogs at a billion and a half? That one I need a little help with, the TAM. I need-

    3. HSHarry Stebbings51:32

       Uh, WarHounds

    4. JLJason Lemkin51:33

       ... I need Rory to give me my TAM analysis for, for, for bionic dogs at $1.5 billion. Or is this, is this just another Elon bet, like he's gonna make it work?

    5. HSHarry Stebbings51:41

       For, for context, WarHounds is a startup co-founded by Palmer Luckey, the founder of Anduril, that is essentially g- I mean, genetically modifying dogs to be next generation conflict war machines-

    6. RORory O’Driscoll51:53

       Yeah

    7. HSHarry Stebbings51:54

       ... would be an apt description. Um, put a valuation of $1.5 billion on it because, you know, it's Palmer Luckey. [laughs] He deserves it, to be honest. Um, discuss.

    8. RORory O’Driscoll52:06

       I mean, I, I realized that I had zero value to add on that.

    9. HSHarry Stebbings52:09

       [laughs]

    10. RORory O’Driscoll52:10

        I mean, I just, I, I, I genuinely saw it and said, "Wow." I mean, genetically interesting. I mean, how do you price that thing? I mean, you know, the, yes, I saw some analysis of the number, you know, the number of dogs the military use, blah, blah, blah. But you're all just, you know, moving paper around. I think it, I think the investment memo probably wasn't one, but to, to the extent there was one, it's, "Wow, that's a cool idea. Let's put in 50." I think that was the summary investment memo. Let's genetically engineer these dogs to be savage, right? So that they can be better war dogs. I mean, what can you say?

    11. HSHarry Stebbings52:41

        And it's Palmer Luckey. You're like-

    12. RORory O’Driscoll52:43

        Yeah.

    13. HSHarry Stebbings52:43

        "Yeah, okay, cool."

    14. RORory O’Driscoll52:45

        Yeah, exactly. Go team. Not, not, not, not... We'll, I'm, I won't be doing it, but who knows? I mean, once you've founded on, you know, I nearly said on Anthropic, once you've founded Anduril, you know, once you're the Sword of the West, you can do what you want.

    15. JLJason Lemkin52:56

        Well, I mean, it's, there is a connection between this and his other startup he just started, this, this laptop one, Blue Chip, right? He, he's both solving sovereignty issues where, where key national security things are dependent on vendors outside the US. The dogs come from Europe, apparently. I didn't know this, right? I certainly know that almost all the, the rugged laptops, which probably you can sell for 10 grand, right? Or tw- much higher margin. Those components are al- almost all entirely, uh, from outside the US. How big these models are, I don't know, but h- he's so, he's such at the core of this, of this, of this industry that he's, he, he wants to plug these, the white spaces he thinks are important. And maybe the TAMs are small, but the models make sense. Like, he's, he's right there, and he has the channels to sell these products. Like, he could get 100% of all the mil-spec laptops as soon as this thing launched. It wouldn't surprise me, right? Sort of get 100% of the, of the, of the bionic dog market. And these are real markets where he has visibility into and that other founders can't penetrate. It's just, you know, whether they're worth it, I, I don't know. But, um, I guess if you're Sean Maguire, your, your returns are so strong and consistent, it almost, you just do, you just back them, right? I mean, everyone seemed insa- I mean, people were mocked in that discovery when Larry Ellison and Marc Andreessen gave Elon blank checks to Twitter with nothing. They just said, "What, tell me the price. How much do you want me to send?" And he was mocked when he wanted to get out of that deal, but in the end, they're making money. [laughs]

    16. RORory O’Driscoll54:16

        Absolutely. No. Yes.

    17. JLJason Lemkin54:18

        So maybe I'll have to merge the dog startup into Anduril or something [laughs] but we're... Maybe it's okay.

    18. HSHarry Stebbings54:25

        Well, haven't you seen the, haven't you seen the brilliant, um, kind of, uh, cartoon, so to speak, or like c- graph, where there's, like, you start here, you go up here thinking that you know a lot about the market, thinking you know a lot about the market, and then you just come down to where you were.

    19. JLJason Lemkin54:37

        Yes. Agreed. It-

    20. HSHarry Stebbings54:38

        And it's like founder, founder, and it's like where you are in your career. Zero years, 15 years. In the middle period where you think you're an intelligent investor, no, no, no. That really just is the bottom.

    21. RORory O’Driscoll54:48

        Yeah, no, I've- very familiar with that, yes.

    22. HSHarry Stebbings54:50

        Yeah.

    23. RORory O’Driscoll54:50

        You just... Oh.

    24. HSHarry Stebbings54:50

        It's, it's, it's so, so true. Um, any others, Jason, that you'd like to bring to IC this week? We're a very busy committee.

    25. JLJason Lemkin54:58

        Well, 20% of the fund is, is, I, I think is enough for one week.

    26. RORory O’Driscoll55:01

        [laughs]

    27. JLJason Lemkin55:01

        I mean, we can't do that 50- what is 20 times 52? What percent of the fund is that? Help me.

    28. HSHarry Stebbings55:05

        Um, 38. 38%.

    29. JLJason Lemkin55:05

        We'll be back, we'll be, we've already been back to market this year. [laughs]

22. 55:10 – 57:20

    Why Mega-Funds Are Raising Bigger and Coming Back Faster

    1. HSHarry Stebbings55:10

       Do y- It's so interesting, though. You know, I, I speak to so many LPs. We just had our AGM. The single most common piece of feedback that I hear from all LPs is every mega platform went out to raise. They raised bigger, they spent faster, they're coming back next year.

    2. RORory O’Driscoll55:24

       Yeah, no, I mean, look, uh, yes, because it's we're, I mean, we're Pavlovian creatures, right? And you know, if you put money into Anthropic three years ago, it feels amazing, and most of the platforms did at some level, so they feel amazing. So we're gonna do other things over and over again until it... And it's not gonna stop until something goes wrong. So yes, the, the, this, yes, there's going to be these big rounds. W- we are risk on until, until we're not. The public markets, oddly enough, let's be really technical. Interestingly, on a 10-year PE, they're ve- they're at an all-time high. I mean, objectively, they're at an all-time high. Interestingly, on a forward PE basis, they're actually quite cheap 'cause the market, you know, oddly enough, um, earnings have been so amazing, in part driven by, you know, one-off gains from, um, private held investments in the public companies, that on a, on a current PE basis, you know, stocks like Nvidia on a forward PE basis look cheap. Now, you're gonna have this long discussion on cyclical blah, blah, blah, but, uh, you know, the market isn't in any way... The aggregate market isn't hurting. Now, you know, what is true is that 450 out of those stocks are hurting. It's a really weird... I mean, a better statement, Harry, is it's a really weird market right now. There's 40 or 50 stocks that are working in the S&P that are primarily associated with tech and AI. Everything else is quietly, you know, subpar, right? And oddly, and then despite that, there's haven't been a ton of IPOs because everyone's been waiting for this trillion-dollar thing, and the whole world is in suspended animation. So that's where we're at, which means that, just to draw to a conclusion, which means that it's a perfect time for these platforms to put a whole ton of money out in private companies because there's a big demand for money.

    3. HSHarry Stebbings56:59

       Any other stories, boys, that I've missed this week?

    4. RORory O’Driscoll57:02

       No. I mean, there's a lot. I mean, the interesting thing is, you're right, I did apprec- it was odd because I thought you'd come in with Anthropic and nothing else, but there was like, uh, there was a whole bunch of financings we talked about. You know, you've got the continuing SpaceX-Tesla drama, which is gonna run and run and entertain everybody for hours to come. And then you're right, there was a ton of really interesting companies.

23. 57:20 – 1:00:06

    Zuckerberg vs California: How Much Does a Billionaire Tax Really Matter?

    1. JLJason Lemkin57:21

       I had one that was under-discussed I didn't fully understand. I should've done more research on it.

    2. RORory O’Driscoll57:25

       Good.

    3. JLJason Lemkin57:25

       But there was much more drama with Zuck and the board about leaving California-

    4. RORory O’Driscoll57:30

       Oh, yeah

    5. JLJason Lemkin57:30

       ... than was discussed. It was, it was clearly a high-stakes drama. I mean, they- Zuck hired lawyers, the lawyers negotiated with the board, the board was not his ally. He had to threaten to sell all of his homes and leave in one week if they didn't give him the equity that he wanted to stay in California. There's a lot of mechanical things happening there with the billionaire tax and others, but the fact that it had to go with lawyers for months and threats to sell, I c- I get it, but it's certainly the opposite of giving of, of, of the era where founders are controlling everything, right? It's a, it is, there was a lot going on.

    6. RORory O’Driscoll58:05

       Yeah, the one thing you can control is you're on comp, and I get it because, you know, even Elon has to do that because if you're the board members and you do this without kind of CYA 100 different ways, you're vulnerable to being very second guessed. I, my, my guess is even if they're perfect- reasonably amicable, everybody should lawyer up so they have protection and, you know, they have a process, 'cause process is your friend in these things. But then on top of that, you know, it, it was super interesting. I, I don't know the detailed dynamics on most of the voting, but yes, the billionaire tax is up, and we'll know in a week or two, but people who think there's no impact from that have never met a billionaire when you've tried to take 5% of their money away.

    7. HSHarry Stebbings58:43

       [laughs]

    8. RORory O’Driscoll58:43

       It turns out they take it really badly, especially when you wanna take 5% of their money away and, you know, there's some voting criteria on it when you have more voting control than anything else, so it's more than 5%, and especially when the legislation says, you know, we can do it again soon.

    9. HSHarry Stebbings58:58

       I thought they'd already given it all away. Isn't this the point of the Priscilla and Mark Foundation, that we have a tax-efficient structure?

    10. RORory O’Driscoll59:03

        Yeah, it turns out that people like to give it away, but they don't like it to be taken away.

    11. HSHarry Stebbings59:08

        Ah.

    12. RORory O’Driscoll59:09

        You know? It's all about agency and control.

    13. HSHarry Stebbings59:12

        Hmm. [laughs]

    14. RORory O’Driscoll59:15

        But yeah, no, that, you're right, Jason, that was, that was probably much s- noise under the circumstances. And you know, it looks like whatever happens on this billionaire tax, it's been remarkably successful in driving out enough billionaires that you will have an ordinary income tax hit, so go team.

    15. HSHarry Stebbings59:31

        And do you know what I'm excited by with this show, boys?

    16. RORory O’Driscoll59:33

        What?

    17. HSHarry Stebbings59:33

        Is it's obviously recorded on a Wednesday. On a Wednesday night.

    18. RORory O’Driscoll59:36

        Oh, right.

    19. HSHarry Stebbings59:37

        It's, by the way, it's a Wednesday, Rory, just to [laughs] just to-

    20. RORory O’Driscoll59:39

        Whatever, yeah.

    21. HSHarry Stebbings59:40

        But, uh, so there's not gonna be, like, 24 hours before release.

    22. RORory O’Driscoll59:45

        Nice.

    23. HSHarry Stebbings59:45

        And so there's no chance that there will be some massive news announcement, really, with a f- 36-hour period.

    24. RORory O’Driscoll59:51

        Actually, just to remind you, I think Microsoft and Google are rep- uh, Alphabet are reporting tonight. In theory, you could have anything, but who the hell knows?

    25. HSHarry Stebbings59:58

        Totally, but-

    26. RORory O’Driscoll59:59

        My guess is I'll be shocked to discover that they're gonna spend more on CapEx. Are we good, Harry? Are we done? We are rocking and rolling, my friend

Episode duration: 1:00:16