Jason Lemkin: Crowdstrike, WTF Happens From Here? Wiz Rejects Google’s $23BN Acquisition Offer|E1181

1. 0:00 – 0:47

   Intro

   1. JLJason Lemkin0:00

      In venture, we're all pretending. (upbeat music) (screen whooshes) You know, early-stage folks have never worried about liquidity. And the late-stage guys, you gotta deploy money. The time's ticking on these funds, so you gotta deploy them. We're praying, we're hoping liquidity comes back. We're investing, Harry. Like, there's almost as much liquidity as 2021. And- (screen clicks)

   2. HSHarry Stebbings0:15

      Ready to go? (upbeat music) (mouse clicking) I am so excited for this, dude.

   3. JLJason Lemkin0:30

      (laughs)

   4. HSHarry Stebbings0:30

      When I told the team that we were gonna do this today, they were like, "Oh, yes. Jason episodes are our favorite."

   5. JLJason Lemkin0:36

      (laughs)

   6. HSHarry Stebbings0:36

      So, thank you so much for doing this with me, dude.

   7. JLJason Lemkin0:39

      It is so great, it's such a... I feel like we went through a time when the news was trivial, and now, it's all over the place, right? That, I guess that's

2. 0:47 – 9:09

   Wiz's Rejection of Google's $23B Offer

   1. JLJason Lemkin0:47

      the way it works, right?

   2. HSHarry Stebbings0:48

      We're gonna start with item one on the agenda, okay? I'm gonna read the title. Wiz Rejects Google's $23 Billion Offer, Eyes IPO.

   3. JLJason Lemkin0:58

      Yes.

   4. HSHarry Stebbings0:58

      I just wanna start with, first off, what do you think of the acquisition price? 23 billion, 500 million ARR, growing 120% year on year. It's a 46X ARR multiple. What do you th-

   5. JLJason Lemkin1:13

      Yeah, I think it's, you know, it's not expens- a couple things. First, it's not expensive. And what I mean is, this is a company that has gone from nothing to 500 million in four years, okay? So, you ca- you, wh- you have to be careful. Look, in the old days of SaaS, we all kinda grew at the same rate, so we used ARR multiples, okay? But now you have to use forward ARR multiples, forward revenue multiples. This company will be at a billion in a blink of an eye. So let's, let's just value it at a billion. It, it's gonna be there in 12 months, 14 months, nine months. It's a billion forward. Until this little issue of CrowdStrike grounding the world's air fleet, and a few other issues which we'll get to, you know, CrowdStrike traded at almost 30X in today's world, well over 20X. So, 20X times a billion for, for Wiz, if... And you can't buy CrowdStrike, right? I mean, maybe you can today but... So I don't think, ironically, it's, I don't think it was overpriced. Um, I do think it might have been a good deal for the investors, because you avoid so much dilution and risk. I, 22 I think is 30 for the investors. I think it's 30 billion to the investors in a sense, um, because of dilution. Um, but I don't think it was as overpriced as you m- this growth rate, zero to 500 million in four years, you gotta, you gotta draw a line and say, "This is the top of the top of the top of the public comps." But I'd ha- and until, again, until CrowdStrike had a little bit of a, an implosion and felt, dropped almost 40%, it was consistent with CrowdStrike's forward growth, and growing much, much, much faster. So I don't think it's th- as crazy as it sounds, I don't think it was that expensive.

   6. HSHarry Stebbings2:43

      I think-

   7. JLJason Lemkin2:43

      And I think that's why they could comfortably say no, because it was a very good deal but it wasn't, um, it wasn't insane.

   8. HSHarry Stebbings2:50

      Uh, before we dive into like, the actual decision to say no, from Google's perspective in making the offer, why do you think it was so attractive to them? It's the l- almost 2X the size of their largest acquisition to-date, which was Nokia for 12 and a half billion. And knowing the strong antitrust pressure on the Magnificent Seven, why do you think they pursued it?

   9. JLJason Lemkin3:10

      I think you don't totally get it until you've worked at a big tech company, which I did as an SUV for a little while, which is that, um, when times are tough, everyone's hyper-conservative. Like, you, you n- doing an M&A north of 100 million was almost impossible in tougher times, okay? When times are good, and Google Cloud is the fastest-growing of the three biggies, but it's also number three. Okay? It's the fastest-growing but number three. Things are so good at Google Cloud right now. They're so good. They're the best ever. We, we saw growth decelerate through 2021 and then, boom! Like, the amount of acceleration we've seen at Google Cloud and Azure is, is breathtaking. And so, what do you do as a leader? You, you get a chip. And this is o- and literally, when I was an SVP at a big tech company, each divisional head had a chip, had a big chip and a small chip, okay? Now, if you're Thomas Kurian, you probably get a couple chips. But I think 23 billion would eat up all your chips, okay? But you go around the room and you say, "What do you wanna buy that's big? And what do you wanna buy that's small so that good times don't rest in peace?" It is natural. And I think they went around the room and they may well have said HubSpot six months ago, right? If that actually happened, we don't know but, but it would make sense to me that it was a chip, it was a big chip but, this is AI and the growth of Google Cloud is generate, like, it, it's awesome. And so, yeah, it's a big number but it's much bigger than Nest. The opportunity here is much bigger and it's fueling Google Cloud. So it's chips. And I, I honestly think someone who's incredibly smart and experienced like Thomas Kurian who's done so much M&A, they know exactly what they're doing. They want scale and they wanna keep the good times going and these were their two best ideas. Maybe HubSpot, maybe not, we don't know. And obviously Wiz, best idea and you ju- gotta do it. It's fuel for the engine and worst case, you write off 11 billion in 11 or 12 years from goodwill. It doesn't even cost you anything if you can a- afford the cash.

   10. HSHarry Stebbings4:57

       If this had've progressed, do you think it would've faced pressure from antitrust given Google's lack of dominance in security already as their core business?

   11. JLJason Lemkin5:08

       Honestly, it has to because Figma wasn't even competitive with Adobe. You'd have to have not ever, you've have to have never used either product, uh, or understand it to think Figma was competitive with Adobe. No, Adobe should not, should be blocked from buying Canva arguably, okay? I'm not a big anti-trap blocker but Canva is directly destroying Creative Cloud, okay? Figma was directly destroying a $30 million product line that Adobe had abandoned, okay? With XD Sketch or whatever it's called. S- s- it's like, it's, uh, and this is the problem with tech. We all talk about things we don't understand, like cybersecurity. We talk out of our rears. And so, if Figma could be blocked, I actually think Wiz is, is more competitive to, uh, uh, s- there's more antitrust, even though I don't think it should be blocked remotely. Security is a big deal as part of the cloud providers. Google's already done a $5 billion acquisition here, okay? They're all competing with, uh, they're all competing with each other and, and this is a way to go to an enterprise when you have three slightly fungible products, AWS, Azure, Google Cloud. They're all different but they're slightly fungible. And now you can say we've got Wiz as part of this package, the dominant next-generation cloud security player. You might just ch- pick that, pick Google Cloud just for that.

   12. HSHarry Stebbings6:14

       Why does Karan do it, then? They're smart people.

   13. JLJason Lemkin6:17

       ... why did he do it?

   14. HSHarry Stebbings6:18

       Yeah. Why- why would you even bother?

   15. JLJason Lemkin6:21

       He, he... No, no, he... Listen, we only can guess from what we've read. And I think what, I think what we read is usually about 80% true in this situation, right? Especially since we saw Assaf's email to his team at Wiz and TechCrunch. So we can put the pieces together. Look, again, he's got a chip. Maybe he went HubSpot first, maybe not, right? Maybe there was even another one before, we don't know about it. But he's gotta go big. Google Cloud is so big. And so the next shot is Wiz and the- and he- he- the press said he reached out directly on his own, okay? And he's like... And it all makes sense. What was the last round at? 11 and a half. Okay. Well, if we're gonna do this, it has to be at least 2X the last round, folks. That's how you get to 23. It's always that way in these deals. Okay, so there's no issue on price. And then he says, "Well, we wanna do this and we wanna lock you up." And then they say no, and he's like, "Fine." And then it's real, and it becomes a one-paragraph term sheet at this, at this size.

   16. HSHarry Stebbings7:07

       Right.

   17. JLJason Lemkin7:07

       And then they've gotta sit down and say, "Okay, the price cleared," so it's not about mon- it's not about price anymore. Um, "We'd have to IPO well north of 30 billion for it to be worth it." Which- which you can believe, but then you look and you're like, "Man, if there's even more than a 10%, 20% antitrust rate, putting that in, the distraction is so heavy." And I remember s- Ben Chestnut from Mailchimp came to SaaStr Annual a couple years ago, right after Intuit, and he said it was the most distracting year he'd- he'd ever seen. And he said, Ben said, "Whatever you do, whatever you do, if you do M&A, commit 110%." And they had a deal before Mailchimp, he said. I mean, before Intuit. And it fell apart, and he said it wrecked his management team. It almost destroyed his company, whoever was gonna buy him before. So they waited, and the Intuit deal took a year of dancing, not a week like Wiz and Google. It took a year of dancing until he was sure it would happen, 'cause he didn't wanna wreck his team. And this could easily... This could be the biggest distraction in the world for the team. How do you keep momentum up when you've got to deal with this too, right? So I think, I think unless you're, like, 90% sure it can close, two b- the two billion... What- let's assume there was a two or three billion dollar termination fee. Who cares? They don't need the money.

   18. HSHarry Stebbings8:13

       So do you believe that Wiz walked away because they did not think that it would go through?

   19. JLJason Lemkin8:18

       Yes.

   20. HSHarry Stebbings8:18

       Because they felt-

   21. JLJason Lemkin8:19

       Yeah.

   22. HSHarry Stebbings8:19

       That's the number one move.

   23. JLJason Lemkin8:20

       And I- I think the offer was real, like in the press. I think Thomas Kurian called them up. I think they had a qui- he probably offered 10 billion. There was a quick back and forth, and it quickly became 2X the last round, right? I mean, literally, when I sold my first startup, the acquirer went, got our certificate of incorporation in Delaware, and offered us 3X the last round before we even met. He's like, "This is the clearing price, 3X your last round." So they offered it before the first meeting, okay? So that took, like, 48 hours, 'cause you have to offer less or you'll look like... He's- he's not the CEO of Google. He's just running Google Cloud. They offered 22 bill- 23 billion, and it's interesting. They talk about it with the team. And then this was over in a week and a half, I think, because it- it wasn't worth the risk. I don't think it was worth the risk. I don't think it was worth the risk. Not for founders that are already wanting to go IPO with the growth they've had and guys that have already made eight figures. It wasn't worth the risk. I think it was a quick no. I think it was actually a quick no, is what I think happened.

3. 9:09 – 9:54

   Influence of CrowdStrike on Wiz's Decision

   1. JLJason Lemkin9:09

   2. HSHarry Stebbings9:09

      Do you think CrowdStrike impacted their opinion to say no?

   3. JLJason Lemkin9:12

      Look, I think they had some interest, 'cause they got a price. I just think they realized it was just t- too- too risky to close, too risky on the journey, too risky... Like, I don't think it would be fun to run a company for 18 months hoping you get through glo- not just US antitrust anymore. You gotta get through London and Europe. And it's like, I just don't think that's... I'm just guessing, um, but I don't think that's the journey that the team wanted to go on, like this- this just trap for 18 to 24 months. And I bet he called Dylan at Figma and he said, "Dylan, how was it?" And Dylan said, "It was terrible." (laughs)

   4. HSHarry Stebbings9:46

      You know, there's-

   5. JLJason Lemkin9:46

      He said, "That was the worst 24 months waiting for that Adobe... Like, it made sense at the time, but if I could do it over again, of course I wouldn't do it. I'd just go raise two billion from Tiger

4. 9:54 – 13:58

   Choosing Between Antitrust Issues & IPO Demands

   1. JLJason Lemkin9:54

      in a week."

   2. HSHarry Stebbings9:55

      Okay, but this makes me think of this old test in the UK to determine whether you're a witch in the medieval times.

   3. JLJason Lemkin10:01

      Yeah.

   4. HSHarry Stebbings10:01

      They would throw you in a lake and tie your hands to your feet.

   5. JLJason Lemkin10:04

      Yeah.

   6. HSHarry Stebbings10:04

      If you drowned, you were a witch. If you rose... Uh, sorry. If you drowned, you weren't a witch and you were free, but you were obviously dead. And if you rose, you were a witch and we'll burn you at the stake.

   7. JLJason Lemkin10:15

      Yeah.

   8. HSHarry Stebbings10:15

      It makes me think of that, because do you want to go through the worst regulatory antitrust process that could kill your company with distractions? Or do you wanna go through a long road to IPO, IPO, and then be under the intense scrutiny of public markets, have lockup periods, have short sellers, activist funds, and all the shit that comes with being public? Is this not two equally shit options?

   9. JLJason Lemkin10:42

      Well, I... Listen, I think it's the right question, and I'm sure they had that discussion last week, right? As successful repeat f- founding team, a successful repeat team, they- they had this... Did we really want, we wanna, we- we- they're clearly h- It's hard, but probably happy in their times of their lives at a personal level. It's- it's an incredible run. But yeah, is it worth it? Is it worth the going public and seeing the variability in things and just dealing with the- the- the headaches and the stresses? Is it worth it or should we, uh, should we leave the keys on the table? And I think 99.99% of us should leave the keys on the table. And that's why I've decided forever, I've changed my mind. We talked about this before, since 2021. Every founder with a decent exit, I tell them to take it now, 100%. I tell them to take it for this reason. And- and listen, if they don't, if they push back, that's great. Then I just help them get to the right conclusion. But I no longer am neutral when I talk to 'em. I tell... If Assaf Co- uh, the CEO called me and s- I say, "Take it," not because I think it's zero to 500 million there's any need to, but that's how I challenge founders now, because look, it's just the- this distress of dealing with these activists and the drama, and you know, we're- we're fi- what we're fi- th- the other stressful thing we're finally seeing is, you know, we- we never believed 10 years ago that so many SaaS companies could get to a billion in revenue. We didn't believe there was enough market for cloud software. Turns out there is. But now we're seeing that it, that we, that folks are eventually exhausting these markets, right? It- it's not that fun to be at Dropbox at two and a half billion growing 6%. It's not that fun to see Salesforce now decelerating to 7%. So if I was looking at Assa- and listen, Wiz is the next generation, it would give me pause. In a way, in 2021, it- it didn't. But I don't think... Listen, going IPO for them, I think, um...... it- it- it'll be no big deal. Like they can go IPO anytime. They can go IPO in 90 days if their, if their financials are clean. And they'll get a good valuation. It'll be fine. That, it'll be a non-event. It's just all the- the years of- of hitting the numbers, right?

   10. HSHarry Stebbings12:33

       Question for you. You're on the Wiz board. Well done. Congrats. Um, would you have voted to do it or to not do it?

   11. JLJason Lemkin12:39

       The boards are funny. Um, and- and, you know, the- the actors have so- so many different like ... You know, if you're an earlier stage investor, you can almost be neutral because, uh, this will create another secondary round at 23 billion.

   12. HSHarry Stebbings12:53

       Okay.

   13. JLJason Lemkin12:53

       And anyone that wanted to do it will be able to sell at the exact price, right? This is the old Groupon play. When they said no to Google, then it was very dramatic back in the day for six billion. They created a secondary round when it was harder back then. And everyone that wanted out got out except, you know, uh, poor, probably poor Andrew Mason, you know, founder of Descript. But everyone got out that wanted out. And I think everyone that wants to get out ... And look, if you and I, Harry, invested from a small fund at six pre- I mean there wasn't out, these were second time founders. But if it was early, we might s- and let, we might say there's no difference between another 2X. If I'm a late stage investor, the next, the next card is the good card.

   14. HSHarry Stebbings13:27

       Mm.

   15. JLJason Lemkin13:28

       Right? It's the next card's the good card. So, um, or frankly, if we were early stage investors, you know what I would do with Wiz, Harry? I would actually distribute to my share o- If I could get stock somehow, I would distribute to my shareholders, but keep my personal stock as a g- as a GP, is what I would do. I would go long, but book the, book the 20 or 30X fund and call it a day because it's enough, right? Um, but I think the late stage guys will- will, they have a strong incentive to double down, right? The difference between 2X on that last round and 4 or 5X, you know, it, that's, it's huge, right?

5. 13:58 – 17:42

   Discussion on Liquidity in the Venture Ecosystem

   1. JLJason Lemkin13:58

      You gotta do it.

   2. HSHarry Stebbings13:58

      I do think it's important in terms of just liquidity in the venture ecosystem. I know a lot of LPs and institutions who had a lot of money either in funds that are in Wiz or actually direct in Wiz through SPVs or direct-

   3. JLJason Lemkin14:11

      Yeah.

   4. HSHarry Stebbings14:11

      ... themselves. And they were suddenly getting quite excited about liquidity.

   5. JLJason Lemkin14:15

      There's no liquidity in venture today. It's a disaster. It's three years of no liquidity. There's none. It, it's- it's dried up. It's- it's there's a little oasis out in the desert from these random deals. You can't ... You know, Brian Halligan, I think right when Figma, um, struggled, said on- on Twitter that this is the end of big M&A, right? And I thought he was being a little dramatic, but he was right. You know, it really is. And- and so if- if this big M&A is blocked, you know-

   6. HSHarry Stebbings14:39

      But Jason, that-

   7. JLJason Lemkin14:39

      ... the majority of the liquidity is blo- it's not even, it's not even as multiples, it's just blocked.

   8. HSHarry Stebbings14:44

      But that liquidity bulge has to, it has to burst in some way.

   9. JLJason Lemkin14:48

      Yeah, I don't know. I think we're all ... Honestly, Harry, uh, I think in venture, we're all pretending. I think we're all pretending today. The early stage folks are just, they, you know, early stage folks have never worried about liquidity. It'll come in the next 18 years of the fund. And the late stage guys, you know, uh, you've, I- it's been said many times on 20VC but I've heard it many times from others and we, you know, uh, "It's year three, we gotta, we gotta deploy money." Right? We had, I had Logan, Logan from, uh, Redpoint did our little workshop, our- our Workshop Wednesday at SaaStr and he's like, "Yeah, we're doing," I think he's doing, they were doing like 10 growth deals this year already, three the year before and one the year before. And he's like, "Some of it is we're seeing great deals," right? And he's like, "But across the industry, there, the time's ticking on these funds. So you gotta deploy them." So I- I wonder if we're pretending that, that we're- we're- we're praying, we're hoping liquidity comes back but we're investing, we're investing, Harry, like there's almost as much liquidity as 2021. And arguably it makes no sense, right? You can go through a year in venture with no liquidity, no one cares. No LP cares, no GP cares. A year, we're on ... Liquidity ended December 2021.

   10. HSHarry Stebbings15:52

       You're saying you have to deploy. You don't-

   11. JLJason Lemkin15:54

       Yeah.

   12. HSHarry Stebbings15:54

       ... have to deploy is actually the truth. Your LPs are not pressuring you to deploy. If you've managed your capital base well or your outgoings well and don't have ridiculous teams, you can draw fees for many years and pay those outgoings sufficiently. It is not a game of getting cash out the door. So I- I- I don't-

   13. JLJason Lemkin16:11

       It's-

   14. HSHarry Stebbings16:11

       ... think so.

   15. JLJason Lemkin16:12

       ... I think it's true to some extent. I think it's true. But at the end of the day, mega funds are all in the business of raising funds every two to three years. And can you stretch it to four? Sure, right? And these are funds that get 40 to 50% of their revenue from fees. And- and also you have to ma- maintain momentum in venture. You've done an incredible job, Harry, of maintaining momentum and building it. If you go five years without raising a new fund, um, and Andreessen's raised three, even if it's totally logical, all right? People forget about you, right? You may, your insiders won't forget about, like your existing LPs may say, "Good job, Jason, Harry." But the new guys will be like, uh, "You're- you're out of the game." Right?

   16. HSHarry Stebbings16:51

       I genuinely think we have a cheat with the content business because actually we're able to sustain momentum without doing deals, where our competitors have to do deals to sustain momentum.

   17. JLJason Lemkin17:00

       You know, I think that's all true, but here's the thing, Harry, is look, in some ways this is the hardest times of my entire career in some ways in tech. Um, multiples are down, liquidity's tough, but then you look at a Wiz. And you know what the job of venture is, Harry? There's only one job, it's to find Wiz. And you know what? When the Wiz founders had their second at bat in 2020, they didn't care if it was 2020, 2024, they're gonna found Wiz the same, whether i- whatever, whether it was an upturn, downturn, left turn, right turn. And your only, your job in venture is not to modulate your pace. Your job is to step up the game. There is a Wiz every year. There's a Wiz every year. Why weren't you in Wiz?

   18. HSHarry Stebbings17:38

       Uh, I-

   19. JLJason Lemkin17:38

       That's the question every LP should ask every GP, "Why weren't you

6. 17:42 – 19:08

   The Venture Game & Finding the Next Big Entrepreneur

   1. JLJason Lemkin17:42

      in Wiz?"

   2. HSHarry Stebbings17:43

      I was with one of the founders of the greatest firms in the world the other day.

   3. JLJason Lemkin17:47

      Yeah.

   4. HSHarry Stebbings17:47

      And I said to him, "How do you think about this world of venture? How do you navigate it? Just help me." And he said, "Harry, Harry, (laughs) venture gaming is the same as it's always been. There are one or two entrepreneurs that will change an industry every year. Your job is to invest in them." It's- it's very simple. It's very hard. But nothing-

   5. JLJason Lemkin18:08

      Your job is to find them. The investing, the inve- you don't, it's that, uh, I would agree with that almost. Like we are, venture is so well established as an industry now, you know when you find the 100X entrepreneur. Like you want to invest the next hour. Like that's not the har- the, uh, investing's not, invest- investing used to be the hard part when I started. Now it's finding.... because you know want to invest. (laughs)

   6. HSHarry Stebbings18:28

      Well, I would argue that if you find them, that's not enough. Uh, we can all find them, but then there's 12 people around it and you don't win.

   7. JLJason Lemkin18:35

      Sure, sure, sure. But I, but, but I, yeah, I'm just having a little fun. I don't think it's about investing, right? You gotta find them, and then you gotta convince them to take your money, for sure. But, uh, but that, but I, I just don't think... the, the best founders just start the company when they're ready. They don't up/down liquidity, schmidty. So on, on, on the one hand, it makes sense to slow down your investing pace. On the other hand, it's an excuse. It's an excuse. If I was, if I was an LP, I would be asking every manager this jerky question. "Why aren't, why aren't you in Wiz, uh, from the AR earlier? Why aren't you in Wiz?" That'd be my question that I'd wanna know. "Why

7. 19:08 – 21:40

   Requirements for Going Public

   1. JLJason Lemkin19:08

      aren't you in Wiz?"

   2. HSHarry Stebbings19:09

      Last one on Wiz. So we're gonna have-

   3. JLJason Lemkin19:10

      Yeah.

   4. HSHarry Stebbings19:10

      ... a secondary now or in the next months or so. Totally agree with you there. They IPO in 12 months, 36 months, what do you think, and what do they go out at?

   5. JLJason Lemkin19:19

      When I look at my own portfolio, this debate of, "Do you need 500 million to go public?" I do think it's true. Uh, we could talk about it. This Uber que- this really interesting one of the Canva's at two and a half billion and the, and Databricks at two and a half billion. And wherever Stripe is, w- how them optimizing the IPO path is super interesting (laughs) because they all could've IPO'd a long time ago, right? And, uh, even Canva's been profitable, right? So it's not even, it's not... Databricks is probably managing their bottom line, right, on the way to IPO. I don't think, uh, Canva has to care. So there's this next level game of everybody trying to perfectly optimize this in a, in a world where the, for the best, there's, there appears to be infinite secondaries, right? For, for the moment, right? So, so there really is an incentive. Everyone on the cap table can optimize what's best for them. And, um, so I, I don't know. But, um, when the CEO's in a, in, in his letter to the team says, "We're gonna go public," instead, "You gotta do it in the next 18 months or so."

   6. HSHarry Stebbings20:15

      Can I, can I just jump in there and ask?

   7. JLJason Lemkin20:17

      Yeah.

   8. HSHarry Stebbings20:17

      You mentioned, I, I don't, I think you need 500 million in revenue to go public.

   9. JLJason Lemkin20:22

      Yeah.

   10. HSHarry Stebbings20:22

       That is against what Bill Gurley, Brad Gerstner say before. Why do you believe you need 500 million, just so I under-

   11. JLJason Lemkin20:28

       It's... Okay, so let me be nuanced. There's, the, the public market folks will say, "You can't get analyst attention, and the markets are too thin and blah, blah, blah." And I'm sure that's all true, right? I, I think the real reason is, um, I'm u- I'm simple... I'm, I'm using too much shorthand. I think you need 500 million growing 30%. The problem is, everyone at 200 million, for the most part, uh, is not growing the 50 to 60% you need to land at 30% at 500 million, right? And so absolutely, that's... I mean, the new o- the next one's OneStream, right? They're gonna IPO at 500 million in revenue, growing 30 some odd percent, 34%. And so I absolutely think you can IPO in today's world at 200 million, but you probably have to be growing north of 50 to 60%, and there's just not enough of those candidates. A really tough part in SaaS is there's so many folks at 100 to 200 million growing less than 30%, and I don't... This is one I don't have the answer to. I d- never thought this would happen when I started in SaaS. I just didn't think this, you could get to this level of scale and then see the type of deceleration we're seeing in so many unicorns, uh, 100 million plus companies. And, um, if you're 200 million growing 60%, you're probably gonna wait to IPO a little longer in today's world, that's all, right? You're probably gonna wait.

8. 21:40 – 25:20

   How Well Did CrowdStrike Handle the Crisis?

   1. JLJason Lemkin21:40

   2. HSHarry Stebbings21:40

      You mentioned CrowdStrike there. They have had-

   3. JLJason Lemkin21:42

      Yeah.

   4. HSHarry Stebbings21:42

      ... more impact on, you know, international travel than a Taylor Swift world tour. Uh-

   5. JLJason Lemkin21:47

      Yes.

   6. HSHarry Stebbings21:47

      ... so I first wanna start on CEO came out, actually had him on the show. Um, but CEO came out and he did this little video. Was the situation managed well?

   7. JLJason Lemkin21:58

      Well, look, no. Um, of course it wasn't. We did not... It's even not, in my opinion, like, I was literally looking on their, on CrowdStrike website. They have a page called the F- the Falcon Content Update. It only had o- w- this morning didn't even have an update from today. It was still yesterday. Now, I checked, it does have an update. It's, there still isn't a great root cause analysis on their website that says what really happened. Listen, we get you did this content update. We get that it failed, but why? Just tell me what, like, why do we not have a root cause analysis up on their website today? And it is great that he went on. He was clearly exhausted, right? C- couldn't even talk, needed the water. But you gotta come up with a real root cause analysis, not a technical one, right? "Uh, w- we did a content patch in the morning, and it brought down the world." No, what happened at a human level? And so many cloud leaders don't do much better than this. (laughs) Okay, they don't. Uh, they may do worse, but for CrowdStrike at its $100 billion valuation and being, and, and even worse being... Here's the thing about CrowdStrike that is o- we didn't, you know, that, that is so obvious now. Um, it's, it's a sole source solution, sole vendor, single point of failure. If you're a single point of failure, I think you owe more root cause analysis and transparency than we've gotten. So I give them a, a, a C+. We're gonna have a fun case study to watch. I don't think anyone's gonna churn.

   8. HSHarry Stebbings23:18

      I thought... Listen, if it shows one thing, it shows that it's incredibly important to global security-

   9. JLJason Lemkin23:23

      Yeah.

   10. HSHarry Stebbings23:23

       ... and infrastructure. And the numbers are still fucking amazing by any point.

   11. JLJason Lemkin23:26

       Amazing. Growing 33% at almost 4 billion in revenue.

   12. HSHarry Stebbings23:29

       Yeah. And you said it won't churn. So are you saying-

   13. JLJason Lemkin23:32

       Yeah. But it's not, it's not as good as it sounds, okay? Because the amount of energy and time it takes to deploy CrowdStrike is so huge that it would take three to five years to churn out for real, okay? You have to test center one, or whatever you're gonna do in a small group. You have to do it on staging. You have to make sure it doesn't break. You have to learn all... Like, that is a three to five year initiative to move a core infrastructure, okay? If it happens at all. So even if there is churn, it's gonna be so far out, we're not gonna see it. But, um... And talk is cheap. People talk about churn, but then we're on to the next thing, right? The airlines were terrible. Like, this is a, uh, uh, a de- a destructive brand moment. But, but, um, not everyone was impacted the same way or to the same extent, right? The, and, and some people are just don't... If, if it didn't really bring down my business, it's IT's problem to deal with, right? So we don't know. But the, here's the problem. CrowdStrike relies on selling 30 products. Talking about multi-product, they have 30 products. When CrowdStrike brought my company down, Harry, how's the sales team gonna... How the, how the upsell's gonna go this week? "Hi, Harry, it's Jason from CrowdStrike." (laughs) "I've got a couple more security modules to sell you."And you know what? You- you're gonna get the call and you're just gonna get your head cut off for an hour, right?

   14. HSHarry Stebbings24:41

       (laughs)

   15. JLJason Lemkin24:41

       So I think almost upsells are gonna have to go on hold for, like, you know, three quarters. You know, the... It's not just going multi-product, Harry. What it is, this is what Datadog perfected, it's having folks love your product so much that they wanna buy more products from you. It's not just... Multi-product's not enough. Multi-product, when they don't like you, you know, it can work, but it's brute forcing. It's... I mean, I would say 2018, 2019, no one loved a product more than Datadog and now it's, uh, an eight or 10 product company, right? So how... The crow- uh, CrowdStrike has benefited, I believe, from some of that, so it's gonna be a rough NRR year. It's gonna be a rough... Your- the, the GRR is gonna stay high, the logo retention... But the, but the upsell's gonna be just b- brutal.

9. 25:20 – 29:08

   The Bull & Bear Cases for CrowdStrike

   1. JLJason Lemkin25:20

   2. HSHarry Stebbings25:20

      Okay, so I just wanted to kind of separate these two camps. Uh, if we move forward then and we think about a bull case and a bear case (laughs) for CrowdStrike, if we start on the bull case. Let's start optimistic. What is the bull case for CrowdStrike from here?

   3. JLJason Lemkin25:36

      Well, two things. First of all, even w- with CrowdStrike arguably the most attractive SaaS and cloud company unti- through last week in terms of multiples, everything, full package, everything, cash flow. Um, so you're held to the highest standard. Having said that, everyone gets one pass. And I do think what CrowdStrike kept saying is very important, even though no one was listening at the time, which was, this was not a security incident. Everything was, "This is not a security incident." We f- screwed up. You know, we did this, we did this upload, this release that was bad, this content release, whatever it was, but it w- we... Our security was not breached. You have 200 SaaS apps running in your company, so many threat vectors in security. There's so much threat, right? If CrowdStrike has been knocked down a peg on your list, but you still believe it is the best solution, including effort and work to rip and replace and do something, you get one pass. You don't get three. And it wasn't a security incident. So, o- outrage is... You know, the c- the, the cost to send an angry tweet is so low. It's so low to be outraged on Twitter, right? We're all onto new things. There's ev- you know, we, we can see it in politics. We stopped caring in a week, you know? And so how much the... Delta's gonna care. Right? I mean, Delta's gonna be upset for quite some time, right?

   4. HSHarry Stebbings26:46

      (laughs)

   5. JLJason Lemkin26:46

      My... I was at my gym yesterday, Harry. It's still down for CrowdStrike. I put it on Twitter. It's still down. My gym is down for CrowdStrike (laughs) . It was so hilarious. Half the monitors are the blue screen of death across this huge gym. But you gotta give... You know, this cloud stuff is hard and you got to give folks a pass. And the fact that it wasn't a security breach is important. It is important. And so, do I think more folks are gonna buy more modules this week? No. Do I think the sales team's gonna have a h- tough go of it for a little while? Yes. Do I think the existing base will give them a, a, a pucker to pass? Yes, because everyone's got one.

   6. HSHarry Stebbings27:20

      Okay, so it wasn't a security breach. There's different people impacted in different magnitudes. A lot aren't as impacted as Delta is, for example. And then people get a pass for a mistake or two.

   7. JLJason Lemkin27:31

      Yeah.

   8. HSHarry Stebbings27:31

      And this is one of the first that they've made severely. Um...

   9. JLJason Lemkin27:34

      That's why I think the communications is so bad, because they're not... Uh, it's, it, it was a, it was a nominal apology, but they weren't asking for a pass. They weren't explaining that, "This is why it happened and why... Harry, it will never happen again." That's what we need to hear. To really get a pass, you need to hear that. I think if they have no issues for a year, nothing, nothing. Delta aside, they will get a pass. You gotta let your vendors screw up once every five years. A- again, if this was a, if this was a material security breach, I think it's existential for this company. And that's why they also subtly said, "Be alert. Like, like, threats are gonna be higher. Folks are gonna be trying to take advantage of the situation." Like, they were carefully placing their words to talk about what really matters.

   10. HSHarry Stebbings28:15

       Which comes to the other side of this equation, which is the bear case.

   11. JLJason Lemkin28:19

       Yeah.

   12. HSHarry Stebbings28:20

       Should this be the end for CrowdStrike? They have fines. There's gonna be legals. This, there's gonna be subsequent security attacks. It could snowball.

   13. JLJason Lemkin28:31

       The irony is, you know, some folks are saying this is exactly what happened with McAfee when George Kurtz was CEO there, that they had such a meltdown, they had to sell the company. They were u- unable to recover. I, I guess it could happen. That's top of mind, right? Is making sure that the company sustains. I just think there's so many... It's, there's so many great people working on this issue. I think maybe the bigger issue is they just become too conservative af- a- a- after this. They may become too conservative. We do need CrowdStrike. It's done a pretty incredible service since 2011. That's 13 years in. It went... In 13 years, it built a four billion dollar business, growing 33%. It's, it has... It is a service and we'll give them one pass. I don't think it will

10. 29:08 – 33:01

    Predicting CrowdStrike's Market Cap for End of 2024

    1. JLJason Lemkin29:08

       bring them down.

    2. HSHarry Stebbings29:08

       Final element on CrowdStrike. CrowdStrike's market cap today is 66 billion, okay?

    3. JLJason Lemkin29:14

       Yeah. It was 100 last week.

    4. HSHarry Stebbings29:16

       It was. Um, w- we're gonna have-

    5. JLJason Lemkin29:18

       But if the growth has been c-... Look, like, let's... Forget about the drama. This, this may be the most r- the only rational thing I've seen in the stock market. If growth is gonna be cut 40% because of upsell, because of lengthening sales cycles, may- maybe that sounds about right.

    6. HSHarry Stebbings29:31

       Okay. We're gonna have this chat at Christmas time. Where is CrowdStrike then?

    7. JLJason Lemkin29:36

       You know, here's the thing. I'll tell you why it, it, it, it may rebound, um, 'cause I just wrote it up for tomorrow. They were onl- they were... They have extremely conservative projections for next year. They said they're only gonna grow in the teens from 33% this year. Super conservative is what they already told Wall Street.

    8. HSHarry Stebbings29:55

       Wow.

    9. JLJason Lemkin29:55

       So, they have a big buffer. Like, they may still... Uh, all the analysts downgraded them. I'm sure you saw it, right? They all downgraded them and said growth's gonna be lower, but they had such a big buffer because they projected such and such other growth that they may well be able to still make their number, even with all these issues. It's a little thing. So, like, I would be careful to, to, to bet against them because they, they just put abs- they just, they just put such a buffer in hitting the numbers.

    10. HSHarry Stebbings30:18

        So you've got, you've gotta give it a number and I'll give it a number too. As I said, it's 66 today.

    11. JLJason Lemkin30:23

        I'm gonna guess it, it bridges 50% of the gap. So it was at 100. Today, it's at 66. So I'm gonna guess it, it makes back 17%, half of that. So what does that bring us?

    12. HSHarry Stebbings30:33

        Wow.

    13. JLJason Lemkin30:33

        Up to 80? 83?

    14. HSHarry Stebbings30:34

        Yeah, you're-

    15. JLJason Lemkin30:34

        I'll go 83. I don't know if the public markets are fully logical, but there's logic in what I just said, is make up half the gap, 'cause they're gonna-

    16. HSHarry Stebbings30:40

        There's ab- there's absolutely logic in what you just said. I w- I wouldn't go too dissimilar. I mean, I bought when it was at 74.

    17. JLJason Lemkin30:46

        ... yeah.

    18. HSHarry Stebbings30:46

        Uh, so I would go- I'm gonna go for 75.

    19. JLJason Lemkin30:52

        (laughs)

    20. HSHarry Stebbings30:52

        I don't think it'll take such a rebound. I don't think it's gonna take such a rebound. But I think legals and fines are gonna be real, and I think it's gonna be an interesting enough story. It's touched enough consumer, like, lives-

    21. JLJason Lemkin31:03

        Yeah.

    22. HSHarry Stebbings31:03

        ... that actually it's had serious negative brand damage.

    23. JLJason Lemkin31:06

        It does. Just listen, i- it's true. The legal and fines, you take a reserve, and the truth is it doesn't really matter because it's, it's not a, a forward impact. It doesn't really tell you where CrowdStrike's gonna be in five years, so the markets usually shrug it off even though, again, it's, it's a lot of drama.

    24. HSHarry Stebbings31:20

        Can you imagine when this shit happens? You're like, you know, having dinner with your family and you're like, "You what? We're down?" (laughs) "Fuck." (laughs)

    25. JLJason Lemkin31:29

        You know, Harry, it was the number one thing, uh, reason I wanted to sell my startup, was for these issues. Every outage was so... It took so much out of me. You... It so m- so much out of me. Um, it, it just killed me. Every single one just, just killed me. And, uh, trying to align the team around it, always being the fr- on the frontline, on pager duty, the first one up all night long when there were issues. Whenever we would ha- like, making sure no matter what we were up by 5:00 AM Pacific, right, before a- any issues came up. But we were big in the UK, so we had other issues. So we would see... Back in the day, we would see waves of issues because we had so many customers in the UK 'cause of BT and G Europe would, would... They would be our, our canary in the coal mine. When we had an issue, we would go down in Europe (laughs) before we could see it in the US. And so I was up at 3:00 AM. And, and I... It's not that I needed the sleep, it's just never being able to sleep. I was never able to sleep as a founder because of these issues. And, uh, I, I don't know if I'm happier today, but that was the number one thing I was so glad to have behind me. I still have these flashbacks when I saw George on the friggin' Twitter, like couldn't breathe and his hair, and he had to drink the water. I'm like, "That was me in 2010." (laughs) Terrible.

    26. HSHarry Stebbings32:42

        I know.

    27. JLJason Lemkin32:42

        The wor- the worst feeling. The worst feeling. And, and you just watch time tick and you're like, "Okay, if we can go back up in five minutes, it's..." And then it's 10 minutes, and then, then your entire support is just lit up. And then you go into half an hour, and then people don't believe you're ever coming back a half an hour in, right? It's just, it's just the s- the worst, the worst feeling in SaaS.

11. 33:01 – 37:25

    Jason's Analysis of Clio's $900M Round & $3B Valuation

    1. JLJason Lemkin33:01

    2. HSHarry Stebbings33:01

       Now listen, final segment before we-

    3. JLJason Lemkin33:03

       Yes.

    4. HSHarry Stebbings33:03

       ... we, we, we wrap up. But we saw two today, a billion dollars going into legal tech-

    5. JLJason Lemkin33:09

       Yeah.

    6. HSHarry Stebbings33:09

       ... with Clio raises 900 million, hits three billion valuation. First off, it's quite a lot of dilution I thought for a round at that scale and size actually.

    7. JLJason Lemkin33:17

       Most of it secondary.

    8. HSHarry Stebbings33:20

       Hmm.

    9. JLJason Lemkin33:21

       It's 300... three billion post, so let's call that two and a half billion to like whatever. I, I mean, a lot of it's secondary. And they're at 200 million in revenue and accelerating, 200 million ARR. So it's a 10X ARR deal. Two billion-ish pre, right? Two something B.

    10. HSHarry Stebbings33:36

        Mm-hmm.

    11. JLJason Lemkin33:36

        Um, high for today's world, but not, not out of line. It's... Let's assume they're growing more than 30% today, right?

    12. HSHarry Stebbings33:42

        Mm-hmm.

    13. JLJason Lemkin33:42

        This whole payments fintech thing is their big accelerant, right? This is a company founded in 2007 with a great CEO. Everyone in legal tech loves this guy, Jack Newton. He never quit since 2007. But if they were doing 100 million two year... They're doing tw- it said they went from 100 million to 200 million in two years, okay, which is why they raised the money. That's pretty good growth in today's world. But if they were... if they were founded in 2007 and got to 100 million two years ago, that was... Help me, Harry, uh, 2020... Two thou- that's 15 years to 100 million. That's not a rocket ship, is it? I think the fun one about this one... This one will be like Bill.com that took forever to get to 100 million. And then when the stars align, just like Bill didn't really align until they got into payments and payment management, the same thing happened with Clio. Now that they're managing legal payments, they're able to double in two years. And when it took them, whatever, tw- uh, 2007 to 2022, 15 years to get to 100 million, it was not a rocket ship until the... So I think the numbers, the growth and the numbers justify it. And I do believe the majority... I don't think it's that much... I bet it's 100 million of dilution, 200 million, the majority. I know a lot of the early guys sold their positions, eh, eh-

    14. HSHarry Stebbings34:43

        Mm-hmm.

    15. JLJason Lemkin34:43

        ... maybe in ta- in their entirety.

    16. HSHarry Stebbings34:45

        Sorry, the secondaries when te- are the investors?

    17. JLJason Lemkin34:47

        Mm-hmm.

    18. HSHarry Stebbings34:47

        Are the operators, are they fans?

    19. JLJason Lemkin34:49

        And employees too, I know. But I, I do know that... Someone told me this, an LP told me this comment the other day, I didn't realize it was Clio, but then it was, that one of their LPs had sold all their stake in the round, one of their GPs. Um, so-

    20. HSHarry Stebbings34:59

        Does, does this not answer your question on liquidity that you had earlier? 900 million.

    21. JLJason Lemkin35:02

        Yeah. But there's not enough of these. There, there were one of these a week in 2021, Harry. Listen, here's the problem with venture. This is a g- an e- listen, A+ CEO, I, I love him. The company was founded in 2007. So let's imagine you... Like, uh, okay, the VCs came in later, but let's imagine you invested in 2007 so you're waiting and now it's 2024. How many years do you have to wait for liquidity? Sorry, four t- f- sorry. I'm getting... I guess I am getting tired. How many years is that? What am I missing here? 17 years for liquidity? How long is the nominal fund life? 10 years? It doesn't match up. Doesn't match up. Yeah, you get two one-year extensions. (laughs)

    22. HSHarry Stebbings35:34

        (laughs)

    23. JLJason Lemkin35:36

        So looking... There's nothing... As a founder, in a way, there's nothing more heartening than these late... these ones that accelerate late in life, right? The, the Cleos, the Bills, even the drama side, the UiPaths, right? These ones that blo- these late blossomers give us all hope that if you're 110 committed to the space, right? Like Clio was, really early in doing web practice management for lawyers. Like, let me tell you, trying to sell to lo- legal back in twe- 2007 was impossible. They didn't trust the internet for a signature, for a document. I'm out of here, Harry. I'm not... Uh, forget it. I'm out of here. Um, the fact that he could commit as the founder for this long and finally hit it, it is just heartening because we want to believe this as founders that we don't all have to be Whiz to have a great outcome, right? It's a great... It's a better story in some ways than Whiz, in some ways, right? Most of us can't be Whiz, but Clio is to us is like, "Listen, if we're great founders and we never quit for 20 years, maybe we can be Clio. Maybe we can be Clio."

    24. HSHarry Stebbings36:29

        I agree. And going back to a couple of different points earlier, but like who would have thought actually that you could get the- this big company in purely legal tech and, you know, practice management in legals? That's exciting. A-

    25. JLJason Lemkin36:39

        Yeah. Well, maybe you can't without managing the payments.You know, we kinda- we kinda crap... A Fintech's going through some tough times right now because of low margins and fraud and other issues. But when you combine payments and software just right, like a Shopify, man it's powerful. There are too many cynical folks bolting payments onto software with 0% margin and claiming it was SaaS revenue. That was at the edge of fraud. But doing- but doing the high margin version like Clio and Bill and-and, um, and some others, it's epic if it works, right? I mean, 70% of Spotify- uh, Shopify's revenue is from payments and merchant services, not from SaaS. 70%.

    26. HSHarry Stebbings37:12

        Dude, I sent you the Germany deal that we did, Alo, 'cause I wanted your thoughts on it.

    27. JLJason Lemkin37:16

        Yeah.

    28. HSHarry Stebbings37:16

        Which incorporate the POS provi- well, it's POS provider for, you know, ethnic restaurants under a certain size. And it's exactly the thesis there, so-

    29. JLJason Lemkin37:24

        Yeah.

    30. HSHarry Stebbings37:24

        ... totally agree.

12. 37:25 – 41:59

    Jason's Take on Harvey's $100M Raise & $1.5B Valuation

    1. HSHarry Stebbings37:25

       But when we look at that in context, Jason-

    2. JLJason Lemkin37:28

       Yeah.

    3. HSHarry Stebbings37:28

       ... we then have Harvey.ai for lawyers, which raised 100 million at a 1.5 billion valuation. They say they-

    4. JLJason Lemkin37:36

       Yeah.

    5. HSHarry Stebbings37:36

       ... tripled ARR from December, implying that they are at 30 million ARR today, two years from founding.

    6. JLJason Lemkin37:44

       Yes.

    7. HSHarry Stebbings37:44

       What are the thoughts on- on that sustainability of revenue? How that just compares compared to maybe Clio in the same space? What are your thoughts when you hear that?

    8. JLJason Lemkin37:54

       Well first of all, it is, um... You know, the rate at which some folks can grow in AI today, it really is breathtaking. It breaks the models. But then the... You know, when I talk with folks in legal tech that I know, the objection, and it's- I don't think it's totally to Harvey, it's- it's with a lot of folks in the- in the groups, um, in the category. Which is that, look, we're all gonna do the same stuff.

    9. HSHarry Stebbings38:18

       (laughs)

    10. JLJason Lemkin38:19

        We all can review NDAs and we all can do basic document review, and we all can even do e-discovery, and, th- like, stuff that is big categories. We- we're all gonna have parody on this. Like there- it's hard to really break out. And I think 2025 will be the year of SaaS AI parody. Everything's gonna be parody in 2025. Not total parody, but- but close to parody, right?

    11. HSHarry Stebbings38:41

        What do you mean- what do you mean by that, Jason? Sorry.

    12. JLJason Lemkin38:43

        All- every legal tech product will have the same AI features. It's already happening in contact center where I've done a lot of investing. If you look at the- if you look at Zendesk, Gorgias, Intercom, Front, Kustomer, look at their website. Their homepages all say the same thing and they basically all... Now, they're all very different, okay? Like, Gorgias, where I'm on the board, it owns eCommerce, uh, contact center, okay? But they all basically do the same thing. They automate 30% of your- of your contact center issues with AI. Can they do it different ways? How could you have a- a... One, how could you have a contact center product with 0% AI today? You'll lose every deal, right? But on the other hand, you can't say 30% is game-changing because they all can do 30 per- now, is Zendesk as good as Gorgias? Maybe Roman will tell you not. Uh, you know, is Intercom the best? You know, uh, Owen's gonna tell you, shouting from the rooftops, that theirs is- their Fin is the best. But you- how do you- from a check the box perspective, they're all hitting that 30 to 40% level, right? And so I remember when- when legal started to blow up, and I had asked Andy from Logical, that was my first legal tech investment that sold for 300 million last year. I'm like, "Wow, my mind was just blown with all this NDA review and document review." He's like, "Man, like everyone- it's all gonna be the same. Give it six months. Everyone..." Like, yeah, it's great, but I know 20- 20- 20 legal tech CEOs who all are just bolting this in. Now, I don't- I- I- I'm not saying someone won't break out and it might not be Harvey, right? But this... I do think when we get excited in venture, there's one issue which is this experimentation budget, right? Will this stuff stick? Which people talk about, right? Especially in the CEO's office. The other question I really think is AI parody, and that's why I think in B2B, AI is gonna really calm down in a year, right? Um, like you invested in this German company, right? I invested in Owner, right? Which is adjacent, right? Owner- Owner- Owner builds these, like, incredibly powerful websites through using AI for restaurants now, okay? And they're not the only one, but when it came out, it was- it- it's jaw-dropping how good it is. But in 2025, everyone's gonna have this feature and Owner's gonna have to have 20 more features (laughs) because everyone's gonna copy. It's like we're back to copying where we- we fell away from copying for a while in SaaS, right? And now we're all back to everybody quickly copying each other in AI. And I think in a way, when I say that AI parody, I actually think the more vertical you are in SaaS and the more niche you are, actually the more differentiated it'll be, right? Because when you're still competing with spreadsheets and paper, right? Uh, automating workflow is great, but then automating humans out is next level.

    13. HSHarry Stebbings41:08

        Mm-hmm.

    14. JLJason Lemkin41:08

        Right? It's just in the most competitive spaces, you know, Outreach, Gong, Salesloft, all these, you're not gonna be able to tell the difference between any of their AI products next year. Gorgias, Intercom, Zendesk, you're not gonna be a- a- at a detail level you can, but superficially you're not gonna be able to tell the difference. And Andy's point from Logical is legal- legal gets it. This is disrupt- there's no question this is the first thing that's been disruptive in legal tech in a long time, right? But here's the point about AI. Everyone gets it. Like, you- you didn't figure this out on your own, you're not the only legal tech company who said in 2024, "Wow, what if we added AI t- to this," right?

    15. HSHarry Stebbings41:43

        (coughs)

    16. JLJason Lemkin41:43

        And I'm not saying Harvey didn't get 30 million of revenue, the rest didn't, but is that sustainable and defen- and I hate the defensible word in- in lega- in VC but it does matter. Is that defensible when the entire industry is doing that in 2025? We'll see. We'll- we'll just- we'll- we'll just see, right? We'll just

13. 41:59 – 50:15

    Quick-Fire Round

    1. JLJason Lemkin41:59

       see.

    2. HSHarry Stebbings41:59

       Quick fire round, my friend.

    3. JLJason Lemkin42:00

       Yeah.

    4. HSHarry Stebbings42:00

       What is no one saying that you're willing to say? Like you said earlier, we're all pretending. What other thing is no one saying that we're all feeling?

    5. JLJason Lemkin42:10

       This one isn't like, uh, epic, but I just think we're sitting on a ton of 1X funds in venture. Just so many 1X funds. They'll never get out of 1X, a whole generation. And listen, I barely saw... I- when I was- when I first joined venture, I could see the tail end of the 2000 funds. I mean, I wasn't there in venture, but I could see what they looked like 14, 15 years out. And just doing 1X in a 2000 vintage fund was, like, top decile, I think (laughs) .

    6. HSHarry Stebbings42:35

       (laughs)

    7. JLJason Lemkin42:35

       I'm not saying we're going through that, but there is such a bi- there are- there are so many funds that will end up a whole generation of 1X funds and how... It- it's just founders aren't yet...... paying the price or, or, or not getting the benefits. But that's one thing people aren't touching. I, you know, I wouldn't be surprised if the majority of funds from the last few years are 1X funds.

    8. HSHarry Stebbings42:55

       Tell me, what is the most underappreciated public company, Jason?

    9. JLJason Lemkin42:58

       I'm still gonna say Klaviyo for a variety of reasons, and I'll tell you why. Klaviyo, for folks that don't know, is basically the HubSpot for e-commerce, okay? They are coming up on a billion in revenue. In fact, they are bigger in marketing revenue than HubSpot. They're actually bigger. But they're very specialized on Shopify. 70, 77% of revenue comes from Shopify. This is a company that was almost bootstrapped, right, as you talked with Andrew. But here's what's interesting. Here's, just like Dat- Everyone loved Datadog back in the day, right? People love Wiz. Look at it. I know, I know a bit about the B2B e-commerce space. Until there was a little bit hiccup recently when they increased prices at Klaviyo. But until then, this was a grab you on the street and tell you how much you love the company, coming up on a billion in ARR, growing, approaching, you know, 40 to 50% growth. It's a magical story that's not understood well enough. In fact, no one... I, I don't think anyone outside of e-commerce had even heard of this company before it filed to go public, right? Everyone in e-commerce, it's the giant, right? It wa- It was the giant, right? Um, that 150 million ARR CEO I was talking about, that I talked with yesterday, like, uh, half the conversation was about, "I wish I was Klaviyo or Klaviyo this," and he's at 150 million. The fact that that isn't a 20X ARR company, like CrowdStrike was, wor- worries a lot of us. It worry- It worries a lot of us. The multiple, the multiple there, there's, there's nothing but love for Klaviyo. Nothing but great. I mean, you could, you know, you could say, "Oh, the revenue is decelerating a little bit," but it's, you know, it's decelerating for what? This is still a top 5% public company and it's only worth 6.9 billion. These are the kind of stories that Wiz, uh, obscures. (laughs) Klaviyo, in my mind, should be 12 to $13 billion company at minimum.

    10. HSHarry Stebbings44:31

        Penultimate one for you, my friend.

    11. JLJason Lemkin44:32

        Yeah.

    12. HSHarry Stebbings44:32

        Um, what's the most over-appreciated public company today?

    13. JLJason Lemkin44:36

        I mean, I don't want to pick on anybody, uh, but I think the one we're trying to understand is, um, how was Snowflake v- vulnerable when it appeared invulnerable? Snowflake was, you know, the wiz of its day, right? All the way through, like, it would just... We'd never... Not only had we never seen metrics like this, it was sucking up data, sucking up budget, like we'd never seen before. Then it became mortal. Now the most legendary CEO of... in SaaS quit. (laughs) Quit. I mean, I mean, it's pretty bad that Frank Slootman quit. We're in a quitter culture. Everyone's quitting now, Harry. It's not just the kids. Everyone's quitting. And I, listen, I mean, I... The man deserves his rest, okay? So, like, I, I... But, um, you know, we're, we're, we're down. It's now a mortal company. It is now a mortal company. It is growing... Look, it is n- It is, until... You know, un- We'll see what happens, but it's just as good as CrowdStrike now. Same, same ARR, same growth, basically, right? It's almost the same ARR, almost the same growth.

    14. HSHarry Stebbings45:38

        Well, then it's a buy because it's priced at 44.

    15. JLJason Lemkin45:40

        It's a buy, but it's mortal. It seemed like Snowflake was going to be the next great platform, but it is Databricks. I know it's not completely fungible product, but i- it's growing even faster at 2.5 billion, right? It's just mortal. Databricks, I think, proves Snowflake was mortal. So I just think we, we... No one ever talked about Klaviyo until a couple months ago. We all talked about Snowfl- (laughs) Like, Snowflake, Snowflake, Snowflake, right? It was just... (laughs) It could, it could do... And it still has done no wrong, but it is now mo- It is now rea- merely one of the best.

    16. HSHarry Stebbings46:13

        I agree with you. I interviewed Ara from ServiceTitan recently.

    17. JLJason Lemkin46:16

        Yes.

    18. HSHarry Stebbings46:16

        Incredible. Incredible.

    19. JLJason Lemkin46:18

        Incredible.

    20. HSHarry Stebbings46:18

        That is a fucking fire business.

    21. JLJason Lemkin46:20

        Fire. The, one of the... I told you that would be the first IPO of the year, I was wrong, but it's, might be the best, right?

    22. HSHarry Stebbings46:26

        Yeah.

    23. JLJason Lemkin46:26

        Might be the best one.

    24. HSHarry Stebbings46:26

        Uh, final fi- final one.

    25. JLJason Lemkin46:28

        Yeah.

    26. HSHarry Stebbings46:28

        What private company are you not in that you would most like to be in? So you tweeted earlier about Revolut and Taiga.

    27. JLJason Lemkin46:37

        Mm.

    28. HSHarry Stebbings46:37

        I would most like to be in Revolut, of all private companies right now.

    29. JLJason Lemkin46:41

        I don't know. I would take those two. I would take, I would take Wiz and ServiceTitan. And if I were my LPs, I'd be very critical. I'm like, "These are two CEOs that were SaaSer super fans from day zero. They know SaaSer well. Why aren't you an investor?" I would beat myself up if I was an LP too. Th- These are great CEOs. These are, these are salt of the earth folks that will go forever, that are great humans. These are both great humans. The thing... One thing I learned from Mamoun Hamid is, if you can, maybe, maybe don't invest in jerks, 'cause it just burns you out.

    30. HSHarry Stebbings47:06

        Why aren't you invested in those two if they are both super fans?

Episode duration: 50:15