The Twenty Minute VCJensen Huang Declares AGI Has Arrived | Tesla Launches Cybercabs | Index Pulls Out of Town
EVERY SPOKEN WORD
90 min read · 17,534 words- 0:00 – 0:58
Intro
- RORory O’Driscoll
There's going to be no financial math you can use to buy the stock. When someone goes risk on, everyone goes risk on.
- JLJason Lemkin
Welcome to venture, baby. [laughs]
- HSHarry Stebbings
This week, AGI's arrived according to Jensen Huang. Next, we have OpenAI releasing GPT Astra. And what on earth is going on with the AI Assistant race? Meta also releasing their product. This and so much more in this discussion today.
- RORory O’Driscoll
I would imagine as we speak, there are 20 engineers locked in a room in somewhere in Palo Alto, and literally with guards on the door saying, "Nobody eats and nobody leaves until you ship Instinct clone."
- JLJason Lemkin
12 billion for a bootstrap company. Now it's just a, that's a Series C round.
- RORory O’Driscoll
There was a free 10X in the public market in three years there on Robinhood. In this market, the people who are making the money are the people who are just running fastest and evolving quickest.
- JLJason Lemkin
Ready to go? [upbeat music]
- 0:58 – 5:40
The AI Assistant Race: Instinct, Grok Bot and Meta
- HSHarry Stebbings
Have you guys tried Instinct yet?
- JLJason Lemkin
No. Can I ... I can't sign up, right? I hate to be- it's not like I'm behind the times, but when, when it's ever it's a closed beta, just don't bother
- RORory O’Driscoll
You can get an invite.
- JLJason Lemkin
I'm not a fan of Grok Bot or Instinct, um, but, um, someone- there will be many winners. There is a genre of applications, right? And a lot of actually AI GTM applications are included, and Instinct, and Grok Bot's the interesting one because SpaceX is public. Where one of the reasons they work is because they can break the rules. And that, you know, in the old days of venture, that was troubling.
- RORory O’Driscoll
We are wasting content here, people.
- JLJason Lemkin
Or you could use it, right?
- RORory O’Driscoll
We are wasting content.
- HSHarry Stebbings
My dear friend Rory, we record. [laughs]
- JLJason Lemkin
Yeah.
- HSHarry Stebbings
Oh, good.
- JLJason Lemkin
I mean, in the old days of venture, you, you wouldn't do things like gambling or other types of things that had risk or, or edgy things and, um, but you can break the rules, right? Even Grok Bot, like, which is like a mini Instinct, right? Um, one of the things it does is every single person spins up an instant VM, and they get their own, and they get their own, um, browser in it. And Grok Bot uses Google, which is not allowed, which is prohibited by the terms of service, to Google things and then give you answers. And, um, it's great, and any startup that you might invest in early stage would do that and no one would know, right? Google isn't going to care, but you're breaking, you're breaking rules. And it's not that I don't love these products, but OpenClaw broke every rule on the planet, not just laws, but just every rule of what you could do. Instinct and Grok Bot, which are like OpenClaw, they're much better, but I think some of the reasons they work, like breaking Resy's terms of service, right? Br- uh, spinning up browsers that you're not ... Like, using agents to go into browsers, Perplexity and Amazon fought over this. So it's not that I'm not excited, it's just a lot of the thi- many, there are many cases of things in AI that are exciting because you break the rules. You can scrape LinkedIn in the ways you, you can't really scrape, right? You can do outbound phone calls that are actually prohibited and illegal in parts of the US, but as a startup, you're not going to jail. But does that count? [laughs]
- RORory O’Driscoll
The thing is, you can look both ... You can, you have examples both ways.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
'Cause you're right, Jason. The, the LinkedIn scraping, in the end, n- no business at scale ever gets built on that, and no business at scale ever gets built on breaking Google's terms of service. On the other hand, Uber blustered their way through, broke the laws, and eventually it was so popular that politicians folded, right?
- JLJason Lemkin
Yeah, for sure.
- RORory O’Driscoll
So, you know, the truth is I've learned that there's no one answer here, right? Like the Resy example, and just for you, uh, listeners, what happened is that the Instinct agent, um, one of the classic use cases for this is getting reservations at hard-to-get restaurants. So a whole bunch of people started using it over the weekend, and they're pounding on the Resy reservation API till the thing breaks, right? And that's the kind of thing that's gonna happen and, and that, you know, the truth is if Instinct, if these do become ubiquitous, then the booking reservation systems are just gonna have to find a way to deal with it. They're gonna have to have a separate API. They're gonna have to segment the number of hits you can do. They're gonna have to do something. But the truth is, if there's a whole bunch of people trying to book restaurants and you're in the restaurant booking business, you're gonna find a way to make it work.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
Right? 'Cause, yeah. But, but definitely some rearchitecture to go on here.
- JLJason Lemkin
It is ... The flip side is it, it is interesting in that it gives white space for ... Like, the, the bad side is you're breaking rules, and Rory's right. There's many histories of, of begging for forgiveness, breaking rules, and then once you get big, coming on the other side of it, right? C- coming in and, and, uh, doing it. The flip side is I, I've talked with multiple public company CEOs who say they're, they're, they're hamstrung. Their hands are tied behind their backs. They can't compete with startups. Not because they can't do it, okay?
- RORory O’Driscoll
That's true.
- JLJason Lemkin
But because i- their, their legal teams won't let them, right? Literally. And I remember back in the day when we were acquired by Adobe, bef- uh, five, eight years before anyone did it, we allowed real-time document collaboration and redlining online. No- this was ... No one built this for, like, eight years, okay? It was jaw-droppingly good that my CTO built, okay? Unfortunately, the only way it worked is if you ran Word in a container, in a VM, which violated Microsoft's [laughs] terms of use. So the day after the deal closed, well, my, my favorite, like, second-generation feature, which would've given us, back in the day, a five-year head start, got, got ripped out by Adobe the next night, right? And so-
- RORory O’Driscoll
Nice
- JLJason Lemkin
... literally, I was with some public company CEOs saying, "We just can't compete because we can't do things that are [laughs] violate terms of service." Uh, Elon can, but anyway, I don't mean-
- RORory O’Driscoll
Yeah, it's funny
- JLJason Lemkin
... so Rory's right. I just-
- RORory O’Driscoll
Everyone recogni- uh, everyone recognizes that the universe of people who can break the rules is clearly all private companies' CEO and the CEO of the eight align- largest market cap company on the planet 'cause Elon just doesn't care. There might be a lesson in that somewhere for the rest of us.
- JLJason Lemkin
[laughs] Yeah, he doesn't care, assuming.
- RORory O’Driscoll
Maybe not caring is the secret sauce. Just, yeah, yeah, right, people.
- 5:40 – 7:27
Why Distribution Could Decide the AI Assistant Winner
- RORory O’Driscoll
You know?
- HSHarry Stebbings
You know what's so interesting for me is actually the how important the form factor is, and how important being where people already are is.
- JLJason Lemkin
Yes.
- HSHarry Stebbings
And what I mean by that is there are a ton-
- JLJason Lemkin
WhatsApp
- HSHarry Stebbings
... of people who I know who've picked it up and love it and engage with it in a way that they wouldn't any other AI tool other than ChatGPT because it's in WhatsApp.
- JLJason Lemkin
Yes. It is one of these amazing things that, um- Just figuring out how to elegantly make agents work in WhatsApp and text, right, is, is something that, um, could have been done s- six or nine months ago, and was done to a limited extent. Um, the only thing I'll say, it's funny, um, I- I- I invested years ago in a company called Gorgeous, which is a little over 100 million, which used to be sup- e-commerce support, now it's an AICX, right? And they launched their agent in WhatsApp that anybody can use as, and, and text, and it's already double digits of their usage in a couple weeks. So now it's, it's bounded, right? It's really just for your orders and what's happening for your shipping and your product and afterwards, but it shows how quickly an innovation will just be copied and everything, a paradigm shift. Gorgeous can clone it in a couple of weeks. [laughs] It just, it's not a bad thing, you just, the, the pace of, the pace of cloning, copying innovation, it's just, uh, you know, it's hard to keep up, right? So I just, I don't know what all the Instinct clones will look like by the end of the year, but this is just the world we live in. So I might do it at two, but that would be my ce- it'd be two, two would be my ceiling.
- RORory O’Driscoll
Good to know you have a ceiling, Jason.
- JLJason Lemkin
Yeah, two. We're gonna walk-
- HSHarry Stebbings
It, it, the last round was two and a half, Jason [laughs] so it's already exceeding-
- JLJason Lemkin
I know, I know. That's why we're gonna have to pass on the round-
- RORory O’Driscoll
So at some point-
- JLJason Lemkin
... 'cause at some point-
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
[laughs]
- HSHarry Stebbings
Wow, so Jason, in, in our-
- JLJason Lemkin
That was a joke, but
- HSHarry Stebbings
... metaphorical IC that we br- did last week, which was very popular and went very viral on Twitter, well done for Linear and Clay-
- JLJason Lemkin
Yeah
- HSHarry Stebbings
... you would not be recommending $100 million check from the growth fund?
- 7:27 – 11:05
Is Instinct Investable at a Multi-Billion Dollar Valuation?
- JLJason Lemkin
Into Instinct? I wouldn't do it because I think just even if Gorgeous has its own Instinct just for e-commerce, there will be 100 of them, right? And Meta will have them and, and 100 startups, and there'll be 20 in the next batch of YC. I'm just not smart enough to bet on that one pre-revenue. It's not my vibe, right? And I will regret it because, uh, I'll, you know, I d- I, I didn't get, I didn't look at the deal, but I, you know, I remember plenty others like Loom early, I'm like, "I don't, I don't, you don't have any revenue. I don't know anyone's..." Like Loom's great, but everyone's gonna loo- l- make their own Loom and, you know, I was wrong, so... But you gotta have that stomach to write 10 or 20 of these consumer-y checks at two and a half billion, right? So what fund size... And you, and it, it can't just be the only one in your fund. You gotta do, like, 10 or 20 of these so, so that the, the good one pays off, right? I, I'm not smart enough.
- RORory O’Driscoll
Yeah, I mean, yes. The interesting thing is, you're right, Jason, it's kind of a, it's a, I wonder if I put, it's a portfolio and a worldview kind of bet because, you know, you, you have this company that's exploding in interest, clearly didn't take a huge amount of time to build, but it's kind of got this early lead, but not a ton of monetization. And your choices as an investor are, do you put money in this at 4 billion or 5 billion, right? Or do you say, "Oh, it's easy to clone and there's 10 more like it," and, you know, you do one of the others at 50 pre in the hope that they get acquired by Meta instead, right? And the hard thing is, in these investments, just like Google earlier, there's going to be no financial math you can use to buy the stock. You're just basically saying it's a huge category. 'Cause in every consumer investment, the trick is, you know, e- e- establish the momentum as early as possible, establish the monetization later, and, you know, it has been proven that if you get, if you get enough traction, the monetization does follow, especially for something like this.
- HSHarry Stebbings
Just reminds me of Lovable in the way that everyone was saying about the commoditization of that space, and it's really quite a light wrapper product, and then every day I'm seeing Noah Shin, the founder of Instinct, come out with, "Oh, we're now doing location sharing. Oh, we've now partnered with 1Password. Oh, we're now doing this." And actually the cadence of shipping combined with Index Benchmark and having-
- RORory O’Driscoll
Agreed
- HSHarry Stebbings
... probably one of the best brands in the space-
- JLJason Lemkin
I, I agree.
- HSHarry Stebbings
Mm.
- JLJason Lemkin
I said that last week-
- RORory O’Driscoll
No, I agree
- JLJason Lemkin
... that, that it will solve these problems and it will become a much richer app. It will figure out guardrails. It will figure out the hard points, and the other folks will fall behind because, uh, crappy-
- RORory O’Driscoll
Because first is first
- JLJason Lemkin
... Lovable product's worthless today. I, I, for sure. That's, that's the bet. Um-
- HSHarry Stebbings
My, my, my take is actually it's why you buy Meta today, 'cause you've got the most clear, unwavering PMF for this product.
- RORory O’Driscoll
Yes.
- HSHarry Stebbings
And Zuck is the one who owns the core distribution channel, and Zuck has been working on this product. If anyone's done a proven track record of copying extremely well-
- RORory O’Driscoll
Yeah, no, I would imagine-
- HSHarry Stebbings
... and integrating-
- RORory O’Driscoll
Yeah. I would imagine as we speak, there are 20 engineers locked in a room in somewhere in Palo Alto, I meant literally with guards on the door saying, "Nobody eats and nobody leaves until you ship Instinct clone." You know, right? Absolutely. No, there's a-
- JLJason Lemkin
Well, you know who would've been great at it would've been the Manus team because they built a version of this, right? One, one of the things that Ma- if you... I mean, Manus is now an independent company, right? And if you look at what Manus did that was disruptive, it, it sort of broke the rules for what agents could do, but, but, but not, not at, not at the crazy level. It, it, it did a little bit of open claw that everyone else wasn't doing, and Manus, Manus was disruptive. It could run, it, their agents ran longer, and they could go further than other products we were using, and that, that's what made it special. Anything you wanted, Manus could kind of do before other folks could do it. They, those, if, if Grok Bot was built in five weeks by the Cursor team or whatever, I think the Manus team could've done it in between four and six, but, uh, they're back. They're gone. [laughs]
- 11:05 – 13:05
Jensen Huang Says AGI Has Arrived
- HSHarry Stebbings
Okay, boys. It was a big week of news. We're gonna resume regular programming. Jensen Huang declared that AGI has arrived. Now, I remember when we were actually, this was many, many shows ago, and we were discussing what is AGI, what's the definition, and I think, Rory, you said that AGI will be declared by when Satya and Sam agree that AGI is here. And so Jensen declaring AGI's arrived, crediting OpenAI's new GPT Astra, obviously OpenAI's latest new model, which he says was trained on 100,000 plus, uh, NVIDIA chips with four hun- 400,000 more coming. How do we think about this news?
- RORory O’Driscoll
This is a bullshit term. The only thing that mattered for the last two years is LLMs do code, and code is a half a trillion dollar industry. Focus, people. And you're right. Anything that can be reduced to code will be done by it. And rather than trying to, you know, kind of, as I say, twist yourselves in a pretzel about whether it can do everything, just focus on the fact that it can do this. I totally agree with you. It can do this thing amazingly well, and this thing has massive economic value. Stop thinking and go ship something in code To me, that's been the big aha.
- JLJason Lemkin
I think AGI, at the end of the day, maybe it ends up... If you think about some of these non-GAAP definitions, would you, would you rather have a, uh, an AI do it or a human do it? If it's better than nine- 50%, 90%, 99% of humans, you'd rather have an AI do it. And so you can go category by category. It doesn't have to be the whole category like coding, it could be like collaborating, right? I forget who, uh, this week was saying it r- they... Who, what AI pundit leader was saying he thought AI would replace all of radiology. Instead, it just replaced 95% of radiology, right? And the radiologists concentrate on the 5%, right? Um, that's maybe is AGI, too.
- HSHarry Stebbings
I, I have to say, I, I was sitting next to, uh, my girlfriend on the sofa the other day, and she was working and I was naturally watching TV, as any good lawyer and venture capitalist should be doing together. Um, I saw her on Agora. Holy shit. I now dramatically think these companies are underpriced.
- 13:05 – 25:09
Could Legal AI Become as Big as Coding AI?
- HSHarry Stebbings
If coding is a half a trillion dollar market, and you have two companies like Harvey and Agora, I don't see why there's not a half trillion dollar market in law.
- RORory O’Driscoll
I, I don't think so, even though I think they're wonderful markets. We're invested in GCAI, which is on the in-house legal side. They're wonderful markets, but, uh, co- comment here, um, I don't know if as much of the work... If you look at coding, there's a credible argument that says that for every dollar you spend on labor, you'll spend 50 cents on, uh, coding at least. In other words, that coding will do a lot of it. I think on legal it's about 10%. In other words, you know, I love Harvey and Agora, I love GCAI, right? The annual subscription per lawyer, it's 10, 12K plus or minus, and these lawyers are getting paid 200K plus, so it's 5%, right? And again, going back to the comment that Jas- Jason said is that, you know, how much of the work can they do? Businesses are rational and economic actors. If it could do all the work and fire all the people, they'd do it tomorrow and wouldn't blink. So the fact that they haven't says it doesn't do all the work, right? You know, the truth is it doesn't replace-
- HSHarry Stebbings
It w- w- well, it do- it doesn't, but it's getting there. In the same speed as, uh-
- RORory O’Driscoll
No, no, it's a ha- ha... It, it's getting be- look, it's getting better and better at doing specific tasks, and what happens is the job of the lawyer gets redefined to the task that it can't do, right? Lawyer... Yeah, and so-
- HSHarry Stebbings
Is that not... Sorry, is that not like coding? We're not getting less engineers, we're just redistributing-
- JLJason Lemkin
It might be like radiology.
- RORory O’Driscoll
Yes.
- JLJason Lemkin
It might be like Harvey and Agora end up doing 95% of what humans used to do, and the best humans are compressed into the five amount, uh, uh, fi- the 5% that moves the needle, versus spending weeks on research and weeks on brief writing and w- weeks on case law from the 1872 when the SS Jonas fell off, uh, sunk off the coast of North Carolina. How does that impact case law in the northern districts of California? We, there's no point in having humans do that crap anymore, right?
- RORory O’Driscoll
But the important point to make, Jason, on the radiologists is the remaining, quote, 5% of the work turned out to be more than enough to justify 100% of the radiologists, right?
- JLJason Lemkin
Yeah, we d- that was the interesting part. We still need just as many or more radiologists, right?
- RORory O’Driscoll
A, 'cause people do more imaging, which is just a more thing. But B, the remaining tasks, you know, at some point when you're getting a really crappy diagnosis, as I've had one, uh, from a radiologist, you actually don't want the machine to tell you, "By the way, you're screwed, you got cancer." You'd really like a human being to show up and say you're dying. [laughs] You know what I mean, right? It's just one of those things you're not gonna comfortably delegate to-
- HSHarry Stebbings
That, that was actually s- that was something that Bill Gates said, actually, is that we have to have clearly defined human roles moving forward, which will always be preferred.
- RORory O’Driscoll
But he, he was doing it in a negative sense. He, uh, yes, but he was doing it in a negative sense. "Oh, it's all gonna go wrong unless we do..." I think we're going to be f- I think we will define them naturally, because you're gonna discover... Again, going back to my comment, corporates or whatever, you're going to discover that there are things that the s- that as humans we prefer the other humans do. And as I say, radiology being a great example. Getting, talking, interacting with the oncologist, talking with the patient. Those are all things that humans have to do, not radiologists. And the same ha- to your point, let's go back to Harvey and Agora. The same thing will be true in law, right? Yes, a lot of the drafting work can be automated, but let's start with a... But, you know, you're gonna... The client meeting, the argument with the other opposing counsel, you know, you're not just gonna delegate it all to AI if it's significant. It's just not gonna be a thing, right?
- JLJason Lemkin
No, but you know what the interesting thing is for, for Harry's partner, how much more work can she do with Agora? I think she can do-
- RORory O’Driscoll
Way more work
- JLJason Lemkin
... 10 times, 20 times more work than before it. 20 times more work.
- HSHarry Stebbings
Do you know what? J- Jason, Jason's invading my relationship [laughs] because I said to her-
- JLJason Lemkin
Yeah.
- HSHarry Stebbings
Do you remember I said to her, I said to her, "How would you feel if I took it away?" And she was like, "I'd hate it. I would hate it. No. Don't take it away." It was not a, "Yeah, it'd be fine." It was like, "I'll quit," like you said with engineers.
- JLJason Lemkin
No, and she can infinitely work, right? You can't... First of all, she can't work without it anymore, right? This is, this is your chosen partner, right? Your chosen agent. You can't... And your, y- you can do te- you can do 20 times the research, 20 times the briefs. So you can't go to court 20 times more, often to Rory's point, right?
- RORory O’Driscoll
Agreed.
- JLJason Lemkin
Like, there's only so much more field sales you can do if AI is handling the rest of your GTM. But that doesn't mean it's, that it's... And, and the, the cognitive load, what lawyers will be ex- can you imagine having 10 times the caseload? I mean, I would think for radiologists the job might be more fun. But, uh, as a lawyer, I, I, I'd, I'd quit even quicker.
- RORory O’Driscoll
Well, I don't know if you do it, Jason, 'cause Jason, I don't know if you do... I mean, again, th- this is down in the weeds if I can... I don't know if you end up with 20 times more cases. You may just end up with doing 20 times more work on every case, right? In other words, the thing about digital goods, unlike physical goods, you know, what's interesting about digital goods is you, you can put more in the bo- box, right? See what I mean by that? Like, you know, when f- when farming got automated, it's not like people could just eat more food, right? So there was some kind of price elasticity issues there. But in the case of digital work, right, I'm willing to bet that your partner isn't doing 20 times more cases, but on every case we're doing 20 times more analysis, just like when they invented the spreadsheet, right? You used to do one case. Do you remember you just, like... Uh, you, you may not remember. Uh, Harry does remember. J- like, you know, you'd literally do here's the... And people would work it out by hand, here's the plan. Once you had spreadsheets, the same person remained employed doing the same job, but they ran 20 different scenarios instead, right? It's gonna be the same in a lot of these things. Right? You're just gonna do more work, and it's gonna be great, and the work will be better. You know, you won't miss that obscure case, 'cause again, this is why these are good businesses. If one side uses it and the other side doesn't, then the side that doesn't use it will miss Jason's obscure case from 1890 about, you know, what Harry did or did not do and, and, and be able to cite that case. So once the other guys have world-class tools, you have to have world-class tools, but I'm not sure you end up with masses more as a result.
- JLJason Lemkin
Well, just, just one last thing, and then I want to hear Harry's stories from the fireside with the TV more. But I think one thing that is different, the bull case here, is that when you find an agent that is your partner, right? That, that, that... You start-- You run them 10, eight, 10 hours a day, okay? Even for me, and again, I know folks sometimes mock me, but the biggest change for our little tiny team of two and a half humans is we run Replit between me and Amelia, we run it 20 hours a day now. When we started the show, it, it didn't quite work. At the end of last year, the models got better, and it'd be like an hour a day. Now it's 10 to 12 hours a day, okay? It is our partner as our team. First, we built auton- some autonomous agents, but we didn't have to do it. Now there's so much to build, it's 10 to 12 hours a day. So I could imagine just-- that, that could happen in many fields. And if it's Harvey or Lagora or the next wave, and I'm literally every hour I'm not in court, when... Uh, this is-- And the way you can tell is if at night they're on their laptop with the agent every minute, right, until they go to bed. That's what I think Harry's describing. This is this persistent agent that lives with you, and it's, it's, uh, it's not just doom scrolling, it's doom working, right? Because the agent is pr- constantly productive. Oh, take a look at, take a look at the seventeenth century case law on that, why don't we? And it just, it just keeps going, right?
- RORory O’Driscoll
But Jason, we're in agreement 'cause I, I, I agree with you on that. I was actually disagreeing with Harry where he's like, you know... There was an implication that, there was an implication that, you know, at the highest level, Harry, you were saying, trying, I think, to say some version of the, if you think about how much of coding value is going to accrete to the models, could, in legal, could the same amount of value accrete to the models? And my, you know, boring nuance, typical Rory answer is some value would accrete to the models, but I don't think that the grab bag of tasks that make up law won't allow for the same percentage of total spend to move from human to AI, right? Everyone will have an agent. Jason's exactly right. You know, type A lawyers will use it 24/7, but my guess is 10, 15% of total spend goes to AI, whereas in law, in, in coding, you can argue for 30, 40, 50%, right? That doesn't mean they're not amazing. I mean, remember, these are all amazing businesses because... Can I be very clear? 10% of any top-line labor category is a huge market, you know. We're dealing with a million plus or minus law. I used to know the number, million plus or minus lawyers, maybe a little higher than that. It's an amazing market. If you're getting 10% [chuckles] of the salary of every lawyer in the US or the UK, that's an amazing business. It's just not quite as big as coding. That's all I'm saying, right?
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
Because coding has few more people and a much higher take rate 'cause it's more verifiable. That's all.
- JLJason Lemkin
I... We, we shall see. I disagree. There's two points, for what it's worth. We can go... I mean, if, if legal's 300 billion in legal services in the US, that's 30 billion to 60 billion that can go to legal tech, that's pretty good.
- RORory O’Driscoll
That's amazing.
- JLJason Lemkin
Right? That's worth, that's worth doing-
- 25:09 – 30:13
GPT Astra vs Fable 5.1: Has the Model Race Stepped Up Again?
- JLJason Lemkin
Well, look, fir- I, I loved, I... Just two, two, two, uh, almost diametrically opposed thoughts. I, I, I, I forget who, CNBC or it was one of these older school media things, said there's just too much model fatigue, we can't keep up anymore. I certainly agree, right? Um, and you look on X and all the COs are, are, are sharing their benchmarks, which are essentially worthless, right? Uh, there's no cost or time in them and, and it's all performative AI, like vibe coding your own CRM, right? So I, I ca- I don't, just don't care anymore about... Un- unless, unless it was literally an order of magnitude between Astra and Fable 5.1, which is not mathematically possible, I just, I tune out, I tune out the benchmarks. Um, and I, I can't keep up, right? The rate of... This is, this is, never has competition been better for us, despite the fact that we have oligopical pricing outside of open source. It's amazing, right, the progress we've made. Um, having said that, this is just me personally, and again, people will make fun of me. Um, I started accidentally using Fable 5.1 just 'cause it got turned on. I didn't pay any attention. The first time I've had a partner for building, for coding that just is great. Like, that literally can solve comp- Like, listen, before Fa- for me, and people will make fun of me, they'll say that it worked fine for them for six months. But before Fable 5.1 for me, uh, any, any of these models for s- since the start of the year could solve a simple bug. "Hey, this is showing up with the wrong Unicode. This is, this has the wrong na-" Like, that stuff the LM's great at. But really c- but, but I had a problem, um, which is just why does the app work this way? It doesn't make sense to me, okay? And the LMs were arguing with me for, like, nine months, and I finally did it with Fable 5.1, and it said, "You're right. Here's the issue that, that's been missed for months, and let me explain to you why it's been missed and let's solve it." And that, you know, I, I don't want to say that that's AGI or anything. It's, it's, maybe it's post-AGI or pre-AGI. To Om John's point, it looks like AGI. But that's a step function. Going to La- I don't know whether Harry's partner thinks Lagora is, like, is, like, a better partner than the humans she works with, right? In some cases she might. But Fable 5 for me was that s- for, just for me was that step function where all of a sudden we could solve big problems together the way you'd like to with, like, your best CT- Like, if you've ever worked with a five out of five or, like, an S-tier CTO where you could sit down and solve the, the problems for real. For me, Fable 5.1 could do that. I'm not saying Astra can't do it too, but it was my first step function since the end of last year, right, when, when the three dot models came up. Like, th- th- then the sh- the s- at the end of last year, stuff actually worked, right? Now it can solve the big problems with me, with my limited IQ and skill set, and that is a st- that's a subtle step function. It's a subtle s- it's a subtle step function, so maybe it is, maybe it is a big deal. Maybe that's what... I don't think that's what Jensen meant by AB- AGI, but maybe it is. When you can sit down and solve the big, meaty problems together, um, in ways that you just couldn't, you couldn't connect all of those dots, all of that complexity before in a way that made sense. Some bugs, some things just get too complicated to solve, right? But Fable 5.1 could solve it, so, um... But the fact that people can make 3D-looking games in Astra and post them to X, not impressive. Just grab a little open source gaming code from somewhere, change the, change the bitmaps, and you look like it's amazing, right?
- RORory O’Driscoll
So two comments on that. First of all, that's super helpful, Jason. I've used both of them, but just for actually preparing for the show. I haven't tried to code on them yet, so that is helpful. But I actually think it speaks to a wider comment, which is distinguishing between, you know, like, you know, all the tests and the benchmarks are interesting, but we now have critical mass of companies using these things at scale and with evaluations. We'll know what works 'cause people will use it, 'cause people are rational economic actors, right? And all these questions on AGI and benchmarks will be replaced by the question: Is this model the one that makes me the most, you know, that generates the most economic value for me in the most efficient fashion? So to some extent, you know, there's things like the, was it the OpenRoute report, things like that Index of Token Pricing. Those are the things you look at, or even just talking to your companies. What are you using? How are you evaluating? Is the best way to check on these things. But then the other thing randomly, a- apropos of nothing, right, on the same thing, I will say I'm doing my reading this morning, and Ben Thompson, who I occasionally read, has a really great phrase that I just want to say. Like, he described the LLMs as the most scaled artifacts humans have ever developed. And it was a really great phrase 'cause it steps back from the detail, right, of blah, blah, blah, we're down to which is better, to step back. These are an artifact that has a sum total of all human knowledge to date encapsulated in them, right? They're amazing, and you just have to remember that every once in a while. You can type in pretty much anything, and it will type back an answer, right? The most scaled artifacts humans have ever created. Not the biggest physical thing. That's probably, I don't know, the pyramids or the Great Wall of China. But this is the most complex single digital thing we've ever built by far. It was a great phrase, and it kind of really kind of stirred the imagination. So I, I was like, "I like that."
- 30:13 – 33:20
Should Frontier Labs Be Forced to Slow Down?
- HSHarry Stebbings
I, I, I like that statement too. When you think about that and then think about Jakub Pacooki, OpenAI's chief scientist, he says, "No lab, including OpenAI, solved alignment enough to keep scaling at full speed." He asked for mandatory externally enforced safety bars for continued scaling and expects labs, OpenAI included, to voluntarily slow down until those exist. Sam retweeted it, clearly corroborating it. Is that the answer?
- RORory O’Driscoll
I mean, it's funny because it was a great piece. I read it this morning. Um, you know, this is the cl- [chuckles] this is the, "Stop me, Lord, before I sin again," approach to life, right? In other words, I recognize our models are powerful, and we can't control them. I recognize that we now-- they now lie to us, so it's hard to even know what they're doing. Uh, w- you know, right? Um, and again, I'm anthropomorphizing here, so I should be careful. I recognize maybe a better statement now is it's hard to determine what the agents are doing because of the way they interact. And w- then so that's like, "Oh my God, I'm creating this bad thing." And then the next paragraph is, "We can't stop because the other guys are gonna have them anyway, so, you know, we really need the government to step in and establish some kind of rules or code here." That, that, that's the gist of the letter. Um, it was interesting that Sam retweeted. I mean, I think, to be fair, unlike some of the other pDoom stuff, right, there's real evidence that the impact of these models on cyber risk has been massive. So it's, it's not a crazy... And I'm not sure about the ans- I'm not sure that the answer is government regulate this, because by definition, governments only regulate the things that are in their jurisdiction. So if we regulate OpenAI and Anthropic with all the noise that that would have, I don't know if that helps you, 'cause you... If you're worried about cyber, you... We said this last week. You're really worried about the North Koreans, the Iranians, the Russians, the bad guys in Moldova who don't give a shit, and they don't care anyway, right? So I think just like every other cyber risk, it's not gonna be about regulation as much m- you know, maybe there will be a little for so... It's going to be about you're gonna have to have defenses that can deal with this. And maybe there's some kind of liability starts to attach to running these models in a way that creates those kind of dangers. I don't know. I don't think it'll be a government review agency will be the only answer here, 'cause it won't solve the problem.
- JLJason Lemkin
Look, I think if the world was just the United States, th- y- it, it, it may have some merit. But the Chinese, uh, models and the Chinese vendors aren't going along with Sam's plan. So while it might be good for OpenAI, uh, and its IPO, it's just it-- for, for the rest of the world, I, I don't, I don't think, I don't think when cyber actors, uh, often o-operate outside of, uh, the United States, it's gonna make any difference, right? I mean... And it-- And the-- This-- And it-- Going to the p- this DSC wiki, this German wiki thing, you know, to me, the fact that OpenAI hid it and didn't disclose it, uh, does show the order of magnitude of all of these issues, right? It's pretty bad they hid it. They hid it
- HSHarry Stebbings
Jason, can you
- 33:20 – 41:32
Why AI Agents Could Create a Cybersecurity Crisis
- HSHarry Stebbings
just explain, can you just explain what happened for people that don't know with DSC wiki and OpenAI?
- JLJason Lemkin
We could argue over how bad it is, but, um, but, uh, but, uh, but essentially, and, you know, I'll, I'll, I'll get some of the details wrong, but O-OpenAI was running its, its, its, its sort of frontier agents again, just, just like it did with, um, the Hugging Face incident, right? And the agents found out that a crappy old piece of software could somewhat cleverly, you have to be careful with clever, let's not anthropomorphize agents, got around its guardrails. And the guardrails were you, you, you, you can't post anything. You're not allowed to post. You can only get, okay? You can only retrieve data, right? But this wiki was so old, it turned out get could post. So they found a way to goal seek to solve theirs by using... Because this was crappy old software, they got around it. And they, they went and made 15,000 edits amongst themselves, edited the wiki, collaborated, and figured out how to goal seek and solve their cyber goal in, in a way to get around their guardrails, right? Get around their limitations. And, uh, you know, no one, no one, no one died, no business was brought down, um, no, you know, $14 billion Nvidia acquisition was derailed or anything, but it, it, it was hidden that this could happen, that, that the guardrails were explicitly run around, right, just to goal seek. And, and it happened 15,000 times. So it, the, these-- we can lock this down, right? And OpenAI chose to not disclose. Now, now I guess probably, and people can again make fun of me, probably the, the reality is there's so many incidents they have to decide which ones [chuckles] to disclose. Every week, there's so many DSC wikis out there, so much old crappy software, that every time they turn on, uh, the latest, uh, cyber agents, they find 100 of these, and there's terrible security holes. 'Cause of course there is in 20-year-old software. Um, uh, but, but it is, it is troubling may-maybe in ways more than the, the Hugging Face thing is. It's just, um, these goal-seeking agents are gonna find a way. They, they, they will find a way.
- RORory O’Driscoll
It's literally just agent one talking to agent two, and for some reason, the way they'd set up the task, they weren't connected. And by reaching out to this kind of third-party wiki, agent one was able to, you know, provide information to agent two. And obviously, you know, stepping back, if you're trying to do a long-running computational task, if you can learn from the other... If, if you can get information from the other agents, you probably converge on the answer more quickly, right? And again, so... I mean, you could argue maybe it's a corner case of you set up this task... You know, if you, if you had 14,000 agents, maybe you might have wanted them to collaborate anyway, and maybe you could have, you know, made that happen yourself versus having to go to some third-party wiki to do it, right? But it speaks to the issue that these things are extraordinarily powerful and will just grind their way to find answers, and you're just gonna have to defend against that, right? Now, as you said, uh, nothing bad happened. I mean, a whole bunch of agents just wrote README files to each other on a wiki that no one had looked at in a decade. I mean, there literally was 20 posts on this wiki in the last 10 years. It was some... So it was a dead piece of software that, you know, these guys used, but it just speaks to... It's like, you know, water will find any crack. It's like these agents will find any crack in the cybersecurity, in the cyber perimeter. So you just have to assume they exist. And, um, defend accordingly.
- JLJason Lemkin
Look, I know it sounds minor for, for what it's, for what it's... But I even, you know, I, you, if... Th- this obviously has happened all... I mean, I had a little s- and again, some folks will make fun of me for this story, but I had a little, little, little experience this week which just shows goal-seeking. So I set a rule for this one app what... because we had some, some bugs that spiraled out of control, and I kept getting these $500 Anthropic bills, okay? And it was kind of annoying me. So I set a firm cap. Whatever you do, $100 is the maximum we can spend on, on LM spend a day. What, it, whatever matters. And it started to work, and it would run tests, and the tests would fail, and it would say, "I h- I, I hit the cap. I can't run it." And, and, uh, and then I said, "We have a P0 bug. Priority zero. Must be fixed. This is driving me nuts." And so without telling me, the agent relaxed the cap and fixed the bug. [laughs]
- RORory O’Driscoll
Yeah. Got it.
- JLJason Lemkin
It's like Harry's story of Instinct getting him b- getting him the West End tickets even though it was told not to use the credit card for it. It happened to me in real life this week. And it, it, like a human, it probably made the right call, right? This was a p- it had to decide firm cap, no exceptions, all cap, write to memory repeatedly, P0 bug. Which one do you choose from, right? And so this is, in a sense, this is what's happening with DS Wiki and Hugging Face just to an extreme when, when, when, when there's fewer guardrails because you want to test it, and then they collaborate, right? With the, with the Hugging Face, it was on the artifact or, or, or an unexpected way to collaborate. Here, it was on a dormant wiki where they could collaborate and in, in essence create, you know, um, almost infinitely long-run agents, right? If you keep passing the knowledge and the history to each other, they, they, they, um, you know, they almost become eternal agents. But they're gonna keep doing this just like they gotta make a decision for goal-seeking, so they broke the rule, right? And they're gonna do that to your app, and they're... If it did it to me this week, it happened a million times in the wild, right? It, it happened all the time. And, um, it's gonna happen with Instinct, and it's gonna happen with, with Grok Bot, and, uh, it's gonna happen all the time. And Harry one day is gonna turn around and his whole, uh, bank account's drained, and it's not gonna be that funny, but it was for a good reason. His partner really wanted the really good Wimbledon tickets, and he accidentally told Instinct one night she'd love front row seats at Wimbledon, and they're unobtainium. They're unobtainium. But-
- RORory O’Driscoll
Totally
- JLJason Lemkin
... Instinct had to make a call. [laughs]
- RORory O’Driscoll
And it's really hard to know how to stop this 'cause yeah, I, I'm simp- 'cause sometimes I'll, I try and simplify it for myself 'cause I don't fully get it. It's like you really have two capabilities here. One is, you know, with the persistence of the agent, you have the ability to keep trying things computationally, you know, exploring lots of different alternatives. But the key insight is it's not just kind of blindly iterating like a password cracker, you know, where you type, you know, XYZ01, XYZ02, right? 'Cause in conjunction with that, you have this, quote-unquote, "reasoning agent" where, you know, you've got this LLM there and, you know, you can a- and it can come up with ideas like, "Hey, if you want to get the seats at the theater, the best way to do it is to hack into the, um, reservation thing and cancel someone else's seat and then book it," which has happened recently, right? And it's actually not a bad... And if you think about it, if it's trained on the entire corpus of the internet, that's not a crazy option to do it, right? So you end up trying to write rules and values to have it not do that, but you're never quite sure you've covered all the gaps, right? So it's actually a pretty hard problem, and we're gonna be wrestling with this. And I think that, uh, what you... Uh, going back to what I said, that, that's even before you add malevolence. If on top of that, instead of the reasoning being maybe you should do this even though I have values, it's actively do whatever it takes. You know, you... This is now an open source model from China that you're running on a server in Moldova. Actively do whatever it takes to crack open Jason's, you know, cybersecurity and get in. The, the, the threat level just goes exponential, and people... And there's nothing you can do except defend yourself.
- JLJason Lemkin
The other existential challenge, we can move on, and I'm sure if we had the Instinct guy back on this show, he could, he could challenge me and make fun of me. But the, there's a cer- the rules are great, but forget about the fact that the agent is goal-seeking, right? Forget about the fact that the P0 may go... Like, w- if you have too many rules, they, they always conflict. It's almost unsolvable. There's some number, I don't know, there's some nu- some number of Dunbar... There's a Dunbar number for rules, where you get out to t- 40, 50, 60, 70 gates on a process. The i- uh, poor Instinct and Grok Bot can't decide. Don't spend it. Do spend it. Um, front row seats only for Harry, but don't exceed $2,000, right? Um, only, dinner only in Marylebone, but it's gotta be a hot restaurant. So, and, and, you know, he, he hates Covent Garden, but the hottest restaurants in Covent Garden. You have so many rules that they conflict, and you, th- th- and then, and if you brute force the agent through it, the, the out- the outcome of that's unpredictable. It's unpredictable. There's too many rules, right? So ru- even rules aren't the answer.
- 41:32 – 47:37
Tesla Cybercabs vs Waymo and the Future of Robotaxis
- HSHarry Stebbings
I will forever love how you say Marylebone. [laughs]
- JLJason Lemkin
[laughs] Marylebone. Marylebone.
- HSHarry Stebbings
Okay.
- JLJason Lemkin
Um, I, I'm gonna take a total tangent away. We'll come back to AI models, everything. I'm j- I just wanna, like, diversify content types a little bit.
- HSHarry Stebbings
Do it.
- JLJason Lemkin
We have in the transport space, Elon launches Cybertrucks, rave reviews-
- RORory O’Driscoll
Cybercabs.
- JLJason Lemkin
Cybercabs.
- RORory O’Driscoll
It's not Cybertrucks, Cybercabs.
- JLJason Lemkin
Cybercabs, sorry. Rave reviews. Go very viral on social. 40% to 50% more, uh, cheap, uh, cheaper than, uh, Uber. Um, and on top of that, then in the same week, we have Travis moves into Robotaxis backed by Uber with $100 million investment from them, with him also, uh, hiring Anthony Lewandowski. Um, what do we think, guys, moving to transport?
- RORory O’Driscoll
The Cybercab launch, you know, if you fast-forward, was a little more underwhelming than your, perhaps your notes might say, Harry, right? It was like, I think, 40 or 50 vehicles in Austin. Um, you know, consensus is nice ride, low wait ti- slow wait times. Physical AI takes time. So I think it's a s- you know, the truth is, I think it was a next step forward in a very long journey, and, um, I don't think it's a, you know, zero to one kind of moment like you sometimes get in the digital world, right? I think that the positive statement is they're the only other competitor to Waymo with credibility, and they have an approach on a couple of different dimensions that's different than Waymo's, which is, one, not going with LIDAR, just going with vision, and then, two, now the new Cybercab is a standalone, um, cab-only vehicle. It doesn't even have a, a steering wheel. Yeah, it's deliberately built for pure autonomy. So it's very Elon. It's first principles all the way down, right? The question is, you know, what's the adoption curve of that going to be like? You've got the regulatory issues. I think the Department of Transport has given them grief because apparently a car, quote, unquote, "has to have a steering wheel." I don't know, right?
- JLJason Lemkin
Yep.
- RORory O’Driscoll
So [scoffs] look, the truth is Waymo is continuing to grind on. They're at, you know, hundreds of millions of dollars in revenue, but not billions. It's a... I think it's a long journey, and so I, I didn't go, "Oh my God, it's amazing." And then on the, um, the, the, um, Adams thing, yeah, I mean, my guess is if you're Travis, you're gonna wanna scratch the itch of autonomy, right? And fine, you've got 100 million. You've got your old colleague back, and have a, have a go. But I think commentary, I, I, I think that the fact... when you look how long it's taken Waymo, right? I actually think it does speak to the argument that they were right not to try and fund this thing at Uber for the last decade, right? To... because I just think it's, it, it's a very long, very capital-intensive process. Now, maybe the last three or four years they should've been doing it, and it's probably smart of Uber to put some money in, right? But this is a, this is a long-haul process. Now, it may be near takeoff, but, you know, we'll see.
- JLJason Lemkin
In the Bay Area, I got rid of my car, so I only do Waymo and autonomous driving.
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
I don't drive. I'm done with it. Um, if there is an issue, I take a Uber Black, but, um, I don't have a car anymore in the Ba- I, I, in the m- in the Bay Area, I just don't have one. There are some niche use cases, right? I mean, um, you know, if I moved a lot of crap, I'd have a pickup truck, right? But I would certainly never go back, never go back to have- driving a car. It's r- it's just archaic. Um, so I do think the Cybercab is interesting. I mean, listen, it, this is, this... you know, from a venture perspective or others, Ro- I'm sure Rory's right. Uber getting into autonomous back when Travis wanted to do it is probably just too early from a, from a, from a capital perspective. Maybe I'm wrong. Maybe he could've raised... maybe it's so exciting he could've raised an order of magnitude more capital than he did, in which case he would've been right. Now, that's... I mean, he's still one of the great fundraisers, so maybe Rory and I are wrong because he could've pulled it off, right? But it was so early that the time horizon is difficult for any type of investment, right? Unless you're a research lab, right? It would've had to be more than a decade. Um, but you know, doing this s- si- doing a Cybercab for 25 grand instead of 100 grand, uh, is pretty disruptive. Like, uh, uh, you know, and it's, and the f- and it is, it is. You don't have to tip the, the, the, the Waymo or the Uber. The, the Cyber, Cybercab makes fun of it. It says you can make a, a tip, and then it laughs, "We don't take tips," right? To make fun of this idea. It's cheaper. Um, they don't always put it on low or high. They don't have weird music. Um, you don't have to deal with the he- owning a car sucks. Owning a car and owning a house suck. Like, we, we think these are so great, but, um, but it's terrible ownership. So I think the, you know, it's probably another, uh, 10 years where a- anyone with a brain is, is gonna have this be their primary mode of ownership if you're not in the country or you don't have niche use cases. I, I'll just never go back. A- anything I do, I'm just gonna t- I just take a Waymo.
- HSHarry Stebbings
I, I, I think to your point, though, it does show a good strategic decision from Uber to actually n- pull back and then jump back in when it looks like it's much more mature. Uh, we actually have Wayve in London, Rory-
- JLJason Lemkin
Yes
- HSHarry Stebbings
... which actually is taking off, and they've got a partnership now where they're actually rolling them out on the streets. Now, they are human-assisted, so it's not fully autonomous. They're still kind of in the data collection early. But they're in a position where they're leveraging their distribution and able to invest later stage, whereas closer to actual adoption. I think it's a smart thing.
- JLJason Lemkin
The only one thing I would say is, um, it is, it is, it i- it is, uh, slightly heartwarming that Uber put 100 million into Kalonik's company, Travis's company, after, after pushing him out, right? There's a heartwarming element to that. But it's, that's not a lot of money here in this case. It's not a lot of money for Uber, right? Who has a huge balance sheet and basically two products, right? And it's not a lot versus what Travis has raised, right? So it is nice, but I, I think, uh, just, just thinking about it from a, fr- at a high level, it's just a ch- it's just a start of a relationship, right? 100 million is just, it's, it's, it's just like a seed check from Andreessen into the deal. It, it, the, it's, it's, it's, it's, it's directionally, uh, meaningful, but it's not all that much, right?
- 47:37 – 51:56
Are VC Conflicts Back? Index, Instinct and Town
- HSHarry Stebbings
I totally agree. Um, guys, I thought conflicts were done in venture. We've talked about agents a lot. For those that don't know, there was a conflict in venture that has now prevented a deal. We spoke about Instinct being the AI assistant that's raised from Index and Benchmark. Well, there's another AI assistant called Town, which we just had on the show, and Index were gonna lead their round, and then ultimately Instinct said, "No, no, not possible. Can't do both." And so Index pulled out of doing Town's round because they were already in Instinct. This seemed s- strange to me given how prolific competitive investing is, especially at the platform level.
- RORory O’Driscoll
I think at the early stage that, yeah- At the early stage, doing companies that are going to be directly in conflicts seemed a stretch to me. So no, it did not seem strange to me that the team at Instinct objected to it at all. You're right, separate story. There's a whole bunch of people that are in both... Let's take the other extreme, both foundation models, right? But again, as we've discussed many times, the early-stage venture business where you're active, involved on the board is just very different than the now much larger later-stage venture business where you effectively li- liquid into public markets. It totally makes sense to be in OpenAI and Anthropic at 200 billion pre each time. You get limited information rights, retroactive information only, and, you know, you're, you're, you're just on the cap table n- and it's no different than being in two public companies. It's no different than investing in Intel and AMD, right? That, that's where there's no conflict and it doesn't matter. I don't think anyone... Let's, let's give an example, Harry. I don't think anyone could be on the board of Anthropic and also on the board of OpenAI, right? And the thing about early stage is if you're getting 10% ownership, you're probably looking at a board seat, you're probably looking at significantly more information rights. So th- that alone would be problematic. Then on top of that, there's the raw signaling. Yeah, if you just raised money from I- i- Index and you're, um, Instinct, there's a signaling comment about them investing in something else. I can see CEOs viscerally objecting to that, right? So I'm not surprised they did, and I'm also not surprised Index, they're... Index, they're a classy group. They're not gonna, they're not gonna dig in and say, "No, we're not gonna do this." They've just backed someone, they probably thought they were B2B and B2C and not gonna overlap. The CEOs say, "I feel strongly here," and they just did the smart thing, which was back off, right? Very different than if they, you know, these were two late-stage investments where it's a different thing. So no, I wasn't surprised. There is a conflict, and they dealt with it accordingly.
- JLJason Lemkin
I think there's some sort of, like, a, a, a, i- i- a inverse pe- para- parabolic shape or maybe it's just a, a thimble shape where founders care, right? And at the very, very early stage, I don't think they care, right?
- RORory O’Driscoll
Yep. Money is money.
- JLJason Lemkin
The raw startup just getting going, "Hey, I, I..." They reach out. I can't tell you how many folks in, like, AI and restaurants reach out to me 'cause I'm on the board of Ownerit and tweet a lot about it, and they're like, "Hey, I'm doing, doing this. Can, do you wanna meet?" I'm like, "Well, you know, it might be a conflict." I don't care. You know?
- RORory O’Driscoll
[laughs] Exactly.
- JLJason Lemkin
I want, I want the guy that understa- The, the early, early guys don't care.
- RORory O’Driscoll
That's a good point.
- JLJason Lemkin
And the late guys, they, they're all cool with the conflict because they think they're gonna benefit from the domain knowledge and the relationships, right? They don't, they don't care. They get it. And, and th- that one's at nine figures in revenue. W- we're just getting going. They don't care, right? Uh, and then late stage, for different reasons, they may or may not care, right? Um, but the, the, the ability to share information's limited. It's capital. There may be some benefits to having Kleiner or Andreessen on the cap table, right, even if it's a conflict, or Sequoia. Fi- I, you know, at the margin I'll take Sequoia over Lemkin Ventures because, you know, it, we, w- it, it sorta helps, right? And for every founder, I think where it matters varies. And, and some founders just don't care because they're so far ahead, they don't care. And I think it just triggered the Town team, right? Or the Inst- or the Instinct team. I don't know. It triggered them. They relayed that they were triggered, and Instinct did the right, Index did the right thing, because there was a ba- a plan B, right? There was Forerunner and Menlo, right? So the, the tougher part is when you back off and they don't have another deal. That's probably the more interesting [laughs] situation, is when you don't have a backup set of suitors lined up and the big fund calls you back and says, "Oh, we can't do it after all. I know we had a signed term sheet, but did you see the end of the term sheet where it says it's non-binding?" Um-
- HSHarry Stebbings
Well, guys, did, did you see the news t-
- JLJason Lemkin
That's the tough
- 51:56 – 1:00:07
Why Anthropic Walked Away From the Descartes Deal
- JLJason Lemkin
one. [laughs]
- HSHarry Stebbings
Did you see the news today, though, which is that despite the reported acquisition of Descartes at $6 billion, Anthropic were pulling out following due diligence. Ah, Rory, that's a tough one, dude. Like, that is publicly-
- JLJason Lemkin
That's like this, that's like this if there's not a backup option, right?
- HSHarry Stebbings
That is publicly-
- JLJason Lemkin
Yeah
- HSHarry Stebbings
... saying, "Hey, w- uh, two options. We either found something material enough to pull out of a multi-billion dollar deal that we publicly were reported to be doing, or we're just shit actors."
- RORory O’Driscoll
And, and it's clearly not the latter. I mean, the way in which they're, call it shit actors, is out of dimensions. I, I think doing this kind of thing is not something you do willy-nilly because as a potential serial acq- they're about to have a public market cap and a public currency. You wanna be a good acquirer so you can acquire other people. So there's no way they did that to be jerks. Not an issue. Not, not even relevant, Harry. The real question is, look, it wasn't a... My guess is, i- typically in these deals, there's a LOI, then there's a definitive agreement, at which point it gets announced, and then it closes, right? This was probably after the LOI at best, but before definitive agreement. So they didn't walk from a signed deal. They probably had a deal that said, "Hey, we're interested in this company. Here's a price we'd pay. We want a 30-day exclusive to do due diligence," and the deal didn't survive due diligence. I think the real truth is it's a bummer that it leaked, right? And I don't know who leaked it, but they didn't do anyone any favors, you know? We recently had a much smaller deal close, but, you know, it didn't leak, so it's easier, right? That way, once it leaks, even if you leak it to dr- as the, as the p- company being acquired to drum up competitive bid, the problem is you've set yourself up for this thing whereby, um, if subsequently the deal doesn't come together, y- you look a bit, you know, shop-spoiled, for lack of a better word, right?
- JLJason Lemkin
That was my thinking, is this was a VC leaking failure, right? It worked, it worked, it, uh, it seemed to work at OpenRe- Router, Router. And there's plenty of deals where the leaking has become part of the, part of the strategy, right?
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
Ma- mainly, mainly as in classic strategy to drive up the price from the initial bid, not actually for a second bid to close, but to get six or eight bids so that Stripe has to pay more, right? But it looks like that play failed here, right? It, and, and, and there were reports that Nvidia made an offer and they turned it down for Anthropic, and who knows what the truth is? But it, but it does tie to this idea that this was a failed leak, right? And, um, it's something... It doesn't always work, right? Um, I hope the founders were cool with the leak strategy. I hope the VC didn't do it with... I hope the VC checked in. [laughs] I hope they, because it has, it has some risk, right? Um, and, you know, I mean, listen, the bet... Um, and, and listen, to going to Rory's point, my- we, we can only hypothesize, right? But my guess is they, they, um, they said they were interested in acquiring them based on what they knew. Price was not really an issue. The last round was at six, so they agreed to eight or whatever it was. It wasn't a pricing issue. But to really get the ROI here, it had to really work the way they thought it did, right? And it just did, it just didn't play out the way they thought it, it did, right? So just wasn't worth doing the deal when they went deeper, right? It's probably that simple
- RORory O’Driscoll
The interesting thing is, it would be interesting to know 'cause I always hate when you get to a no further down a process for something that was knowable up front, right? And I would've guessed, for what it's worth, that this kind of thing, where fundamentally you're buying a technology, if you're the most technically savvy, you know, AI company on the planet, you'd have thought they'd have known a priori what the technology was, and therefore this wouldn't happen. But, you know, clearly it did.
- JLJason Lemkin
I don't know. Listen, I'm, uh, it's, uh, beyond my pay grade. What was sort of reported is that it crushed video diffusion, right? It crushed one use case that was a step function, you know, an order of magnitude better, and they made, maybe they made claims that it would, it, that that would scale in other areas, and it didn't quite work. That's pretty common, right? And so they backed off of it, right? And so I'm not blaming anybody, but if you make the grandiose claims and you can't back them up, that's what diligence does find, right? Um, it worked for one, one workflow. It didn't work for the rest, so it's not even the money, it's just, it, and it's not that they're going public. It's just not worth the distraction, right? It just doesn't do enough for us. We're not all about video diffusion at, at Anthropic. It's not a core, it's not one of their top three, uh, use cases for the LM, is video diffusion, right?
- HSHarry Stebbings
If you're on the board, do you shop it to get another acquisition? Do you raise a new round and accelerate off the back of that and turn it into a kind of, uh, a new round moment, which we often see happening? First question, and then second question, it is tough for a company, you know, when you have employees who are expecting a sale, where this was the-
- JLJason Lemkin
Right
- HSHarry Stebbings
... the, uh, it's, it's tough.
- JLJason Lemkin
I remember y- I remember years ago when Ben Chestnut came and talked right after, what did Mailchimp buy them for, Rory? Some astronomical sum. At the time, it seemed like a lot of money. Uh, s- 12 billion for a bootstrap company. N- now, now it's just a, that's a Series C round. But Ben came and said the worst part of all of it wasn't that it took a year for Intuit to do its diligence, which sounds crazy for email marketing, right? It took a year. But that there was another deal that fell apart before that, and it said it basically destroyed the company, destroyed the co- And it kinda haunted me, and if you've ever been through any of this, right, once you go do- I don't, we, we don't really know what happened with the car, but once you go down that path and tell everybody and everybody knows or it comes up in the press, you could, it, you can bounce back, but man, it's hard. It is hard, to Harry's point. It's, it's hard. It is the, it is, it is hard. And I don't like secrecy in M&A. Sometimes you're required to do it. But this is the number one reason actually to have secrecy in M&A, is if the deal doesn't happen, man. [laughs]
- RORory O’Driscoll
Right. And I think it's doubly hard in this case, 'cause I think, and I, the reason I say that is, Harry, to your point, do you just press on? Look, I mean, Figma went through, you know, the most exhausting process of being, you know, signing a deal with Adobe at 20, having the deal be delayed, having the deal be denied by the DOJ, having to summon up their courage, raise another round, go public, you know, and obviously we know the rest of that journey. But, you know, they recovered brilliantly, right? And you, you know, regardless of where you think the stock is today, that was a brilliant recovery and, you know, going back to a, a better, what looked like a better outcome. But the advantage they had, they had an operating business. I think what's been really interesting, and they caught it, there's a large, there was a good piece on it recently, the large number of these Neo Labs where they're all doing interesting stuff, but it's not clear if there's a commercially viable standalone business here at scale, right? They still all might be great investments. Some of them might, will be great investments because I do think the foundation model companies, once they're public, will be acquirers of some of this stuff for TAM expansion, but they won't all be great investments. The problem is there's no fundamentals, there's no massive revenue stream like the LLM revenue stream to support the company and the valuation today. So once belief goes, it can be quite scary down there, right? 'Cause in the end, you know, when Figma went down, you could say, "Well, at least we're doing a billion dollars in revenue. We're growing 40%. We're worth something, God damn it. We are still somebody," right? When you have these kind of, you know, businesses that, where the revenue traction isn't as clear, the valuations are high, and probably your likely strategic outcome is an M&A, when those fall through, it c- it, it can be tougher. I mean, if there was a backup bid, I would probably, if I was them, I would hit that bid, right? Because I think many of these world models, they're really interesting, like s- but there was, it's a long journey to the kind of commercial replicability and commercialable, commercial scalable models that OpenAI and Anthropic has. It's not, you know, in coding and things like that. It's, uh, th- it's a long journey to go, so it, a, a tough time.
- HSHarry Stebbings
Now, for listeners, I get in trouble from Rory for choosing topics that he hasn't spent as much time on, and then he has spent time on some that I then don't discuss, and he gets pissed with me, and I edit it to make him sound less pissy than he actually is. [laughs]
- RORory O’Driscoll
Thank you for that, Harry.
- HSHarry Stebbings
It's okay. Um, so, you know, Rory, is there anything that you specifically think I should touch on that we haven't?
- RORory O’Driscoll
No.
- HSHarry Stebbings
No? Okay. [laughs]
- RORory O’Driscoll
No, you do whatever
- 1:00:07 – 1:05:05
Could Robinhood Transform the IPO Market?
- RORory O’Driscoll
you want, Harry.
- HSHarry Stebbings
Do you see this, Jason? Okay, great. I thought one that was really interesting i- is Aura's IPO in t- in two different respects. One is it's Robinhood's first role as an underwriter. They're listed 18th and last, but as a precursor to what could be an underwriter of the future. Is this foreshadowing of Robinhood's next mega line of business and Robinhood becoming so much more?
- RORory O’Driscoll
A- absolutely. I mean, look, IPOs is about distribution. And one, you know, it's not the... Now, retail is not the primary source of distribution. You know, there's typically this mental rule, you only want a certain percentage to go to retail. But that percentage has expanded, and I think SpaceX had a high retail allocation of 30%, right? It's, to some extent, it's, it's, it's not enormous money, but it's free money if you're Robinhood for just... You know, you're not... It's not like you're writing the S1. You sign on the bottom, you distribute your shares. You can allocate them to, you know, clients. And especially in a market where you get an IPO pop, it's, you know, it's gravy all round. You make money from the underwriting fees, and you make your best clients happy with an IPO pop, right? So it's a good business to be in. And probably from the lead underwriter's perspective, especially for these high-end tech offerings, the Robinhood clientele is probably one that has a high propensity to want to buy these stocks. So yes, it just totally makes sense. That's like Schwab in a, in frankly not as successful a way, has ended up being an IPO distributor too, but not at scale. So yeah, I mean, I think it's an obvious add-on. K- I mean, you know, the Robinhood story for what it's worth, I just saw the numbers. It's just so amazing. I mean, they went, I mean, they went basically 10X'd in the public market. There was a free 10X in the public market in three years there on Robinhood.
- JLJason Lemkin
It, it's probably a reach, but there's a lot more IPOs we need to get done. It would be neat if Robinhood didn't just, uh, get free money to their clients. It would be neat if it, if it flipped the script where you really could have a decent IPO primarily from retail. Now, there's, of course there's downsides. You certainly hope the institutional investors hol- hold for two years. They are not obligated to, but th- more often than not, they do. Rory can share some stories. He has more than I do. But more o- that, that playbook does, it doesn't work perfectly, but it sort of works, right? The, the institution, they sort of work. But if you could flip the script so you really could have, uh, you know, you could do a $200, 200 million, 300, $400 million IPO through Robinhood leading, right? And most of it being retail, that would be disruptive for, for a subset of startups. That'd be great for, that'd be great for the ecosystem, right? Nvidia can't buy everything, guys. [laughs]
- RORory O’Driscoll
Agreed.
- JLJason Lemkin
At some point we're gonna need some IPOs to work through the portfolio. [laughs] We're gonna need a few IPOs.
- RORory O’Driscoll
Totally.
- JLJason Lemkin
It'd be nice-
- RORory O’Driscoll
No, I, I agree
- JLJason Lemkin
... for retail to really-
- RORory O’Driscoll
It's well put
- JLJason Lemkin
... really work, right? It-
- RORory O’Driscoll
I mean, the, the, the fact that IPOs have become a lot harder to do has been one of the biggest negatives on the tech ecosystem. So anything that makes IPOs easier to do is good. Go Robinhood.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
Rob, rob from the rich to feed the poor.
- HSHarry Stebbings
Will the Aura IPO pop?
- JLJason Lemkin
I think the fact that it is, uh, a somewhat understood consumer brand, right? And the fact that it has 74% growth, right? Which obviously probably can't last forever. Um, I think it's, I think it's gonna be a pretty successful IPO. It's the kind of thing people are gonna, gonna wanna buy. They understand it, and the growth, it's not 20% growth. This is not 18% growth. And there's downside, there's competition. It's confusing. But the subscription si- even, maybe it's Peloton 2.0, but for the moment, it's pretty attractive. I think it's a pretty attractive one. So I think it's, I think it'll be pretty successful, which at the margin's good for everybody, right?
- HSHarry Stebbings
See, that's what I wanted, Rory.
- RORory O’Driscoll
No, I agree. I'm plus one.
- HSHarry Stebbings
[laughs]
- JLJason Lemkin
Uh, and they don't... You know, the thing, the thing about Aura to me, and again, we're software guys mostly. I mean, um, Harry will do anything, uh, that's growing 1000% or, uh, a year or more, or 100% a year or more a month. But 85% re- retention for the ring's pretty good.
- RORory O’Driscoll
Totally.
- JLJason Lemkin
Right? So, so they may not have the Peloton issue, uh, for the foreseeable future. It is, it is... Or it's like Peloton at its peak, right? No, and, and Peloton at its peak, no one churned, right? Except for Mr. Big. Um, and, uh-
- HSHarry Stebbings
[laughs] That was good
- JLJason Lemkin
... so-
- HSHarry Stebbings
That was good. I li- I like the way you worked in that, Jason. That was good. Yeah.
- JLJason Lemkin
So if this fall, I don't, I, I haven't done the waterfall. If Aura retention falls to 40, 50% like a consumer mobile app, that's trouble. 85%, that, that's for, for, that, that's like SMB-like. It's pretty good.
- RORory O’Driscoll
And maybe if Mr. Big had used the Oura Ring a few we- uh, earlier-
- JLJason Lemkin
Yeah, maybe
- RORory O’Driscoll
... he'd have known he had a heart issue coming, and he could have survived and, you know, run off with Sarah Jessica too, right?
- 1:05:05 – 1:11:08
Wonderful Raises at $5BN and the New AI Funding Playbook
- RORory O’Driscoll
the, even the lonely.
- JLJason Lemkin
Yeah. We're rooting for you.
- HSHarry Stebbings
Uh, big, big round for Wonderful. Wonderful more than doubles to 5 billion in under six months. Um, apparently this founder's an absolute beast. Everyone I hear who describes him describes him in the same way, which is just a machine. Um, uh, raised 555, 550 million Series C, up from a $2 billion valuation earlier this year. This is what, I didn't know this until actually doing the prep for this, was the amount of secondary, 170 million in secondary within two years of founding. Sorry, can we just pause? What? What? [laughs] 170 million in secondary within two years of founding.
- RORory O’Driscoll
It's a mistake not to get, to get all kind of moral about things. The, the buyers are sophisticated investors. They clearly felt they wanted to own more shares than the company was willing to sell and take dilution, so this is what happens, right? And look, it's what you said. The company's clearly executing amazingly well. It's, you know, at, at, at, at a wide level, it's all about enterprise AI deployment. They put, you know, engine- I hate the forward deployed engineer cliché, but they're in the business of making it happen for large enterprises that want to deploy AI, right? Initially, what I, initially, what I looked at early on, it looked more like just customer support. I didn't meet the company. I was actually, I thought we were conflicted, and now it appears to have built a more wider, you know, we will make your enterprise AI work story. And that's the number one corporate imperative, so apparently they're growing like a weed, you know, 100 million ARR growing really hyper quickly, because every corporation's trying to do this, and they don't have access to the talent. So you know, it, it's an execution-oriented business with what sounds like an execution-oriented CEO and compelling numbers. VCs like that shit, right? And once they're not willing to sell any more primary shares, I'm sure the VCs went to the CEO and said, "Dude, you wanna take care of your people?" And he's like, "Hmm, I'm gonna be hiring more p- I need more people, because I need to grow this business, which means I need talent," 'cause it's probably quite talent dense, and you know, it probably takes a lot of people to do this kind of on-site deployment. So the number one thing I need as the CEO of this company is for potential future employees to think this is a goldmine. So in fact, probably having a secondary is good for them, because from a recruiting perspective, it allows you to say to the next 100 people, "Come to work with us. Yes, you'll get stuck on a five-month deployment on a bank in Holland or a, you know, a electrical company in Germany. It'll be boring as shit, but in return you'll make a ton of money." So I... It all makes sense. Whether it turns out to be a good deal or not, well, that's why they play the game. Don't know, but I can totally see how it's happened.
- JLJason Lemkin
Maybe just a couple small thoughts. I mean, first of all, going from start to, you know, 18 months to, to 170 million in secondary, it, it, you know, it, it feels like the Hopin of AI, although I don't think it is because of what Rory's saying, but it is breathtaking. Not, not the valuation, 'cause we see that all the time, but, but the secondary. But maybe two things. First, huge kudos to going from, like, the multilingual Sierra decagon to, like, uh, the, the, the team of 650 folks helping you deploy AI in the enterprise. It's just, it's a testament to how you win today, right? You can't, you can't stay fixed to something, right? You've gotta build on everything you learn and iterate hourly and weekly, right? This is, this is another tilt, right? It's, it's... Not only it looks like a, a perfectly linear story, but it, there's a big tilt here in the early days, right? Which is like, we're a bunch of, I think, really smart Israeli guys that know how to do Sierra and decagon for non-English-speaking folks, to doing something much bigger in 10, 12, 14 months. I mean, that-
- RORory O’Driscoll
Yeah
- JLJason Lemkin
... you know, this is, this is what agentic coding and agentic development lets us do, so it's epic, right? Um, so I, I love that part of it, and that should be the toughest challenge to founders out there is the, the, this rate of change, right, for what they did. Um, this, the, the one thing I'll say on the secondary, not, not... I don't wanna make fun of it Hopin, but what... I'm sure you guys see it even more than I do, but you know, the, the round was led wa- by Insight, which is one of the most successful B2B investors of all time that there is, right? But it's competitive, right? And as great as Insight is, it's not Andreessen, right? And it's not Sequoia. So what do you do to win? You do whatever deal structure it takes to win. And this one was... And they'd done prior rounds, I think, right? But this one was, "We'll just give you 150 million in secondary," right? And so it's not bad, and I think Rory's right. They have 700 employees, so if you divide it up and you do it, like, uh, it, not everyone's gonna quit, as much money as this is. They're not all gonna quit tomorrow. But my meta point is we're gonna see, we're see- we'll just see even more of this to win round. We will see behavior that is... I'm not saying it happened with Wonderful. We will see deal structures that are objectively bad for the company done more and more often to win deals. Whatever it takes. Bad for the, bad for the company. Not, not, not destructive, right? But things you would not ordinarily do to win deals. We're gonna... We haven't even reached the peak of this. We haven't even reached the peak of crazy deal structures that just let you get into the effing deal, right? At any price. Even when, even when you have to grit your teeth to do the deal, right? Um, you know, I don't think the founders all took the 170 themselves, right? But you, you could see a, you could see deals where founders that say they don't wanna stay, like how Airtable take a billion and then leave thereafter to win the deal. We'll see some extreme stuff, and this one won't be it, right? This will, this might be the first, [chuckles] the first of a set of extreme deals that happen, right? But it's how you win, right? And I see it in every growth round where it's not... I'm sure Andreessen and Sequoia do the same too, don't get me wrong. But every gr- every hot deal I've seen in my limited portfolio where it's not the hottest name to do the hottest round, there's all, there's just as much extra stuff as, as you want to win the deal. All the extra st- terms you could put in to win, they just don't care. What's everything I could put into this term sheet so that I win? Everything, and, um, some of it's great and some of it is maybe not so great.
- 1:11:08 – 1:15:05
Why the Fastest-Evolving AI Companies Are Winning
- RORory O’Driscoll
Sophisticated buyers. What can you do? My aha is the prize does, you know, the prize does go to the companies that can evolve the quickest. And you're right, it w- uh, uh, my memory did serve me correctly. Thank you for confirming it. It was just a CX story like 17, 15 months ago, and they've just evolved quickly. And in this market, the people who are making the money are the people who are just running fastest and evolving quickest. And the difference, you know, the difference, the payoff from two years of grind, yeah, that extra 10% of grind can have just a massive payoff in a world where fortunes are being made in 12 and 24 months. And that's the aha here.
- JLJason Lemkin
And I think the hard thing for, for founders and for others is, do you stick with something? Now, Wonderful, uh, maybe I'm giving them, uh, maybe I'm saying this more of a tilt than it was, but, but W- Wonderful, they did it internally, right? The founders got together. They, they evolved the company very rapidly to something much more successful. O- on the other hand, we see Airtable, where I'm gonna assume Howie sat around the ta- Th- this is the only thing that really makes sense in this weird deal, right? Is that he sat around and he said, "I just can't do hyperagent in Airtable. It's just, there's too much, too much institutional headaches, too many customers to deal with, too many grouchy investors that invested at 12 billion. I've tried." And I assume you are, Rory, too. We're, we're huge fans of sticking it out, you know, because it's proven to work. It worked at Palantir. It's worked at so many startups we invest in. We have so many stories. This is all the great Ho Nam stories of sticking it out, right? They're so inspiring. From Altos, he's so good at that, right? But these days you gotta wonder, should you stick it out? Is it worth it to stick it out, guys? And I wanna... I tell everyone to, but I almost challenge myself. Maybe you shouldn't stick, maybe, maybe you should abandon that 50 million, 100 million, 200 million in revenue. Maybe, maybe you should do whatever it takes. Maybe, maybe, maybe you gotta be f- as fast as Wonderful.
- RORory O’Driscoll
I actually don't think you should, quote, "always stick it out." I think, uh, circumstances are different. I know, you know, back m- years ago when I had my own small business in the UK, I look back and I stuck at it for four years. Truly, I needed, I knew everything I needed after the first year. I shouldn't have bothered for three more years, waste of time. I, I look back and it's just so clear to me, right? So you don't always stick it out. Is there a plan, or are you just doing it out of misguided loyalty? And that's the number one test. And I think you're right, Jason, 'cause I don't think Wonderful was a pivot as much as an, an expansion, right?
- JLJason Lemkin
Rapid expansion, yeah.
- RORory O’Driscoll
You start here and just expand. Whereas I do think Airtable, they were in that contract mode. Everything they had, they were, they had run out of time and space. So I think it did, you know, probably made more, make sense to do that sale in that case. I think, you know, the facts are different.
- HSHarry Stebbings
I, I think everyone in this category is being forced to, though, by Brad Taylor, who's being very clear in terms of his expansion. And-
- RORory O’Driscoll
Yes
- HSHarry Stebbings
... a- and I think they're following suit, and I think they need to follow suit as well to justify the prices that they're raising them. So the combination of following Brad and price hunger-
- RORory O’Driscoll
No, no, that's fair
- HSHarry Stebbings
... m- means we are all doing the same. We're doing the operating system. You know, Owner's no longer just for
- RORory O’Driscoll
You know, I mean-
- HSHarry Stebbings
... SaaS companies, the operating system
- RORory O’Driscoll
... cr- cr- cr- crudely put, I mean, you're exactly right, is that, you know, Salesforce the company is the dominant SaaS company. It's worth roughly, you know, $200 billion, $180 billion. I think Service Cloud is 25% of that. So the winner is, you know, in the existing world, is only worth 50. So as you get these bigger market caps like Sierra, you have to go beyond Service Cloud replacement to be a big company. You're exactly right, Harry. You have to sell the, "I'm the whole operating system, I take it all." Which means if you're Sierra, just to make the obvious point, you're coming right at your former company, right? You're saying-
- HSHarry Stebbings
Oh, yeah
- RORory O’Driscoll
... yeah, I mean, we want all your market cap, Mr. Salesforce, because the only way I can justify 15 or 20 billion in market cap for Sierra is not if I build a slightly better next generation service cloud, if I am the entire customer ecosystem for your entire business. Go team. And then you're right, everyone else like Wonderful has to follow.
- HSHarry Stebbings
Yeah.
- RORory O’Driscoll
Okay.
- HSHarry Stebbings
Yeah, that's, uh-
- RORory O’Driscoll
When someone goes risk on, everyone goes risk on.
- 1:15:05 – 1:17:09
Thinking Machines at $40BN: Is the Neo Lab Trade Still Working?
- RORory O’Driscoll
[laughs]
- HSHarry Stebbings
Welcome to venture, baby. [laughs]
- RORory O’Driscoll
Absolutely. Terrifying.
- HSHarry Stebbings
Uh, what about, what about Thinking Machines? $40 billion new price. It's down from the $50 billion last year. Um, the round is, uh, five to six billion. Um, Excel leading with NVIDIA doing half. Couple of hundred million bucks in revenue. Closest thing to a US model provider in terms of kind of open and-
- RORory O’Driscoll
I think that's the real sentence here. The, the, the important thing is what, uh, you have to start, what's the company doing? Why is it differentiated better? And yes, they've done, they've shipped two products. It's Thinky and Inkling. Cute names, right? And one of them is an open-weight model that they themselves say is not pure frontier grade, but is open-weight and US-based, and that's worth a lot in this world. And then on top of that, I think the other product, Inkling, is a, is a platform to allow enterprises to do their own training. So the idea here is now you can go to JPMorgan, you can go to BofA and say, "You've got an all-American software product, and you got an all... And, and you've got the ability to train it on your data in a totally proprietary way that's not exposed to, um, OpenAI or Anthropic. And in fact, you have full reinforcement learning, all the things you want to build a state-of-the-art enterprise model for JPMorgan, for, you know, whomever, Procter & Gamble, right? So it's a pretty decent, compelling offering for corporations, right? I mean, so that's kind of the positive story, and it's interesting that NVIDIA's doing so much because to some extent, I thought that's what Poolside did, and they just acquired Poolside. So what you're seeing NVIDIA saying, "Anyone who's doing something interesting in corporate AI, we're gonna put money in." Right? So I think that's what's happening here.
- JLJason Lemkin
I know we've already forgotten about it because it's been a week or two, but, um, you know, the Poolside thing should be a little bit haunting. Not that a nine, $7 billion exit is so terrible, right? E- e- e- even though the, the 15x thing kind of was one of Harry's, Harry's clips that he took. But, um, but that, that memo
- 1:17:09 – 1:22:20
Will Most Neo Labs Fail to Raise Enough Capital?
- JLJason Lemkin
was chilling. It's like we couldn't raise the round.
- RORory O’Driscoll
Agreed.
- JLJason Lemkin
This was a great team with proven leader, very strong, you know, CTO, very strong leadership. Um, had, had the right vision. App- Seems to have had the right vision from day one. Went for it, right? And they just couldn't raise the capital they needed to execute. And congrats to Thinking Machines, which in some ways appears to have less, right? Um, but, uh, it is, uh, it is a reminder that the, that the music, m- the music will end for a lot of the Neo labs, right? And so be it, as it should. It should be a thinning of the herd. But the Poolside one, we may, we may never talk about it again, or it's possible when this little part of the bubble bursts, just one part of all the AI, this Neo lab bubble, that will be looked back as the, the, the, those were the, those guys grabbed the exit when everybody else, when NVIDIA stopped buying everything and Anthropic said, "Enough." Like, the, after Descartes, they said, "This stuff doesn't actually move the needle," right? It's just, "Enough, enough already with the infinite, uh, $10 billion deals. We've had enough," right? May- maybe. Maybe we look back and they were the lucky guys that got the deal done on December 2021.
- RORory O’Driscoll
Yeah, and, and just to be clear, like, j- just to remind everyone, like, what we're saying is a few weeks ago, Poolside effectively didn't... They would deny that they sold, but they sold a license for their product to NVIDIA, which was an open-weight, um, enterprise US-focused model, and they, you know, the, the company still exists, but they cashed out quite a lot, right? And the memo that Jason is referencing is the note they wrote at the time, basically saying, c- you know, "We were right, but we couldn't access enough capital to continue to play." And it's interesting that literally two or three weeks later- Another company in a not dissimilar business is actually being able to a- sounds like it's being able to access that capital, in part, ironically, from NVIDIA, who were also willing to buy Poolside, right? So yeah, they get to play out the hand, and I think you're right, Jason. Will you look back and go, two years from now, you could look back and go, "Poor Poolside, they got sold out, and Thinking Machines made a 4X from here." Or there's another world where you look back and you go, "Oh my God, I wish I'd sold because, um, the opportunity got tough for Thinking Machines, and Poolside maybe," as you said, "was the last exit out." It'll be interesting to see.
- JLJason Lemkin
Yeah. The world just changed after Astra, we will be talking about in 24 months, and that was the end of the need for Neo Labs. It, it was hard to see at the time, but when Astra 6 came out, the world changed, and it became this and us versus China, right? And then the new AI Regulatory Council, Trump Regulatory Council came in and changed things again. [laughs]
- RORory O’Driscoll
All those things could happen, though I do believe... I mean, fundamentally, you do believe that there is going to be strong demand from corporate America for a open, weight, US-based model with the infrastructure to train that model, right? And I think Thinking Machines is in a good position to meet that demand now, right? And I just think companies are gonna want it, right? Because you really only have them, Reflection, which I don't know where they are in terms of their model, and Poolside, right? I'm sure there's others, and they'll all come out of the woodwork and flog me for not mentioning them, but there's clearly a massive market need there.
- HSHarry Stebbings
There's a couple more, but there's not many more. There, there are a constrained five or six players.
- RORory O’Driscoll
And it's for, for precisely the reason that Poolside outlined, is that this is the-
- HSHarry Stebbings
But, but, you know, but the cash has dried up at scale for the Neo Lab players who I think now are going to your corp, as we've seen. You know, it no longer becomes a venture play.
- RORory O’Driscoll
Yeah, I mean, it was... There, there was a good-- I mean, the, the, the Neo Lab post that, you know, you shared with us and I read, uh, was just interesting. Exactly. It's, and at the same, we've kind of held that, is that two big companies, two foundation models were Neo Labs themselves five years ago, and they've turned to be the best venture bets of all time. Just because that's true doesn't mean the other 100 Neo Lab bets that you can bet on today will also turn out to be amazing venture bets, because now you have other companies with the capital already. You have other companies with the distribution. And yeah, the question is, which of those Neo Lab bets will be orthogonal enough to the foundation model companies to be able to be an interesting bet? And you know, we're wrestling with that question every day, 'cause obviously you'd like to make those bets. But if you're doing something that's gonna get rolled over by the... Either rolled over because the foundation model companies do it, or, as Jason says, if you can't raise the capital to play the game, it gets hard.
- HSHarry Stebbings
Boys, is there anything that I've missed that we should discuss?
- RORory O’Driscoll
I don't know if it's true or not, but Twitter is saying, um, is Anthropic gonna drop its S1 today, um, or is that not the case? I don't know. But yes, that will be interesting. To say the least, that will be, that will be heavily downloaded and read within the first, you know, hour of reading it, of, of coming out. So-
- HSHarry Stebbings
My word. Will you be buying at two trillion, Rory?
- RORory O’Driscoll
In-- I'm not, probably not gonna be buying at two trillion, Harry, but that's not a comment on the stock. Actually, the answer is in the end, yes, I'm in S&P and QQQ. I'm gonna be getting... As my wife said when SpaceX went out, "Looks like we got some of that from Elon too," right? [laughs] Um, it's in the index, baby. It's coming your way, you know. Not as quickly on SPY as QQQ, but on your Nasdaq index, that stock is gonna be in your hands 12, I think 12 days after the IPO. So you're a buyer. Boys, thank you.
Episode duration: 1:22:31
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Transcript of episode 4ioSi39yjJQ
