Lucas Swisher on How Mega Funds Can Still Do 5x Returns & Why Big Markets are the Most Important

1. 0:00 – 1:04

   Intro

   1. LSLucas Swisher0:00

      I think price does matter, but I think it matters least. Margin matters, but early, it can be a misleading indicator. Data is a prerequisite. It is not the answer.

   2. HSHarry Stebbings0:10

      Now, I am bored. I am bored of recycled guests, interviews that have been done over and over again. Today's guest is rarely ever on a podcast, Lucas Swisher. He co-leads the growth fund at Coatue, and they've backed some of the best companies of the last few years.

   3. LSLucas Swisher0:26

      One of the places where we don't spend time, these pre-revenue companies at really high valuations. I don't think the kingmaking concept is a real thing.

   4. HSHarry Stebbings0:32

      You don't?

   5. LSLucas Swisher0:33

      Who's gonna wanna help you, and who's gonna wanna hurt you? Because that ultimately matters. Ready to go? [upbeat music]

   6. HSHarry Stebbings0:51

      Lucas, dude, it is so good to have you on the show. We've walked around Hyde Park. I feel like we bonded in my short shorts.

   7. LSLucas Swisher0:56

      [laughing]

   8. HSHarry Stebbings0:56

      I've heard so many things now, 'cause I stalked the shit out of you, from David and specifically Jesse at Datadog. So thank you for doing this, man.

   9. LSLucas Swisher1:02

      Of course. Thanks for having me.

   10. HSHarry Stebbings1:03

       We're

2. 1:04 – 7:35

   Why Public SaaS Is Getting Crushed in the AI Wave

   1. HSHarry Stebbings1:04

      gonna dive right in with a super easy question, which is public SaaS companies are getting killed. I'm looking at my book, dude, and I'm like, "I thought I was so good at this," and now I'm really starting to question it with the amount of red that I'm seeing. So why is the public-private boundary breaking down, and what's the better side to be on?

   2. LSLucas Swisher1:22

      For the first time ever, with this AI wave, people are questioning the terminal value of SaaS, right? These were supposed to be like insurance companies, you know, annuity streams, that just have revenue streams and profit pools forever and ever and ever. And for the first time with a lot of AI, and I think in particular in the last six months with a lot of the coding models that have come out of Anthropic, OpenAI, and others, you are starting to question that value. And when you question that value, a lot of other things happen, right? The breaks that you got on SBC, stock-based comp, and GAAP versus non-GAAP earnings, those all start to go away. So that's the first dynamic, and then I think the second dynamic that's happening, um, is people don't know which SaaS is gonna be affected, right? Like, you can think of a bull case and a bear case for basically every SaaS company in the public markets, and when that happens, people are saying, "Okay, I'm just gonna take my bags, and I'm gonna walk away, and I'm gonna do something else," right? Because why own anything if I'm really not sure which one of these things is gonna work? I'm just gonna go own consumer internet, or SIMIs, or something else, right? And so I think, like, that's the real dynamic that's happening, is those two things are happening all at once, and all of a sudden, you know, that barrier breaks down.

   3. HSHarry Stebbings2:32

      How do we determine the babies that are being thrown out with the bathwater, so to speak? [chuckles] There are many different profiles of companies that have all been hit relatively to the same extent, but they're very different profiles.

   4. LSLucas Swisher2:43

      For sure.

   5. HSHarry Stebbings2:43

      How do we determine value in this pool of reductive market caps?

   6. LSLucas Swisher2:48

      I think it's really, really hard right now, is the short answer, right? This is the debate that we have all the time inside of our building, right? Which is, you know, you take, uh, a design tool, for example. You can make an argument that that design tool is super well-positioned in a world of AI because they're gonna integrate AI into all the design process and generate so much more value than before. But then you could say, "Well, I just create all my designs in ChatGPT now," right? "So why would I even need this design tool?" And I think that's the argument that you're gonna have on both sides of this at all times. I think the things that you're gonna wanna look for, the leading indicators that you're gonna wanna look for, are: Is the revenue still continuing to grow sequentially? Is net new ARR still continuing to climb? What's happening with the retention dynamics of these businesses? And I think, like, the more you can see that, the more, um, the better you're gonna feel. But the reality is, for the next three months, six months, nine months, we're not really gonna know what's really happening in the world, right? Because things are happening so fast, and all of the earnings that happen are retroactive, right? So you can only see into the past that way. So I think that's why you're seeing people basically walk away from the sector.

   7. HSHarry Stebbings3:54

      If our job is to make money, which is pretty simple, actually... I think we've over-romanticized a lot of this job in the last few years.

   8. LSLucas Swisher4:00

      Correct.

   9. HSHarry Stebbings4:01

      Our job is to make money for our investors.

   10. LSLucas Swisher4:03

       Correct.

   11. HSHarry Stebbings4:03

       And we're both fortunate. Most of our investors are amazing institutions. So my question is, though, opportunity cost adjusted now, surely it has to be better being in the publics, where Monday is trading at one-and-a-half X, Wix is trading at two-and-a-half X. It's four-and-a-half billion market cap at two billion.

   12. LSLucas Swisher4:19

       Yeah.

   13. HSHarry Stebbings4:19

       Surely that is better risk-adjusted than the s- I'm not picking on any companies, but the, like, ten billion dollar rounds that we're seeing for private companies.

   14. LSLucas Swisher4:29

       Yeah, I mean, I think you could make the argument both ways, right? On the public side, one, things may look cheap, but things may look cheap for a reason, right? When things look really cheap, oftentimes they look really cheap for a reason. On the private side, oftentimes the most expensive deals can be the best ones in many ways. And what I would say, look, more on a macro point is, if you think about the public markets right now, it's very hard to own the future, right? You have to, like, look and really pick and be really careful about the future. You get liquidity, right? You can trade in and out of things. That's the beautiful part about the public markets, but it's hard to own the future. If you wanna own the future, you kinda have to be in the privates, right? Think about it this way: Say I wanna be ultra-levered long to the token factory. You know, I, I think tokens are the next big thing in AI, and I wanna be ultra-levered long to AI and whatever the next token factory is. You can own some things in the public markets, but you may say, "I wanna own OpenAI and Anthropic and SpaceX," which now owns xAI, right? And this long list of incredible AI application companies that are coming downstream. And so to get growth, something that's growing more than thirty percent, to get durability of that growth, to get access to the future, you have to own privates.

   15. HSHarry Stebbings5:44

       So funny, I was asked the other day, "What are the top three stocks that you're most likely to own?" And I said, "It's easy. It's Anthropic, it's Revolution, it's OpenEvidence." Um, and really interestingly, fantastic, you cannot get any of those in the public markets.

   16. LSLucas Swisher5:57

       Correct.

   17. HSHarry Stebbings5:57

       And I thought that was just a really interesting realization of, huh, it's absolutely right. And a decade ago, I probably could have gotten them all in the public markets at, at this point, actually.

   18. LSLucas Swisher6:04

       You know, that's absolutely right, right? We've seen the emergence of... I mean, we call them platform companies.

   19. HSHarry Stebbings6:10

       Mm.

   20. LSLucas Swisher6:10

       Right? At the top, call it twenty, rough justice, twenty companies in the private markets.... 18 of those would probably be public today a decade ago. But we've seen the emergence of these platform companies. They're growing fa- they're huge scale, growing way faster than what anything, basically anything you can access in the public markets. They have multiple products. They've shown they can be great public companies, but they're choosing to stay private. And those platform companies, you cannot get access to as a public market investor. As a normal person, you can't buy stock in OpenAI or Revolut or OpenEvidence, all Coatue portfolio companies, right?

   21. HSHarry Stebbings6:43

       [chuckles]

   22. LSLucas Swisher6:43

       Um, you can't, you can't get access to those, and I- one, I think that's a shame, uh, for the kind of normal person that they can't go and buy that stock. But two, it is, it is an enduring trend that we've seen over the last five to 10 years.

   23. HSHarry Stebbings6:56

       It's a shame, but it's the greatest gift to venture capital that we could have ever wished for, 'cause it's allowed for us to transition from Fidelities and the large previously public entities, you know, working on BIPs, to shifting to two and 20, and respectfully, your Coatues and your GCs and Lightspeeds of the world ballooning fund sizes.

   24. LSLucas Swisher7:12

       Our job to make incredible investments and generate real returns, that's what we are 100% focused on, generate real returns for our investors. And I, I think it's one of the benefits of having a somewhat flexible mandate, right? Is I'm not tied to having to do a Series B this year, right? If the... If this trend emerges and it continues to persist, some of the best trades for us, some of the best investments for us, are in that segment

3. 7:35 – 15:28

   Durability of Revenue in AI

   1. LSLucas Swisher7:35

      of the market.

   2. HSHarry Stebbings7:36

      I w- I'm gonna move to flexible mandate later, 'cause I just wanna touch on the durability of revenue. You described it brilliantly as, like, the insurance annuity that kind of previous software revenues were. And now we have, you know, this transience of technology superiority, which sounds really kind of wanky, but, like-

   3. LSLucas Swisher7:50

      [chuckles]

   4. HSHarry Stebbings7:50

      ... technology cycles just change so fast. So Gemini is better, and then Claude's better-

   5. LSLucas Swisher7:53

      Yeah

   6. HSHarry Stebbings7:54

      ... and then OpenAI is better, that your durability of revenue seems to be more questionable and transient than ever. Should we ascribe value to revenue in the same way that we used to?

   7. LSLucas Swisher8:05

      Yeah, I think, I think you're absolutely right. I think it's changing, and I think it changes during every architecture shift, right? This is the really critical part of technology, right? As you moved from on-premise technology to SaaS technology, as you moved from the internet to mobile internet, right, you had a potential for all of the companies in the prior generation to completely evaporate. And the big question is, can you find the companies that have the talent density, that are the most forward-thinking, that are willing to reinvent themselves over and over and over again? Which is so hard, and those are the companies that you wanna find out. I think of a great example every time I, I think of this point, which is Databricks, right? If you talk to Ali from Databricks, um, we've been an investor since 2019. I think one of the things that we've seen from there and even before, I mean, I looked at the company when I was at Kleiner Perkins, um, I've seen this company for a very long time, is his ability to reinvent that company over and over and over again and ride multiple S-curves from being, you know, basically an ELT tr- data transformation layer to, you know, running and training models, to being the center of all data in the enterprise. Those are, like, multiple S-curves that he's hopped, and multiple times he's reinvented the company, and I think it's not revenue growth that you wanna chase, it's that.

   8. HSHarry Stebbings9:23

      It is the most incredible adoption of new trends and moving with the next chapter that I think we've ever seen, actually. 'Cause you could look at, like, a Replit and go similar, actually, how they've co-attached to a new cycle. I mean, this is another league. You mentioned the growth of revenue there. This is the other hard thing, which is, like, when we did Lovable's A, it was, like, at three million in revenue. By the time the legals were done, it was at 20.

   9. LSLucas Swisher9:45

      Mm-hmm.

   10. HSHarry Stebbings9:46

       And so the multiple had gone from 70X to 10X.

   11. LSLucas Swisher9:48

       Correct.

   12. HSHarry Stebbings9:49

       I mean, Anton should've been asking for a trade. Like, [chuckles] "I, I wanna renegotiate this." [chuckles] How do we value assets that are growing in such disproportionate or previously unseen ways?

   13. LSLucas Swisher10:00

       Yeah. Again, I think it's-

   14. HSHarry Stebbings10:03

       Like we-

   15. LSLucas Swisher10:03

       ... this is one of the, this is one of the hardest things. It's why we actually think the, the framework that we use internally is we think about valuation. Everybody has to think about valuation. But when a company is growing exponentially, 10X year on year, 50X year on year, right, the things that we're seeing now, y- we think about valuation last. It's the last question we try to answer is: Is the valuation great? Because, like you mentioned, you may invest in a Series C at 20 million of ARR at 3 billion post, and that seems insane. But if the 20 goes to a 200 in one year, and then 600 the next, and 3 billion the next, all of a sudden that looks extremely cheap. And so our job is, how do you find the things that are on that curve?

   16. HSHarry Stebbings10:46

       Okay, let's take that, actually. That's an interesting one. Let's say you are investing in a company that is doing, I don't know, 50 million in revenue, and you're paying, I don't know, four and a half billion-

   17. LSLucas Swisher10:56

       Yeah

   18. HSHarry Stebbings10:57

       ... um, specific numbers. [laughing]

   19. LSLucas Swisher11:00

       [chuckles]

   20. HSHarry Stebbings11:01

       And they say, "We're gonna be at 250 million."

   21. LSLucas Swisher11:03

       Mm-hmm.

   22. HSHarry Stebbings11:03

       And then you go at the end of the year, and you're like: "Wow! Gosh, you know, 5X in a year, and then we're gonna 3X the next year to 750 million." Wow. Well, you paid four and a half.

   23. LSLucas Swisher11:14

       Mm-hmm.

   24. HSHarry Stebbings11:14

       So even if it double or triples-

   25. LSLucas Swisher11:16

       Yeah

   26. HSHarry Stebbings11:16

       ... and then doubles again, you're still not at the 6 or 7X that it will be valued at in a public market. How do you just get your head around the hard dynamics of what it will be in a public market?

   27. LSLucas Swisher11:27

       Yeah. No, I think this is-- I think it's a great question, and it, it filters down into every decision that we think about all the time, right? And I think the key is, first, you wanna be in gigantic TAMs. Big ideas only, right? Because if you ever compromise on that very first principle and you're paying high valuations, you're in trouble. Medium TAM, small TAM, you better believe that this thing can be absolutely gigantic. We have this test internally, right, where it used to be, five years ago, we called it the $10 billion public company test, right?

   28. HSHarry Stebbings11:57

       Sweet. [chuckles]

   29. LSLucas Swisher11:57

       Can this be a $10 billion plus public company? That bar has changed, right, in this, in this new world because we are tackling much larger markets than we used to. And so now that test is, can you be just an enduring public company? And that may mean $50 billion of market cap, it may mean $100 billion of market cap. It really depends based on the stage, but really, it's big idea first, and then is the market absolutely yanking you into that giant market?... right? Do you feel that market pull such that, that revenue curve and subsequently down the line, that earnings path is really achievable? And so what you need to really believe is, like, take this $50 million ARR, or five billion post type company, right? You need to believe that someday you can get to five billion of revenue with 30% margin minimum, growing really fast. So what does that mean? I better believe there's $50 billion of revenue to go get.

   30. HSHarry Stebbings12:51

       Sure, and you also then are saying that risk-adjusted, that is the best place you believe to put your capital, which is where I get stuck. I'm like, in an ecosystem where there's so much opportunity, I understand that you can get there, but is that really the best place to put my money over the ten other homes where I don't have to double, triple and then do a somersault into Kenya? [laughing]
4. 15:28 – 16:52

   Market Size vs Founder Quality: What Wins?

   1. LSLucas Swisher15:28

      prior band.

   2. HSHarry Stebbings15:29

      I just... Again, I wanna get back to the, the fascinating statement that you said there, right? Number one is market size. We need gigantic markets. Do we need gigantic markets over the best, immediately incredible founders?

   3. LSLucas Swisher15:41

      [chuckles]

   4. HSHarry Stebbings15:41

      I know that's a, a really shitty question to ask, and forgive me for it, but I've actually learned that a good founder in a fucking great market almost trumps a great founder in an average market.

   5. LSLucas Swisher15:51

      Yeah. No, I think the founder is incredibly important, right? You go back to the example of Databricks, right? Most founders in that situation, they would've been handed- well, not handed, they would've built an incredible company in that first wave, but maybe they wouldn't have found their way to wave two, and three, and four. And it's, again, it's why we like this type of company that we call a platform company, right? Which is the- has shown the ability to skip TAMs, to have multiple TAMs over time. And I think that founder is tied to the market, you know, is tied to that market dynamic, and they're, they're equally important, but market size is always first. A great founder in a small market with a wedge that is not easily able to expand, I think will build an incredible business, but without having that core market and that core trend, it's hard to get to $100 billion, right? Like, you could be in this niche area that's very hard to expand. It's really easy to get an act one, but hard to get the act two, and the act three, and the act four. And to build that enduring company, right, you see it with SaaS today, you have to have the act two, and the act three, and the act four. And those things, that's why they go

5. 16:52 – 23:32

   Why Price is the Last Thing to Matter

   1. LSLucas Swisher16:52

      really in tandem.

   2. HSHarry Stebbings16:53

      Because of the expansion of TAMs and outcome sizes, can you be thoroughly elastic on entry price, even at the real growth stage, or does price elasticity constrain significantly with increasing enterprise value? [laughing]

   3. LSLucas Swisher17:07

      Ultimately, price always does matter.

   4. HSHarry Stebbings17:09

      Yeah.

   5. LSLucas Swisher17:09

      Right? I think some folks will say, "Oh, pr- price doesn't matter." I think price does matter, but I think it matters least. You, of course, could make the argument of, "Oh, Lucas, well, you do it five, why not six or seven or eight or nine or ten billion? What if it was $20 billion? What if it was $30 billion?" There does come a delineation point where you feel like the returns are gonna erode such that you would pass on an opportunity, but I'd say by and large, if you're the one instigating these rounds, and you're the one that's preempting these rounds, you can kinda help figure out what the right price is for a company at any gi- at any given moment. And I do think you wanna think about it last, because again, these generational companies, it's almost never too late for them, right?

   6. HSHarry Stebbings17:51

      I agree with that, that we have a very kind of clear litmus test, which will make us make many mistakes, and which is why we should change it immediately. But it's like, when we think about our entry price, it's true. When we think about our entry price, do we think that we are able to 3X that entry price within the next fundraising round? And so if the found- company says, "Hey, we're gonna be at... We're gonna go from one to $10 million by the end of this year, and because of that, we're gonna be able to raise at three fifty," great, well, we're paying seventy for the A, I can totally see my 3X there.

   7. LSLucas Swisher18:21

      Yep.

   8. HSHarry Stebbings18:21

      Or it's like, "Well, actually, we're only going from one to four, 'cause we're a slow enterprise sales cycle, but we're paying one fifty for this incredibly hot A." One to four? I'm not raising at three hundred if that's the case.

   9. LSLucas Swisher18:31

      Right.

   10. HSHarry Stebbings18:32

       Shit, I'm probably raising a flat round.

   11. LSLucas Swisher18:34

       Correct. Maybe.

   12. HSHarry Stebbings18:35

       Bah, bah! No, [chuckles] that's how we think about it. Do you have any internal monikers or frameworks for, like, bah?

   13. LSLucas Swisher18:41

       ... I think the more simplistic way that we think about it, and again, this is not a hard and fast rule, and it's more qualitative than anything, is if I invest in this round at this price and the company executes, do I wanna put more at a higher price? That's the litmus test. It's to say, all right, say I invest in a company at five billion, and it does super well this year. Is this a big enough idea? Is this generational enough? Is this transformational enough? Is the founder amazing enough that if in six months they wake up and say they wanna raise it ten, that I'm gonna wanna do that?

   14. HSHarry Stebbings19:12

       I think it was Henry Allen Bogan that said once that he wants to invest as much money as possible as the company becomes more expansive, which is one of those kind of counterintuitive statements.

   15. LSLucas Swisher19:22

       Right.

   16. HSHarry Stebbings19:22

       Do you want to kind of spray early, and spray is a derogatory term, I don't mean that rudely, but, like, constrain capital effectively and then double down very aggressively, or do you want to aggressively get ownership and then focus on constraining as time goes on?

   17. LSLucas Swisher19:37

       Yeah, we're, we're much more the latter. And I think there are two, there are two dynamics around this. One is, our view is there are very few companies that generate the disproportionate value in technology, right? If you look at the private markets today, take the whole private market ecosystem, twenty companies generate- have generated eighty percent of the enterprise value. Twenty companies, eighty percent of the enterprise value, of all the private companies that exist in the world. And four companies, right, have generated sixty-five percent of the enterprise value. Four companies. And so what really matters is being in those companies, those twenty platform companies that are generating the disproportionate amount of value. And then your next question is, all right, well, how? Like, this wonderful framework. Like, we all would love to be in all of these platform companies, but, like, how? And the answer is, from our view, you can't do this brand prey at the early stage or the early growth stage. The reason why is, you may be in the wrong horse, or you may be in the wrong market, and you may be investing your time wrong. Because there are very few companies, we need to make the very few investments, even at the, even at the early growth stage or the growth stage.

   18. HSHarry Stebbings20:41

       Can I-

   19. LSLucas Swisher20:41

       We can't afford to be in the wrong horse.

   20. HSHarry Stebbings20:43

       I get you, but actually, we... I'm not asking you about yours, but we see a world of competitive investing. Andreessen is in, you know, competitors consistently. There are many people who are in many companies where they directly compete. You can actually afford to be in the wrong horse today and still do the next horse.

   21. LSLucas Swisher21:02

       I think you can, but it definitely makes your job harder.

   22. HSHarry Stebbings21:05

       It does.

   23. LSLucas Swisher21:05

       Right? I think, um, you want to, you wanna make your job easy, as easy as possible and not put up the barriers-

   24. HSHarry Stebbings21:14

       A hundred percent

   25. LSLucas Swisher21:14

       ... in ways to being able to win, to win a new investment. But I agree with you. At, at scale, when companies become these platform companies, right, which is our style of investing, oftentimes, it's almost like buying a pseudo public stock-

   26. HSHarry Stebbings21:27

       Sure

   27. LSLucas Swisher21:27

       ... in many ways. As a public market investor, I could own Google and Meta. As a private market investor, at the very earliest stages or the early growth stage, should I be investing in, like, two Series Bs that are exactly directly competitive? That feels really counterintuitive, right? You probably don't wanna do that. One, just because you're making a bet that's directly, directly competing, but at the growth stage, when you get these platform companies, maybe they didn't even start by being competitive, but they grew into it over time.

   28. HSHarry Stebbings21:56

       When founders come to you and they're like, "Um, you, how dare you?" Like, "It started off as a pillow company, and now it's doing enterprise payments. [laughing] I, I-- How, how am I to know?"

   29. LSLucas Swisher22:05

       And listen, that's part of the game, and, um, as a founder, I complete- I completely empathize and understand, understand that, right? I can understand how that would be, you know, a really tricky situation. From our perspective, it's when you're investing in large markets, oftentimes, you are going to end up in assets that compete because they naturally expand TAMs. A great example of this is, I think we were the only private investor that was invested in Snowflake and Databricks when they were both private. They started off in completely different areas, right? Databricks didn't have a data warehousing product, and Snowflake didn't really do a lot of ELT. It was mostly built around the ecosystem. They grew together, and they... We weren't invested when they were, you know, starting to compete because Snowflake went public a lot earlier. But at the same time, that happens in big markets.

   30. HSHarry Stebbings22:51

       It's so funny you said that. You-- y- the enterprise value, I think sixty-five percent is done by four companies or created by four companies. I tweeted not too long ago that basically, unless you're in Anthropic, OpenAI, Cursor, Lovable, OpenEvidence, Harvey, you name your like, you're irrelevant if you're not in them in venture. And naturally, every irrelevant venture investor came out of the woodwork-
6. 23:32 – 27:01

   Mega-Funds Math: Can $5B+ Funds Still Generate Venture Returns?

   1. HSHarry Stebbings23:32

      so, and so I wanted to ask you, when you think about mega funds, at which we see more and more of-

   2. LSLucas Swisher23:37

      Yeah

   3. HSHarry Stebbings23:37

      ... do you think they will be able to produce the venture-like returns that we see with early-stage funds, given the outcome sizes, or actually, we just have a different LP profile?

   4. LSLucas Swisher23:45

      Yeah. I mean, I think I would separate the two asset classes almost in some way, right, venture and growth, in many ways, right? They've- we've almost developed completely independently and separately. Obviously, there are firms that do both. There are firms that do both very well. If I was a venture fund staring down the barrel of a three billion dollar venture fund, I think that's a tough putt. That's a tough battle to be a part of.

   5. HSHarry Stebbings24:08

      What do you, what do you mean by that, if you're in one?

   6. LSLucas Swisher24:10

      I, I mean, if you are a venture fund that is staring down the barrel of having to deploy three billion dollars, I think that is hard. Because, again, at the early stage, it is hard to capture disproportionate ownership in the few companies that actually generate all of that liquidity. If you're a small, if a small venture fund, I think it's super possible in today's world. You don't actually have to be in... You don't have to catch the seed of SpaceX. You'd really like to, because those are the only-- the platform companies generate liquidity. But at the end of the day, like, you can get by with not capturing all of the great outcomes. If you have a three billion dollar venture fund, the math is really hard, right? You have to capture a lot of those.... The growth funds are a, growth funds are a little bit different math. But I think just go back to your question about, you know, can these- can a five billion dollar growth fund scale and work? The answer is yes. The reason why is the market's changed in two different ways. Change number one, these companies are staying private longer. They're staying- they're getting bigger while they're private. There are more opportunities to invest over time. So now, where 10 years ago, you couldn't put a billion dollars in a company, now you can invest a billion dollars in any given round. If I invest a billion dollars and I 10X that billion dollars, that's a 2X on a five billion dollar fund. Now, I need to be concentrated to make that happen, right? And I think, again, that's why we go back to our strategy: few investments, big checks. You have to have that type of discipline to make those fund sizes work. The spray and pray does not work, but you can a- you can absolutely make it work. And then I think the second dynamic that's different is the outcomes are bigger now. The outcomes are bigger now than they used to be. In the SaaS wave, I think it would've been really hard to make that fund size work because SaaS, you're constrained. The largest SaaS company in the world that's independent outside of Microsoft and the hyperscalers, Salesforce, right? Salesforce, Workday, ServiceNow. Those are like a couple hundred billion dollars of market cap, right? So it's gonna be hard in that world. But in an AI world, if we actually think that we're augmenting labor, if we think that we can address a lot of these really big markets, if you move from human inputs to tokens, then you're gonna have much bigger outcomes, and the math works.

   7. HSHarry Stebbings26:14

      Do you think in a world of vertical SaaS... or sorry, in a world of mega funds with five billion dollar plus funds, which are several now, vertical SaaS is no longer an investable category just because the outcome sizes will not be enough to generate the mega outcomes needed?

   8. LSLucas Swisher26:30

      I mean, I... Listen, vertical SaaS, I think you could talk about it a lot of different ways, constrained TAM, AI risk, all kinds of stuff. They're still great businesses today. People are- people have made a lot of money in vertical software over time. Think about Insight, right? They've had incredible exits in vertical software over time, multi-billion dollar exits. In today's world, if you have a big fund, I don't think that's where you should be focused. I think you should be focused on the absolute mega outcomes, the platform companies that are gonna generate that disproportionate return and you're actually gonna get liquidity out

7. 27:01 – 29:54

   What Returns Are 'Enough'? Why 3x Isn't Exciting at Growth

   1. LSLucas Swisher27:01

      of.

   2. HSHarry Stebbings27:01

      Don't laugh. What is an attractive enough upside scenario to get you excited? You know, we always hear in early stage, in my business, "Oh, it needs to be a fund returner."

   3. LSLucas Swisher27:10

      Sure.

   4. HSHarry Stebbings27:11

      What is attractive enough for you? Like Revolut, I think, is a phenomenal company.

   5. LSLucas Swisher27:14

      Incredible.

   6. HSHarry Stebbings27:15

      I'd love to be invested. At seventy-five billion, I'd love to be.

   7. LSLucas Swisher27:17

      Mm-hmm.

   8. HSHarry Stebbings27:17

      I think there's a clear pathway to two hundred and fifty billion.

   9. LSLucas Swisher27:19

      For sure.

   10. HSHarry Stebbings27:21

       Is that 3x enough to be exciting?

   11. LSLucas Swisher27:23

       No. A 3x is not enough to be exciting, and the math is really simple, right? Say, say I'm a fund and I'm Coatue, and I wanna make a 3x net return for my investors, which I think is a, which I think is sort of the baseline for what people would say is, like, a top quartile return, and people get really excited about 3x net return for a fund, you know, twenty-five percent net IRR, something around, around those bands. I'm gonna have some things where I swing and I miss, and say I have a 1x, I need a 5x on the other side of that. S- Heaven forbid, I have a loss rate, I have a loss, and I have a zero, I need a six. We obviously really try to avoid those, right? If I have a two, I need a four. So for me, I need to see a, a, a steady case where you can get that 3x, but I really need to believe that if the company 3xes, I wanna put more money in because it can 3x again. And I think this is a really critical thing that a lot of folks end up missing over time is, ultimately, I need to imagine a case where after I've made my 3x, somebody else thinks they can make their 3x. Because otherwise, one, I'm not gonna get those 6x pluses that I'm going to need in my fund, but two, the company's not gonna exit. I have to imagine... This is why the big idea, have- being in big ideas really matters. Somebody's gotta sit on the other side of that stock. I have to be able to walk down the hallway to the folks that operate on our public side and say, "Do you wanna buy this stock? Do you wanna buy this stock more than all the other opportunities that you have?" And so every investment I make, that is the rigor and the framework that I use is, someday, is my public counterpart gonna wanna own this stock over everything else in their book? Is there- or at least is there a chance?

   12. HSHarry Stebbings29:02

       With the extension of those private markets and the outcome sizes, and your entry point, as we said, can be, uh, flexible, but, you know, the three hundred to five billion is very sound, and I know it can go much higher. Given that delay in private, uh, public market entry that we're, we've seen from private companies, you have the chance to sell a lot more than you used to. How do you think about taking advantage of secondary markets pre-going public and doing great returns for your investors?

   13. LSLucas Swisher29:29

       Yeah. Um, it's cer- it's certainly an option for liquidity now, right? A lot of folks, especially the early-stage funds-

   14. HSHarry Stebbings29:35

       Yeah

   15. LSLucas Swisher29:35

       ... that have been in companies for a really long time, um, are taking advantage of this, and I think rightfully so. And again, I think it's why, even if you're an [chuckles] early-stage fund, you... This is a great style of investing, and it's the type of company that you wanna be in because it's the only type of company that can get access to liquidity, whether it's private or public.

8. 29:54 – 32:37

   When Double-Downs Go Wrong: Overestimating TAM and Multi-Product Expansion

   1. HSHarry Stebbings29:54

      When you have doubled down and it has been a mistake, what did you not see that you wish you'd seen? And you don't need to name the company, but-

   2. LSLucas Swisher30:00

      Yeah, of course. I think, again, it goes back to that very simple principle: It's the big idea and the multiple products. And it's why we're really focused on that and why I harp on it literally nonstop, is we've just overestimated TAM, and we've overestimated the ability for companies to launch multiple products and expand into new TAMs. We're usually not getting things wrong on the basis of metrics, or the team being good, or it wasn't growing fast enough. It's really that question, and it's why we have applied and really raised the bar on the type of investing that we do, is because of that, right? It's like where, where we've gone wrong, and the nice thing is we have a, you know, we tend to have a very low loss ratio because of the style of investing that we do. Uh, but where we've gone wrong, it's that.

   3. HSHarry Stebbings30:43

      When we say raise the bar, uh, [exhales] the challenge that I have with a lot of companies today is they're like good enterprise companies, okay? Um, but they're, they're kind of doubling and tripling-

   4. LSLucas Swisher30:52

      Yeah

   5. HSHarry Stebbings30:52

      ... at ten, twenty million in revenue.... what happens to that generation of SaaS companies from twenty twenty, twenty twenty-one? They're, they're good companies.

   6. LSLucas Swisher31:01

      Great companies.

   7. HSHarry Stebbings31:02

      But, well, respectfully, they're not great companies, they're good companies, and in a prior cycle, they would've been funded, and they would've been funded well. But now, are you really gonna jump out of bed for a ten million growing to twenty-five million?

   8. LSLucas Swisher31:17

      The short answer is, I don't know. I don't know what's going to happen to those companies. I don't know what the terminal value is. I don't know what the exit pathways are, right? With private equity in the space that- in the place that it's in, with the public markets where it is. All I know is I have a lot of conviction, and I see a path in the style of investing that we do. I don't, I don't know how to comment on the other part of the markets, right? There's this notion that, like, the dou- the triple, triple, triple, double, double, double is dead, and these companies suck, and all this stuff. I don't think that's true. There are great companies you can drive real margin from, and they make incredible businesses. It's just not our strategy, right? And I think in today's world, the reality is, in a SaaS world, the triple, triple, double, double, double was a thing. It was an incredible metric. These businesses were incredibly repeatable, very comparable. Now, we exist in a world where if you have a product that the market likes, it is going to absolutely yank you into that market, right? It's not gonna triple at the earliest stages. It is going to scream, right? And I think you re- you really see that, right? And so those are the companies... And again, it's not like we think these companies are all bad and this and that, it's just our strategy is to find those and to work with those companies, because that's where we think the disproportionate returns come from, and it's the companies that we have an advantage working with.

9. 32:37 – 37:11

   Margin Matters… But at Scale: AI Gross Margins, Cost Curves & Efficiency

   1. HSHarry Stebbings32:37

      You mentioned the word margin there, and I, I think why I think so many people feel really insecure as investors today is because there's so many priors that are being fundamentally questioned-

   2. LSLucas Swisher32:45

      Of course

   3. HSHarry Stebbings32:45

      ... whether it's growth rates or rule of forties, or, you know, I was always taught that margin mattered. I walked with my mother around London, I'm like, "Jules, margin matters." [laughing] And now I'm looking at it going-

   4. LSLucas Swisher32:54

      It's how you wake up every morning.

   5. HSHarry Stebbings32:55

      Pretty much.

   6. LSLucas Swisher32:55

      Margin matters.

   7. HSHarry Stebbings32:56

      I put my feet on the ground, and I say, "Margin matters!"

   8. LSLucas Swisher32:59

      [laughing]

   9. HSHarry Stebbings32:59

      Um, but I start to question whether margin actually does matter in the early days. If your company is rocking, you're spending on inference, and that is a sign of good usage and love, does margin matter?

   10. LSLucas Swisher33:12

       Yeah. I think the same business principles that have applied to businesses for the last three decades in technology are the same business principles that matter today. Margin matters, but that is nuo- but it's nuanced. Margin, I would, I would add an addendum to that. Margin matters at scale. The best businesses, in particular infrastructure, whenever there's a technology wave happening and a, an architecture shift, some of the best businesses, not all of them, but some of the best businesses have had horrific margins early.

   11. HSHarry Stebbings33:44

       Who?

   12. LSLucas Swisher33:44

       The hyperscalers. The hyperscalers were low margin early. Those are the best software platform businesses in the world, right? Snowflake and Databricks, very low margin early. A lot of people passed on those early rounds 'cause they're, "Oh, in SaaS, you have to have eighty percent gross margin. Look at Snowflake, it's got twenty," you know? Like, margin matters, but early, it can be a misleading indicator, right? Especially when an architecture shift is happening. The reason why in AI, and I'll give you the, the bull case on this, right, is the reason why margin might not matter early on in a company's life in AI is the cost curve is coming down so fast. Say my inference margin is ten percent today. It may have been negative a quarter ago, and super negative two quarters ago, but the token costs are coming down so fast. Maybe I'll be... If I'm an application AI company, I'll probably be able to develop my own model for some of the workloads. I'll probably wanna use frontier co- frontier models for some of the workloads. I'll probably wanna use really small, cheap models for some of the workloads, and over time, I'll be able to optimize my margin. That's what we really believe is going to happen over time. But listen, these companies are structurally lower margin than the last generation, because you pay the cloud and you pay the LLM.

   13. HSHarry Stebbings34:55

       And so we just get used to actually larger outcome sizes with larger, probably revenue pools res- associated, but a slightly lower margin profile.

   14. LSLucas Swisher35:03

       Well, from, I think, gross margin, yes. But what you might say is, "Hey, I'm actually substituting growth- a lower gross margin for lower opex, because my engineering team, maybe it's more efficient. My sales team is using AI tools now, maybe it's more efficient. My legal team, maybe it's smaller, and maybe I'm more efficient." So your terminal operating margin may actually be higher in this world than the last world. Your gross margin might be lower, but your operating margin, which is ultimately, at the end of the day, is really what matters, may end up being higher.

   15. HSHarry Stebbings35:36

       What else do you think a lot of investors oscillate or focus on, which is total shit? You can pause. [laughing]

   16. LSLucas Swisher35:44

       [laughing] What do other investors focus on that is total shit?

   17. HSHarry Stebbings35:47

       Yeah, like, I-

   18. LSLucas Swisher35:48

       [laughing]

   19. HSHarry Stebbings35:48

       ... my fa- my favorite thing is vision. "Oh, we love founders with great vision." I'm like, you know what? Most founders, you start with something worth zero. If I say, "I'll give you a billion dollars for your thing that's worth zero today," they'll go, "A billion dollars? That's great. That's really great." Uh, some of the best companies, Google, tried to sell for the low digit millions.

   20. LSLucas Swisher36:05

       Yeah.

   21. HSHarry Stebbings36:06

       You unlock the next chapter through progression and continuing.

   22. LSLucas Swisher36:09

       Yes.

   23. HSHarry Stebbings36:10

       I think vision's bullshit.

   24. LSLucas Swisher36:11

       Yeah. I think, I think you could say that one of the places where we don't spend time, where these are really gonna work, is these pre-revenue companies are really high valuations, right? I think this is a lesson that at least we've taken about ourselves from 2021, is that is not our business. The pre-revenue company at a really high valuation with no product is not our business, and I think a lot of investors are focused there right now. Because what ends up happening is, if you can't invest in OpenAI and Anthropic and Revolut and SpaceX and Canva and, you know, all of the companies that are these great platform companies, and you're locked in to a certain part of the ecosystem, you make decisions that you can make. And so I think a lot of people are focused on that part of the ecosystem right now, and for us, that doesn't make sense from a risk-reward perspective. Our focus is real businesses that are growing really fast, that we think are gonna be really durable outcomes and actually generate liquidity for our investors. And again, it goes back to this principle around, if I have a zero, I need a six, and a six is [chuckles] really, really hard.

10. 37:11 – 40:11

    Why it has never been harder to be a seed investor

    1. HSHarry Stebbings37:11

       ... You mentioned earlier that you wouldn't want to be a seed fund deploying three billion or staring down the gun of three billion or whatever it is. In a way, I would, because I can absolutely destroy the economics of all the seed fund players, and it's something that we see. We lost a deal recently to a large mega fund, and we did three on fifteen, and they did ten on a hundred, um, with no liq pref, uh, pre anything, and they just destroyed all the economics. And I told the founders, "You should absolutely take that deal, like b- and sell tomorrow for, like, five million bucks, and you've made money." [chuckles]

    2. LSLucas Swisher37:41

       Yeah.

    3. HSHarry Stebbings37:42

       But they can destroy the economics. Is seed still a business when you have mega fund entry with different economics in the way that we do?

    4. LSLucas Swisher37:49

       I mean, I think it's gotten harder for two reasons. One is you do have this mega fund dynamic, but the other thing is we're in a different world than we were five years ago, right? Which is, in general, people are coming out of the gate with bigger check sizes and bigger valuations, right? And that just raises the risk, like, dramatically over time, right? So I think that's... Those are the two dynamics that are, that are really at play. It's, it's harder for a seed fund to buy twenty percent today or ten percent today or five percent today than it was a few years ago because of this dynamic, and that has to do with a lot of different things. One of them is, in a SaaS world, you didn't need that much capital. You started up, you kind of get going, whatever. In this world, businesses tend to be more capital intensive, right? They may be actually more durable at scale because of this. Makes it harder for the next enter- entrant to come in. But the reality is they're harder to start, they take more capital, and that has led to some of these, like, very big, ballooning seed rounds. I think that makes it harder to be a seed investor in today's world. And again, why having a flexible mandate where you can row up and down that river and not have to be there is really a nice place to be.

    5. HSHarry Stebbings38:59

       Do you think a good investor at A can be a good investor at D? A lot of LP mindsets are like, "No, early stage is different to growth, and, poof, that's very different." I think Josh, who's a dear friend at Thrive, has, has proved that actually that's not the case, but other people still very much hold that true.

    6. LSLucas Swisher39:16

       I don't think it's impossible, but I do think it is very hard, and I think that's because the type of frameworks that you use, the types of things that you see, are very different at different scales. Being able to read a balance sheet actually does matter for a pre-IPO company, right? Like, that really matters. But seeing thousands of founders, thousands and thousands and thousands, really matters for seed, because what else do you have, you know, to go off of? And so I do think it really matters. I don't think it's impossible. I think there are some funds that have done it exceptionally well, but I think it's why you see for us, right, we, um, we as a fund, we... I actually think the public market skill set and the private market skill set is also different, and so having different folks that are focused on different things is really important because there are different parameters, different things that you see all day, and there are other people that you're competing with in all of those different segments that make it really tough to be the best

11. 40:11 – 45:23

    Is 'Kingmaking' a Myth: When Capital Helps (and When It Hurts)

    1. LSLucas Swisher40:11

       at everything.

    2. HSHarry Stebbings40:11

       There seems to be a consensus of excitement around certain companies, and we see the concentration of cash to, to few players in select industries, which has led to this idea of kingmaking.

    3. LSLucas Swisher40:21

       Mm-hmm.

    4. HSHarry Stebbings40:21

       Um, when we think about kingmaking, do you think that is a rational or real thing, or do you not?

    5. LSLucas Swisher40:30

       I don't think it's a real thing.

    6. HSHarry Stebbings40:31

       You don't?

    7. LSLucas Swisher40:32

       I don't think the king- the kingmaking concept is a real thing. I think companies, um... Some companies attract more capital early, some companies slingshot from behind, right, having had somewhat less capital-

    8. HSHarry Stebbings40:44

       Do you, do you not think if you raise a lot of money from large tier ones who then are very vocal and loud, it dissuades other people from investing in anyone else, which then-

    9. LSLucas Swisher40:51

       It certainly does, and it's an advantage, but it doesn't mean that you can't build a great business w- if just because a bunch of tier ones are crowding into a name. I think there is the concept of it gives you an advantage. More capital does give you an advantage. There are some cases where historically it's given you a disadvantage, right? Like, if you have so much capital and not a lot of product market fit, I'd say you probably at a disadvantage. If you have a lot of capital and insane product market fit, that allows you to go hire a huge sales force, that's a huge advantage, right? Like, if you're taking... If you're actively taking a market, and you have way more capital, a better t- right? Like, it's, this is, like, almost tautological, right? It's like, that is a huge advantage. But do I think that there's this concept of, well, if Coatue and Sequoia and Kleiner all pile into a company, that it's over? No.

    10. HSHarry Stebbings41:39

        I think it is an advantage, but I don't think it makes it, which is probably why kingmaking goes too far. Do you think we all foie gras-ing companies today in the same way we have done before?

    11. LSLucas Swisher41:48

        What do you mean by that? [chuckles]

    12. HSHarry Stebbings41:49

        You know foie gras.

    13. LSLucas Swisher41:50

        Yeah.

    14. HSHarry Stebbings41:50

        Yeah, you know, they shove a tube down it and then-

    15. LSLucas Swisher41:52

        Yeah

    16. HSHarry Stebbings41:52

        ... force-feed it, and then it explodes. Yeah, so we are putting too much money into companies, and then, then they are artificially inflating and then exploding.

    17. LSLucas Swisher42:00

        I think there are segments of the market where it feels like that is, that feels like a little bit of a problem. I think for these companies, and I'll, and I'll just focus on what we do, right? For the companies that are explosively growing at the growth stage and have real product market fit, real product, real traction, I don't think so. Right, you look at these companies that raise really rapid rounds in succession at the growth stage that actually have something underneath, no. Because these cap- there's real ROIC on the capital that's being invested, right? There's real ROI for the dollars that are going into these businesses. Sometimes I think when growth funds in particular chase venture companies, right, we've talked about that delineation point, that's where I think it can get quite dangerous. It can make companies complacent, um, it can make companies spend too much on things that maybe the, maybe it's not great. Like, at that early stage, that kind of capital scarcity I think can breed actually great things. Um, and so I think there are parts of the market where that's certainly true. These growth stage companies with this insane momentum, I don't think so.

    18. HSHarry Stebbings43:04

        Do you worry that there are a generation of companies, a la Canva, a la Stripe, which do not need to get public? Great businesses, great businesses in private markets, ample liquidity for those that want it, very active secondary markets if they need to.... why would we go public? As John said, I don't want some fucking thirty-year-old analyst at some big bank telling me that I should increase sales, [chuckles] like-

    19. LSLucas Swisher43:25

        Yeah. I mean, I think this is one of the reasons why companies have stayed private longer. I don't think most of those platform companies will stay private forever. I think there are a couple reasons to, that, that are good to go public today. One is real capital at scale, right? Real capital at scale, still, say you're a trillion dollar plus company, it's available, but true liquidity that's not layers and layers and layers of SPVs and all this tricky shit,

    20. HSHarry Stebbings43:50

        [chuckles]

    21. LSLucas Swisher43:51

        and, like, managing your cap table. Like, true liquidity at scale-

    22. HSHarry Stebbings43:54

        Andrew tweeting about your layered SPVs. [chuckles]

    23. LSLucas Swisher43:56

        I mean, you've seen some of the things around some of these companies where it's, like, unbelievable, like the opacity of this, and the companies don't want that either.

    24. HSHarry Stebbings44:03

        Mm.

    25. LSLucas Swisher44:04

        They wanna know who their investors are, and you get the investors that you deserve as, as the, as these com- as, you know, you scale and you go public. So liquidity at scale is, is certainly one reason. The second reason is, and this can cut... This second reason I think really does cut both ways, but the public markets are an incredible feedback mechanism for businesses, right? If you think about Netflix during their transition, right? Like, the public markets were some of the first folks, like the analysts and the public teams, to really speak about that transition from the disc to streaming, right? From the CD to streaming. And I think especially in an AI world, the public markets, folks in the public markets are really, really smart. The twenty-five-year-old analyst, this and that, right? Like, everybody's gonna have varying degrees of intelligence or opinion, but the public markets are this, like, incredible weighing machine that can give founders amazing, and teams, amazing feedback on their businesses. And then the third thing is, when you go public, it's sort of harder to touch you. In some ways, it's easier to touch you from a buying and selling stock, but you're now a public company. You're now levered to 401 [k] s, to indices. When you're a private company, people can mess with you a little bit more. It just is what it is. They can mess with you. When you're a public company, and you are a big, important public company, it's harder to mess with businesses, and so you kind of have this rigor around

12. 45:23 – 46:52

    Is Canva Really a Platform Company? Multi S-Curves and Leaning into AI Early

    1. LSLucas Swisher45:23

       you.

    2. HSHarry Stebbings45:23

       I adore Cliff and, and Mel, and I think they're amazing, but you said about, like, the platform companies, and you included Canva. If you were to be a harsh critic, and you'd say, "Well, Figma's worth eleven billion dollars today," and image generation, graphic generation is right in the pathway of a lot of large AI companies, is Canva really a platform company?

    3. LSLucas Swisher45:46

       What I love about Canva is they've shown that same ability that Databricks has, where they're able to hop multiple S-curves and develop multiple products, right? They started as... I, I'm sure you know this story, but it's incredible. Mel started the... Mel and Can- and Cliff started this business as a yearbook business, making yearbooks. They successfully transitioned that online, they successfully transist- transitioned that to SaaS, and now they've transitioned to many, many, many products, right? Canva is a suite of, like, a dozen products that are all growing extraordinarily quickly. So you have that dynamic, and then the other thing that I love is they were one of the first companies that really leaned into AI. I remember Cliff called me about this very early on 'cause we were early investors in, uh, in Stable Diffusion, if you remember the image, the image-

    4. HSHarry Stebbings46:32

       Yeah

    5. LSLucas Swisher46:32

       ... generation company in OpenAI and a few of these other businesses. And he called us really early in this wave, like pre-ChatGPT in this wave, and was like, "Hey, we're gonna start integrating AI into our business now." And so that type of mentality, both the ability to develop multiple products and hop TAMs, and to stay ahead of the curve in AI, I think is gonna serve them very

13. 46:52 – 50:08

    Lessons from Mary Meeker

    1. LSLucas Swisher46:52

       well.

    2. HSHarry Stebbings46:52

       I, again, I love Cliff and I love Mel, and I totally agree with you in terms of expansion. You know what I also love about that story? Married couple, uh-uh.

    3. LSLucas Swisher46:59

       Amazing.

    4. HSHarry Stebbings47:00

       Australia, uh-uh.

    5. LSLucas Swisher47:01

       Amazing.

    6. HSHarry Stebbings47:01

       Non-technical, uh-uh, te- yearbooks. Like, to be fair, the seed investors of that, and, uh, I'm, I'm not taking anything away from Mel and Cliff. Again, I think they're exceptional. But you've got to be quite mentally plastic-

    7. LSLucas Swisher47:12

       [chuckles]

    8. HSHarry Stebbings47:12

       ... away from the traditional investing rules to be like, "Yep, all in."

    9. LSLucas Swisher47:15

       Credit to those folks.

    10. HSHarry Stebbings47:16

        Yeah.

    11. LSLucas Swisher47:17

        Um, and, I mean, credit to the growth investors who took a leap on that one a little early too, right? It was very non-obvious. It's... I mean, I, I worked for Mary Meeker when I was at, at Kleiner Perkins, and she was one of the folks that took a leap on Canva.

    12. HSHarry Stebbings47:29

        What was your biggest lesson from working with Mary?

    13. LSLucas Swisher47:32

        I mean, so many lessons. I think the biggest lesson is she has this, and it, it comes from her background of being at Morgan Stanley for a really long time, she has this incredible analytical bent of being able to see things and see stories and numbers that other folks don't, and being willing to lean against the grain whenever she feels things. Um, and she's able to tell and tell these incredible stories with data and understand what's happening in the world based on data. I'll give you one example is, I remember my second week at Kleiner, um, I didn't know how to model. I came from ins- I came from insight. I could bare- I could barely model. I was great at talking to founders, but could barely model. And I found myself, you know, in the middle of a modeling exercise with Mary and just getting absolutely destroyed. And one of the things she taught me is, like, that is actually really important. Being able to express a company in a few- a complex company in a few lines in Excel and tell stories with data is, like, an incredible skill, and she has this knack of being able to look at, like, cell N ninety-five and know there's an error. And so that's what I learned, is to be, like, highly analytical, very detail-oriented, and to tell the story with the data.

    14. HSHarry Stebbings48:40

        To what extent does that truly matter versus phenomenal founder, big market, growing fast? [chuckles]

    15. LSLucas Swisher48:47

        [chuckles] I... The way that I phrase data, and I phrase this to our team a lot, and this is what I really believe, is data is a prerequisite. It is not the answer. The data must be very good, but it's not the, it's not the whole picture. And I remember, um, I, I was sitting in, uh, a very old IC, and we were, when we were looking at Databricks at Coatue way back when, um, and Thomas was like, "Lucas, you're missing the forest through the trees here. Like, just because net new ARR didn't accelerate dramatically in any given quarter does not mean this trend is not happening."... and so net new ARR or whatever metric you wanna use, they're incredible guideposts, but you can't miss the for- you can't miss the forest through the trees in this. Like, the bigger picture, it really matters, but it is, it is helpful, right? I, I'd say, like, the thing that I'm looking at the most with a lot of these, um, kinda AI native businesses is, if you're low margin, I need you to have high retention. You have to have it, because if you... You leave no margin for error if that's not true, right? I need- if you're gonna be a low margin business to start, the customer behavior must be so sticky. It's gotta be so sticky, because otherwise you're really, really fragile. One move the wrong way, and you have no margin for error, right? So, like, those are the types of th- places where data can help you. It can hurt you if you live in Excel all day and you are, like, just missing the forest through the trees.

    16. HSHarry Stebbings50:06

        Totally agree with that.

14. 50:08 – 51:34

    Lessons from Mamoon Hamid

    1. HSHarry Stebbings50:08

       You worked with Mamoon too.

    2. LSLucas Swisher50:09

       Yes.

    3. HSHarry Stebbings50:10

       I, I really love Mamoon.

    4. LSLucas Swisher50:12

       Me too.

    5. HSHarry Stebbings50:13

       What was your biggest lesson from working with Mamoon?

    6. LSLucas Swisher50:16

       Again, so many. I think the thing that... The gift that Mamoon has, and I think from the SaaS era, Mamoon, my view is he was the best series A investor in the SaaS era, period. Right? I mean, if you look at his track record, it's incredible. Figma, Glean, Rippling, Slack. I mean, it's just this unbelievable, like, hit after hit after hit. What Mamoon is special at and what he pays attention to, and what I learned from him is there are distinct inflection points in companies. There are moments where they really kink, right? They kink up, and he is the master at seeing that around the series A, right? With very little data, being able to see it. I remember we- going back to, um... I worked on, uh, Figma with him when I was an associate at Kleiner, and I cut all the data for Mamoon. This is, uh... It was, it was a very fun time. And I remember he took one look at it, and within thirty seconds he was like: "We're doing it." And there was this big company, InVision, at the time, and it was a great company, and everybody thought it was the winner, and he looked at that data, and he was like: "This is, this is gonna happen." And what he saw is the net retention curves, the customer behavior of really big companies. I think, I can't remember exactly, but I think the companies were Google and Square and Amazon, right? Like, really insane customers, and this is when Figma had five hundred K of ARR. And he saw the usage curves inside those three companies, he's like: "We're at an inflection point. We're doing this." And that's what he's amazing

15. 51:34 – 53:40

    LP 'Pick One' Games: Mamoon Hamid, Mary Meeker, Insight Partners

    1. LSLucas Swisher51:34

       at.

    2. HSHarry Stebbings51:34

       [exhaling] I, I'm not surprised, and time and time again, I'm amazed by the insight. Again, I meet so many investors, and I actually find not that many have the insight that Mamoon has, that Neil Mata has, that Pat Grady have. Super unfair question. [laughing] You... Super unfair question. You can invest in Mary Meeker's fund, and these solo GPs, Mary Meeker's fund, Mamoon's fund, or Jeff Hooring's fund.

    3. LSLucas Swisher52:01

       Whoa!

    4. HSHarry Stebbings52:03

       I want dollars, absolute dollar return. [laughing]

    5. LSLucas Swisher52:06

       Absolute dollar return? I think you gotta split it in some way, right? I think what you're looking for, if you're an LP-

    6. HSHarry Stebbings52:13

       You know none of them pay you anymore.

    7. LSLucas Swisher52:14

       Yeah, I know.

    8. HSHarry Stebbings52:14

       There you go.

    9. LSLucas Swisher52:15

       I know. [laughing]

    10. HSHarry Stebbings52:16

        [laughing]

    11. LSLucas Swisher52:16

        But if you're looking... If you're at- if you're an LP, what you're looking for is the best return across different strategies. I think it's gonna depend on what you, on what you're looking for, what your time horizon is. Let me give you the benefits, right? Mamoon, I think he's gonna have an incredibly high slugging average, really amazing returns, but it's gonna be more risk. Mary, I think you are going to get, like, this incredible growth portfolio of blue chip names. And then Hooring is gonna provide you very strong, stable core returns, right? And I think, like, it really depends on what you're, what you're looking for, right? And LPs want different things, and they probably want exposure to all three in different ways.

    12. HSHarry Stebbings52:55

        I'm gonna ask you another one, 'cause you failed at that one.

    13. LSLucas Swisher52:57

        [laughing]

    14. HSHarry Stebbings52:58

        Okay, you've got Pat Grady at Sequoia, you've got David George, and then you've got the folks at Founders Fund, the Napoleons-

    15. LSLucas Swisher53:06

        Oh, my God

    16. HSHarry Stebbings53:06

        ... and the behind the scenes people at Founders Fund. You can only invest in one fund.

    17. LSLucas Swisher53:09

        Oh, you can't do this to me.

    18. HSHarry Stebbings53:10

        Yes, I can.

    19. LSLucas Swisher53:11

        You can't do this to me, Harry!

    20. HSHarry Stebbings53:12

        Yes, I can, I'm never gonna let you out of the room.

    21. LSLucas Swisher53:14

        [laughing] No, it's incredible. Um, I think Founders Fund's strategy of being ultra-concentrated in a few companies has just been this incredible strategy over time, and I think Pat Grady's ability to pick series Bs is, like, pretty unmatched. Win- pick and win series Bs, he's very, very good, and I think Sequoia is very good at that. So I think, again, they're, they're, they're good for different reasons, but it... Again, it really depends

16. 53:40 – 59:17

    OpenAI vs Anthropic: Who Wins?

    1. LSLucas Swisher53:40

       on what you like.

    2. HSHarry Stebbings53:40

       Final one before we do a quick fire. You have one final dollar, and you can put it in OpenAI or Anthropic. Which one would you put it in?

    3. LSLucas Swisher53:50

       Right, I'll talk about the merits of both. OpenAI, incredible consumer franchise, right? Just incredible consumer franchise. The retention curves, the growth, all of this stuff, what they've done, it's just... It, it's insane, the innovation that's coming out of that business. On the consumer side, their strength that's emerging in enterprise with Codex and, and other coding use cases and these big transformational enterprise deals, and like a third unknown unknown vector. They have this, like, almost unknown unknown about it, because they acquired Johnny Ive's company, right? Who knows what that could look like in five to ten years? They have this, like, SpaceX, you know. It's like, how do you value space? Well, how do you value AI, right? It's like this unknown unknown element of just how big could it get. I think that's the, that's the bull case.

    4. HSHarry Stebbings54:34

       Did you see the design work that Johnny Ive's team did for Ferrari?

    5. LSLucas Swisher54:39

       Yeah.

    6. HSHarry Stebbings54:40

       Oh, my God, I can't drive. I don't have a license.

    7. LSLucas Swisher54:42

       [chuckles]

    8. HSHarry Stebbings54:43

       I want a fucking car like this because of Johnny's design. I was like-

    9. LSLucas Swisher54:46

       You're gonna have to learn.

    10. HSHarry Stebbings54:47

        Oh, I-

    11. LSLucas Swisher54:48

        You're gonna have to go get it.

    12. HSHarry Stebbings54:49

        No, I...

    13. LSLucas Swisher54:49

        Come on.

    14. HSHarry Stebbings54:49

        I've just got a license. It'll be a present. [laughing]

    15. LSLucas Swisher54:52

        [laughing] Yeah.

    16. HSHarry Stebbings54:52

        But I was like-

    17. LSLucas Swisher54:52

        You can ride shotgun.

    18. HSHarry Stebbings54:53

        Yeah, exactly. I'm very happy to hold the phone with the maps.

    19. LSLucas Swisher54:56

        There you go.

    20. HSHarry Stebbings54:56

        But I was like, wow, I've never wanted a car as much as Johnny Ive's designed it.

    21. LSLucas Swisher54:59

        Yeah, it's amazing.

    22. HSHarry Stebbings55:00

        Yeah.

    23. LSLucas Swisher55:00

        It's incredible, and I think, like, that's the bull case. The bull case on Anthropic is really simple and really straightforward. Their focus on coding has been an unbelievable advantage for them, because coding is the first use case in AI that's really taken off. That code- that coding focus has led them to have a beachhead in all the other analytical tasks in the enterprise, right? Everything is code, right? Like, everything in the digital world is code, and by having a great coding model, they've been able to do that.... and the last strategic decision that they made that I think is really sort of unappreciated by the market, is they built for every cloud, and they built for every chip platform. And that gives them incredible optionality, and a lot of people want them to win. And so that is, like, a real advantage. So they also-

    24. HSHarry Stebbings55:43

        Is that- I'm sorry, I'm really naive here, and I'm not asking for, like, who's better or who's worse.

    25. LSLucas Swisher55:46

        Yeah.

    26. HSHarry Stebbings55:46

        Is, is that different to the other providers?

    27. LSLucas Swisher55:47

        It is, right? Because some of the other providers have been sort of, at, at least until this point, right, like this is always changing, but they, from kind of from day one, had architected themselves to be able to be partners with every cloud and to be with Trainium and TPUs and GPUs, and that takes a lot of infrastructure investment. But it means in a capacity-constrained world, where the demand for compute out- outstrips supply, their ability to do that makes them more cost-effective, it gives them an advantage on where they can deploy. They can take capacity that other people can't, and that means, like, "Hey, in this world, that's an advantage."

    28. HSHarry Stebbings56:24

        I totally get you, and actually having more people support you is a very, very advantageous position to be in.

    29. LSLucas Swisher56:29

        Yeah, it's one of the things that we actually... We always try to think about is, like, and it's a, a question that Philippe at, uh, asks all the time is like, "Who's gonna wanna help you, and who's gonna wanna hurt you?" Because that ultimately matters, right? Like, having a lot of people wanna help you and benefit from your growth is a very nice position to be in.

    30. HSHarry Stebbings56:48

        Clearly, Philippe agrees with kingmaking, then. [laughing]
17. 59:17 – 1:01:35

    Most Memorable Founder Meeting

    1. HSHarry Stebbings59:17

       So much faster. Um, what's the single mem- most memorable first founder meeting you've had? I'm not asking for the best founder, just, like, the most memorable first founder meeting.

    2. LSLucas Swisher59:24

       Winston from Harvey.

    3. HSHarry Stebbings59:25

       Why?

    4. LSLucas Swisher59:26

       It's not even close. I think it was because, one, I already believed when I, when I came into the meeting, and then, two, the founder market fit and the story was so clear, so early, right? Like, what are language models good at? Language, text in, text out. What is one of the most, like, text-heavy professions? Law. What have I seen early on? Document generation, document analysis. And his articulation of that thesis and that story, it was just, like, so spot on. I met him before the Series A that Pat did. Um, and I remember being like, "This is it." Like, "This is the one."

    5. HSHarry Stebbings1:00:02

       Did you lose the A?

    6. LSLucas Swisher1:00:03

       [lips smack] Um, we had an early-stage practice at the time, um, that we were really involved with, and we did lose the A.

    7. HSHarry Stebbings1:00:10

       [chuckles] Why?

    8. LSLucas Swisher1:00:12

       Which I think is... You know, it goes back again to our, to our str- and I don't try to do very many A's. It goes back to our strategy, which is, you know, even sometimes if you miss an early round, for the great companies in the world, there's always another round.

    9. HSHarry Stebbings1:00:26

       Dude, we are doing a timesheet now for a company, and we turned down the seed, and we're doing the A. And I said to the team, like, "I will not lose out on a great company because we are too egocentric and arrogant-

    10. LSLucas Swisher1:00:36

        Correct

    11. HSHarry Stebbings1:00:36

        ... to accept our mistake."

    12. LSLucas Swisher1:00:38

        Absolutely.

    13. HSHarry Stebbings1:00:39

        So we're not gonna do it. [laughing]

    14. LSLucas Swisher1:00:41

        [laughing]

    15. HSHarry Stebbings1:00:42

        Ridiculous! Uh, no, I'm kidding.

    16. LSLucas Swisher1:00:44

        Got it. Understood.

    17. HSHarry Stebbings1:00:44

        I just fired the seed team.

    18. LSLucas Swisher1:00:46

        Yeah, yeah. [laughing]

    19. HSHarry Stebbings1:00:46

        Uh, you can invest in one seed firm and one Series A firm.

    20. LSLucas Swisher1:00:51

        I mean, you guys, obviously, for the seed. Come on.

    21. HSHarry Stebbings1:00:53

        I love it. I, I'll take that, actually.

    22. LSLucas Swisher1:00:55

        Yeah, how about that?

    23. HSHarry Stebbings1:00:56

        Which Series A firm?

    24. LSLucas Swisher1:00:56

        I would say Sequoia and Benchmark. I wanna split my dollar.

    25. HSHarry Stebbings1:01:00

        I'll take it.

    26. LSLucas Swisher1:01:00

        You're gonna allow me to split my dollar if I want to.

    27. HSHarry Stebbings1:01:02

        Yeah, yeah, I'll, I'll take that. I- Rory O'Driscoll, who we do a show every Thursday, he's brilliant, and he always says, "With Benchmark, you know, reports of my death have been greatly exaggerated." I just find it so entertaining.

    28. LSLucas Swisher1:01:10

        I think so, and I think it's this firm that, again-

    29. HSHarry Stebbings1:01:13

        That portfolio is so good on this-

    30. LSLucas Swisher1:01:15

        It's so good, and they have the ability to reinvent themselves, right? I mean, they hired Ev, who's my old analyst. So good for them.
18. 1:01:35 – 1:06:26

    Career Decisions & Misses

    1. HSHarry Stebbings1:01:35

       Uh, but again, everyone's like, "Ah, Benchmark are over." You're like, "Well, I did not take any of those companies in my portfolio." [chuckles] What's been the hardest decision you've made in your career?

    2. LSLucas Swisher1:01:45

       ... leaving Insight for Kleiner.

    3. HSHarry Stebbings1:01:47

       Hmm.

    4. LSLucas Swisher1:01:47

       I know a lot of people, so I, I was Harvard undergrad, then went to Insight, and I left Insight pretty early. I was the first one to leave. We, we hired classes of 10 back then, so it was, like, 10 analysts, all really young kids coming out of school. And, um, the junior, the junior summer internship at Insight was literally dialing for dollars. I mean, it's, it's incredible training ground. I called 50 CEOs a week, like, literally cold call. The- I mean, this was 10 years ago, you know, almost 15 years ago now.

    5. HSHarry Stebbings1:02:12

       Don't laugh. What do you say? "Hi, it's Lucas from Insight-"

    6. LSLucas Swisher1:02:15

       "Hi, I'm, I'm 19 years old." I mean, but it's, it's amazing, right? Because you have this platform where young people are empowered, and they're able to grow within the organization and bring other people in as they need, and you learn how to, like, navigate a process at nine- you know, 19, 20, or 21 years old. It's this incredible training ground. But I was the fir- I was the first one at Insight to leave my class, and it was hard because it was like... It was basically like stepping off the linear path. Like, most of my life had been, like, very linear decisions. Not very hard to, like, take the SAT, do well, not very hard to accept Harvard, and then not very hard to go to Insight, even though it was a little abnormal at the time. Like, it was a billion-dollar fund when I went. But I think, like, going from Insight and leaving your comfortable class in basically, you know, private equity SaaS, and going to be the only associate on the West Coast in a place you didn't know, that was like, that was a, a little bit of a leap. Um, and I mean, that's my advice to all the, all the young folks in their careers. Like, you've got to get off the linear path. You have to. Like, it's the only way. Get off the linear path.

    7. HSHarry Stebbings1:03:17

       It's so funny, I always say the safe path is so much less safe than you think.

    8. LSLucas Swisher1:03:20

       Totally.

    9. HSHarry Stebbings1:03:20

       And the risky path is actually less risky than you think. Um, do you have to be in San Francisco if you want to build an amazing AI company?

    10. LSLucas Swisher1:03:28

        No, but it helps. It's like the kingmaking. It certainly helps. I think if you look at some of the advantages that you have being in San Francisco, right, just the incredible amount of talent density, there are not very many people in the world that know how to work with these systems right now. That's just the reality. And many of them are stuck inside of two, three, four companies. But the rest, most of them are in a very small radius in that, in the Bay Area. It's not impossible, but it's kind of like, why would you make your life harder? [chuckles]

    11. HSHarry Stebbings1:03:57

        So with that, do you think the hundred million to five hundred million pay packets are actually justified?

    12. LSLucas Swisher1:04:03

        Yes.

    13. HSHarry Stebbings1:04:03

        I think they should give them to podcasters, too. [laughing] Just putting it out there.

    14. LSLucas Swisher1:04:07

        You got this. I believe in you.

    15. HSHarry Stebbings1:04:08

        Thank you so much. There's very few people who know how to do this very difficult job. Uh, penultimate one: What's the biggest miss that you reflect on most across your career? Like, mine is Deel.

    16. LSLucas Swisher1:04:19

        It's not easy because, you know, if you've done this long enough, you have a lot of misses.

    17. HSHarry Stebbings1:04:23

        A lot.

    18. LSLucas Swisher1:04:24

        I do remember very distinctly going and visiting Anduril for the billion-dollar round down in LA, and I was a SaaS investor at the time, so why I was the one who went to visit Anduril, I won't know. Um, but it was one of the- it was a classic case of, um... Back then, I think my perspective was slightly more myopic, right? I was mostly focused on SaaS, very focused on metrics, and if you looked at that P&L, [chuckles] there's no way, you know, you're a P&L investor, there's no way you invest. Just is what it is. It was an ugly P&L. But it was an example of me missing the forest through the trees and, um, not seeing just how special the founding, the founding team was there, just how important that trend was, where the world was going, right? And that's an example of where, you know, Founder Fund got that right. A lot of people got that right. We got that wrong.

    19. HSHarry Stebbings1:05:11

        Final one: What most excites you for the next ten years?

    20. LSLucas Swisher1:05:16

        Oh, my God. I'm just... I'm excited about the products. [chuckles] I think, like, this is one of the things that, um, it, it's ingrained in everyone that joins Coatue. At the end of the day, is we love technology, right? Like, we're a technology-only firm. We love technology. We love these products. Um, and the ability to just, like, change our lives over the next decade and use so many new things, I think, is what has me the most excited. Like, I cannot wait for OpenAI's new device. Like, we've- it, it's going to be one of the first exciting new devices in some time. Like, those types of things, I think, is what I'm the most excited about, is the products. Like, using Claude Code this year, oh, my God, it's incredible!

    21. HSHarry Stebbings1:05:55

        I have to say, you're especially right on the OpenAI device. It's like, what latest consumer device have you been like, "I would actually go and wait outside the store for..." When I was a kid, like-

    22. LSLucas Swisher1:06:04

        I'm camping out for this thing.

    23. HSHarry Stebbings1:06:04

        But the iPod Nanos and the-

    24. LSLucas Swisher1:06:06

        Yeah

    25. HSHarry Stebbings1:06:06

        ... iPod, I was like, "Wow, thousands..." Like, now with the new iPhones, let's be honest, like, no one's like, "Yeah, I'm gonna, like, run to the store." It's like, "Ah, whatever."

    26. LSLucas Swisher1:06:14

        Yeah.

    27. HSHarry Stebbings1:06:14

        This-

    28. LSLucas Swisher1:06:14

        I've forgotten to trade mine in for four years. I use, like, four generations old. Yeah.

    29. HSHarry Stebbings1:06:18

        A hundred percent, I completely agree, so I'm so with you. Lucas, thank you so much for doing this, dude.

    30. LSLucas Swisher1:06:22

        Thank you.

Episode duration: 1:06:36