The Twenty Minute VCMeta's Muse Hits #1 | Menlo Sounds the AI Bubble Alarm | Keith Rabois vs Airwallex: Who is Right?
EVERY SPOKEN WORD
85 min read · 17,222 words- 0:00 – 0:52
Intro
- JLJason Lemkin
It's the first real ChatGPT competitor. Muse is many things. One of the best pieces of software I've used ever, but it's also a Trojan horse to fight ChatGPT because the LLM's pretty good.
- HSHarry Stebbings
What is going down this week? Anthropic, baby. They pushed the IPO. Maybe it's November. Then we have Meta. Alex Wang is delivering the goods. Muse holds number one spot on the App Store. They are crushing and handing it to Instinct. Maybe the AI assistant race really is on.
- JLJason Lemkin
I love the quiet compounders. There's just no market for them anymore.
- RORory O’Driscoll
Coding is the model load. It's everything.
- JLJason Lemkin
They've trained on all of our data, every YouTube, every piece of open source, every piece of closed source. Of course, they're going to train on your data. Give me a break.
- RORory O’Driscoll
There is a zero probability AI will destroy all of humanity.
- HSHarry Stebbings
Ready to go? [upbeat music]
- 0:52 – 4:11
Anthropic Delays Its $2TN IPO
- HSHarry Stebbings
Boys, another week, and I wanted to start with the news that Anthropic pushes its $2TN IPO from October to November. Some people are suggesting that it's the first signs of a cracking in the market. It's following the pacing the frontier that we discussed last week. To what extent do you agree with that? Or to what extent do you think it really is just them wanting to have a great Q3 prospectus and needing more time for those numbers to show through?
- RORory O’Driscoll
I think that's the answer. I think the whole crack in the market thing, let's leave that to one side for now. We'll talk about it later. Ditto the pacing stuff, which clearly has also been shown to be not really believed even by the people who said it. It really boils down to what you said. They had an amazing Q2. They took-- They finally kind of became bigger than OpenAI. Op- And remember, we talked about this. OpenAI then responded furiously in July, started tweeting all their, "My Q3 numbers are amazing story," and really pushing back and, you know, some of the data supports that. So my guess is the banker said, "Hey, if you want a really clean story, it would be great to incorporate a quarter that reflects this noise. So instead of going out in October, where you won't be able to share your October numbers, it's kind of that weird thing, go out in November, where it's clean, you print your October numbers, you drop them in, and you go." So from a programming kind of timing perspective, it just all made sense. It's a cleaner deal. Whether it turns out to be a wise decision or not, we can come back to in a second. But just from a... It's always weird to go out after you have your numbers, but before you can share the numbers, so after the end of your quarter, but before you've kind of finalized and audited them. It's all, especially for what looks like quite a pivotal quarter, right? So it totally made sense. If I'm a banker, I'm thinking, "If we do this in October, it's going to be a, a lot of explaining. If we do this in November, the numbers will talk."
- JLJason Lemkin
Ha-having said that, that sounds all right to me, right? But it's said to be maybe there's just a hint of worry that getting 30X or 20X oversubscribed or whatever they want at, you know, at the most massive IPO of our lifetimes, maybe there's just a hint of stress on the pre, on the pre-conversations, right?
- RORory O’Driscoll
I agree, and that's why I made a comment earlier about is it a good decision or not. Like, if the world goes to hell in a handbasket in November, you'll look back and go, "Damn, we should have gone when we had the chance." Because you're right, a CFO who said, "We're just doing it. I don't care about your messy story. We're gonna tell a good story. If the price ends up between one point five instead of two because it's a messy story, I don't care. I'm willing to live with that." And that's the approach you take if you felt it was hell or high water, I got to get this money, right? Clearly, the fact that they didn't take that approach means they decided it's not hell or high water. They're confident. Yeah, they're willing to take another month of timing risk, probably for some significant, um, valuation pop, right? Which is what you do when you think you have lots of time, and you're in a good commanding position. I mean, it's not going to happen in this case, but windows shut, and they shut in a very idiosyncratic fashion. So look, it's, I mean, if I was in that board, it's 90% certain that this is a good decision, and a clean story in Q4 is better than a messy story in October, right? And there's always that 10% chance the world goes crazy, and you look back, and you go, "Damn, should've taken the $100 billion."
- 4:11 – 7:16
Can Frontier AI Companies Even Go Public?
- HSHarry Stebbings
I was walking with a friend of mine the other day, and he said, "Harry," and a very successful multibillionaire investor, he said, "Harry, how the [honking sound] do these frontier model providers go public when no one is willing to provide liability insurance? You have swarms of rogue agents doing whatever you want. How, h-how on earth do they go public? Who's liable?"
- RORory O’Driscoll
Bullshit comment, and I'll tell you why. Once you've said publicly that there's a 10% risk that your thing can blow up the world, sweating product liability is in the noise, right? This is a $2 trillion market cap company. It can self-insure. They don't need reinsurance from Munich Re with a market cap of $200 billion to reinsure their $2 trillion market cap, you know, right? [chuckles] So you know, I, I don't, I mean, I don't think you need product liability insurance to get an S1 done, right? Now, separate comment, the fact that no one will insure them is a data point about the dangers of the product, but that's long since been internalized. Anyone... To be fair, to be very fair to the Anthropic management, anyone who buys that stock and doesn't know that senior management think it's the most dangerous thing since the atomic bomb has, rightly or wrongly, by the way, hasn't been reading their tweets. [chuckles] It's a pretty well... In the, in, in the list of risks disclosed, I'm really looking forward to reading the S1 risks, by the way, but in the list of risks disclosed, product dangers have been pretty thoroughly discussed for a decade here. So I don't, I don't buy that at all. There's 100 reasons why you can worry about valuation and traction and all that, but product liability insurance is in the noise.
- JLJason Lemkin
Yeah, they're just gonna have a big li-litigation legal team. It's just they're gonna fight this stuff for, for infinity. Um, just like tech leaders have always had to fight IP trolls with large teams, they're gonna fight [chuckles] liability suits- For they're gonna have 200 folks in-house and all the top law firms fighting this, dragging it out, saying they're not responsible, trying to get legislation passed, but you don't stop the IPO. It's an interesting-- We, uh, we, we-- Certainly, I can't remember an IPO that this was ex- as so explicitly dangerous to Rory's point and Harry's point. I mean, it is novel, but it's game on, man. [chuckles] I mean, it's game on.
- RORory O’Driscoll
Agree. The most important part of securities laws, security laws is not that you have sell s- stock that has no risk. It's that you sell stock where you disclose the risk, and provided somewhere in the S1 they say, "At least half of our crazy employee base thinks this thing is gonna blow up the world. I don't for what it's worth," says Dario, "but my people think that. Just letting you people know they're out there in S1 land." Provided he discloses that, he's covered, and obviously state the obvious, he's not covered if in fact it does end humanity, he'll die too. But let's just ignore that for now. And, and it's-- By the way, I wanna call out Jensen for his big-ass call. I love it. For the P0... His probability of doom is zero. Finally, an unequivocal statement from a no-bullshit investor. There is a zero pro-- and tech leader. There is a zero probability AI will destroy all of humanity. I love it.
- JLJason Lemkin
That's because his LLMs haven't caught up yet. His open source LLMs haven't caught up yet. That's why.
- RORory O’Driscoll
Thank you, Jason.
- JLJason Lemkin
That's why he could say not until 2030, 'cause he knows he needs until then to catch up.
- RORory O’Driscoll
My arm's tired. Okay. Keep going.
- HSHarry Stebbings
Before
- 7:16 – 9:38
OpenAI’s $278BN Burn Problem
- HSHarry Stebbings
we move to-
- JLJason Lemkin
Maybe
- HSHarry Stebbings
... before we move to Meta and Muse, that OpenAI to burn $278 billion by 2030, out of cash by 2028. Is this just more noise and of course that's to be expected? There's rumors of another round at a $1.5 trillion. Uh, what, how do we think about this?
- JLJason Lemkin
I bet it's more. I bet it's more. It doesn't have a history of the burn coming in less than planned. [laughs] They may need 400. [laughs]
- HSHarry Stebbings
Yeah, no.
- JLJason Lemkin
We've all had a portfolio company or like that, top line great, love the team, but burn, no matter what they say, always comes in 30% to 50% higher than the model. Doesn't matter who we put in at CFO. [laughs]
- RORory O’Driscoll
But y-yeah, no, I, I, I think Jason is broadly right. I mean, look, there are 35 million. If, if... They're, they're basically, big picture on the forecast, there's actually three numbers that matter, not two. They're forecasting growing from 35 in ARR end of this year to 350, I think, in three or four years. So 10X growth. Worth pointing out, by the way, that last year Anthropic grew 10X in one year. This is a 10X forecast over three or four years. So almost modest. Second thing is the burn. You're right, they're forecasting a burn, a growth, a, a net burn of $278 billion. They have a hun- And that's like money out their door. They have $122 mil- billion of cash on hand, so they got time to f- raise the extra capital. The amazing number is the other one, which is the CapEx required to do all this, not all of which is on their balance sheet, a lot of it's on other people's balance sheet, is around $700 billion. So it's just a reminder that this is, unlike software, this is an extraordinarily capital-intensive business. And to, to, to kind of bring it back to what you said, Harry, if all that burn, all $700 billion of it had to appear on the balance sheet, right, it would be even, you know, even worse than that. And the only reason they're able to do it only burning $278 billion is because other companies like Oracle and like NVIDIA with, you know, kind of rev support and kind of backstop insurance are able to say, "We'll do the CapEx and, you know, lease it to you." So this is an extraordinarily capital-intensive company. It is going to consume, directly or indirectly, $700 billion worth of CapEx to get there, to get to $350 billion in revenue. Intelligence is not cheap.
- 9:38 – 13:12
Meta’s New AI Product Takes Aim at ChatGPT
- HSHarry Stebbings
I think that was the most efficient covering we've done of OpenAI and Anthropic. So we're gonna move to a story of the week, which is gonna be a new feature of the show. Jason's IC has been a massive popular segment, and we're gonna add a story of the week, which for me is Meta's Muse taking number one spot for days, stock ripping, Alex Wang and team absolutely crushing with this launch.
- JLJason Lemkin
Bad for OpenAI.
- HSHarry Stebbings
That's a good point.
- JLJason Lemkin
Because it's just the, it's the first real ChatGPT competitor. Anthropic never really cared about Claude until recently. Muse is a many things. It's one of the best pieces of software I've, I've ever, I've used ever. Um, but it's also a Trojan horse to fight ChatGPT because the LLM's pretty good. Every time you're doing an agent, you're also asking questions. You're not just telling it to get your movies. You're saying, "Hey, what is playing? How is that latest superhero movie? How was the latest 20VC?" Right? It has opinions. It's a darn good, like, normal consumer-grade LLM, right? I don't think anyone's writing, uh, a wet lab biotech software on Muse, but it's, uh, at a lay level, if it's our, if it's free, it has agents that are, are truly autonomous, which ChatGPT doesn't, and it can do all the other questions you have, and it writes you cute letters when it makes mistakes. I don't know. I don't... If it's free, why would, why would an ordinary person pay? Uh, a- and the tokens are vastly more than you get from ChatGPT. I, I just think in, in addition to everything else, it's a ChatGPT Trojan horse because it, it does everything it can do and it has autonomous agents. It doesn't have to just be agents. It's doing all of it, so it's, it's pretty cool.
- RORory O’Driscoll
Could not agree more. I think it, it's excellent, right? I mean, I think it's funny. I think, as I said two weeks ago, we were saying they gotta ship this, and literally between talk, our conversation and release, they shipped it, right? I, you know, we've been skeptical and a little harsh about some of the, you know, Meta/Facebook investments in AI with, you know, an ill-determined enterprise model. This is the exact opposite. This is spot on. It's a tr- It, it plays into their distribution leverage. It's intuitively kind of something that you would take, I mean, to the extent that you do trust Facebook with everything else already. Longer discussion. At this point, if you're, if you're deep in Insta or Facebook, you're in already, you don't care. And it's a good product. Jason, you're exactly right. It's a good UI. It works. It gives me recommendations, and they just have the distribution. So I, I agree. I thought it was a wow moment. I thought it was a real win. You know, I'm not sure about the economics and if it's worth a hundred, but it's worth pointing out- this is- it's worth pointing out what it meant for Meta. They're up seven or eight percent. They made a hund- they made a hundred billion dollars in market cap this week because of that product, right? And that just shows when you... I mean, it's something I have to remind myself, you know, the, uh, the, what's possible. When you're dealing with these huge end markets, right? You can see the, you know, the value of a play in that space. It's like it- that's the argument why, you know, OpenAI might look at that and bring it back to venture, right? "Hmm, they made a hundred billion. Should we buy Instinct? Do we have to do something in this space, like, now?" Right? So yeah, I, I, I think it was-
- JLJason Lemkin
And it's up thirty-four percent this month. Some people say it's up more because it le- because people were in the beta test were buying, right?
- RORory O’Driscoll
In- for the longest time, when it was... That's interesting. I saw that, yes, that the beta testers would buy, which I just love. Um, 'cause yeah, for the longest time, I was like, Faceb- you know, it's a great business that's spending a lot of money in a bottomless pit of enterprise AI. Now it's a great business that could have a next act in AI. That's a big change. No, that's worth the re-weighting and give them huge credit. So I think it was, it was a, it was a big week for Meta, to state the
- 13:12 – 14:30
AI Agents Are Finally Building Real Software
- RORory O’Driscoll
obvious.
- JLJason Lemkin
You know, it's, and it's, it's also, it's two weeks in. I, uh, the thing is, the reason I say it's strange, Norrs, it built me an entire CRM. This isn't just reservations, and it's very good. Now, it's very limited two weeks in. It does everything. It built me an entire CRM for every SaaS or sponsor. It tracks every email about them, every item in real time. It updates it, and so it is sort of a CRM of one. Now, it's limited because it can't really collaborate. You couldn't use it for a sales force. But it, imagine yourself, it is, it is some of the first compostable software that I've ev- composable, that I've ever actually seen work. This has been a myth for the, since this show started, right? Now, I really said, "I need a CRM for myself. I need you to track a hundred and fifty sponsors daily in real time using AI," and it just built it, and it's very g- it's, for what it is, it's very good, and it cost zero. [chuckles] You need all the pieces. You need database, you need AL- LLM, you need intelligence, you need access to email. You need all of this for that to work.
- RORory O’Driscoll
You're obviously not the typical user, and I don't think their economics are structured on everyone building their own CRM, or it's gonna eat compute. But yes, you can, through that interface, you have a n- you have a sophisticated LLM at the back end. You have your own little sandbox. They have a lot more standalone compute and sandbox for you than I think Instinct does. So yeah, that makes sense.
- 14:30 – 17:40
Amazon vs Shopify: Who Wins Agentic Commerce?
- HSHarry Stebbings
Okay, for, for those that don't know or haven't used it, a lot of people use it to buy things, um, from different providers, and Amazon has, in response, blocked it. Shopify has decided to partner with it. How do we think about those two decisions from Amazon and Shopify, and who do we ultimately think is right?
- RORory O’Driscoll
I think both could be right for them. For Amazon's perspective, 'cause it's... What they've discovered in other kind of agentic-type commerce is two things happen when you use this agentic commerce. One, you don't get any revenue from your ad business, and Amazon's ad business is now larger than their e-commerce profits. So in other words, it is the entirety of the profit stream for e-commerce, as distinct from their AWS business. And then the second thing, which I didn't know, is Walmart did something recently where the basket size gets reduced. 'Cause you don't get the chance to shop... You know, when you go on Amazon directly, they're like, you know, "People also bought..." Then you have, "Oh yeah, I need to order that." Whereas if I do this, I just order the thing. So from Amazon's perspective, because they're such a big player, they're like, "If I let these people do it, then I don't get my a- ad revenue. I get a smaller basket." And then this is, the next sentence is key, "And if I block them, they'll probably come to me anyway, 'cause I'm Amazon. So I have leverage." And this is kind of tech behemoths bumping into each other. Amazon is now saying, "Screw you, Muse, Meta. We're gonna have to talk about this before I roll over." Right? And they, at some point, there probably will be a more kind of aligned exchange of value. Shopify, on the other hand, represents lots of little tail merchants. They are very glad of the extra business, right? They probably don't see that much compression in order value, because if you go directly... If, if you're buying some obscure thing on a m- mid-tier Shopify merchant, you go buy the thing directly, or you buy it via Amazon, no matter what, Shopify's broadly happy. They don't have a big ad business. So from Shopify's perspective, it should be have at it. What they like is... What Shopify likes is they have the common payment app, so they like to have that go through that. So in each case, I mean, you know, capitalism works. These executives are very logical. They're like, "It's great that you have this new source of demand. What matters to me, in Amazon's case, I think I have a lot of leverage. In Shopify's case, provided you let me charge for my, you know, payments rail, I'm good with this access." So it all made sense. It's the early days. There will be much negotiation. The, the bigger lesson here is, you know, there was a whole bunch of Google, OpenAI blathering on six months ago about various different agent payment mechanisms, right? And it was all your smart people getting in a room and thinking things through. And the truth is, in tech, none of that shit ever matters. What really matters is someone aggregates consumer demand, like Instinct and Meta have done. They start pounding on the API, and then now everyone has to focus. I'm willing to bet someone at Resy, even as we speak, and OpenTable, is formulating their agent API policy. I'm willing to bet at Amazon, they're talking to M- uh, Meta this week. Demand creates urgency to sort all this shit out.
- 17:40 – 22:12
Why AI Agents Could Disrupt Systems of Record
- HSHarry Stebbings
A hundred percent, man.
- JLJason Lemkin
I think they're all, they're all gonna lose. I think it's the last stand of the unnecessary system of record. Resy's gonna lose. Amazon is the least losey in the short term because they're, they're, they're at the edge of a monopolist for what they sell as a, as, as a merchant. But, uh, the agents will bypass them ultimately. Like, the, you're gonna have to decide. The agents d- the agents have very clear positions, and you're right, Rory, this benefits Shopify. Of course, Shopify leans into this, right? Of course, Stripe and PayPal lean into this. It benefits them, right? There's, there's no question. And A- Amazon, losing ads, losing upsell, losing, um, shopping cart sites, all a negative But to the extent an agent can route around Amazon, to the extent you can, right, to the extent you can, the agents not only will, they will gleefully do so. They will gleefully do so. "What would you-- Would you like me to call the restaurant directly, Jason?" "Oh, I found a backend API where OpenTable still works, even though they're, they're exclusive on Resy." "Oh, I found another way to do this on DoorDash that's left open." The, uh, agents are wonderful at finding, uh, broke APIs that have other surfaces that shouldn't be exposed. Th-this is a, it is a, it is... It may be their only choice, but I believe all the, the systems of record, places of record, they're, they're, they're just battening down the hatches, and they're fighting the agents, and it, it net, net, it's not a positive for any of them. It's not a positive for e- This is not a positive for Amazon.
- RORory O’Driscoll
I'm gonna... I hear you. The agent, as Jason points out, is tireless. N-the agent does have the ability to call, to hit all 17 websites. It's only compute. They don't care. So you're right. A lot of these digital-only aggregation businesses, I don't think they'll fall as brutally as you say, Jason, but there definitely will be some end-run pressure, right, to go around the, the kind of demand systems like a Resy or something like that. I'm not sure it's as fatal as you think, and then I, I feel the-
- JLJason Lemkin
It's not that I think... Oh, well, let me be clear 'cause I think you'll agree with me. It's not that I think they're gonna be killed. I think they're gonna be maimed.
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
It doesn't matter if this means that Resy's growth falls this much, if this means that Amazon's, uh, if even it impacts 10% of Amazon's advertising revenue. That's just like, uh, Meta, Meta's stock's up 20-some odd percent. If this drives Amazon's stock down 20% because it impacts margins, it's a big deal. The agents, the agent... I can tell you, talking to our agents all day, they don't put up with this bullshit. They don't friggin' put up with it, right? I, I... Listen, I don't wanna name the name or the vendor, please don't make me, but we got a raise this morning from one of our core vendors, a massive price increase, massive pricing. Immediately, our agent said, "I wanna work around it. Here are my ideas. Dump them." And it actually laid out a 12-month plan to migrate off this vendor on its own. They will not tolerate this crap, right? And, and a- and Amazon, there are so many products you can only buy on Amazon. There's, it's, it, it has so many advantages. It has a warehouse. It has fulfillment. Um, but some of that stuff can be bought on a Shopify store.
- RORory O’Driscoll
A lot of it can.
- JLJason Lemkin
It sh- it could just be enough. It could just be enough, right? This maiming is a big deal for AI. It's gonna maim the existing folks unless they embrace things they don't want to embrace.
- RORory O’Driscoll
Okay. I... Two comments, one each way. One is, yes, I do think Amazon's biggest defense will be its physical infrastructure and ability to deliver. But zooming... But your point is the right one. I remember someone said, like, 20 years ago when the Inter- probably 25 years ago now, internet first come out, that the internet abhors inefficiency. In other words, middlemen get pounded down, right? And if you think about things like the travel sites, Expedia, Airbnb, that, that, all of that is that. It's getting demand and supply closer together, and I think what you're saying, Jason, is correct. AI is the same. It's going to pound down people who are in the middle, who just have information and are using that to make offers. If, if that's all you're doing, then there will be pressure at the margin because, you know, if you're reducing search costs, that's valuable to me as a human, but it may be the agent can just do it itself. So y- y- people... Yeah, I'll go with the maiming comment. If it's even 5 or 10% impact, it's meaningful.
- JLJason Lemkin
That's the thing, and it's, it's, it's easy to shut off Perplexity for Amazon. It's just, they're just a gnat, right? But what... It, Amazon will have interesting choices when it's everybody. Like, you c- you can shut off everybody. It is technically possible, but at some point it's gonna be complicated. Are we sure we want to shut off everybody?
- HSHarry Stebbings
Moving swiftly on, anything else that I haven't touched with Muse?
- RORory O’Driscoll
No, 'cause it's not really the story of the week. I mean, it's the story of last week. We're gonna do the story of the week, and Jason's gonna be ready as a hands-on user to tell us about Jev, right? That's the story of the week, so how are we going?
- JLJason Lemkin
We are. We can talk about Jev if you want.
- RORory O’Driscoll
It's next one up, and it's
- 22:12 – 24:34
Jev: The New AI Model That Is 100x Cheaper
- RORory O’Driscoll
the story.
- HSHarry Stebbings
It's the next one up. Fine. It's Rory's story of the week. So for those that don't know, ChatGPT inventor ships Jev. It's a model that decides instead of chats, and it becomes Vercel's fastest ever launch. Um, Jason, I'm sure you've played with it. What did you think? Jason's review, new, new segment.
- JLJason Lemkin
Well, first of all, I, listen, I'm not, I, I may be, I might not be smart enough to get into semantics. I don't even think it's a model. I think it's a classifier backed by an LLM. Um, I've used it. It's awesome. Um, it, it... But I don't know that it'll be as disruptive as everyone on X talking about it that probably never used it said it is. But it is awesome, okay? So-
- HSHarry Stebbings
Jason, what do you use it for?
- JLJason Lemkin
What I use it for is deciding who in the SaaStr community should meet each other. It's quite good at that. It's quite good at that. Should... Rory is the CRO at, uh, at GCI. Um, Harry is the CRO at, uh, Perplexity. Should they meet? It's actually not that simple a question. They're at pretty different stages. They, they live in different places. Should they meet? If, if you get the pro... And here's my learning. It, I spent all of Saturday, nothing worked on, on Jev because I had to redo the way I did prompts, okay? So I thought it was a failure, right? Then what I learned is if you invest the time, it can answer that question in milliseconds for 100th the price of Anthropic or ChatGPT, actually even less. It can just answer a question, and it can answer a subset of questions. But I think as we've learned from data labeling and others, there's a lot of classification that needs to be done, a lot of data labeling that needs to be done, but it doesn't output text, and it can't do anything particularly complicated or with reasoning. So it's, like, a big deal, but, um, and, uh, and for, for this particular use case, I'm talking about who should meet who, it's als- it sh- it is disruptive, but it's maybe, like, 20% of all the LLM calls associated with this, with this application, right? So I love it. I think everyone will do some version of this. I think, um, you know, maybe even, um, you know, EXA and, and, and, and, uh, Parallel should do some version. Maybe OpenAI and Cha- everyone should do a version of this, but it's not gonna take over 100%. Of your stack, and it's not gonna replace ChatGPT 'cause it just doesn't do those things. Um, but it does remind us that, man, we effing waste a lot of tokens on simple stuff that Astra shouldn't be doing.
- 24:34 – 29:06
Why AI Is About to Unbundle the LLM Stack
- RORory O’Driscoll
And I think-
- JLJason Lemkin
You know?
- RORory O’Driscoll
... that's the so- so on... I pretty much 100% agree with you. I mean, the zoom-out comment is this: it's- it's- it's a new model. It's different than an LLM. An LLM returns text and is very computationally intensive, and in computing terms, fairly slow and expensive. This just returns true or false or a ranking or a score, right? So the, the three answer types, and it's super fast and super cheap. They don't even charge for output tokens 'cause they're so meaninglessly few, right? So it's just a faster, more precise... That's why it's called, they refer to it inter- um, on the website as the System One, which is the Daniel Kahneman Thinking Fast, Thinking Slow, and this is the thinking fast part. Quick, fast answers. But Jason's math is exactly right. But we were talking about this on Monday at the partner meeting and said, "There's roughly $100 billion today being spent on LLM calls between Anthropic, OpenAI, and the open source models." Maybe that goes if we just agree that OpenAI is gonna be doing three hundred and fifty, Amazon two hundred and fifty, so it's probably gonna go to half a trillion dollars five years from now, right? Twenty percent, and Jason, we had exactly the same number. Only twenty percent of them are relevant to this, where it's today you're using a complex, expensive model for something that really needs a much simpler solution. But twenty percent of $100 billion is twenty billion.
- JLJason Lemkin
Well, I don't think, I don't think the dollar is gonna flow that way. I think the tokens will. I don't think the dollars will, yeah.
- RORory O’Driscoll
Let me finish, let me finish, damn you.
- JLJason Lemkin
Sorry.
- RORory O’Driscoll
The next thing, 'cause you, you've got... You sound like the cynics in my group on Monday. We had this-- I've already had this discussion once. That's why I can carry it off. So that's twenty billion, but you're exactly right. As one of my partners said, "But dude, you just said the prices are gonna down by five X." So that twenty billion is gonna become four billion. You're exactly right. It's just like open source. It's gonna take a slug of the total addressable LLM marketplace, attack it with a better, cheaper product at one-fifth the price. Net result, that twenty billion becomes four billion. But if you're a Jev or if you're a TypeSafe, you're saying, "Hey, that four billion becomes mine," and that's the bet, right? Now, at the same time, going back to your maiming concept, which I love, Jaya from Foundation did a nice post at Big. This is just a slug of the total hundred billion spend that was kind of automatically destined to go to OpenAI and Anthropic and is now kind of sluicing off into a cheaper, low-cost provider, right? So that's what's happening here. You're right. It's not the end of foundation model. Yeah, the advanced with... The clever shit is still gonna be done using foundation models. It's just a little maiming of twenty billion, of ten, twenty percent of the revenue that's now gonna be done by someone else at one-fifth the cost. Now, we can talk about competition in a second 'cause I think that's a real issue, but that's what's going on here.
- JLJason Lemkin
I just think it's a hundredth the cost, but I agree with all of it.
- RORory O’Driscoll
You're right. A hundred-- which, which, in which case, yeah. Exactly.
- HSHarry Stebbings
But before we move to competition, what... So we're gonna see, like, the unbundling of ChatGPT, and we're gonna have users go, "Oh, well, this one would be good for-
- RORory O’Driscoll
I'm trying... No, no, no. The, the problem is not, not ChatGPT the app, but, um, the OP- uh, the OpenAI API and the Anthropic API. You're right. This is a developer product. You as an end user, I as an end user don't use it. You can go on and try and use it, but it's full this morning. I tried. But it's really... I mean, if you listen to the launch announcement, it's very focused on developers. And the idea is, and this is an interesting thing, almost comes back to Muse, that I think you might see, I could be wrong on this, that the needs of humans, especially consumers for AI, are gonna continue to diverge from the needs from software developers for AI, and this is a core software developer thing, right? You'll never need it, Harry, but someone who's building a software app might realize that a significant portion of the core intelligence they want is System One intelligence. Just tell me if this is an A or a B. You know, animal, mineral, or vegetable, right? Is X better than Y? Give me a quick answer. I don't want to blather and have you tell me, "That's a great question, Rory," like a sycophantic LLM. Just give me the damn answer, right? And so it's not for you, the user, but it's unbundling at the developer level, where it's more likely to happen.
- HSHarry Stebbings
You're right. I require far more intellectual answers.
- RORory O’Driscoll
No, you just require a bundled product.
- HSHarry Stebbings
[laughs]
- RORory O’Driscoll
We, we... Actually, Harry, I think what you really like is the sycophantic part of the LLM when they tell you, "You're so smart, Harry."
- JLJason Lemkin
But to answer your question, what I did learn from using Jev all weekend long, failed on Saturday, figured out the prompts and the use case, got it to work on Sunday, uh, you know, infinitely ch- so cheap it doesn't... you don't even to measure it. Ten times faster is the use case, but only for these, for these, for these limited use
- 29:06 – 31:17
The Coming Explosion in AI Model Routing & Evals
- JLJason Lemkin
cases. What I did learn is, a-a-and it may almost sound tangential, is, man, using a harness to pick a model and getting it right is effing exhausting. It is gonna get even harder and harder and harder. When should I use Jev? When should I not use it? What about... You have to run so many evals, so many tests, because there's so many things I did with Jev. You know what doesn't work in Jev? Um, between Harry-- between Rory and Jason, who's the better person to join TwentyVC as a partner? It, it can't answer. You, you'll find it's gonna get that wrong, okay? So between that and should Rory and Jason meet for coffee, it's gonna get that one right. It's not gonna guess. It's actually gonna know, "Hey, we're both in the Bay Area. We've known each other. We should meet for coffee." You have to, you have to QA and test every single use case to get those benefits. It's exhausting. And then I got switched over on Replit to AutoRouter, where it sw-switches between Astra, Fable, the open source ones, and everything. Now I don't even know which one it's using, and then I saw some performance degradation, so then I had to switch it all back to Astra. Do you trust your harness? Can you QA ten thousand uses of Jev? This isn't, like, a bad thing, but this is like the renaissance of, of, like, DevOps or something. Like, you... Everyone's gonna need this massive team to optimize it, and, and the needs are going up with Jev and friends. Like, your team's gonna have to get more. It's not just benchmarks and evals. Like, we're gonna be running these twenty-four seven across co-countless permutations, and it's, it's good, but it, but it's a... It's, for me, it's, it's too much. Like, I can't do it anymore. I can't pick these models anymore. I'm tapping out. These harnesses are only so... Like, Databricks is... Like, it's easy to save money with the harness. Hey, if we route eighty percent to open weights models and now we're doing ten percent to... Like, this, it sounds great to the CFO, but I, I found it doesn't work for me. Like, it's... And a lot of folks were saying they're using Jev as an instant router. It's like, "Jev, Jev, you make the decision. Here, here's what we're doing. You pick the model in milliseconds." Great, but if t- but Jev is, like, wrong, like, twenty percent of the time. If you pick the wrong model for me coding a mission-critical feature twenty percent of the time, I'm gonna be trying to build this thing bug-ridden all day long. I- I-- Listen, smart-- People will figure this out. It's just getting more complicated to pick your model, not easier. And, uh, it, it's good, it's good for investors, but, um, it's, uh, makes building more complicated
- 31:17 – 33:21
How OpenAI and Anthropic Will Respond to Cheap Models
- HSHarry Stebbings
If you're Anthropic or OpenAI, what do you think the conversation is internally when they look at Jev?
- RORory O’Driscoll
OpenAI have become ruthlessly commercial. Their take will be like, "Screw it. If someone's gonna do that, we should do that. We can get something like this out in a few weeks. Let's compete and have a low-cost offering too," because they're trying to make a buck. And Anthropic, they're trying to build God, and this isn't God, so why would they even bother? In fact, the, uh, launch video for Jev was "Prod, not God," right? So they're deliberately saying, "Not God." And if you talk to Anthropic, the mission is AGI/God. So they're like, "You are just a minor nothing thing. Why would I even deign to sully my hands on vulgar commerce?"
- JLJason Lemkin
I think that Anthropic and OpenAI have made a very strategic decision. They will not play in this market for now. They have-- OpenAI and Anthropic each have the two worst models that exist. They're called OpenAI Mini and Haiku. They're terrible. They're terrible. Um, now, if you ask Claude, "What should I use for simple workflows?" "Haiku." And if you ask ChatGPT, it will tell you, "Mini is great. It's so cheap." And at least my little evals, they fail 100% of the time. "Should Rory and Jason have coffee?" Um, "Yeah, send them to London." Worst answer. I mean, I'm, I'm exaggerating. They're, these are the worst models I've ever used, Mini and Haiku. And so they've decided to launch crippled models that they can lightly promote for the... But they don't wanna play in these low-margin businesses for now. They could, they could build this, right? They could build-- I think they could build Je- a version of Jev o- o- in an hour or over the weekend. But they've intentionally decided to cripple the low end of the market, and I think they're puckered about the Open Weights models that just got a little bit closer earlier than they planned, right? Because that is more of a threat than abandoning the bottom of the market. This is just my view, but I, I, I don't think they've ever taken, uh, the bottom of the market seriously. They have check-the-box offerings that no serious developer uses, I don't think. Just go on, go on, go on Claude and switch to Haiku if you can and ask it a question. You, you know, it, it doesn't remember anything, thinks it's 2023, and it doesn't know, know where anything is, and-
- RORory O’Driscoll
In a nutshell, it is the Jev opportunity. It's not quite one-for-one,
- 33:21 – 37:17
Are Traditional Seed Rounds Disappearing?
- RORory O’Driscoll
but yeah, you're right.
- HSHarry Stebbings
I- I'm, I'm going slightly off on a tangent on this, but people do like it when we talk about venture. It was a $40 million seed round for Jev, and you know, I just had a conversation with my team right before this, and they're like, "Dude, we never see anything less than a $20 million first raise for anything anymore." Like, the seed rounds minimum are like eight to ten with someone spinning out of a good company. Are we seeing the evaporating of traditional seed?
- JLJason Lemkin
Why do you think Andreessen just did a university? They need to go pre-Inception.
- RORory O’Driscoll
[sighs]
- JLJason Lemkin
You think I'm kidding?
- RORory O’Driscoll
No.
- HSHarry Stebbings
But do you, do you... I mean, we have, we have projects-
- JLJason Lemkin
Finally someone figured out that Peter Thiel got this right eighteen years ago with the Thiel, Thiel Fellowship and the Dorm Room Fund, which did Cur- or, like, sort of did Crusoe. You gotta go pre-Inception if you wanna do seed now. Inception is, Inception's too expensive. You gotta go pre-Inception. But Andreessen Horowitz did launch Horowitz Andreessen University today-
- RORory O’Driscoll
Sure
- JLJason Lemkin
...with $40 million-
- RORory O’Driscoll
Forty-forty-two
- JLJason Lemkin
...to do pre-Inception investing, right? To do the Thiel Fellowship on steroids. Um, you ask about... I, I think, I think it's a very rational, uh, response to the, to your point. But I do think Peter Thiel saw this space before anybody did and executed. The only thing he didn't wanna do was scale it up. He didn't wanna build a Thiel Rabois, uh, University like a Horowitz Andreessen. He just didn't wanna scale it up. It could've been. I mean, they have the best people in the Thiel Fellowship. They get the be- today too, they get the best people, right?
- HSHarry Stebbings
Do you know what? I, I, I don't think they do anymore. I think Z Fellows get the best today, actually.
- JLJason Lemkin
Okay, maybe.
- HSHarry Stebbings
Z Fellows gets unbelievably good people.
- JLJason Lemkin
Same idea. At the end of the day, same idea, right? The, the problem with these, these things is if you don't put enough people into them, they don't scale, right? That's why Z Fellows maybe is more interesting than the Thiel Fellowship, and why Horowitz Andreessen is more, is-- if it's the same, it's more interesting because you're just putting more resources and things that, uh... You know, you used to be able to run a fund with a blog. Like, that would give you all the deal flow in the world you needed for, like, five unicorns in a row. But you gotta scale this stuff up, you know?
- HSHarry Stebbings
Now you're on a po- call with a professor just-
- JLJason Lemkin
Yeah, you used to be able to just do it with a podcast and one dude in a, in a, in a closet and do just fine. [laughs]
- HSHarry Stebbings
We haven't answered my question though, which is like-
- RORory O’Driscoll
But yeah, going back to... But, but it is going back. I will go back to your point, Harry. You are, you are correct. Once you go beyond the vigil to even an individual and idea, you're right, you're seeing bigger checks. You're, you are seeing twenty. Look, the, the, the, the... I think the TypeScript was, I think it was even bigger. I could be wrong. I think, I thought it was forty, but I could be wrong, right? But yes, people are writing bigger checks now up and down the stack.
- JLJason Lemkin
Or you just, or you just tolerate, or, or, or it's, it... You end up in the same math. Or if you wanna do traditional C checks, right, you have to tolerate far low- lower ownership in many cases. Not all cases. You can still hunt your own deals, right? And then when you do the math, you gotta hunt $25 billion outcomes. If I'm gonna do four into Jev or three into Jev, if Jev exits north of $25 billion after dilution, I can still do my 100X, right, that I need to do, or my 50X, right? But, um, you know, the, the, the low ownership for seed works, but man, you need the big outcomes today, in today's world, right?
- RORory O’Driscoll
And the other thing just to take into account that I always feel everyone forgets, right, is... This is gonna sound a really dorky economics com- comment, but nominal GDP, in other words, not just inflation, but inflation plus growth from 2010 to today is about two and a half X. So you know, what that means is $100 million in 2010 is $250 million today, right? Pe- you know, just in terms of your ability to command, with money is an ability to command resources, because obviously software salaries have at least kept up with nominal GDP growth, right? So what it means is, if you were writing five, $3 million checks in 2010, yeah, let's do $4 million checks, you should be writing $10 million checks in 2026. That's just math. Before anything else has changed. Then on top of that, you take into account the fact that in 2010 the world was in the shitter, and in 2026 everything in tech looks amazing, you get to $20 million before you blink.
- 37:17 – 38:49
Are Bigger Venture Checks Actually Justified?
- HSHarry Stebbings
Would you actually argue then that now is a better time because your check size requirements have gone up two and a half to 3x, but the outcome sizes on the back end have gone up significantly more than two and a half to 3x when we look at the cursor?
- RORory O’Driscoll
No, I wouldn't make that argument at all because [laughs] what you're confusing, uh, yeah... For the... It, it... The, the outcomes today happened from the checks that were smaller, right? In other words... 'Cause what you're saying is, "Hey, the outcomes today on checks written five years ago are amazing. Therefore, the checks today, um, which are much bigger, will be amazing too." Implicitly in that, you're assuming, you know, that the $25 billion outcome today becomes the $50 billion outcome three years from now, and if that's the case, then you're correct.
- HSHarry Stebbings
Sure. I'm assuming, I'm assuming the same rate of inflation applies to the exits and rises in prices-
- RORory O’Driscoll
Yeah, but I take it... But the exits didn't just go up by nominal GDP. They went up by even more than that, right? In other words, you've seen it... That's why it's always hard to disaggregate things. You have nominal GDP growth, but then the stock market has massively outpaced that, and venture exits have even more massively outpaced that again. So there is a long-term secular trend in the size of exits going up, but there's probably an overlay of a valuation lift right now that mightn't persist, right? And here I gotta give a shout-out to Venky from Menlo, who did a really nice piece that, you know, went round all the venture community yesterday just about, you know, h- playing the game at the top of the cycle and how do you think about it when, you know, when the music stops, be sure you have a chair. It's worth reading.
- 38:49 – 43:18
Is FOMO Driving Today’s Venture Market?
- HSHarry Stebbings
Well, I, I get you, but with the-
- RORory O’Driscoll
The thing about just different is unseen-
- HSHarry Stebbings
But, but, but I get you-
- RORory O’Driscoll
Honest to God
- HSHarry Stebbings
... but with the greatest respect, Menlo have paid the highest price of everyone on most rounds. Like I, I don't, I, I love-
- JLJason Lemkin
Yeah, that's why they're playing the music.
- RORory O’Driscoll
That's why... But I think... No, I think that what he would say is... I think he would say that. He would say, "We very wisely..." Look, he... I, I think it was a really good analysis. I didn't mean it take us off it, but he basically said there's two players now. There's players who are playing with the house money, and he put themselves in that category. They've done so well at Anthropic, and they're probably feeling a little happy, and they're probably gonna be aggressive. And then he said there's some players who didn't do that rou- didn't do those early rounds and are now playing to catch up. And the point he was making, the macro point he was making is between the giddily happy people and the g- and the terrifyingly desperate people, there's a lot of people writing checks with fear in their heart of miss... Of FOMO, right? And it gets back to your comment. Some part... That's why it's always a... Some part of the increase in size is justified by math. But let's be honest, I think some part of it is justified by FOMO and the fear of missing the next cursor, and that's fine. But that's the kind of thing that can change on a dime, and that was the insight.
- HSHarry Stebbings
Does that change how you invest? Like when you reflect on that, sh- what, what, what should I take from that, Rory? What should LPs listening, GPs listening take from this?
- RORory O’Driscoll
It's a good question. I think... And again, it's I'm always in the middle. I think you don't wanna be the guy... Look, I think you have to say at times leaning in can pay out, but you don't wanna find yourself so leant in on so many deals that are so high priced at such a, you know, on such, that if a downturn comes, you get... You know, you just can't survive it. I think as often is the case, investing is not a rules-based business. Do A and only A. It's t- typically do some A but some B, and the mix is everything. I think you have to, you know... I think for us it's a consistent pace, broadly the same stuff, and recognize that, you know, it's super hard to time that. But be cognizant of the risk you're taking is the bare minimum you have to do.
- HSHarry Stebbings
Is that... I'm, I'm not being rude. So I- I'm, I'm going for you here, but fuck it-
- RORory O’Driscoll
Sure. It's okay
- HSHarry Stebbings
... you go for me. Be cognizant of the risks you're taking? Seriously? Like I thought that piece was a blowhard piece, if I'm honest. Yeah-
- RORory O’Driscoll
No, I totally-
- HSHarry Stebbings
Be ca- be careful of the music stopping. Be cognizant. Again, you guys have paid up the most.
- JLJason Lemkin
That's what, you have... That's what the next fund's for. Why do you need to be careful of the music stopping? You raise a fund every 18 months. We all could get a mulligan. If I don't make any carry, I don't make any carry. I make it on the next one. It's all right.
- RORory O’Driscoll
But I don't think that that's-
- HSHarry Stebbings
I'm not saying that is it, but what I'm saying is there's just, there's not that much to take away from that. Yeah, be cognizant of the music stopping? Thanks.
- RORory O’Driscoll
I disagree.
- JLJason Lemkin
I'm with you. I'm with you on Harry. It, it, it, it, it, it-
- RORory O’Driscoll
I disagree
- JLJason Lemkin
... it's a little condescending in its own way, right?
- HSHarry Stebbings
Yeah.
- JLJason Lemkin
Oh, thank you. I wasn't, I wasn't aware that the, that, that, that the AI gold rush might end someday. It's, it... Good point. Good... I was us- I was so lost in Jev all weekend, I missed the point. You're right. I missed the point, right? [laughs]
- HSHarry Stebbings
From the guys who made out like bandits, right? Which I'm thrilled about. I want some people-
- RORory O’Driscoll
But okay, one question. They made... Okay, watch this. The, the big... They made out by bandits by being aggressive at a time when people were still uncertain, right? And therefore price of those deals, while high in absolute terms, reflected a fair amount of uncertainty relative to traction, right? The same deal today would probably be 3x or 4x higher, and it's simply a po... I mean, if all you say to yourself is, you know, that deal that worked four years ago had that risk-return profile, and underwriting that same deal today probably means I'm gonna get four times less return 'cause of where pricing is, you should at least pause and think rather than blindly saying X worked, therefore all the other deals that just look just like X will work also.
- HSHarry Stebbings
I know, but that's fucking obvious.
- RORory O’Driscoll
Uh, Harry, in general, one of my favorite quotes, and I'm gonna take you... Right? You're coming for me, I'll come for you, right? Barney Baruch, I think I quoted this before, right? And I'm sorry if I did, but he was a Wall Street financier in the '20s and '30... And he just said, "If every day you look in the mirror and you say to yourself two and two makes four, you probably could avoid a lot of mistakes," right? Stating the obvious. Typically, the things that bite you in the ass are things that actually were obvious all along and you just chose to ignore them. So yeah, it is obvious, but you know, you have to take
- 43:18 – 44:10
How Should VCs Invest at the Top of the Cycle?
- RORory O’Driscoll
it into account.
- JLJason Lemkin
But in all seriousness, I'm with you both. But, uh, the serious question then we could, or we could Harry, it's your show, but what do you do about that, right? Like, I'll give you an example. In 2021, I made one investment. I did the seed rounded Owner, which just closed at 2.3 billion. It's a pretty large position for me, okay? Now, it's, it, it... We've had ups and downs, great founder team. One deal in all of 2021, only deal I did. You could do the same thing right now. You could say it, it, for the next four years I'm gonna do like one or two deals. Like, the, it has to be, I have to have a little dislocation in the force. It's got to be this, it's got to be that, and that, that's how you take the, the, the chairs are gonna end. Otherwise, you c- you just gotta, it's, it, you gotta deploy the fund. It's other people's money. You've gotta put it to work.
- HSHarry Stebbings
Or there could be a really rational assumption that, hey, the music's gonna stop pretty soon, and we're gonna go through, start crying where we can get liquidity from and really be proactive in selling positions now. Cool.
- 44:10 – 45:15
Why “Quiet Compounders” Are Losing Their Market
- HSHarry Stebbings
That, that's helped.
- JLJason Lemkin
Well, that's one thing, right? And that's, that's an interesting question. But let's say you wanted to be, let's say you wanted to be conservative. What do you do? Invest in the company at 50 million, growing 60% a year and hope it re-accelerates and is worth three times revenue in sales to Bending Spoons? I mean, what's the plan B? Like Bending Sp- Bending Spoons looks at 1,000 deals a year and still only does two [laughs] or four. Where am I gonna sell these more conservative companies that are gonna compound for, at, at, at, at sub-AI rates for 40 years? I just don't know where they're, who's gonna buy them. If there is a market for these assets, so be it. I love the quiet compounders, there's just no market for them anymore.
- RORory O’Driscoll
I think there's al- well, I think... I'm not sure I agree that there always won't be a market for quiet compounders above a certain scale, to be clear, right? I think profitable business-
- JLJason Lemkin
Could come back
- RORory O’Driscoll
... for a couple hundred. What?
- JLJason Lemkin
C- c- could come back, but right now it feels pretty thin.
- RORory O’Driscoll
Yeah. Okay.
- JLJason Lemkin
Right?
- RORory O’Driscoll
Um, I actually like Gokul's tweet that he was like, "Yeah, I'll happily do three, you know, double, triple-double, double-double deals all day long," right? Now, if you're capital efficient, right?
- JLJason Lemkin
Yeah, if you're burning nothing and the price is right and I can get my 20% ownership,
- 45:15 – 50:22
Can Triple-Triple-Double-Double Still Win in Venture?
- JLJason Lemkin
you'll do it. Yeah.
- HSHarry Stebbings
But why would you, why would you... I'm sorry, let's just push back. This is... Why would you be happy to do that? Because there are other GPs, like your Sarah Guos of the world-
- RORory O’Driscoll
Yeah
- HSHarry Stebbings
... who are not doing that, and they are putting up some fucking phenomenal numbers.
- RORory O’Driscoll
Agreed.
- HSHarry Stebbings
A- and so you can do those triple-triple, double-doubles, have average IRRs, and your LPs will leave in droves. Sorry.
- RORory O’Driscoll
Okay. W- okay, Ha- watch. I can... We'll take a second. Yes. Sarah absolutely did the seed round at inception, right?
- HSHarry Stebbings
Interesting.
- RORory O’Driscoll
At 50 million pre. Right?
- HSHarry Stebbings
Interesting.
- RORory O’Driscoll
In the following four months, it raised money at 50 million pre, 350 million pre from Kleiner, two and a half billion from, I think, Index and Benchmark from memory, and might be raising now at 10. Those are four rounds in the same four-month period, and you cannot say the risk in all four of them is the same. Because one of them is, what is it, uh, 20? Yeah, 20 times more expensive.
- HSHarry Stebbings
I, I didn't say it was the same. I'm saying-
- RORory O’Driscoll
So, right. So, Harry, so the answer is, if you do an early deal like that... So, so, but Harry, you're saying, what can you do with that information? You can bet aggressively on five at 50. Love it. The fact that Sarah's done an amazing job in that fund, right? But betting just as aggressively on 250 at 10 billion, that's intrinsically a riskier deal, and do you wanna do that?
- HSHarry Stebbings
No, you're, you're getting this completely wrong. I'm saying Gokul's-
- RORory O’Driscoll
Yeah
- HSHarry Stebbings
... triple-triple, double-double, I'll take them all day. I'm saying that is a ludicrous statement to make because you are in a competitive capital market where LPs can choose where to put dollars. And if you have managers like Sarah Guo who can post incredible numbers quickly with high IRRs, they will get the dollars versus your steady compounding growers with bad IRRs and no good up rounds. It will be much harder.
- RORory O’Driscoll
Agreed.
- JLJason Lemkin
You, uh, but you know what, Harry, here's, here's the thing of c-
- RORory O’Driscoll
Agreed
- JLJason Lemkin
... uh, here's my, my view. I think you're right. Having said that, I think Gokul's model is to do that, and no matter what you call that model, you still have to achieve IRRs north of 30. So you have to pick very well, and they have to compound properly, okay? Some of your, uh, like the average LP, an average top LP, I remember writing this up in SaaS 2021, in 20t- in 2021 had 90% IRR. Like, the top quartile of LPs had 90% IRR. It did not last. 2026 will look like that. I bet the top LPs will have 90% IRR this year, okay? Some LPs will only invest in those managers, and that's great. Others will take the pen longer. But at, and so you can do these other deals or, or to, to his point, I think you can do both. Like, the answer might be to do both. I'm a... And, and the real truth is you should do every great deal you should see if you have enough capital, okay? Every great deal, okay? So if he sees five insta- instincts and, uh, and, uh, Harveys a year, and he sees five triple-triple, double-doubles that he can own 20% of and can achieve the requisite IRR, right? This is why I worry about the exits. You should do both, right? It, it's okay. You'll only, you'll blend to 60% IRR. But I do think, I think you're gonna lose LPs, to your point. But I do think many LPs that have been around will still back repeat managers that deliver north of 30% IRR. It's... If you look at all the numbers, that's, that's as, that's pretty rare, man. It, it's pre, it's pretty rare to have 30% IRR, no matter what anybody claims in a given year, 2021, 2026. It's, if you can com, if you can compound... What is compounding 90% IRR over a decade, Rory, help me. It's pretty good.
- RORory O’Driscoll
It's not, it's not meaningful.
- JLJason Lemkin
It's mathematically impossible, right?
- RORory O’Driscoll
It doesn't happen. Exactly right.
- JLJason Lemkin
It can't happen. So 30, the low 30s is as good as it gets, right? In, in the real world, right? It's as good as it gets.
- HSHarry Stebbings
I, I think Gokul is a rare exception who will likely be able to pick very well. I think the idea that you can do the triple-triple, double-double, say, pick well-
- RORory O’Driscoll
Agreed. Uh, yeah. That's why he said very clever... I mean, it was a very clever state- I really admire him for things like this is what I do if you're capital efficient. So basically, everyone's gonna find him. He solves his search problem brilliantly by saying, "If you've got these criteria," and then he's gonna pick carefully. You're exactly right. It turns out no matter what you do, picking matters. But, you know- Again, going back to the thing, I think what, what... I- I'm listening to the conversation, and I do... Look, you wanna do the most exciting deals possible, and those are almost entirely AI-forward deals at this point in time. No dispute. I think all the point I'm making, I think the point Venky was making is, at some level... And I like what he said, actually. Some of them, at 10X, the price matters, 'cause what's happened is Andreessen, about 10 or 15 years ago, had the very simple but profound insight that other people have had, but they, they claim it, so let's go with it, that, you know, it really doesn't matter about price. You just gotta get the best deals. And it's true, right? But what Venky's saying, if you're wrong by 10X, then it's not true, right? And it may well be we're at that point in the cycle where you are, in fact, wrong. C- in some deals, you are wrong by so much, right, that, in other words, the momentum trade has worked so well and for so long that you might be at that one point in the cycle where you just, we overreach your skis, and it has to unwind. That's the point you're making, right? And I think, you know, will every one of the 100-odd neo labs become the next Anthropic? Maybe not. Maybe most, some of them will return capital 'cause they get acquired. But that's the only point, Harry. And it's
- 50:22 – 52:46
What Should LPs Back in Venture Today?
- RORory O’Driscoll
like, uh-
- HSHarry Stebbings
Can I ask you-
- RORory O’Driscoll
Yeah
- HSHarry Stebbings
... we have a lot of LPs that listen, huge amount. If you were an LP that has traditionally allocated to seed and Series A in venture, like we know many of, what would you advise them today, looking at what you see every day in the trenches?
- RORory O’Driscoll
That's easy. I would... That's easy, 'cause you said seed and Series A, right? And you're not listening, but that's okay. I'll answer the question. I would do managers who are doing the very best seed and Series A investments in new, massively exciting, high growth opportunities, like the genius who did, you know... Like, as I say, give Sarah c- credit for doing, uh, Instinct. I would do those managers all day, every day, 'cause you're far-
- HSHarry Stebbings
Do, do you mind low ownership?
- RORory O’Driscoll
No. I mean, you do mind it. You prefer high ownership-
- HSHarry Stebbings
Sure
- RORory O’Driscoll
... but that... Look, especially in the seed and A fund, where you're relatively small dollars, relative to the kind of dollars we're dealing with, you know, later on, you, you wanna be in the best deals, right? I, so I, I like... You know, we target 10% ownership at the ARB stage. So, you know, at a seed or A, you'd like 15 to 20, but I don't think you discriminate in or out on that, 'cause the truth is this. A seed investor who consistently shows up, as Jason will attest, with smaller ownership but in the best deals will get more ownership over time, 'cause they'll get more capital and get more opportunities. So I, I wouldn't solve on that, right? So, so if I was... So to, to your question, on an LP, for seed and Series A, you should be looking at people doing the very best deals in the very newest spaces where you really believe they have an edge. My point, and I think Venky's point, is as the rounds get later and larger, the, the dollars get bigger, and the multiple return gets smaller. So it's, in much the same way as growth was an amazing place to play in '23, '24, '25, it might be more like '21 now. That's the only point. So going back to your what should you do, you should do the se- the seed at Instinct all day, every day, but you should think long and hard at 10 billion four months later. I don't think that's an unreasonable position. Now, maybe that particular deal will work at 10 billion, 'cause as we just said, OpenAI might buy it at 50. But you have to admit, you, you know, if you use the Buffett margin of safety comment, your margin of safety at 50 pre is infinite. You've got a world-class exec technologist with a great idea. Your margin of safety at 10 billion, yeah, maybe you get a 1X, but, you know, there's risk, is my point, in a downside scenario.
- HSHarry Stebbings
And I completely agree with you and get that, to be clear.
- 52:46 – 54:44
Why Being an LP Is Harder Than Ever
- JLJason Lemkin
I think the tough question... We could, we should break. I think the tough LP question is it's hard to be an... I think it's hard to be an LP, right? Is chasing returns is tough, because it's very hard, especially at the seed... Everyone wants to chase returns, right? Everyone wants to be in Sarah's next fund. It's the easiest investment there is, right? We all... I'm sure it would f- thir- 50X oversubscribe wi- in one email, right? But, but, uh, and so do you believe... And most LPs believe returns decay. Like, we peak at some point in our careers as investors, and they, and they decay. Maybe you build a team or whatever, but... So do you chase returns, or do you take risks that the returns are coming? It's very hard to be, to invest in seed manager. Like, and a lot of the best ones have big, have weird strategies. It's complicated. So you have to look, so you have to look for precur- You have to go pre-Inception. You have to look for precursors. I, I think it's actually, in some ways, harder as an LP today than it is in more normal times, because you're so tempted to chase returns. And you won't get into the next one, because you will, you will screen it out, right? You will screen it out.
- HSHarry Stebbings
Agreed.
- JLJason Lemkin
I don't know how to do this. It's a tough job.
- RORory O’Driscoll
Well, at the same time, even though, you know, chasing return... It's funny. Just for the, stating for the record, mutual fund persistence is almost nothing. In other words, good performance. Chasing returns in the public market is a total fool's errand, 'cause the data says persistence is super low. Oddly enough, it... Which makes sense. In venture, persistence is not infinite, but it's quite high, right? Because you get these increasing returns to success until there's some kind of discontinuity, right? So it's not crazy to partially change return, cha- quote-unquote, "chase returns" in venture because of the persistence in a private market. In a way, it's utter folly in the public markets, where literally the dude who bought energy last year, you know, might be totally wrong this year, 'cause the trade is to buy semis. Thinking of you there, Leo.
- HSHarry Stebbings
[laughs]
- JLJason Lemkin
[laughs]
- HSHarry Stebbings
I much prefer the shows that when we have a little, uh, what is it? Contretemps, you know?
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
Contretemps.
- JLJason Lemkin
Oh, very good, Harry. And for, for an English person, that's not bad
- 54:44 – 57:37
Factory at $5BN: Would We Invest?
- JLJason Lemkin
French.
- HSHarry Stebbings
Oh, thank you so much. I, I, I am slightly cultured. I hide it well. Um, well, okay, ding, ding, ding. It's, uh, Jason's IC time. We're moving into the world of, uh, private markets with Factory. Triple valuation to $5 billion, $200 million round. For those that don't know, Factory is an enterprise coding agent provider, um, that can primarily have a droid product, which, um, has scaled phenomenally. I don't think I'm allowed to say their revenues. Um, but they're chunky, and they've done an amazing job. Jason, $5 billion valuation. Um, are we going to be doing this round for Mo Driscoll Stebbings Lampkin Ventures?
- JLJason Lemkin
Listen, I, uh, I think, I think this is a good risk to take. Um, now, I, first of all, I will caveat, I'm not as much of a Factory expert as you. I know it's your, your investment, this one, Harry, so you're the, you're the deeper expert than I am. There's certainly one obvious and, and one mostly obvious trend. The second one, you, you got in one of your 20VC other podcasts this week. One, obviously the w- w- whatever model we have for inference, for, for coding and otherwise, it's too low. The demand is only going up, whether Muse gets it or Factory gets it, or Anthropic gets it. Um, and I don't know how each, each, each token will be monetized directly or whether it'll be FAL but-- uh, FAV, but the demand is, is, is going to exceed already our most wild models. There's a couple things that make me excited about Factory. And I've just having gotten back from the Dreamforce, which is one of the world's largest enterprise software conferences all about AI. Two themes really stood out, and Harry had a guest this week on, is which why r- one of the reasons I recommend the stock. Um, sovereignty, um, I wanna be able to trust where my data is, right? Um, and I want choice of model. These things really matter. Um, and the one theme I got talking to C-level executives at Dreamforce is they don't trust Anthropic and OpenAI with their data. They don't trust it. This is not something manufactured on X or Twitter. They genuinely believe, and honestly, for what it's worth to the IC, I believe this as well, if I upload my confidential data, I'm not sure it's not going to my competitors through an LLM. In fact, I'm pretty sure it is on some level. I don't think these are m- these are malevolent companies. This is the way LLMs work. And so I think these are a lot of things that go into Factory. This is a crack team. The time is right. Um, you know, Brad Gerstner, that guy's always right from, from AI to, to the, uh, calcium CT scans. I would always back him. Um, I think we do this round. We pair it with Instinct at $10 billion. We roll the dice. Uh, it's good times. And this may be one we regret with the musical chairs, guys, but the trends are right here, and we need to bet into these trends. Sovereignty, trusting my data, trusting my data at rest, not having it pooled by the big guys. I think in a year, no one is going to trust in the enterprise Anthropic and AI with their data. They're solving this too, but this is something we need to bet on, so I, I approve the investment.
- HSHarry Stebbings
Wow. How?
- 57:37 – 1:00:05
Why Coding Is the Motherlode of AI
- RORory O’Driscoll
And I'm gonna chime in here, having been a little bit more Debbie Downer earlier, and I actually agree with Jason, right? I think genuinely-- Look, one of this-- I mean, you made a comment here earlier about some things are obvious, and I actually really believe sometimes stating the obvious is the highest value thing you can do. And one of the stated-- the statements that we've been saying internally for the last couple of years is coding is the mother lode. Coding, it's, it's everything, right? It's 10X everything else in terms of value being created from AI today, right? So yeah, [chuckles] I would argue you just can't have too many bets on coding up and down the stack. It can be in co-- you know, it can be coding, it can be QA, it can be test, it can be review. All across the board, this is where it's gonna happen the first and the mostest. And Factory's in a really nice position. I mean, there are, there are three standalone-- I-- 'Cause I think Jason's totally right. You're not going to buy-- You're gonna wanna buy your coding solution, for lack of a better word, which I mean both a harness and also people, from someone who's not also selling you the model. 'Cause you, you, you no longer believe OpenAI, Anthropic are benign, right? If you're corporate America. So I think Jason nailed that one, right? You, you worry about their data. E-Even if you don't think they're gonna blow up the damn world, you worry about their data retention policies. Talk about going from the sublime to the ridiculous, right? [chuckles] From the big to the little, right? You're like, "Okay, they mightn't kill every human on the planet like they said they would, but they might steal all my shit," right? "I wanna have something different," right? And you know, Cursor has been swooped off the table. It was a standalone, more individual project. You really only have these guys and Cognition at this point who are basically going to the enterprise and saying what enterprises love, especially big enterprises. "I'm coming to you, Mr. Corporate Customer, and I will make this go away. You got your board on your ass saying you need to be doing way more coding. You know you don't have quite the people to do it. You need help to get along on that, right? We need to make this happen. We're here to help you do it. We'll make you..." Uh, uh, you know, it's good branding, a software factory. So yes, I think this is a market where even if there is a bump in the world in the next twelve to twenty-four months, and I think there could be, right? Going back to Harry, how is the fear actionable? I think one of the things you can do when you're leaning in is leaning into trends that you think will kind of keep on compounding, even if there's a slowdown in overall AI adoption, and this is one. I too would pile in with Mr. Lemkin and think this is-- coding is the mother lode. It's that simple.
- HSHarry Stebbings
Coding is the mother lode. It's that. I, I'm thrilled. I, I agree, which is why
- 1:00:05 – 1:01:38
Why Enterprises Won’t Trust OpenAI With Their Code
- HSHarry Stebbings
I did the last round.
- JLJason Lemkin
I don't know how mu- I generally don't know how much of Factory is sort of air-gapped, um, versus sort of on-prem versus private cloud coding. I don't know. But I, I seriously mean what I said. I, I think pe-people in the next twelve months are gonna be like, I, i- whe- whe- whether it's my, my, my, my data for my drug or just my code. I don't want my code, my core code polluted in Anthropic and, and OpenAI, where they're gonna train on it, right? And it's just so c-- And I really think the only reason people have tolerated this is because of just insane demand from developers. Like, it's so great. These products have become so great this year that we are-- I mean, when I was bre-- It was a while ago. When I was an SEV at Adobe, this was the one code red, was any pollution of the source code. It was the crown jewel. It-- And my God, and we were the first group ever to use GitHub, and I can't tell you the hoops we had to jump through-
- HSHarry Stebbings
Wow
- JLJason Lemkin
... to get GitHub brought in. But my team revolted. They l- My engineering team said we-- that they-- that, "We will quit if we cannot bring GitHub." And it just took endless arguments and, and even air-gapping that, and it couldn't trust-- Like, we're only tol-- And I, I don't know how much of Factory is-- I mean, it's part of their marketing pitch, right? But man, it's compelling to think you get all the benefits of the big guys, but all the protection of having my code walled off, air-gapped, on-prem, whatever, semi-prem. It's just d-- You should not trust them. They've, they've, they've trained on all of our data. Every YouTube, every piece of open source, every piece of closed source, of course they're gonna train on your data. Give me a break. And if they don't, the agents are gonna escape and train on it without telling us. They're gonna swarm out of, [laughs] out of... They're gonna
- 1:01:38 – 1:05:23
Legal AI: Would We Invest in Harvey or Legora?
- JLJason Lemkin
train on my data.
- HSHarry Stebbings
You said coding was the mother lode. The next potential mother lode that people think, we've talked about a lot before, but Legora announced they've hit 200 million in ARR today. Lemkin Ventures-
- JLJason Lemkin
Yeah.
- HSHarry Stebbings
Would you lead their next round proactively? Their next round is at $11 billion. Would you lead-
- JLJason Lemkin
Well, I, I'm a fan of both them and Harvey. I, I underestimated the s- we talked about this, right? As maybe the number three use case. The information did say Harvey's margins were now -50% because there were a lot... They had to move back. I don't know if that's true. It could be one week. It could be like CMRR. It could be an hour if they had n- -50% margins. I'm not beating up on Harvey or Legora. I would say if the margins were -50% and going down, I, I might be slightly nervous they're not gonna have a Cursor-like turnaround. I might be a little nervous, just enough to not lead the next round, okay? J- uh, I'm not saying not to have been thrilled to have led an earlier round, but if that, if the margins are going, are spiraling down rather than V shaping back, that, that would make me a hint nervous. -50 is, is, is, you know, it is s- you gotta raise a lot of money, right? If it's really true. But that was an information report, right? But they're, I find they're usually pretty accurate, right?
- HSHarry Stebbings
So we get a bar to the law-
- JLJason Lemkin
But what's the round at?
- HSHarry Stebbings
11.
- JLJason Lemkin
At my... At, if the margins if, if, if, super fan, both great companies. If the margins are -50%, I think I will still recommend we do factory and back, back Harry's investment here, and I'm gonna, I'm gonna... Unfortunately, I love Rory, but if I have a vote, I'm, I'm gonna vote against his proposal to do Legora. [laughs] And I understood the margins were closer to zero and improving due to their p- their, their own, their post-training on their own version of a open weights model. But -50, Rory should've told us about that before the IC. I felt that was a Monday shocker, and I'm a little, I'm a little uncomfortable with the kid on the team-
- HSHarry Stebbings
Actually-
- JLJason Lemkin
... for not disclosing, socializing that ahead of time. [laughs]
- RORory O’Driscoll
Funnily enough, look, I'm not going to be leading a round in Harvey or Legora. We're investors in GCAI on the in-house GC space. But actually, in defense of Harvey, for a long time the rap was, "Oh my God, people don't use the product enough." So I would argue, if I was Harvey, if they could truly say their gross margins are -50, the correct spin on that is, "My God, lawyers are pounding on our shit, and as soon as we get our own internal models, they're never going back," right? And I think, you know. So m- maybe stepping back, you know, what do I think about this category? I think it's an amazing category. It's not as... It's what I said two weeks ago. Nothing's changed, 'cause I try not to change. In, in five-year, uh, ten-year investments, it's really bad if everything changes every week, right? But, you know, it's a really good category, you know, AI for law in all its manifestations. It's not going to be as big a spend per head count as software engineers, because I think a lot of the lawyers', the lawyers' work will remain to be done. But I think it's a good category. I think it's all about valuation at this point, and, you know, it's a two-way race in the, um, AM Law space and so. The kind of second-order tactical questions here around TAM and thing would kinda deci- make a decision for you, uh, where I don't have the facts in front of me on that. Um, I'm not... Yeah. So don't have a profound opinion on it except to say I am interested in the negative gross margin comment as a positive spin.
- HSHarry Stebbings
My word.
- JLJason Lemkin
I am. It is. I-
- HSHarry Stebbings
Well-
- JLJason Lemkin
Listen, th- these, these folks have great, truly great-
- HSHarry Stebbings
That was a, that was a very long way to say very little, Rory. [laughs]
- RORory O’Driscoll
Yeah.
- HSHarry Stebbings
Thank you, thank you for your concision, intern in the corner. That was super helpful. Let's just, uh-
- RORory O’Driscoll
Yeah, no, I, I, I agree. It, it was not concise, Harry. That's okay. But you're right. That's fair. It was not one of my more concise ones 'cause I was-
- HSHarry Stebbings
[laughs]
- RORory O’Driscoll
Yes.
- HSHarry Stebbings
Damn my
- RORory O’Driscoll
But so if you prefer a sharp no, I'll give you. No, I won't do it at 10 billion.
- HSHarry Stebbings
[laughs] I mean, it really-
- RORory O’Driscoll
Because I think when you count the legal heads, you don't get to 10 billion, um, law
- 1:05:23 – 1:07:25
Crusoe at $30.9BN: Is AI Infrastructure Overpriced?
- RORory O’Driscoll
lawyers. But that's okay.
- HSHarry Stebbings
We, we can do one, we can do one more ding, ding, ding. Do we invest in this? We got Crusoe, $3.9 billion series F at $30.9 billion. For those that don't know, Crusoe's in the data center build-out business. They build data centers, they provide GPUs, and they also do managed inference full stack. Um, they have a huge order book, about 140 billion of total contracted value for those that don't know. Um, ah, business is flying, uh, in a hot market. Jason, $3.9 billion at 30.9 billion. Are we writing our biggest check from this fund?
- JLJason Lemkin
I mean, to be honest, as you know, the fund doesn't believe there's anything really defensible in these data center models other than the backlog, um, and the access to infrastructure. But we believe Crusoe is at the top of the second tier there, right? Um, they have some interesting things, right? They're able to build their own modular data centers, right? They own the chain from power to tokens. There's a lot of appealing things in this. I think our approach at the fund needs to be a portfolio f- uh, approach. We should invest in all the data centers that rise above a certain level of projected DCF, projected growth, projected margins, um, and most importantly, circular, guaranteed circular financing. And this is all, this is all... A- a- as much as I love the boys at Crusoe, this is all a spreadsheet investment. A- I've done the math, and I believe it's just below the fold. It's just a hint too expensive to hit our margin, um, despite the growth. But I think we should do all of these deals that have the requisite level of, uh, of, of, of, of circular financing and the ability to access infrastructure. So I give them that. I'm just a little bit worried about the valuation here. So, uh, reluctantly, reluctantly I'm gonna have to pass on, on Crusoe. 10 billion, though, would've been great, boys. So, uh, uh, ch- so f- you guys', uh, bonus this year will not be what you'd hoped. Uh, they will be epic bonuses this year. Uh, I make them all the decisions as the managing general partner. Uh, but I think you'll each take a couple million dollar hit by missing the last round.
- HSHarry Stebbings
Pfft.
- JLJason Lemkin
Just, uh, telegraphing that in September.
- 1:07:25 – 1:10:50
The Risk of Leveraged AI Data Center Bets
- RORory O’Driscoll
Pushing back and taking that and going back to my earlier comment, how is something... You know, when I said about, you know, worrying about a slowdown, how is it actionable? This is an example of where it is actionable, right? Because I think Something like a coding agent, something like a AI app, like Harvey Legal or whatever, I think there's a long trajectory. They're not levered plays. You probably can survive a one-year bump, right? Conversely, the data center trade is very levered, so very exposed, not just to AI usage, but to growth in AI usage. You're really leaning in on the upside, which means they're amazing investments to the up, and they probably would be tough investments to the down, right? You wouldn't wanna be out of that sector. But again, going back to how do you make these concerns actionable? Right now I'd be saying to myself, if I had... if, if, if I had a portfolio across the whole kinda AI spectrum, I wouldn't want it all to be in that AI CapEx trade where any kind of slowdown when you've got, like, four or five to one leverage can be pretty brutal, right? So I would be a little bit afraid. I've not got the specifics on Crusoe. Jason, you're right. It is a spreadsheet exercise and I haven't run the spreadsheet, so I don't know, right? But I would be thinking in macro, how much of that bet would I want? Right? I'd want some, because it's been an amazingly good bet. I mean, look at CoreWeave, right? But you also look at the market cap. I wanna think-- I think CoreWeave's at sixty and Nebulous is at forty. I could be wrong. It could be the other way around. And so Crusoe at thirty, I mean, I think it's growing. It's smaller than CoreWeave, growing much more quickly. So again, it's-- And they all have, you know, pretty substantial negative free cash flow. So a lot of your success is betting on future CapEx. And maybe the other statement, Harry, to further prove that you're wrong and that you can in fact take into account some of those risk things, my appetite for a deal like this would go up directly proportional to how much, as Jason s- as Jason said, A, long-term commitments you have from a Microsoft versus a second tier, and then B, how much visibility you have on your debt runway for the next three years. I would prefer a slightly lower price, slightly more dilution, and a longer runway, such that if there's a data center bump in the next twelve months, you're protected. And I gotta, I, I gotta finish by saying a really fun day in The Wall Street Journal yesterday. I don't know if you saw it, but I read the Journal in the morning, I check in, in the evening. It's-- s- it was so funny yesterday because the headline in the morning was, "Deals Pull As Indu-- As Wall Street Worries About Data Center Trade." It was, you know, SP and... and there was two others. There was a nuclear company and one other. So that was the headline, top of the page, first thing in the morning. We then had the best single day in the Nasdaq since the dawn of time. It was an amazing day. And the headline at the end of the day was, "Fear..." you know, "Nasdaq Explodes as AI CapEx Fears Recede." So literally, what you saw in that, lit in the space of eight hours in one trading day, people went from, "Oh my God, CapEx is scary," to the Wall Street Journal is like, "It's all gonna be great." And it was just... it was fun to watch that kind of oscillating, you know, terror-greed moment in real time, literally in the same eight-hour period.
- HSHarry Stebbings
Boys, what have I missed?
- RORory O’Driscoll
Clearly the last Crusoe round. [laughs] But I missed it too, dude.
- HSHarry Stebbings
Rory, is there any other that you think I've missed? Character windsurf deal?
- RORory O’Driscoll
No, no one cares. No.
- HSHarry Stebbings
Yeah, no one cares about Manor or Ford-
- RORory O’Driscoll
No, I just think that, you know, it will be fun to watch the litigation
- 1:10:50 – 1:15:56
Keith Rabois vs Airwallex
- HSHarry Stebbings
It i- it is a slight recycle, but I do just think it's worth saying, I'm sure you guys saw the Twitter sphere, uh, Keith Rabois, Joe Lonsdale going for Airwallex unbelievably again. You don't care, Rory?
- JLJason Lemkin
I don't get this one. I, I really don't get... Let's put aside the issue, let's put aside the issues for a minute, okay? Let's, um, my gut is that the, there's a little bit of racism here, there's a little bit of anti-culturalism, but let's put all that aside. Let's ju- I, I don't... Ramp is obviously a big investment, right, for, for them. So I get supporting the home team, right? And I get pushing the envelope there, and it's twenty twenty-six. Uh, this just seems... A- and maybe if you're Keith, who's very experienced and very smart, maybe it's worth it 'cause he doesn't have any bridges to burn or worry about. But it, it just seems a lot, right? Um, if it wor- I guess if it works, if this destroys Airwallex, right? If, if the X and the hou- whatever it is, the house review of it, if it destroys your competitor, Machiavelli and I get it, right? Um, but, um, I, I don't know. May- maybe it's not too far. It ju- it just feels very aggre- uh, very aggressive, right? Um, you know, it's like, uh, what do we call them back in the day? Dipling and Real- Dealback, Real-
- HSHarry Stebbings
Yeah, yeah, yeah. Oh my God
- JLJason Lemkin
... Dipling and Real, but on stero- but on steroids. It's Dipling and Real on steroids. [laughs] And maybe it makes sense. It just, it just struck me-- Maybe I'm too... Maybe I, I just care too much. Uh, but it struck me as just aggressive. Just aggressive, right?
- HSHarry Stebbings
I'm always very careful 'cause I, I am an investor in Airwallex, to be very clear. I'm also a friend of Keith's, and I like Keith a lot and I respect him a lot. But the allegations have consistently changed from you are a CCP agent who is working for China to more than twenty percent of your cap table is in China and Chinese. These are what-- Which is not true, by the way. But they have got more and more diminished over time as the arguments have weakened. Uh, uh, when you look at the companies that have employees in China, it's basically every big company today has some form of their employee base in China, from Microsoft to Zoom, you name it. Uh, candidly, it, it's ridiculous.
- JLJason Lemkin
Well, you know, I mean, I mean, Fin got rid of all of their Open, Open weights models before they were acquired by Salesforce. I don't know that it's ridiculous. I don't agree with it. Like, I would not be making those tweets. This is a big deal. Fin, to close its three-point whatever billion dollar, had to ri- had to rip out all of Open weights model out of his company before the deal would close. All gone. People care about this China stuff. We could argue both sides of it, and I, and I don't like the, I don't like the tweets, but I wouldn't say there's nothing, nothing to concer- concerns about it, right?
- HSHarry Stebbings
Okay. So, so then we should put the same scrutiny on Zoom and Microsoft.
- JLJason Lemkin
I don't dis-- I don't li-- I, I-
- HSHarry Stebbings
Yes
- JLJason Lemkin
... I started this by saying I don't like it, right? I'm not on the side of it. Uh, but I am saying the Fin thing is in- it's interesting. It, it's... that it matters to businesses, not just Twitter, Twitter Audi.
- HSHarry Stebbings
I respectfully, I don't think there's a correlation, because if you think then that it is interesting and we should have fought, then it should be-
- JLJason Lemkin
Well, you said Chinese ownership.
- HSHarry Stebbings
Hang on. What, what are you saying, Harry? Well, I, I, I, they don't have the Chinese ownership. That's my point. I've... I know. I've got the cap table. [laughs]
- JLJason Lemkin
I'm not disagreeing with you. I s- I'm saying why there is sensitivity around Chinese ownership. If it's not true, it's not true. I'm not arguing the point.
- HSHarry Stebbings
It's arguable.
- JLJason Lemkin
I don't even care. I'm making the point that, uh, in a more traditional world outside of X, a very large transaction had to rid itself of all Chinese IP to close. I just had another portfolio company this last week, we had the same discussion. They had an M&A offer, and they were being told they had to rid their company of all Chinese IP as well. Rid all of it before the deal could close. And Airwallex isn't trying to sell itself to Salesforce, and it... I'll take, take it on your faith, I trust you implicitly that it's not 20%. I'm just telling you that it is a real-world issue, this Chinese ownership, even if I don't care about it or agree with it. It is impeding transactions, it is impeding commerce, and it is a concern, right? You, you brought it up. [laughs]
- RORory O’Driscoll
I agree. I think what's the frustrating thing on it, just observing from a distance is, I know no one elected me, I don't think anyone elected Keith, and I don't think anyone elected Harry. You know, you... This is the k- this is why you have, you know, everyone should play their position. We should be doing what we do in our little venture business. But the, the government is the person who has the role to decide, you know, what, what risk we are willing to take in commerce with China, what w- risk we're not. 'Cause let's be, let's get real here. We, no matter what we exclude, we're still doing a huge amount of commerce with China. They're doing a lot of commerce with us. I think this very weekend our two beloved leaders are meeting in DC to talk about doing more commerce. So there has to be rules. They have to be come up by the US government. There has to be some restrictions on what kind of high-tech goods we're willing to trade, not trade. What kind of risk, you know, companies can have, especially removing money and things like that. But it, it feels very much like, come on, government, step up, do your job so we're not trying to do it here on Twitter, right? 'Cause once there's clear rules, you can say either they abide by the rules or they don't, right? But it all feels very ad hoc at the moment, which is at one with the way we're currently making policy, let's get real, across the board. You know, we, we can sell chips to China if Jensen checks in, it's all good. So it, it does feel very ad hoc at the moment, and I think that's just a, this is just a function of that.
- 1:15:56 – 1:20:32
Why Every Founder Needs an Army of Advocates
- JLJason Lemkin
I'll tell you my micro learning. Harry, you could chime in 'cause you would know this better than anybody. I will tie Jev to Airwallex as we end it, okay?
- HSHarry Stebbings
Wow.
- JLJason Lemkin
So I think, so I think Jev was a masterclass in launch PR. It was everywhere.
- HSHarry Stebbings
Yeah.
- JLJason Lemkin
It was on Vercel. It was on OpenAir. Everyone was talking about it. Everyone had a Twitter article and a tweet lined up and a video of how great it was, which was probably handed and made to them. I mean, whoever they hired to do this launch, S-tier, right? I think, um, Jack, who I don't know, right, but I follow on social media, he seems like the kind of CEO that I would love. I wish I'd invested in him. I believe in it. I believe in the mission. I trust him implicitly. I might be wrong, but I would, based on what I know, I would, I would invest in, period, okay? Uh, and I'll, uh... Having said that, he doesn't ha- he's out there arguing with Keith himself. He needs, you need an army of people advocating you to do this kind of stuff, okay? This is the Jev lesson. And he, and the poor guy's out there. Not poor, I mean, he's a billionaire, but he shouldn't be doing this.
- HSHarry Stebbings
Oh, billionaire. Yeah.
- JLJason Lemkin
He should have his Keith and his, uh, sorry, what's the guy from, uh, the Palantir? He should have Joe. And you need your own army of the... I do believe if you, if you're gonna run a Decacorn or bigger, you need an army of advocates for you, and I feel like Jack doesn't have enough. And I think it's just, if our jobs aren't hard enough as founders and CEOs, you need to build this bench of advocates out there for you. And, and you can make fun of them, but they matter. And who they cares, who the cares what three effin' VCs on a podcast think? But, you know, between all of us, we've got a couple million m- followers. It's, there could be worse things than us saying how great these companies are. And line up 20 of these guys so that poor Jack doesn't have to be defending himself. Jack should not have to defend himself to Keith and Joe. He should have an army of Jevvers, of Jevsons out there saying, "Here is a screenshot of the cap table. This is not true. Here is the error. Here are the exact employees in China. Here's why it is less than Microsoft." He should have an army of folks disarming this, and Jack can just sit there and click like or heart. That should be his job. So I give his comms team and, and, and his m- I'm gonna fire his comms team next week. Okay, I'm not a big firer, but so I'm being conceptual rather than literal. I give them an F minus. Where's your army of, of influencers and, and backers? Where are they? I give them an F. Come to the rescue.
- HSHarry Stebbings
I, I think candidly you're absolutely right. He needs to build that. I also think it's challenging for him because where Ramp have very prominent social media backers like your Keiths and like your Joe Lonsdales of the world, you know, he's got DST, do not do social. He's got Lee Fixel, do not do social. The major- and you can laugh and say it doesn't matter. It does matter actually. They just don't have any social presence at all. Um, he has friends, uh, like me who are also investors-
- JLJason Lemkin
So find another way. Cry me a river. Find... You're right, but find your... Of, it's a good analysis, but fi- find your, find your, find your tribe. Find your tribe. It's the job. Like, the job's gone up here, right? I mean, I didn't mean to interrupt. It's a good analysis. He doesn't have that in, in, in, inherently on the cap table, right?
- HSHarry Stebbings
Yeah, but I get your, I get your-
- JLJason Lemkin
But it's not the only place you find it.
- RORory O’Driscoll
Always good to remind yourself that DST does not do social despite doing the 10 billion pre-round at Facebook in 2008. That was a genius round. But yeah, you're right.
- JLJason Lemkin
Keep tweeting. You go buy Matthew McConaughey. He's like 14 million bucks a year. The guy will show up to anything.
- HSHarry Stebbings
He's good.
- JLJason Lemkin
He's really good. That's what you get when-
- RORory O’Driscoll
He looks good too.
- JLJason Lemkin
Jack can afford, afford Ma- Matthew McConaughey. He's got... How much is it c- Airwallex? Seriously. I mean, I'm just making it... You can go buy Matt- M- Matthew McConaughey is for sale, and he's great.
- HSHarry Stebbings
[laughs] I did not expect this to go here. [laughs]
- JLJason Lemkin
His, his, his AI article, his AI ads for, for Salesforce are great. And I don't believe i- I don't believe he's doing it for free or out of the love of the artificial... What is it now called? General and general artificial intelligence. [laughs]
- RORory O’Driscoll
Yeah, I think he'd say he's for hire, not so much for sale. 'Cause sale-
- JLJason Lemkin
Yeah
- RORory O’Driscoll
... implies a permanence. He's just for rent.
- HSHarry Stebbings
Well, let's look at it.
- JLJason Lemkin
Yeah. Let's get Sydney Sweeney for Airwallex.
- RORory O’Driscoll
Okay. No, don't. Oh, God.
- JLJason Lemkin
[laughs] There's nothing to hide, Sydney and Jack.
- HSHarry Stebbings
No, I'm not. No, I'm not.
- JLJason Lemkin
They've got nothing to hide at Airwallex.
- HSHarry Stebbings
That is so good. [laughs] That is so good.
- JLJason Lemkin
We have nothing to hide, right?
Episode duration: 1:20:43
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Transcript of episode 5FnXlCQxV5o
