The Twenty Minute VCOpenAI Buys TBPN & Their Management Team Reboot | Mercor Hack & Why Now is the Time for Cyber
EVERY SPOKEN WORD
95 min read · 19,176 words- 0:00 – 1:13
Intro
- RORory O’Driscoll
I'm gonna call bullshit, start to finish, on this whole discussion
- HSHarry Stebbings
So what do we have on the agenda this week? OpenAI reboots management team. OpenAI buys TBPN
- RORory O’Driscoll
I thought the acquisition was just insane. Owning a media asset invariably takes way more time than you think for way less money than you expect. See Jeff Bezos for details
- JLJason Lemkin
There's no way that deal's gonna happen today. Like, it's dead because of management change
- HSHarry Stebbings
Anthropic hits a whopping $30 billion in revenue, surpassing OpenAI
- JLJason Lemkin
Their training costs are a quarter of OpenAI. It really feels like the, the investors in OpenAI got a much worse deal in the last round than the Anthropic ones did
- HSHarry Stebbings
And then SpaceX finally confidentially files for IPO, targeting a $2 trillion valuation
- JLJason Lemkin
The big three, SpaceX plus OpenAI plus Anthropic, their value at IPO will exceed every other IPO for the last 20 years combined. Ready to go? [upbeat music]
- HSHarry Stebbings
Boys, welcome back. I've been looking forward to this one. I was doing the schedule over the weekend and last night, and I was like, "Wow, this, this week we really have a lot of meat to
- 1:13 – 12:07
Anthropic Surpasses OpenAI in Revenue
- HSHarry Stebbings
get into." So I wanna start with OpenAI and Anthropic. So Anthropic now have 30 billion in revenue, uh, obviously surpassing OpenAI. It's all intertwined with the subsequent things that we will discuss with OpenAI, but as Jason put in an email to us all, "Holy cow." Jason, holy cow indeed. What did you think?
- JLJason Lemkin
E- even i- even in an era where we're getting, uh, inured and anesthetized to crazy numbers, this one I did fall out of my chair, right? Uh, g- getting to 30 billion up from nine billion at the start of the year, I mean, uh, I think it took... I mean, Salesforce is the largest software company, right? Uh, at l- at least Cloud one, and it, it took them 25 years to get there. Anthropic got there in five, but maybe they really got there in three, depending on how you count. But you just, uh, you know, we, we... It was, it was incredible to see where they were, uh, in February, we couldn't believe it, and then essentially adding 10 million of net ARR. Let's, let's not debate whether it's, how many Rs there are, and whether it's recurring. At this level of growth, it really doesn't matter, [laughs] it doesn't matter. So, uh, and that they're still capacity constrained, and that Claude still shows us when we're in there that it, it can't finish chats, and that, uh, you know, every engineer in tech has been told to consume more tokens and move faster, right? The crazy thing is, what will it be at this rate at the end of next year, right? Um, it's, uh, crazy, right? If it's, it grew 3.3x in four months, we're, we're... We need Rory's, uh, math help to figure out what Anthropic's run rate will be at the end of '27. [laughs]
- RORory O’Driscoll
It, the estimates that we were just looking at two months ago just look incredibly wrong at this stage.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
So yeah, no, these are on, these are on amazing numbers, right?
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
And I think a bunch of other interesting things start to happen here. One is, yeah, kind of munching in some stuff. One is their announcement on OpenClaw and not allowing that to be in the base plan. I think it kind of gets back to, they're in a massively interesting situation now. Their revenue's exploding. Despite the revenue explosion, they're still compute constrained. In other words, they could sell more if they had more, right? And what do you do when you can sell more if you had more, but you can't make more, right? You can't magically make data centers, though obviously they have that big announcement to do that. What you start doing is allocating capacity based on money, right? And one of the first things they've figured out is these folks using the OpenClaw-type agent are consuming vast amounts of tokens on, you know, fixed pri- on fixed price plans, and they probably want to stop that, which is what they've done. So you're going to see them do exactly what anyone in economics would say do, which is try and find a way to maximize and extract even more revenue, and, you know, uh, we saw it even with OpenAI last week, where you de-emphasize things like video, which consumes huge amounts of c- compute for small amounts of revenue. In Anthropic's case, obviously they have much less of that pure slop, but you, you de-emphasize things like OpenClaw access, where it con- consumes a lot of your compute and doesn't make you a ton of money. And I think you're just gonna see a continued trend to pricing tokens pri- pricing closer to the value, right? Not a huge trend, because you want to get people... I mean, you don't want to overcompensate because you want to get people addicted on the product, 'cause the truth is, the thing you have in your favor with any digital good is the complete certainty that prices per token go down over time. But you do at least want to start allocating it a little more sensibly while you're constrained. So that's kind of, I think, the trend here.
- JLJason Lemkin
You know, the, the, we could talk a little bit about the OpenClaw stuff. Um, just on the, on the, b- but before we get there on the growth in Anthropic, the other interesting thing was The Wall Street Journal today had a bunch of leaks on the financials for Anthropic and OpenAI, and the one that jumped out at me in, in, when I contrast it with the fact that Anthropic has caught OpenAI, right, in half the time, is that their training costs are a quarter of OpenAI. Their training costs for models are a quarter of the OpenAI. Now, maybe that's because they're focused, they don't have to do video, they don't have to do images, they don't have to do a lot of consumer stuff. But if you just think about it for a moment, the compounding effects of catching OpenAI in half the time, right, at, at roughly the same revenue or more, 30 billion in five years, and having training costs that for now are a quarter of it, you know, that's a double code red. [laughs] It's one thing if, if, if, if, if you have two classic startups where one has bled money and it's artificial, there, there's other things, but if you have a dramatic cost benefit and you're out accelerating your competitors, um, and there's management team turmoil at your competitor, uh, it really feels like, uh, the investors in OpenAI got a much worse deal in the last round than the Anthropic ones did. Just crazy. Just having both. You usually don't have both together with your competitor. You're out accelerating your competitor, and your, and your training costs are a fraction of your competitor. Good God, it, that, that just compounds.
- RORory O’Driscoll
It, that's actually a good point, 'cause you, it, take the Uber-Lyft struggle, right? You went, Uber had the, "Oh my God, we're out accelerating. Oh, but by God, we're spending every dollar we have to to do it, and we, and we show no fear," right? In this case, you're out accelerating the opposition while being more efficient on a bunch of interesting measures. No, you're right, Jason. That's a scary fact pattern if you're, you know, if you're running the game theory and you're the other guy, it's like, "Hmm, that's not good."Right? They're growing faster than us, the gross margin economics are roughly the same/slightly better, and their costs below the line and to a rounding error costs are compute and scientists who run the compute, uh, for training are better. And that's, that's a bad fact pattern.
- HSHarry Stebbings
Have we ever seen a bigger seeming chasm between where they're at? I mean, with the greatest of respects, it seems like Anthropic is, is accelerating faster than ever, and OpenAI is having more challenges than ever all at once.
- JLJason Lemkin
I'll tell you the one I think about, uh, the word, and where... I, I, I didn't realize when we did this show the last, because the press is always focused on, uh, the headline stuff, right? Yeah, the OpenAI round was barely real.
- RORory O’Driscoll
Yeah. You said it.
- JLJason Lemkin
Okay?
- RORory O’Driscoll
Yeah, you said it. Tell me.
- JLJason Lemkin
Barely real. Andreessen's money appears to be real. It came in out front, right? Good. The, the 13, the t- you know, the 13, 14 billion, whatever they put in, that's real, 11 billion. Um, you know, all they have to do is get 20% carry and double that, and it's, it's a, it's a nice side bet, uh, in an SPV. But that was real. The SoftBank money comes in tranches. They have to borrow money to pay it. The Amazon money is tranched in part on IPO or AGI, right? And the NVIDIA m- m- money is almost all not money. It's almost all offsets in compute. So m- uh, you know, I thought about it, but then in context of Anthropic's growth, like, you know, that's... I think OpenAI would have rathered have all the cash. Like, it's not a sign of strength where the majority of the round is not cash up front [laughs] . Like, that's not... I don't think that's a sign of strength. That's a sign of, like, classically at least barely getting the round done, barely getting the round done, um, versus getting... 'Cause why wouldn't you want all cash up front? Why wouldn't you want $140 billion up front?
- RORory O’Driscoll
Bit harsh on the barely, 'cause I thought they tacked on another... I can't believe I said the sentence. They tacked on another 10 billion, think about that sentence sometime, that I think was cold hard cash. So I think it w- I, I agree, your comment is correct, Jason, the, the vast bulk of the dollars weren't cash, but enough money changed hands that it represented a, a bona fide price at the time. But yeah, you are right. I, I, I... And, and again, I mean, look, Anthropic does some of the same stuff in the sense of given that your biggest expenses are, you know, compute and then distribution, you know, from Microsoft on with OpenAI to all the recent Anthropic deals, there's a lot of this roundtripping business. But in both ca- I, I mean, I'd say make two comments perhaps. In both cases, there was enough hard dollars changed hands to it represent, both of them represent price estimates. But to your point, would, based on what you know now, given the revenue equivalents, rough revenue equivalents, shouldn't assume until OpenAI releases their numbers, maybe they've exploded too, but definitely Anthropic at 370 billion feels a little more comfortable, let's just say, than a, um, OpenAI at 820 or 840 or whatever the final closing was, right?
- JLJason Lemkin
Well, OpenAI did say 2 billion last month. I think that's why Anthropic rushed out the 30.
- RORory O’Driscoll
Right. Yeah.
- JLJason Lemkin
That they're at a $2 billion run rate.
- RORory O’Driscoll
But you're right. Yeah. And look, we have the whole gross on net thing, but the bottom line is, is when you look at those two graphs, you definitely don't say to yourself... I mean, I think what you... If this was a public stock, let me put it this way. If this was a public s- if both of these companies were public, there would be a bunch of those, yeah, New York hedge funds sh- shorting OpenAI, longing Anthropic, and saying they have the perfect AI bet, right? Uh, you know, uh, would you put, would you go, would you short OpenAI at 870 and go long Anthropic at 372? I'm not a risky guy, but even I would contemplate doing that. It feels like a no-brainer bet. You have roughly the same revenue, a better trajectory, and a management team for half the price. Hmm. And if you short the one and long the other, you're kind of, you're diversifying away the AI overall risk, and you're just making a relative performance bet. That's probably, yeah, that would be an interesting one.
- HSHarry Stebbings
What would you say to an OpenAI employee who is now looking at that incredible stock price appreciation with tens of millions of dollars in equity that they now have at the 820 price? Sell it all at 820 the minute a tender comes? What would you say to them?
- RORory O’Driscoll
I think I s- well, I, I wouldn't pile on. I mean, uh, in general, look, and I have some things in OpenAI I want to pile on this time, and if you recollect, in the last couple of weeks I've tried to avoid the pile on when someone's down. I think you always want to be more tempered. But I always say to everyone in any, um, private liq- you know, in, in any private company, I say when the liquidity window opens, take it seriously, 'cause it mightn't open again for a while, right? So yeah, when the liquidity window opens at $0.8 trillion [laughs] the alert reader should say, you know, "If you're planning to buy that house in San Francisco, you might need an extra few million just based on what I'm seeing in the market now in terms of house prices. So take advantage of this thing, 'cause all your brethren have," right? You know, I, I wouldn't... Yeah, as I say, I, I think the people that... I don't want to pile on the individual employ- I mean, remember, the company's still doing a lot of great stuff. You got a lot of turmoil, we got a lot of drama at the top. We'll talk about that, but, you know, I think you take advantage of liquidity just f- because you should always take some advantage of liquidity.
- HSHarry Stebbings
Let, let's knock it on the head. Let's talk about the drama at the top. I mean, talk about a management team turnover. You have Brad, the COO, who's been moved to special projects. Um-
- JLJason Lemkin
My dream job
- HSHarry Stebbings
... never a good sign being moved to special projects.
- JLJason Lemkin
I'm gonna be the SVP of special projects for 20VC in my next phase of life [laughs] .
- HSHarry Stebbings
Jason, I would love you to be the SVP of special projects [laughs] .
- JLJason Lemkin
The special projects. Yes, special projects.
- HSHarry Stebbings
Um,
- 12:07 – 17:51
OpenAI Management Reboot
- HSHarry Stebbings
we, we have the CMO stepping down due to health reasons. Um, we have the CRO out. We have Fidji, um, who's head of apps, taking a short leave of absence, um, with health problems. Um, how do we read this very significant multitude of changes at the management layer?
- JLJason Lemkin
If we step back a minute, it, it ties to Anthropic passing them.You don't, you don't just sit there and make no changes on the team when your competitor, uh, over the last six months has radically changed the competitive posture. So look, I don't think any of us like that amount of change in any management team, right? It feels almost a wholesale change at some level. But, um, a- and it's risky, but you, you gotta, you know, the calling code red four- three months ago didn't magically change the trajectory here. So it ties. You got, you gotta, you gotta try to mix things up in some fashion. Hopefully you can do it with the team you have. But w- in, in the context of, of, of Anthropic now out-accelerating OpenAI, it just makes sense to, to, to reboot the team. It just makes sense.
- RORory O’Driscoll
Yeah. There's some rebooting, some... I mean, the act, uh, to, to use your phrase, the reboot, I mean, who's been hired? Who's the w- what's the w- what's the additive reboot?
- JLJason Lemkin
Well, the dramatic one, which is always risky for, like, any startup, is you take Denise Dresser, who was CEO of Slack, who came from Salesforce just a couple months ago, and you put her in charge of basically everything go-to-market and related, right? That's a good bet on a seasoned executive, but that's the type of change that we've all seen as investors is, like, super risky, right? You bring in the one, the person with the perfect LinkedIn, right, and the perfect background that's still getting to know the product. They're still on a get-to-know-you tour. They haven't quite been to the, uh, to the New York office yet. They're getting to know the product, and all of a sudden you give them this massive portfolio because they're proven executive. In my experience, I, I don't know what you guys think. In my experience, that has about a 30% chance of success, just, just roughly. That bringing in the big, the, the perfect LinkedIn, giving them a massive portfolio, and either attaching them to, and attaching it to something in tumult. If it's e- executing to perfection, it always seems to work [laughs] bringing in Mr., Mr. LinkedIn, Mr... Like, it al- but, but when you're in tumult, there's not a lot of time, uh, to learn everything, right? There's not a lot of time for the get-to-know-you tour. So it's just risky, but it's, it's a pl- but it's a play. Like, it, it is a play.
- HSHarry Stebbings
I get where you're going there, Rory, which is, like, for the replacements to be additive, there needs to be t- great talent added, and there seems to be a lack of people coming on the field when they're coming off.
- RORory O’Driscoll
Agreed. And you know, I'm, I'm al- as I say, I, I, I have a couple of comments. One is I'm always loathe to comment on, um, yeah, 'cause the illness related is... 'cause you just don't know what's going on in people's lives, and that's tough, and people have challenges, and, you know, you wish people all the best, especially in these kind of chronic diseases, and hope they can get back to full health, right? Let's just start with that, 'cause that sucks, right? You know, at the same time, you know, you, you have a lot going on here. Right? You have a lot going on, and, you know, I, I, I, I, to... A- and to me, even all these people change, you know, y- y- I, I'm tempted to make the, you know the, the famous Oscar Wilde quote, um, in The Importance of Being Earnest, you know, "To, to lose one parent might be an accident," when he was talking to the, the, this woman was talking to the orphan, "but to lose both parents smacks of carelessness," right? [laughs] Well as you know, you, you, you are getting to the stage of carelessness here, right? But I actually don't think that's the real issue. It's fun to say... I think two... I'll tell you, we haven't mentioned the two most surprising things in the last week on OpenAI. One is, I'm just gonna say it, I thought the acquisition of A TPN was just insane. Not on its, on the, in, in, in, in, in, in the particular, it doesn't matter. But you don't s- launch an e- code red edict and a focus edict and, and, you know, no more side projects edict, and then within the space of a week, do something that's so obviously a side project. To me, no matter what you get, I mean, we can discuss whether it's stupid on its face and whether, you know, buying media assets is the way to go, and I, I, I, I acknowledge the Andreessen articulated thesis that, you know, you have to control the media story, though doesn't seem to be Anthropic has any need to do that. But stepping back one level, you're running a $25 billion company, the most exciting company on the planet. If the number... A- and you just told your entire internal team that you need to focus, and then buying... There's nothing that's more of a vanity project than buying a media company, right? I mean, look how, and you know-
- JLJason Lemkin
Just one thing. We could talk about it more or less. The one thing just to add w- when you look at the press, th- this is interesting. That deal, the hands, the h- the outreach was in January. That's a lot of time in OpenAI and AI time, right? Vigie was new, thought this would be a great thing to elevate OpenAI in January. Now it, now it's April, and maybe the deal se- seems a lot different, but in January it was a different world, right?
- RORory O’Driscoll
Well, at some point, at so- I mean, I remember... Yes, but-
- JLJason Lemkin
I don't think it ha- it didn't happen last week is my only point. It happened in January. It took some time to close, right? And I will say one thing. I'm 90% sure it wouldn't happen today, to your point. Priority, if nothing else, prior, like, priorities change, right? It probably wouldn't happen today.
- RORory O’Driscoll
You know, if you only noticed in the last week, i- i- i- if you only noticed in the last week that you need to focus, then yes, I'll give you that, right? But you didn't just notice in the last week you need to focus, right? And if you did, maybe you need to focus, [laughs] Sequoia comment, right? If you haven't realized you're in code red for the last two or three months, and if you have realized this is the kind of thing you don't do when you're in code red, then you're just not paying attention. So I challenge that. I think it's a vanity project and absurd.
- HSHarry Stebbings
Well, I-
- RORory O’Driscoll
And then the other kind of weird-
- HSHarry Stebbings
Can we, can we actually, can we just pause on, on that?
- RORory O’Driscoll
And I know you want to 'cause you want, like, "Where's your 200 million, Harry?" But yeah, let's pause on your lack of 200 million.
- HSHarry Stebbings
No, I know,
- 17:51 – 30:01
OpenAI Buys TBPN
- HSHarry Stebbings
I know. I j- I just wanna actually articulate a bull and a bear case rationally for an audience for how this acquisition could be seen from both sides, because it is very confusing. So if we were to start with a bull case, Rory, and Jason please chime in too, 'cause you're, you're the master also of kind of media and venture as well, um, what is the bull case for this?
- JLJason Lemkin
I'll give you the bull, the bull case. There's, there's two... The, the strategic one's more interesting, but let me hit the tactical one, because Rory, because Rory made a good point. If you... There, this... Look, this is not gonna make or break the company, right? There are certain acquisitions that can, right? There's certain acquisitions, this w- like, stipulate that. But there are some things you c- acquire where it, i- it, they run almost on autopilot. They are not massive distractions. And if the price... is small relative to what you hope to get out of it, that does factor into the equation. If you have to rebuild your whole team, it's a total distraction. You're gonna rip out your guts. That's a big deal. One- once in a while, one- it's pretty rare you can acquire something that isn't massively distracting to some management team level. So even if it's not the perfect acquisition, I don't think it's a huge, it's not gonna require a huge amount of senior executive time. So it just, it's just important, uh, general to the calculation. The one point I'll make, and I wrote a post that every, every profitable public company should do a deal like this, of which OpenAI is neither, right? It is clearly not profitable, it is clearly not public.
- HSHarry Stebbings
[laughs]
- RORory O’Driscoll
But other than that, I think-
- JLJason Lemkin
But, but let, let me tell you why, Rory, and you might end up agreeing with me on this. Um, because, uh, and this is why the Barstool deal almost worked but failed, right? If you are a profitable B2B company especially, you are under insane pressure to get more profitable. Like, we c- I actually can't overstate how mu- how intense the pressure is. Like, they're looking at every head count, every sales efficiency, everything now. It is brutal, right? And your cash is trapped on your balance sheet, and so it is very difficult to increase marketing spend. It is very difficult to spend another 100 million this year on marketing. But at least in the short term, if you can buy a marketing asset that is at scale, that is at scale, you can turn your balance sheet into marketing, which is hard to do. It's hard to do. And I think maybe TBN is not the most successful way to get OpenAI's brand out there, we could debate that, but it, but it is a way to turn f- a balance sheet into a marketing asset.
- RORory O’Driscoll
I'm gonna call bullshit on start to finish on this whole discussion. This, uh, OpenAI is the most known company on the planet perhaps other than Apple, right? Within the last two years, the CEO of OpenAI has been able to meet every world leader he wants, right? He's gone on world tours. He's met Macron, he's met the President, he's met every single prime minister of India, whatever, right? They get constant attention, constant... The AI story has been, you know, the entire zeitgeist for the last three years, and they're the leader of the AI story, right? So in terms of media minutes, there's nothing left to get, right? Now, if what you're saying is, "I don't like what they're saying about me. Ooh, they were mean to me," then yeah, maybe you can pay these guys to say nicer things about you than on average, but you don't need more... It's not like you're making fucking widgets in the Heartland here, right? You are the most exciting tech story on the planet. You don't need a little bit of help and to just get out and, and get covered. I mean, literally everything Sam does gets covered, right? So I hear you, Jason, most of the time, but not for these guys. If you were to pick the one company who doesn't need media attention and does need to focus, it would be OpenAI, and this is non-focused and getting media attention. So I'm like, just from a signaling perspective.
- HSHarry Stebbings
We're 100% aligned. The only thing I would come back to you with saying is they have consistently shown an inability with how to respond on social to negative moments, whether it's lemonade stand, whether it's Anthropic adverts. They've consistently messed up crisis PR and crisis communications and made themselves not look great. The only way I could justify this is by saying they are vibe maintenance for those shit times to make us better, cooler, better responders to bad things because they have no editorial control. Like, this is the most important thing. Andreessen are right, the importance of owning media, but they have no ability to own the content, to influence it, to impact it in any way. It is editorially completely impartial. So they have zero benefits. This is the only reason this does not make any sense. If they had the ability to own the media properly, it would make sense, but they have zero impact on it.
- RORory O’Driscoll
History is riddled with people who, you know, buy media assets to try and change outcomes and, you know, it, it, it generally results... It generally, my observation is owning a media asset invariably takes way more time than you think for way less money than you expect, right? See Jeff Bezos for details, right? And, you know, you end up getting abu- you know, it, it just is a sinkhole, right? And Harry, if you, if you can control the story, then hire a better storyteller. You know, hire a better comms person, hire a better marketing person. Think before you speak and b- before you hit on... you bitch about lemonade stands. But and look, in total, it's in the noise. It does... And Jason, you are right. They're not gonna spend a lot of time managing, in this case, at least in the short term. My comment is more it's just really silly when you say, "We've really got to focus. Nothing else matters but these two or three big things. Oh, but by the way, here's, here's, here's one last plaything project."
- JLJason Lemkin
The one thing I will at, at, at a meta level, just to founders especially who've listened to this, honestly, this is why you should default yes to a good deal. Let me, let me be clear. I'm pretty sure this is, this deal, I've just read the press. This, things, things at OpenAI, there was stress in January, but it's not like today. Okay? It was not like today. Um, y- Fidji comes in. She has an idea. This is not the biggest bet the company's gonna make, but they have a team meeting and she's like, "I love TBN. What if we brought them in for, for a little bit of good promotion?" And everyone around the corner is like, "Whatever, yeah. Uh, let, we, let, let's go, s- go talk about buying some open clause or something." But, but, but they say fine, and things are good, and they kind of shake hands on a deal. It takes a little while to happen, and it closes last week. There's no way that deal's gonna happen today. Like, it's dead because of management change. And I can't, I can't tell you how many times I've seen this for portfolio companies, and even it's happened to me twice, where ti- it's not just time is the enemy of deals, it's management turnover, right? Priority turnover. So the meta lesson is I just don't think this deal would've happened today. It has nothing to do with, with, with the team at TBN. It just-So, so when you say no to a, to an attractive deal, just be sure you're okay if it's no never. Because the odds that VP that wants to do the deal is there in 12 months and that their priorities have not changed, [laughs] you know, approaches single digits. [laughs]
- RORory O’Driscoll
Yeah. It's back to the liquidity window comment. You're exactly right, Jason.
- JLJason Lemkin
Yeah. And, but my God, I think it's worse for M&A because so many times in M&A, that guy just isn't there next year.
- RORory O’Driscoll
But I'll tell you, one of the things about being the big boss is that even when you're a long way down, if you don't think it suits what you're doing now, you should stop it. I remember, fun story. T- 25 years ago, we were selling a company to GE. I'm not gonna name the company, right? And it was a mediocre company, and we were darn lucky to get the bid, right? And it was going all the way through, and it went every level at GE, right? And then it came to the CEO, and you know, he's not perfect, Jack Welsh, but he's willing to take a tough decision. We're a long way down. Everyone's about to sign and be all happy, happy. He looked at the numbers and said, "No." And I remember thinking, "Damn, I thought we'd get away with it, but he's right." [laughs] I should've, you know, right? And at some point, and I remember thinking, "Ooh, that's impressive." All these people were in, it was a long way down with the process, and he just said, "I'm thinking no," right? And if you're gonna s- this is one where you say, "I'm thinking no."
- HSHarry Stebbings
I'm gonna give you a hard one before we move to SpaceX. You have the chance to buy Anthropic at 850 or OpenAI at 380. Which would you rather buy?
- JLJason Lemkin
You may have that opportunity in the secondary market as we speak. [laughs]
- HSHarry Stebbings
I, I'm, uh- [laughs]
- JLJason Lemkin
I wouldn't be surprised.
- RORory O’Driscoll
I think I'd bu- I mean, having said I'd do Anthropic last time at, I mean, six months ago at the 300 and something thing, I think I'd go the other way this time. 'Cause again, if you're, if the choices were Anthropic at, at the last OpenAI price of 850 post or whatever it is, 820-something post, or OpenAI at the last Anthropic price of 370 post or 380 post, I would argue that you would buy OpenAI on one proviso. You could sit down with the board and say, "What are you gonna do about this?" Because it doesn't take a lot to fix this thing, right? To just stop screwing around and focus, right? And you know, I, I-
- HSHarry Stebbings
Oh, no, no, no, no, because you've got to stop then a machine that is Anthropic, that is now picking up more and more pace with every day that goes by and building more-
- RORory O’Driscoll
Could be. First of all, you still have the consumer asset where you are by far the dominant thing. Again, this goes back to what we said last week. You have to do two things. You have to figure out a consumer monetization model, and you just have to get a Codex, the Codex competitor to Claude out there. It's pret- mission clarity is pretty simple. You do have one big advantage we didn't talk about, though it's changing a little bit. And give Sam cr- he was more aggressive on compute purchases. And I'll admit, I was someone thinking from the peanut gallery, "Hmm, is that a bit aggressive?" But now it looks like compute constraint is a real thing in '26 and early '27. You have that asset. Maybe you figure out how to deploy that aggressively with Codex. So there, there's buttons you can press, there's things you can do if you focus and do 'em.
- HSHarry Stebbings
Jason, you've, you've got that same choice.
- JLJason Lemkin
I'd say buy both. Uh, if you can invert, if you can-
- RORory O’Driscoll
Nice
- JLJason Lemkin
... invert the valuations.
- RORory O’Driscoll
Yeah, that's actually g-
- JLJason Lemkin
That's what all the, the growth VCs are doing if they can get away with it anyway. So let's invert those-
- HSHarry Stebbings
That, that's amazing, but you can only buy one.
- JLJason Lemkin
Um, yeah, but conflicts aren't important in our firm anymore. We, they don't matter at, at pre-seed-
- HSHarry Stebbings
Jason, you can only-
- JLJason Lemkin
... and they don't matter at growth
- HSHarry Stebbings
... Jason, you only have one chat left.
- 30:01 – 38:56
SpaceX Files for IPO Targeting $2 Trillion Valuation
- JLJason Lemkin
emerging company, right? They just wouldn't do it.
- HSHarry Stebbings
Okay. We've gotta move on. Other things did happen. SpaceX finally, finally confidentially files for IPO, targeting a $2 trillion valuation. Um, it would be the largest IPO in history, surpassing Saudi Aramco. They could raise up to $75 billion. This obviously includes X AI, otherwise known as Twitter, um, which they obviously incorporated earlier this year. 2025 revenue, $15 to $16 billion, $8 billion of EBIT. Uh, at $2 trillion, it's 125X revenue. So coming in punchy, um, [laughs] to say the least. Feels like a Series A these days, Rory. Uh, how do we feel when we hear this?
- JLJason Lemkin
Well, I'll just tell you one, one, one insight. I, I think-To say that at least venture is different or remade is an understatement. Like, the big three, SpaceX plus OpenAI plus Anthropic, assuming they all IPO, I mean, certainly SpaceX will in the next 12 months, uh, their value at IPO will exceed every other IPO for the last 20 years combined. All of them. All of the last 25 years, these, the big three. Every other little, uh, uh, every other little deal, Har- I mean, Rory's had some great IPOs. There's been tons of them out there. Um, but this exceeds all of them combined, right? So, so it almost makes... I, I, I found it almost depressing in a way when I thought about it this way because, because it was like, what's the guy we had earlier in the show from Slow Ventures who kind of bothered me a little bit?
- RORory O’Driscoll
Tom Lesan.
- JLJason Lemkin
Yeah, and he kept saying Box doesn't matter, and then he said OpenAI doesn't even matter. It's not that important. He was very triggering to- I try not to get triggered directly, but he kind of rattled in my head. I was like, "Maybe the guy's right." [laughs] Maybe nothing we're doing matters because the big three dwarf the last 25 years combined. Like, what are we doing, guys? What are we, what are we doing here? [laughs]
- RORory O’Driscoll
First of all, I, I think that is a real phenom- And what you're simply saying is, you know, especially in SpaceX's case, the longer the holding period, the more dispersion which sets in, which is more the biggers be- the big become bigger, and the little ones fade out. And you know, you, you... But-- And you're exactly right. At the tail end of a power law, it does mess with your head because the combined value of the top three privately held companies are larger than everything else in much as the same way. It's, it's even more concentrated than the public markets, which are more concentrated than they've ever been, where the market cap of, you know, um, the top four or five, your NVIDIA, Apple, Microsoft, um, Alphabet, and what- and I think Meta, is, you know, approximately 30% of the total S&P, right? Which was everything for the last, you know, X00 years, right? And you are, the, the, psychologically, the thing about a power law they don't tell you is you can have the third-best outcome in venture history and be only one-tenth as large as the largest outcome in venture history. And if you're gonna let that into your head, it's gonna be, you know, it's just gonna be a very tough business psychologically for you. 'Cause you can have a life-changing event that's, you know, down in the noise of $10 or $20 billion outcomes, which can be enormously great for you and your family and for your co-in-investors and for everyone involved. And if you're gonna let it in your head that it's not $2 trillion, then you're doomed, and you're just gonna need therapy. I wrestle with these things all the time. I mean, it, it is the thing that your mama told you, right? It's like you just have to not let other people define you. I mean, you said it really o- It is a psychologically weird thing, right? You're gonna have these three deals go public, and, um, they're gonna be worth literally everything else that's happened in the last 20 years if they trade anything like their current prices.
- JLJason Lemkin
Will SpaceX rip and hit the $2 trillion when it does go out?
- RORory O’Driscoll
I try and not spend time talking down, you know, an amazing company, right? Not least because I'm going to be a buyer of SpaceX 15 days from the IP- I surprised you. 'Cause 15 days from the IPO, it's coming in QQQ. I have a big QQ holding, right? If you're an index fund, you're getting this thing in 15 days, right? And if, I don't know when it'll be for the S&P, but it'll be fairly ser- soon thereafter, right? So we're all gonna be buyers of this thing, right? So in terms of the valuation, I, I, you know, you don't know. Look, you do any kind of meaningful analysis of some of the parts, and you come up with a lot lower number. And then as we, we've discussed this before, and then the gap between what you think the assets are worth on any kind of normal basis and $2 trillion is huge, and it's all s- Elon premium. And what you're really asking therefore is how big is the Eli- Elon premium sometime in June, and I don't know. I think that you're definitely seeing the Elon premium come off on Tesla, which has been worth pointing out. And you know, it, it, it's, it's, it's, it's down significantly year to date, and there's definite... And you know, I was interested to see JPMorgan put an actual sell on Tesla with a prediction of a 60% price decline. So y- you really what you're asking me, Harry, is what is the Elon premium in June, and I, hell, I don't know. Well, I'm asking actually, do you think it will materialize in public markets and they hit that $2 trillion?
- JLJason Lemkin
Well, Rory, here's what your, your, your thought. Well, obviously, I don't think either of us have worked on an IPO quite of this scale, right? But, but-
- RORory O’Driscoll
No, well, by definition, no one has in the fucking universe-
- JLJason Lemkin
But-
- RORory O’Driscoll
... because it's the first time it's ever happened.
- JLJason Lemkin
Right. So the process is gonna be different, but here's my point. At some level, if the company ha- th- th- there is a, there is a, a, a tough negotiation sometimes between the company and the underwriters on valuation, right? Um, and oftentimes some CEOs are like, "Whatever the, whatever the Lord brings," and some are extremely aggressive on the number they want, right? And depending on the situation, sometimes the CEO wins those debates, gets out with the valuation the underwriters are very uncomfortable with, and sometimes it works, and sometimes they stumble because of it. I think Elon, what Elon said publicly on X, it ain't gonna be $2 trillion. Now, maybe he'll change his mind. He said $2 trillion was too high. So whatever his number is, I think he's gonna get it on IPO day. He's gonna will it into existence. The underwriters are not gonna be able to argue with him for more than five minutes, and there'll be enough demand between retail, 30% of the IPO, it's a lot, right? There'll be enough whipped-up demand, I think, to support it for one day. He will will it into existence. Whether that valuation is there in 30 days, uh, or possibly even in one day, um, I don't know. But I do think the sheer force of will, the lack of power of underwriters, and the 30% retail will will his 1.75 into existence for one day, at least one day.
- RORory O’Driscoll
I think that's quite correct. It's worth pointing out, I think less than 12 months ago, there was a meaningful transaction, SpaceX at $400 billion, right? Then there was this much smaller, I, I don't know if it even happened in the end, secondly, at $800 billion. Then in conjunction with the merger with, um-Uh, come on, uh, X slash, yeah, X slash slash Twitter. It w- uh, SpaceX was valued at a billion to value the other asset with its negative 12 billion in cash flow at 250 billion, so they added that in to get to 1.25. And now, you know, you're at, um, you're talking about 1718, and it's all been walked up in a very interesting way. It is worth remembering that the last time the useful asset was valued on a standalone basis, it was worth $400 billion. So I think if the deal went public at 1.5, 1.6, less than the whisper number, I still think they'd have done a magnificent job of walking the value of the asset up. 'Cause it's not clear to me that the X AI asset has a positive NPV in anything like the near term. We just had a long conversation on Anthropic versus OpenAI, and they're kind of number one and two in this space, and Gemini, Google, is almost certainly number three. So X.AI is number four in the kinda model LLM space at best, burning $12 billion a year. So I don't know what that's worth, but I-
- HSHarry Stebbings
[laughs]
- RORory O’Driscoll
But I, I would argue that they won't be talking about that in page one, two, or three of the slide deck at the IPO. They'll be talking about SpaceX, which means the entire addition of that probably was net negative. So I go back to my comment, is I think you're right, Jason. They'll will something amazing into existence for a short period of time because Elon just has all the leverage and the drive, and I think, you know, only in the long term are markets weighing machines. In the short term, they're voting machines, and we'll see over time how it settles as, you know, people just look at the dynamics of a, you know, 20 billion plus or minus business. Cash flow positive, apparently p- well, EBITDA positive, CapEx not clear, excluding X.AI, and then add in X.AI, and it'll settle into a long-term value over time. What happens on the day, I think you're right, it'll be much more a function of the will, and it's a small float, so, um, people will push.
- 38:56 – 43:19
Doug Leone Returns to Sequoia Capital
- HSHarry Stebbings
I'm switching it up here. We're gonna go to pri- we're gonna go to private market.
- RORory O’Driscoll
I love it. I'm bo- yeah.
- HSHarry Stebbings
We, we, we, we had big news from Sequoia this week. For context, always like to contact set, Doug Leone had taken a step back from the firm, back from day to day, back from investing, and, um, you know, Pat and Alfred had recently taken over the leadership from Roelof, and now Doug is back in an investing capacity, not in a leadership capacity. That's still very much with Pat and with Alfred. But Doug's back in the firm investing, um, which is very big news given he is one of the OGs. How do we read Doug back and back in the trenches?
- JLJason Lemkin
Well, look, I don't know. Rory may have more thoughts. I, I don't know. But, um, a- from, from, from a distance, it feels like something to calm the LPs. I mean, everyone is raising so much capital, so much change there, um, that, uh, you know, I, I think, uh, uh, I mean, you guys have even more experience than I do. LPs are uncomfortable with change. LPs say that they're looking at the new generation and the vanguard, but they are comfortable when the old leadership is still actively involved in the fund. It does make LPs more comfortable, um, whe- whether they're writing t- investing half the fund or a few deals. So it struck me as that simple, is you, you, you bring back someone that makes the LPs comfortable, and you get through this crazy amount of fundraising everybody's doing. But they... I could be wrong. I could be wrong. But I don't think it's just to get somebody on your Slack and get a little wisdom. You, you don't need to bring him back to just, uh, to get an hour or two of, of, of insights on, uh, on deals. That you already have.
- RORory O’Driscoll
I think it was a sensible move. I don't think it's an earth-shaking move. I mean, they've made the changes they've made already as a firm, and they all made sense. I think at the margin, you're right, it helps in a bunch of different things. It just provides some continuity, absolute- which is important, I think, for LPs, for the firm even, for entrepreneurs. Also, let's not lose sight [laughs] he's a damn good investor, right? I mean, one of the check- questions we always ask when we're hiring someone and thinking about it, and in this case you are effectively hiring someone, is do you think the next check that they'll write will be better than the check that one of us will write? And I think Doug Leone's proven that he can write pretty good checks. So I think even at the margin, from a check-writing perspective, kinda makes sense. The transition, um, having made one transition to Roelof and having had to make another transition abruptly means the first transition wasn't that successful. I'm sure there's an element of scratching the itch. You want to come back and make it work. You know, they've put a lot of his life into this firm. They've done an amazing job, and it just felt a little janky late last year when that transition happened. So if a couple more years can help manage that transition and send a continuity message, why not do it?
- HSHarry Stebbings
With the greatest respect, I spend a lot of time with LPs, a lot. Um, the insatiable appetite from LPs for Sequoia has never been more prominent still. Um, and so I, I d- respectfully, I don't think it's LPs. I think it's actually just, like, in the face of increasing competition from a founder's fund who've got an Anduril and a SpaceX at their tailwinds for founder brand, Ann Andreessen, which are more attractive than ever for founders. You ask the question, how can we be more competitive? And Doug is the ultimate winner of deals. Uh, uh, he is the-
- JLJason Lemkin
You're telling me the kids at YC have heard of Doug Leone or even know how to spell his last name? I doubt it.
- HSHarry Stebbings
I'm telling you when Doug Leone goes to that meeting with them, whether it's Christian Hacker at Trade Republic in Germany, or whether it's the team at Wiz, he fucking closes the deal.
- RORory O’Driscoll
Yeah, 'cause maybe not the YC founder who's 24, but you're right. Across... Look, let's be, get real here. Across the venture and tech ecosystem, this is someone who's had wild success, and even in a meeting can bring knowledge to bear that would move the needle on a close. I, I, I agree. I mean, it's... Look, let... But as I say, don't make it-
- JLJason Lemkin
Well, let's call it gravitas. Whether it's the founders or the LPs, it is adding gravitas back into Sequoia in a time of a lot of change, right?
- RORory O’Driscoll
Agreed.
- JLJason Lemkin
And, um-
- RORory O’Driscoll
That's, that's exactly... I think you're right
- JLJason Lemkin
... it says they needed more gravitas. That's just what... [laughs] We need a little more gravitas, guys. Who can we bring in?
- RORory O’Driscoll
Yeah. I mean, one, one of the things I admire about Sequoia, to be fair, [laughs] I've always said this, is, like, literallyEven if they're winning on every round but one, they'd be like, "Well, how do we win on that round as well?" Right? And, you know, and, and as you say, Harry, it's never been more competitive. There are widely talented similar-sized firms. Why not ... You know, even, even if you have 10 great players, why not get 11?
- 43:19 – 48:07
YC Kicks Out Delve
- HSHarry Stebbings
Jason, you mentioned, uh, the youngest founders from YC. Some very young founders from YC obviously founded Delve, a SOC 2 compliance business. [laughs] Um, sorry, Rory, don't get pissed at me. But it is-
- RORory O’Driscoll
No, I'm not pissed. No
- HSHarry Stebbings
Okay, good. Oof. Um, very young. 21-year-olds. Um, and as everyone knows, uh, Delve has been in the news for not providing a product in the SOC 2 compliance space that they said they were. A lot of problems around that. Uh, YC have since kicked them out of the YC community, which was announced this week, or leaked this week from Bookface, YC's internal product, which obviously wasn't meant to be leaked. Um, is this the ultimate sign of their guilt? Um, Inside invested 32 million bucks into the company, uh, you know, within the last year. Um, should there have been more diligence from an investor perspective? How do we think about this?
- JLJason Lemkin
My guess is, you know, they, they ... Listen, obviously a lot of things went wrong, right? One, one, one was making up a lot of audits with AI. We're gonna find more, more portfolio companies [laughs] did that. Uh, the second one was stealing from a fellow company. Stealing IP, forking a fellow company. And I think ... Listen, I don't know how you managed it with YC with thousands of companies, but there's a limit where you cross the, the, the, the, the, the bro code or the girl code or the founder code with other folks at recent portfolio companies, and you- there's a line you just can't cross. And whether they see it as open code theft or what happened, whether you're manipulating, you, you can't allow that within the core portfolio. And I think they were ejected for the combination, and it wasn't just some young kids misusing AI. I think it was the second. I think it was breaking the code. And that's why they were just ... Th- there was no need to comment more. You broke the code. You're out. You're out of, you're out of the team.
- RORory O’Driscoll
I, I totally agree, Jason. I mean, look, these things are gonna happen. I mean, I was just running the math in my head. You know, YC, 200 companies a quarter, so that's 8, 900 a year, right? Step back. United States, we have 300 million people here. We have approximately three million people incarcerated at any one point in time. So we run rough 1%, you know, between felons and misdemeanors, right? Across the whole population. So if you just index to that, that means out of the 800 YC founders a year, statistically if they're just no better or no worse than the rest of the country, there's eight, eight of them that are, you know, [laughs] will in the course of their life commit some kind of crime. It's gonna happen. You're gonna have fraud. And, you know, y- at the end of it, you know, when you have a portfolio of 30 companies or 40 companies as we do, then most VCs avoid it, and every once in a while, one VC gets unlucky. If you have 200 companies a year, it's gonna happen to you a lot, right? So first of all, no drama there, no ... I mean, I saw all this, oh, YC is bad 'cause this guy's a fraud. Well, dude, when you have this number of companies, statistically it's just gonna happen. So that's the first comment. And then the second comment, Jason, I love what you said. You're exactly right. What do you do if you're running YC? You can't stop this shit up front, right? And especially when a lot of your value add to entrepreneurs is, um, you know, the community, right? That is what you're selling. And you get ... You do business with each other. Anyone who did business with these guys was at the very least discombobulated and embarrassed because you rely on this for SOC 2 compliance, and then it wasn't true. And then on top of that, you stole from another YC bro. You're exactly right. It's like in the Old West when there wasn't, you know, much law. Um, you know, you have to take the law into your own hands and hang the cattle thieves, right? This is the same thing, right? Dude, you broke the code of the West, you're out. And I think from a enforcement perspective, you know, I can totally see why they did it. You know, now you can talk about should other people have known? Should you really buy compliance software from 21-year-olds? That's an interesting comment. But fundamentally, I, I, I, I think you're exactly right, Jason. You're gonna have this thing, and the only way you can deal with it is not a priori policing, but especially when you break the bro and whatever the non-sex loaded term of bro is.
- JLJason Lemkin
[laughs]
- RORory O’Driscoll
When you break the b- that code, you just gotta be pretty ruthless about it. So yeah.
- JLJason Lemkin
Yeah, I really think it was the part two that did it. I, you know-
- RORory O’Driscoll
Yeah, stealing. Yeah
- JLJason Lemkin
... there was a stealing ... You know, taking t- a customer, S- S- SIM Studio, that is also a YC company, maybe even a batch mate, taking their open source software, not attributing it back, and claiming it's your own software to, like, your own batch mate or your own customer. That's ... You know, we, we've all thrown a few things into Claude and pretended we did the work. Like, all three of us have done that. But this one breaks the code. [laughs] You, you, you took the open source code from your batch mate and said it was your own software? I mean, and they were your customer? That's ... You can't, you can't, you can't hand wave that one away.
- RORory O’Driscoll
Move on. Exactly.
- JLJason Lemkin
Right? You can't hand wave that away.
- HSHarry Stebbings
Okay. Moving
- 48:07 – 1:02:11
The Rise of Open Router
- HSHarry Stebbings
on. OpenRouter, very well-known company. For those that don't know, a marketplace for LLM, so to speak. Uh, at 1.3 billion price at 50 million of ARR, up from 10 million in October. Um, so obviously 10 to 50 in whatever that's been, six to seven months. Feels quite cheap for an AI leader. Jason, I'm intrigued to hear your thoughts specifically on this one.
- JLJason Lemkin
Uh, I, I love OpenRouter. I mean, I use it. Um, and it's just very interesting. You know, it's a very simple way to, to dynamically pick which LLM to use, right? And going to our conversation from last week, sometimes it doesn't matter if you're not price sensitive for certain workloads. Sometimes not only does it matter, but it's incredibly helpful to not have to do all this work yourself. Oh my God, which model should I pick? How should I do it? And OpenRouter lets you do it dynamically, or you can pick different LLMs for different use cases, and it just makes it elegant. And, uh, what I love ... And it's also really cheap, right? It, it, it's quite cheap. Um, I suspect the cheapness is why it's not worth 10 billion, right? When you have such a low take rate from such high GMV-You do naturally get a little nervous about the address, the true TAM, even though we've given up on TAM. That would be my guess. But, um, you know, they, they, they've become the market leader in this space. It's cheap, and it works and adds a lot of value. You, you gotta love it, right? Um, it's just, when the flip side is so- you know, you- the- one of the reasons Anthropic, I mean, got 20 billion, right? Is a really good Anthropic call at the API level is a buck. It's a buck. Okay, here's my simplification. You can do so much on your $20 a month cloud subscription or $200, but I can tell you on all the apps I've built, the complex stuff, it's a dollar. So that scales massively. If you're taking, uh, f- one to 5% of a subset of that, um, you could, you, you know, there is, in theory, a ceiling if you don't expand it. What I like is if you get market leadership in this kind of thing and you're not that expensive, there's no reason to switch. It's not worth switching for a t- for a tiny amount more basis points. It ain't worth it, right?
- RORory O’Driscoll
Um, and just for listeners' context, what the company does is acts as... If you're building an application, this product, OpenRouter, acts as an interface between you, the builder of whatever software product you're building, and 50 to 60 different LLMs, such that it can dynamically pick in real time which LLM is the right one for whichever call you're making, and it charges around 5%, 5.5% of the money you pay the ultimate model provider. So, if you're building this app and you're spending, you know, $100,000 a year on LLM calls, using these guys, you pay 5% to them, but in return, instead of having to access each separate LLM sep- each LLM separately, you get access to them all in one kind of API call. And so it kind of just totally makes sense to me. It's kind of in that Stripe, Twilio business model of an interface. Twilio was an interface between, um, an app builder and all the complexities of telco, and these guys are an interface between an app builder and all the complexities of LLMs. And, you know, Twilio's gross margins, because they, account if everything goes for 20, 30, 40% plus, they were pretty darn good. Whereas in this case, they're only booking the net revenue at 5%. So maybe there is actually room for margin expansion there over time. You know, so, so it's an interesting business, kind of the world needs it. The other thing that's interesting about it, which gets to the wider question, is a number of folks have backed into figuring out what are the most common models, and you see a lot of the Chinese open source models now, right? Which gets to... So I always think, I'd love to spend time thinking about, and I just haven't, is they must have, OpenRouter must have a pretty good sense of what things do you need state-of-the-art models and what things can you do easily on, you know, much cheaper, um, open source models, right?
- JLJason Lemkin
Well, they can even turn it on for you. That's one of the reasons I think OpenRouter is so clever. If you want, they will just decide which router, which, which model to use for a workflow.
- RORory O’Driscoll
Exactly, and my, my point is-
- JLJason Lemkin
You don't even have to figure it out.
- RORory O’Driscoll
Yeah. At some point, the people spending $30 billion a year on Anthropic, um, corporate IT is gonna wake up and say, "Do I have to spend all this money on Anthropic, or can I pass some of these calls to a cheaper model?" And something like, you know, just given the size of spend that OpenAI and Anthropic are getting, there is at least the opportunity for corporate purchasing to think about, is any of this doable on a cheaper model?
- JLJason Lemkin
Look, I'm a super fan, right? Su- super fan of Open- like, great software, super easy to deploy, everything g- it's like ElevenLabs, just, like, super easy to use, super easy to deploy. I give it a 10 out of 10. What I've learned from another investment we can chat about is, okay, so they're at 50 million ARR, they said. Um, and the nominal take rate's 5%, but I- but some folks probably pay less, right? And in some cases, you don't have to pay anything. So they might be needing to manage two billion in inference just to get to 50 million in revenue. So, how do you build... Easy to see how you get to a couple hundred million in revenue, right? In today's world, what I worry about companies like OpenRouter is how do you get to a billion in revenue, right? And do you just wave your hands and say, "These are great founders. They're at the heart of AI." Or do you say, "Oh my God, like, even if Anthropic keeps growing and some folks won't use it because they'll get big enough, they'll do their own things, how the hell does this get 20X bigger when it's already managing two billion of inference?"
- RORory O’Driscoll
I, I'm gonna give you the argument, which I'm not sure I believe, but look, if you believe in a world where... Look, you just look at the OpenAI and Anthropic projections, which cumulatively add up to north of, in 2029, on the Code two estimates, four or $500 billion plus. Let's call it $500 billion in API across both companies, right? As you take out ChatGPT consumer business, maybe three, 400 billion of enterprise API calls across, um, OpenAI and Anthropic. I don't know. If 10 or 20% of that went open source, that's 40 to 80 billion, and 40 billion to 5% is pleasingly two billion, right? So, if you could... And now that's 100% of the market, so you're right.
- JLJason Lemkin
100% of the market, right?
- RORory O’Driscoll
Yeah, that, that's fair. That's fair. You gotta get 100%. I mean, maybe there's, maybe there's 40 to 80 billion of kind of value going to open source LLMs, and maybe you can get 5% of that. Now, the other question, to your point, Jason, is right now, amazingly, all these open source models are primarily Chinese open source models. And, you know, until some, until either Llama, until... If, if Meta reintroduces an up-to-date open source model or someone like Reflection ships one, there'll be a US equivalent. But right now, the loca- [laughs] ironically, the Chinese Communist Party is effect- effectively subsidizing, you know, the American small independent software vendor by providing cheap open source models, God bless them, right? And, 'cause if you look at the, the, the kind of winner list on OpenRouter, it's all Qwen, Kimi, and all the other open source products.
- JLJason Lemkin
What I think about OpenRouter, just for investing, right, m- regardless of the news, is I do really think about, you know, small takes of large TAMs is con- intellectually confusing. So-Harry and I are both investors in a company called RevenueCat. I was the first investor, and they have about 50% market share in managing mobile subscriptions. If you have a mobile app that is paid, 50% chance they have RevenueCat deployed, okay? It is, it is... It's competitive, and their net take rate is, like, half a percent up to 1%, right? W- even with all of that, they're only so much bigger than OpenRouter. Now, they grew 40% last month because of AI. Like, it's great, but, like... And I love the company, I love it. They have a clear path to a billion in revenue now. But my learning from that is sometimes it's hard to do the math intuitively. If your, if your product is very cheap in a, in a, in a large-ish market, but you don't get all of it, you... OpenRouter could be one of the greatest 200 millionaire RR companies, right? It's just a risk that I think about more than I used to, um-
- RORory O’Driscoll
That, that's fair, but I will give you the counterpoint, which is the two best financial businesses on the planet are Visa and Mastercard. I sit literally 30 yards away from the Visa headquarters. They don't even get 2.5% because most of that goes to the banks. They get, you know, 15, 20 bips, but on every dollar every human spends on the planet. It turns out to be a remarkable business.
- JLJason Lemkin
No, no, I'm with you. I'm just, I guess my personal intellectual limitation-
- RORory O’Driscoll
Yeah
- JLJason Lemkin
... is the, the notional bips map doesn't always translate to the real world bips map, right? That's the thing. The, the Revolut and Visas sound great, but niche, sometimes products that seem mass scale are more niche in practice. And if your product, if your product is $200,000 a year or $100,000 a year, who cares, right? You'll figure it out later. If your product is dirt cheap, you really, really gotta, like, o- own everything. Own, own everything when it's dirt cheap. And I think we're, we're, we're all making a lot of AI mistakes here, and we're be- our investments are being flattered by high ACVs right now. Like, the ones that w- have high ACVs all seem to be doing great 'cause they're 50 to 100K per check. Doing... Getting to where Eleven Labs got from the early days is much harder than a lot of a, a lot of Lagoras and Harveys are just because the large ACV flatters, flatters the, the, the inputs and the outputs to achieve that scale.
- RORory O’Driscoll
Agreed. Not sure I could trace it back to OpenRouter, but I agree with what you're saying.
- JLJason Lemkin
Well, I'm just nervous. I'm personally, as an investor, and this may be one of my many flaws, it's a long list, I'm nervous about exciting AI investors that have very low ACVs right now.
- RORory O’Driscoll
I gotcha.
- JLJason Lemkin
I think their actual TAMs may end up being smaller than they look, despite the epic numbers when we started this conversation. Despite, you know, uh, Anthropic getting to 30 billion in five years, the little tiny crumbs we get out of this 30 billion may not be, may not make a whole loaf of bread sometimes. Like, [laughs] a bad analogy, but some truth to that. That's just... So rather than shoot from the hip when it's a 7 million post back in the old days, if I've got to shoot from the hip at 100 million post in the pre-seed, maybe I got to really believe that that small, that small ACV will scale up. [laughs]
- RORory O’Driscoll
Do you think OpenRouter will be a $10 billion company? It's always a weird question, 'cause if I knew for certain, I'd go do the deal and not sit here talk to you, right? [laughs] You know, 'cause that's what they're paying me to do. I think we're in a world right now where everyone is just doing the build-out as quickly as possible. And what that means is everyone on that journey can attract some capital, right, and get some revenue. Because if you're solving a problem that's in the way... that's a rate-limiting step in terms of getting the AI build-out done, you can get revenue, you can grow quickly, and I think OpenRouter is an example of that, right? And, you know, you can put on your intellectual MBA hat and say, "In the end, when things settle out, uh, maybe a lot of these businesses get commoditized," and you can, you can worry about that, and a certain amount of that worry is legitimate. And there's a whole bunch of markets, like, I'll give more. There's kind of tr- the labeling marketplace, there's the inference marketplace, there's products like this OpenRouter, where you say, "Oh, when things settle down and people start and getting more efficient, then all these businesses will get scrunched a little bit." And that's true intellectually, but my advice, and I say it internally, is please don't overthink it. Because while that is true, at the same time, in the short term, this explosive lift in demand gives you a chance to be relevant, and it's your job to add products on top of that, such that when the great crunch does come, and it will come in a couple of years, you've just delivered enough value. You understand me? Like, in other words, so do I think OpenRouter will get to 10 billion in value on just what they do today? No. And, and if they just keep doing what they're doing today, no more than the inference guys, no more than the labeling guys, when things slow down, all these businesses will get crunched, right? When people start to optimize. But you're, you have a chance to parlay. You have... You're building, you're building relationships with a whole bunch of apps developers, in OpenRouter's case, right? The... Your job is to find the add-on products on top of this that over the next two or three years, you know, give you value or do the adjacent acquisitions that give you value. Maybe you start doing inference, maybe you start hosting stuff on top that allows you to extract more value from those customers, such that when the thing slows down, you're the survivor. I mean, we saw it-
- JLJason Lemkin
Yeah, I think that's the challenge with these investments. I mean, no wonder that if I'm running it, it's a dream. I'm 50 people, right, at 50 million in revenue at the center of this. Like, it's, I'd, I'd... If I was a founder, I'd be... Th- there's a dream job, right? Um, but I think my learning is Rory's point. You, the reality is you have to go truly multi-product earlier in this type of situation. Not, not just a little feature, right, not just a little enhancement, um, but you literally probably have to build five distinct products to get to that billion. And not, um, you know, not all founders are actually up for that. They say they are, but not... But you need a very distinctive founder to run the AI rippling playbook and say, "Hey, I wanna break something up," in some ways that's crushing it. With 50 people if they have it, I mean, again, my dream job, and say, "We're gonna do five of these, and we're not gonna wait two years. We're not gonna de- we're not gonna, like, just focus, focus, focus, focus." And, um, I think if they're up for it, I would hold my stock, Harry. You probably have no choice. If you see this sort of Stewart Butterfield-esque reluctance to go multi-product, which was very rational at, at, at that time and place, then, uh, I would be less excited [laughs] to hold stock.
- RORory O’Driscoll
I think, yeah, you, you've gotta run these businesses right now like you're in this insane kind of period of time when money is just raining down on everyone, and all the time you should be saying to yourself, "At some point the music will stop and two-thirds of the people will be d- will, will, will have to go. How do I make sure I'm the one-third that make it?" Right? And that's what, you know, the smart inference providers are doing. That's what the smart up and down the stack should be doing. How do I lock in? 'Cause look, the truth, even when the crunch comes, the foundation model companies make it, because they, they're on top of the heap. They have the high intellectual property asset, right? They're gonna make it. Everyone else one level down has gotta be saying to themselves, "When people sober up, they're gonna say, 'Oh my God, this is a commodity. There's a bunch of adjacencies. How do I make sure I win in that world?'"
- 1:02:11 – 1:14:10
Supabase Targeting $10B Valuation
- HSHarry Stebbings
Speaking of will this become a commodity in a future world, we've seen, you know, the need and the explosion of databases. Uh, we've seen some people like your Lovables and your Replitz incorporate them, build it themselves. Some people, yeah, um, outsource to Supabase. Supabase at $10 billion. Jason, you're the man for this, the man who's used more Replit instances than anyone else. Is Supabase at $10 billion a good buy? [chuckles] How do we feel?
- JLJason Lemkin
I think it might... I think I like it. I mean, I do think it's a, it's an interesting buy. Um, first of all, you know, huge credit to the team. I mean, this is one, this is one I call an AI, an AI tailwind to the maximum. Supabase founded I think in 2020, right? This is pre-AI, and they're like, "Oh, well, we'll do another fork of Postgres, which is open source and free, and we'll make it e- easier to use and easier to deploy." I mean, who the hell... I mean, I know it was, it was a hot YC company, which kind of, uh, you know, a lot of folks want to say it's the unhot ones that take off, but, you know, sometimes it is the hot ones. But I don't know that that, I, I don't know, that certainly wouldn't have been obvious to me in 2020 that we needed another, a forked version of an open source database process. I mean, everyone was having issues with Postgres at the low end and the high end. Folks were having to shard it, and it got complicated for big, and it was, it was reasonably difficult to deploy at the low end. So their idea... But then that just worked with agents. Like, they built a product that could basically self-deploy a Postgres database, and it's what every agentic product needed, right? They needed to spool up a database without humans, and they leaned the hell into it, right? They let, um, uh, they didn't get Replit. Replit went with Neon, which Databricks bought, but everyone else standardized on Supabase, right? They, they supported them, and then they let everyone, Lovable and Emergent and all these other ones, white label it a couple months ago. Um, and now, I don't have the exact numbers, but I know more databases are being created by agents than humans. So that is the trend you're betting on, all right? Database is a fundamental category of software. It always has been, right? Now the number of databases we're creating, I mean, it's, it's, it's, it's, it's an order of magnitude more than it's been 12 months ago. So why the hell wouldn't you want to bet on the leader in that trend, right? Every app needs a database. Like, every... And even the ones-- And what's interesting now is, I'm not sure if this is true of Lovable or v0, but Replit changed it a little while ago, where every single app has a database whether you use it or not. They found that enough of them are using databases no matter what they build, right? That it's not worth adding a database later. So whether you even realize you have a database, all the millions and millions and millions of vibe coded apps have a database in the background. So, um, and with Supabase, they get to monetize them all. Like, they're charging these guys for every single database, so I, I do like this one. [chuckles] I, I do like it. This is one where the agents are so far ahead of humans now. There are categories where the agents are doing... Like, Vinod and everyone's talking about what the world will be like in four years, right? Database is a world where already the agents are creating more databases than humans. We've already, we've already crossed that line, and so why wouldn't you want to invest in the leader? [sniffs]
- RORory O’Driscoll
Agree. A- a- and I think it is literally a, a, an excellent example of two things we've talked about. One is that kind of thing I just mentioned, which is you start with something and you have to parlay. And then the other thing is, Jason, that you've talked about a lot, is being a pre-AI company that, you know, brilliantly finds a way to co-attach. These guys co-attached to the trend, as you say, did the deals with many of the vibe coding things, and now their job in the next two years is, before the music stops, be perceived just as MongoDB was the, the right database for the kinda SaaS era and for cloud. You wanna be the right database for vibe coded and agent apps in 2026, '27 or '28. And at some point when, when the, when things slow down enough for the Lovables and the Replitz and the other folks to say, "Hey, maybe we should just back in and do this ourselves," you want a Supabase be in a position to say, "No, every developer on the planet uses us. Every agent framework supports us. Why would you do this? Your users will rebel." But the playbook is super clear. As I say, it's literally, it's like, it is just like the SaaS and cloud spadebook- playbook, but on super fast speed. You know, this is all gonna happen in two or three years. And make, make sure that, you know, before things slow down, you are a lot more than you are today in the eyes of your users.
- JLJason Lemkin
Think about how hard it classically has been to deploy a database. I mean, O- Oracle is still ma- massive, right? I mean, I have never deployed Oracle, but I can only imagine [chuckles] how difficult it is to deploy Oracle Database, right? Mongo is w- work. These prod-- And that was disruptive. These things are work. I even-- Mongo has a, a vector database product, and I, I deployed it for one of our apps, and it, it only took a few hours, but it took head scratching and headaches, and not everyone could do it. Supabase you can do in five seconds. I mean, it's so disruptive.
- RORory O’Driscoll
All these databases start being easier than the prior alternative. I mean, I don't, shock horror, Harry, don't remember when relational started 'cause it was in the '70s, but I remember even in the early '90s-
- JLJason Lemkin
Arthur Rock used to talk about it though, I remember-
- RORory O’Driscoll
Just hear you
- JLJason Lemkin
... the relational database days.
- RORory O’Driscoll
And then I-- But I do remember when MongoDB started, and it was just the drop-dead simple cloud-based alternative to a lot of these, you know, for, uh, to some of the other alternatives at the time. Not so much directly competitive with relational databases, but for some of the newer use cases, and then they get more complex over time.
- JLJason Lemkin
For a DBA, for someone that could spend a month configuring it and getting it going, it's disruptive, right?
- RORory O’Driscoll
Yeah. Because it-
- JLJason Lemkin
Yeah
- RORory O’Driscoll
... it didn't take a month, it took a few hours. It was easy. It was JSON, it was whatever. And you're right, now it's five minutes, so it's just... Now, I've no doubt-
- JLJason Lemkin
Or it actually, it's invisible. You don't even know... Here's what's interesting. You don't even know you have a database until you need it. It's lurking in the background now. You build an app without a developer, and you didn't even know you needed a database because you're not a developer, and it's already there and configured and has all your data. It's pretty cool.
- RORory O’Driscoll
That's true, but the odd point I was trying to make is the tragedy is that's great, but over the medium term, a white label business to five or six vibe coders won't be enough, so they're gonna have to expand beyond that. And ironically, over the next five years, that'll mean adding complexity, adding functionality, and in 10 years' time, someone, and it won't be me at that point, will be saying, "Oh my God, those legacy Supabase products, they're almost as bad as MongoDB," and there'll be a new alternative at that point. But that's just the movie, and this is Supabase's time to crank. Good for them.
- JLJason Lemkin
I think it's also a reminder just that we've given up on worrying too much about intellectual durability in these, in these investments, right? It's a winner. The growth is, is exciting. The MPS is high. We're not w- The, the fact that everyone else may build their own Postgres databases or other things may change, we're not, we don't even care anymore.
- RORory O’Driscoll
I mean, I, I'd say it differently, by the way, just to be clear. It's not that we don't care, it's that you just don't have the luxury of fi- There, there are very few things where you can say, "Ooh, this is something that is highly differe- i- it has that level of defensibility." Arguably, LLMs themselves did because there was only a small number of people who knew how to make the magic. But you're right, most of the time right now... I mean, I can regret the fact that there's not a lot of barriers to entry, or I can just accept that that's just the reality that exists today. And the barrier to entry is, as Brian from Andreessen said, is speed. And if you execute well, you create these barriers to entry over time. But you're right, Jason. Right now, most of the deals you look at is in the short term, the barriers to entry are low. And what that means is if you stumble, you lose, right? Because-
- JLJason Lemkin
It, it, it's true
- RORory O’Driscoll
... if there's five of you going out of the gates, one of them won't stumble and they'll win, right? And over time, by winning, they'll be able to create... I, I believe downstream there will be barriers and moats created, second-order moats. But out of the gate, you're exactly right, it's a race. And I don't know who the Supabase competitor was, but they didn't get the two or three key white label deals, and there you are.
- JLJason Lemkin
I think also this is why I view a lot of VCs today as enablers. It really bothers me because Rory's point is accurate. If you stumble today, you may lose forever, right? And I see way too many... The classic VC thing is, "Guys, keep pushing. You, you've got time. Keep at it. You know, a bad quarter or two, falling behind the competition..." Like, everyone... It's not that I don't think you should be supportive of your portfolio companies. Of cou- of course you have to be, right? And what choi- what choice do you have? I just see too many VCs running a pre-AI enabler playbook where, where, where when folks do fall behind a tick or two, the, you see kumbaya activity instead of code red activity.
- RORory O’Driscoll
I don't think I'm a kumbaya, but I also... And I, I was interested to see where you're going with that, 'cause-
- JLJason Lemkin
But, but Jason, I think it goes to your point of what you said before, which is like there's no point in being difficult with founders or being opinionated in the way that you've been before, because they don't listen. You say it yourself, they don't listen. And so why would you-
- RORory O’Driscoll
No, but I'm making... You're... I'm making a slightly different point. For example, I'm a, I'm an investor in a company that's crossed nine figures in revenue, but it is hitting s- it is hitting massive AI competition and issues, okay? It happens, right? And they have a new investor on the board that, that doesn't really know the space that well and doesn't really wanna learn, and frankly, isn't as close to some of the AI changes as, as we are. And every email and conversation is, "Great job, guys. K- keep at it." You're like, you know, "Don't you understand the disruption in this space? Don't you understand the issues?" And he's become an e- an enabler, an inadvertent enabler by being a cheerleader, right? I just worry about it because so many folks are still hiding, and I don't think having enablers around the table, even if it feels good on a given month, is helpful today. I, I think enablers c- can, can enable a death spiral that you feel good about as you approach the event horizon and your startup implodes. I was thinking about what you said and, you know, frankly just checking myself, have I at times... I mean, 'cause, you know, what, one man's descriptive of enabler can be another person's descriptive of being supportive, right? And at times when things are tough, you wanna be supportive. So I was, I was thinking actually, Jason, 'cause I actually think it's a very important comment. And I think what makes a difference is this. You have to be very clear-eyed with your companies on where the competition is, and understand exactly, you know, what the other guys are doing, and therefore how well and how far behind you stack up, right? And that takes it away from... Enabling, it's, it, it, it's kind of a judgmental term. It's, am I being... You know, 'cause also being a jerk is also a judgmental term, right? I think what you're saying that is correct is you're not a useful board member unless, A, you understand what the company does and how it compares to the direct competitors, ideally with hands-on experience of the products, and then, B, you find a way, without being a jerk, to keep the company honest about where they are relative to competition. You know, what are they seeing? What do our product, what do our competitors' products do? What do the adjacent products do? How do we think about that? Not in a kind of defeatist kind of way, but, you know, how do you distinguish between, oh, these guys leapfrogged us for a month and we need to get our act together, versus we are a year, year and a half behind in a market. We may never catch up. We should sell while we can, right? And I think that's actually... I think that's kind of threading the needle between you don't wanna be an enabler, but you don't wanna be a debby... You wanna be supportive. It's kind of a slogan we have internally. It's not so much founder friendly, it's founder honest, right? But also I think, actually as I think about it, it has to be founder fact-based. The number one thing, and I'm even thinking on a couple of my deals where I have to do some work this week, do you really understand where your two direct competitors are and the strengths and weaknesses of your product, and what the last three win losses say about how you're really doing in the field'Cause if you don't, you're just, you know, coasting along a board mower
- JLJason Lemkin
And are you being honest about what has to change?
- RORory O’Driscoll
Yeah, agreed.
- JLJason Lemkin
Right?
- HSHarry Stebbings
Okay, champs, there, there are many other topics that we can discuss. Um, I often get chastised for my selection, so I, I'm gonna-
- RORory O’Driscoll
No, I want to make the selection. You make the selection, Harry. I, I'm too tired to decide
- 1:14:10 – 1:24:09
The Mercor Hack and AI Cyber Threats Moving Forward
- HSHarry Stebbings
I, I think we will have to at some point address Mercor. I think someone in a comment put like, "Oh, Harry, you often shill them, and so you can't not talk about them when-"
- RORory O’Driscoll
Okay
- HSHarry Stebbings
... there's trouble." I don't like to do that. So for context, Mercor, obviously a data provider to some of the largest, uh, companies in the world, l- most notably Matter, who they have since reportedly lost part or all of them being a customer of their data. Um, it was also unfortunately at the same time that Forbes released their billionaires list of young billionaires, where the founders of Mercor are on that list. Um, very unfortunate timing there for them. Um, uh, Jason, I'm sure you've got an opinion on this in terms of bluntly the Mercor hack and then losing Facebook as a customer.
- JLJason Lemkin
Well, just two thoughts. One, not that long ago I was with, um, part of the management team of one of the leading hyperscalers or... And, um, what, what, what he said, and, and I was with him when there was a minor security issue with a third-party vendor. M- Relatively minor, right? A, a, a, not, but not like this, not like all of the private data of all of Mercor being en- exposed. And what he said was, "There's not much higher on our list with partners than when this happens. There's not much higher. Like, we, we have no tolerance. It's not worth it. There is no tolerance." And in this case, they got a pass because it was a relatively minor issue with a vendor that was honest, and they fixed it, and it did not lead to actually any internal data issues. It was just a, an external issue. But it was crystal clear there is no tol- there is no, it is not worth it for us. So that is troubling. And the other thing, and I'm not an expert in the data labeling or Mercor space, what I don't know is how fungible the products are at some level. The more fungible it is, right, the more freedom you have to route that to what's left at scale or whatever the guys at Handshake wanna do or whatever they wanna do. If it's, if it's not fungible, you can, you can, you can bang your chest, uh, but you're still, you're still, you're still stuck using them. But, but that moment, like that, when I was with that hyperscaler-
- HSHarry Stebbings
I think, Harry, the number one criticism of the space is that all the largest customers are customers of all of them, and so they are generally heavily fungible in terms of-
- JLJason Lemkin
So I would be very worried because this comment was chilling from this executive. It's like, "This is the highest thing on our list with third-party partners is security. We're exposing our, our applications to folks we'd rather not expose it to because our ecosystem... We'd rather have no partners because there is so much confidential stuff flowing through what we do at all levels, so we have no to- we just have no tolerance for anything that's material." I just don't see how you would come back from this if you've crossed. There's just no, unless you have to, I think it's, I think it's, it's potentially death. And the reason I bring it up is in the old days, like through 2023, in our lifetimes, you always got a pass once as a vendor. Even for the worst breaches, the worst issues, unless your, your app was down for weeks, you, you'd get called into the C- the CISO's office, you'd get yelled at. It was brutal, but you always got at least one, because it was just the reality of working with emerging vendors. But man, I just, I don't know that you get a second one here. I just don't know.
- RORory O’Driscoll
A lot of the margin depends on how you handle it. I don't know at this point, do we have any sense of, you know, was it a state actor? Was it a malicious employee? Was it just a stupid configuration breach? So I don't have any sense of the forensic here, but-
- HSHarry Stebbings
It was, it was, it was a organization, I think they're called Latipus-
- RORory O’Driscoll
Oh, right
- HSHarry Stebbings
... which basically hold you d- hold it for ransom and you have to pay for it back. It's a commercial activity.
- RORory O’Driscoll
Gotcha. It's a commercial act. Decent hon- decent, honest criminals. Um, [chuckles] uh, right. Got it. That, that-
- HSHarry Stebbings
They're very successful. It's, I, I asked the team if we could invest in them. It seems this is one of many very successful-
- RORory O’Driscoll
But actually you'll find, Harry, they d- they don't actually-
- JLJason Lemkin
No, they're very good. They're very good, right?
- RORory O’Driscoll
Yeah. They don't need much outside capital. Right. That, that in one sense sucks. On the other hand, the good news is at least they're gonna be rational and you can buy them off. Um, I, I take it, is it fatal? Hopefully not. I think in these things you generally pay a pretty significant penalty. How you handle it is a key part of it, where you're straightforward and honest with your suppliers and with your customers and let them know what's happened. Was it entirely, was it your fault entirely? Were you crassly stupid? Was it bad luck? Was it, you know, where on that continuum it was. You know, so you can manage through it. I think it is hard when you have four or five vendors of roughly the same thing. On the other hand, I don't mean this cynically, but there also appears to be right now an insatiable demand for labeling data, so it may be, I, I think, 'cause I think the meta statement didn't say they've c- I said they've paused, which makes sense. Everyone's gonna pause, right? And my guess, my guess is the likely outcome is you lose a fair amount of revenue, you lose a fair amount of time, you're gonna have to spend a ton of money to bolster your defenses. But if you do the right thing, you'll be able to earn your way back slowly and over time, right? That's the likely outcome here. N- you know, hopefully not fatal. Um, but my guess is that.
- JLJason Lemkin
And, and I think Sam Altman, to, to maybe to tie it back to the start, I think Sam Altman said something this week that, uh, massive cybersecurity attacks will be come from AI, right, are coming. I genuinely think that most B2B companies are gonna get h- hit worse than Mercor, okay? This Lite LLM was, was one of the weaknesses that they had, like tons of B2B folks have. How strong, how state-of-the-art and strong are their security teams? They're, they're not. They're relying on a hodgepodge of open source and other products that are barely monitored in many cases. They're busy. They're under pressure for profitability. They're managing their teams. And I d- and, and, and maybe Mercor, I mean, it's probably a small company, they probably don't have a huge team, but my point is I think, um-It's gonna be really tough on a lot of startups and scale-ups because they just don't have the teams to deal with the levels of threats that are coming from AI. This is a start. It's gonna get worse, this Light LLM incident. It's gonna happen to everybody. And as soon as you figure out you can hold all these B2B companies and others hostage, th- they and their network of thousands of affiliates are gonna do it. I don't know that the average pretty good to mediocre to actually don't even really have a security team, how the hell are they gonna keep up when they don't even have a team? Remember when Gainsight was offline for a month, Drift permanently was destroyed, and this was pre all this craziness. Like, there was an old saying my CTO told me back in the day, "The only reason we've been ha- hacked is no one cares about us." And that has resonated in my ears for years.
- HSHarry Stebbings
You haven't been hacked.
- JLJason Lemkin
With AI, you can hack anybody you want.
- RORory O’Driscoll
I, I think J- Jason, you're exactly right, 'cause I think, you know, in general, you know, th- s- security purchases tend to la- you know, new stuff gets deployed. People should think about security upfront. They tend not to. They deploy, bad stuff happens, and then they panic and think about security. That's the way it's always been in every cycle, and I think we're just about to hit that stage of it now. And I think there's kind of two separate vectors. There's first of all, the AI apps themselves have security needs that are different than, um, pre-AI apps. You know, got the whole prompt injection kind of issues. But I think the bigger issue is Jason's point, which is everything else. AI can now... Using AI, the bad guys can just automate attacks, automate phishing, you know, automate, you know, duplication of voice, all that kind of stuff. I think Anthropic referenced this, um, you know, the, and it's, it's the Red Army quote that I often use, that "Quantity has a quality all its own." And with AI, you can make quantity of fake people. You can make quantity of attacks. You can do these things. So I think it's not so much going to be you getting attacked 'cause of your AI apps. It's much more going to be AI apps are going to attack you. A lot of the AI doomerism I kind of discard, but this is a legitimate and big issue I think, right? The ability of AI to escalate the velocity a- and ferocity of attacks, right? So which is why, by the way, I think the whole, the response of security stocks going down to the Anthropic announcement was absurd. I think anyone who's cutting back on their security budget in 2026 is missing the point, right? 'Cause not on- are attacks more ferocious, but thinking again, Harry, to your point. This, again, this second statement's really Captain Obvious, but it's worth saying. These stuff get more important every year because more and more of our stuff's online. You know, the percentage of things that we do that are done online just continues to escalate. It's like stupid stuff. It's like all the stuff in your house, all the stuff in your financial life. There's nothing that matters that isn't done online at this point, right? Which means that attacks there can attack more and more of what counts, right? So I think absolutely you're gonna see, you should be seeing an ex- you know, a, a real acceleration of investment in a different class of security to cope with a different class of threat. And 'cause look, it's a fatal error if you don't. There's only really two things that can destroy one of these companies. The app goes down for a long period of time or the app gets hacked grievously. Those are the two kind of red card fatal errors, right? And that's where you're gonna have to put the money.
- JLJason Lemkin
There's a wave of the second tier that's coming. It's just massive, right? Even su- to tie it, I know we gotta end, wrap, but even Supabase, which I'm a super fan of, right? Um, a lot of times folks turn off the de- default security, right? And we've seen these issues and, and, and in the old days no one would find it because they didn't care about our little Rory and, and Harry and Jason's app. Now AI will find it in, in seconds, right, on the internet, and it will use every possible way to penetrate that, to steal the data, to create malicious acts. Everything that is possible on the face of the earth [laughs] that can be delivered with software. Um, maybe there's nothing we can do, but I, you know, I don't, I don't think, uh, I think we've all under-invested in the attacks to come. [laughs]
- RORory O’Driscoll
It, it used to be hacker farms of people in fill in the blanks, the Philippines, Russia. Now it's gonna be hacker farms of AI agents cranking 24/7. It's gonna be miserable.
- HSHarry Stebbings
Guys, you can choose one more, okay? Jason, Rory doesn't feel like choosing, so he's delegated it to you.
- RORory O’Driscoll
Absolutely.
- HSHarry Stebbings
Okay. There, there's
- 1:24:09 – 1:32:10
The $1.8B Two-Person Company
- HSHarry Stebbings
the GLP-1 two bi- two company. Again, for people who use this as their, like, news on tech. A two-person company who uses AI intelligently scaled to 1.8 billion in revenue selling GLP-1s. Interesting. A lot to unpack there. Wix buying back 31.6% of its shares given its low stock price. Uh, Oracle getting rid of 20 to 30,000 employees via a 6:00 AM email. Jason, any that stand out, baby?
- JLJason Lemkin
Obviously at some level, uh, people are so excited about the one or two-person billion-dollar company. Facts were glossed over, points were missed, and all that, right? Oversimplified. Um, and they used deep fakes. They made representations about doctors they shouldn't. They did all the wrong things. They did all the crappy affiliate marketing stuff people have been doing for 20 years, and they did it at scale with AI and built a big business on it, right? Um, I get it. Um, but what is interesting about it is if you... Let's not over-glamorize this company that maybe is at the edge of fraud in many ways in its marketing tactics. The fact that they could use AI to scale this with two people and maybe some consultants and stuff on the side, it is, it is, we are seeing the future. Why? And, um, AI is ch- completely changing marketing. Marketing has not gone away. Dario and Sa- to, to Rory's point, Dario and Sam are everywhere because marketing matters as much now as ever. And this is a different version of how marketing is changing, and if you don't adapt, right, maybe buying TBM's a bad idea, but you gotta adapt to the new world of marketing when... And then f- and, and, you know, there's a lot of, there's a number of startups that have tried to automate all this marketing at scale with AI. Most of them are terrible, right? They don't quite work. They create boring assets. They look like an awful art. They look, they look kind of like Make. They're that bad, a lot of the assets. Um, they don't have context. They use too much stock art. But no reason in a year everyone shouldn't have the AI power to blanket the entire internet with the best hyper-personalized marketing in the world. Like, we will- hopefully in a year we will all have the power to do some of what-Um, Medvi have done, and I think it's, I think it's a, I think if we step back, it's a chance to see 12 months into the future, that when we wa- all of us will have more of this power
- RORory O’Driscoll
In other words, just 'cause they were legally selling, uh, weight loss reduction c- drugs that are off-label to people without the appropriate FDA safeguards doesn't mean they're not great marketers
- JLJason Lemkin
I just, I talk to so many CMOs who are still struggling to run the 2023 playbook, and falling further and further behind. You have to adapt. And, uh, and, d- and, and, and I think crappy automation doesn't work anymore, right? But these guys that were able to do it at mass scale and target everybody, this is the future that we all should sh- sh- should know. And, um, and marketing, I guess the code is marketing appears to be more powerful than ever in the age of AI, and humans have to control it, but if you don't leverage how marketing needs to be done in the future, you're, you're gonna be stuck in the past. You're gonna, and you're, you're gonna be killed. You're gonna be killed by folks running the old playbook. So, um, but yes, I mean, d- a- anyone that achieves some sort of scale through marketing, as dodgy as some of these consumer guys are, there's something to learn, right? Whether it's multi-variant testing, whether it's AI, whether it's pers- p- personalization at scale, uh, I think it's a waste as a marketer if you don't learn from it, right? And this is what I think's gonna happen. We're, this is, this, they're, just like it is inexcusable to send a dated sales opt outreach cadence from 2021 today, uh, the, the way we're doing advertising and marketing will seem incredibly dated in two years. Like, only, only the creakiest companies will be doing marketing and advertising the way they do it today in two years. It makes no sense. It makes no sense. I should be getting the GLP-1 ad specifically targeted to you. Jason, you don't technically need it, but I noticed your jawline on 20VC could be a little bit tighter. Uh, what if we just microdosed you today and, uh, so you could get some of that T-shirt look that Harry has? Like, I'd click on that in 60 sec- in two seconds
- RORory O’Driscoll
Yeah, you would, you know
- JLJason Lemkin
I shouldn't get that and the, versus stock art of some grandpa running with his golden retriever on a beach, right? So I'm both d- [laughs] I both think this is fraud and, and a, and a over-headlined and, and the future. We're watching the future
- RORory O’Driscoll
I, I think you're right. I mean, I would argue that a hu- just a huge percentage of it is on the fraud side, but none the, uh, not on the fraud side, but the, um, hairy edge of regulation side. But I actually agree. Upon reflection, what you're saying is correct. It's, [laughs] uh, funny, it's a little like the last comment. What we're basically saying is the most entrepreneurial people on the planet out there right now are the security, yeah, the, the, the hackers and the kinda dodgy marketers that are on the front line of pushing things, but the tactics that they're using and the way of leveraging AI, everyone's gonna be doing within a year or two, or they're gonna be left behind. I c- I, I could go along with that
- JLJason Lemkin
Yeah, there was, there was an era in the old days when the best affiliate marketers knew things nobody else did and built billion-dollar companies out of it, right? Uh, then there was an era which has now faded when some of the best companies used SEO in a way nobody had used before. Millions of pages, right? Y- y- you know, even things you could s- you know, it's maybe it's only worth $10 billion. DigitalOcean was built entirely on SEO farms, so was Zapier and others, and there was a group of folks that knew how to do this and it worked. The next group of folks will know how to do this mass personalization at scale that really works to millions and millions of people, and they will win like the prior affiliate market, and they will crush folks, and the rest of the world just won't get it. They'll think it's dark arts and, um, and, and, uh-
- RORory O’Driscoll
I think you're right
- JLJason Lemkin
... they need to become agentic marketing experts, AMEs
- HSHarry Stebbings
But in the same way that great affiliate marketers actually largely originated from porn and Viagra, if you want the dark truth.
- JLJason Lemkin
Yeah, yeah. Agreed
- HSHarry Stebbings
A- a- and here, I think probably some of the best next-gen AI marketers will spawn from GLP-1s or anything at the borderlines of, you know, next-generation e-commerce in some ways
- RORory O’Driscoll
Yeah, but I think that Jason's insight, I, I agree with that, by the way. Yeah, I mean, there's no doubt that criminals, I mean, like, many of these new technologies are adopted by crime, are adopted by porn and dodgy marketers. But I think Jason's insights is a profound one, which is the marketing tactics that are used by, and, and look very kinda dark arty, over the next 10 years tend to be adopted by everyone. And now, y- as you say, everyone in any corporate America is an SEO expert, whereas 20 years ago it was a dark art. And I think you're right, Jason. In the next two or three years, if you're not adopting agentic marketing as a digital marketer, you're just gonna be left way behind. And personalized marketing and leveraging the technology, I think, yeah. I mean, I knew it already intellectually, but actually, I will say you kinda crystallized it in my mind, 'cause I've lived the last ye- I remember when SEO marketing was literally something that only the lead gen companies did, and there was two or three-year period where they had, you know, hyper-growth, $100 million businesses kicking off 30% cash, and then those businesses went away as normies adopted the technology. And the correct play was to be the software provider helping the normies tool up, and I think the same is true here in agentic marketing. So that's my stolen insight from you for the day, Jason, as I go look for those companies
- JLJason Lemkin
Well, all, it's just interesting, all Medvi has to do to make 400 bucks is drive a GLP lead to someone that buys a product that the, the, the, just like tokens, the world, the world can't consume enough of
- RORory O’Driscoll
Yep
- JLJason Lemkin
And all these, and most of these folks are selling the exact same product, and they're fungible, right? And so you're getting three, it's one, there's a b- moment in time where it's a great marketing arbitrage if you're excellent at this. You get 3 to 400 bucks for delivering a, a customer that already wants to buy your product, right? It's a mo- that's, that's how the math, it kinda ties back to our Open Router and other conversation. If you only made 10 bucks, this wouldn't be such an exciting business. But these, this, the, they're so profitable, but also so competitive. When you get 400 bucks for just delivering a customer from a Facebook ad, man, you w- you know, you wanna [laughs] you wanna run this
- RORory O’Driscoll
You do what it takes
- HSHarry Stebbings
Boys, a lot to discuss this week. Thank you for being so good. It's so good to see
Episode duration: 1:32:20
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