Opendoor CEO, Kaz Nejatian: OpenAI and Oracle, How Can Either Afford to Do This

1. 0:00 – 1:36

   Intro

   1. KNKaz Nejatian0:00

      I said, "Hey sweetheart, I'll be back I think Wednesday or Thursday." And then she said, "Do not come back until there's a plan to break even."

   2. SPSpeaker0:05

      Nice. [laughs]

   3. HSHarry Stebbings0:07

      I am so excited for this. Kaz from CEO of Shopify to now CEO at Opendoor.

   4. KNKaz Nejatian0:13

      I never thought I would leave Shopify. I thought it was gonna be, like, my job forever. If we can make buying, selling, and owning a home easier, less friction-ful, the world will be a better place. We will get to a point where you will buy a home from Opendoor, and if you don't like it, you'll be able to return it. Businesses should not exist to make money. Businesses should make money to deliver on a mission. Corporate executives should basically only get paid in options. It's a very weird world where we create incentive for corporate executives to be bad at their jobs just to get paid. Opendoor is priced in the public market for its potential, and it's an incredibly fair price for the potential. The bull case for Opendoor is obscene. It's hard to exaggerate how big this company can be. I don't optimize my life for money. I just don't. When my wife and I got married, we agreed we would optimize our life for leaving a dent on the world. Having said that...

   5. SPSpeaker0:58

      Ready to go? [upbeat music]

   6. HSHarry Stebbings1:11

      Guys, I am so excited for this. You all know it's my favorite time of the week. Uh, my mother even loves these shows now, which I think is incredibly heartwarming 'cause, um, she listens to every one. But we're gonna start on news item number one, which is Kaz from CEO of Shopify to now CEO at Opendoor. Kaz, first, thank you so much for joining for this first little stint.

   7. KNKaz Nejatian1:34

      Thanks for having me. I appreciate it, man.

2. 1:36 – 3:24

   Why Did Kaz Leave $300M on the Table to Join Opendoor

   1. HSHarry Stebbings1:36

      Now, I wanted to start with the question, you left a great and huge business in Shopify. You must have the ultimate conviction that i-buying is a good business. Can I be so blunt as to ask what led that conviction when it's been a challenged conviction to have over the last few years?

   2. KNKaz Nejatian1:55

      Yeah. I mean, look, I never thought I would leave Shopify. I thought it was gonna be, like, my job forever. Um, and I just genuinely loved the company, love Tobi, love what it stands for. Um, but when I joined Shopify, everyone was like, "What the hell are you doing? This is a tiny company. It's gonna go nowhere." It was among the most shorted stock, uh, in, in the tech market. It was, like, very much like, "This thing will fail." In fact, there was, like, a very lo- like, I think, I think Citron wrote in a short report the day I joined Shopify about how terrible business it was and how it wouldn't last two years. But I think Shopify's a wonderful company, but look, I think the fundamental problem that Opendoor will solve is an incredibly important problem, not just as a business, but for the world. Like, if we can make buying, selling, and owning a home easier, less friction-ful, less terrible, the world will be a better place. We will figure out how to make money along the way. This will be a great business. Like, we will make money. This will be a great business. But the, the, the problem space is a valuable one to explore, and I think you need to do it unapologetically. Like, the goal here isn't to do, like, minimize risk. We have a mission to go after. We'll go after it incredibly aggressively, and we're gonna make it easier for both people who are buying and selling homes to engage in that transaction because it matters to future of our society.

3. 3:24 – 4:28

   Why Does Kaz Believe OPEN Can Be a Good Business When the Market Doesn’t

   1. HSHarry Stebbings3:24

      Can I be so bold and just ask, does that not feel like a bit of a, a boom time mindset? "Oh, it's a valuable problem, and we'll figure out how to make money along the way."

   2. KNKaz Nejatian3:34

      Fuck no. No, definitely not. Look, this is not... Like, I'm not saying we're gonna figure out how to make money along the way. We will make money. That's not what I'm saying. L- like, we have plans on making... Like, we will have plans to make money, and we have, like, some couple good bets already. We'll launch more of them. I'm not saying I have, like, a hope and a dream of profitability. This is a for-profit company. Like, it's very much a for-profit company. We'll figure it out. But what I'm saying is that you need, you... Businesses should not exist to make money. Businesses should make money to deliver on a mission, and those are important things. This is a... Like, we are a mission-driven company, and we'll make a profit such that we can deliver on our mission. Uh, and, like, the shareholders will be happy, buyers will be happy, and sellers will be happy, but that's the goal. Like, I'm not saying, like, "Oh, I don't know how to make money." I know how to make money here. [laughs] What I'm saying is the mission is more important than the money.

4. 4:28 – 17:56

   How does Kaz Feel About OPEN Becoming a Meme Stock?

   1. SPSpeaker4:28

      A wildly successful software executive, h- how do you deal with, like, this meme stock element to the company? Like, I'm not a meme stock guy. I don't trade.

   2. KNKaz Nejatian4:36

      Yeah.

   3. SPSpeaker4:36

      I'm, I'm a, I'm long in everything. This isn't GameStop, but it's crazy. This meme, this meme-ish niche pre you is crazy, isn't it?

   4. KNKaz Nejatian4:44

      Yeah, look, I'm not a, I'm not a trader. Uh, I owned one, like, literally one ticker, uh, when I was at Shopify. It was Shopify. I expect I will own two tickers for, like, the next little while, Shopify and Opendoor. Like, I'm not, I'm not a, I'm not a diversified trader guy. That's not what I do. That's not my job. My job is to build great products and get people to pay for them. Let's back up. The second thing is I actually fundamentally reject the premise. Like, Opendoor is priced in the public market for its potential, and it's an incredibly fair price for the potential, and I think we will earn that right to actually be... Like, we will earn the potential. We're gonna go get, execute against the potential. That's not that different on how startups are valued by VCs. You don't value the current cash flow of a company. You value the potential and say, "What are the odds it will get there?" Right? That's what you do is say, "What's the discounted cash flow odds of this, this thing being big?" And I, I, I think a- if you do it that way, it's the single largest market in the world, right? Tes- like, I think Tesla was not above 10% in any market it was selling cars in. It ma- until last year. It is above 10% in some markets this year. Opendoor was above 10% in many markets it was selling homes in couple years agoLike, we will get back there. It's a significantly bigger market, significantly higher attach opportunity, significantly longer ability to have a relationship with a buyer and a seller. So if you, if you assume that, um, like if you just do a rational... By the way, I'm a, like, I'm, I'm a math nerd, right? I was a mathlete growing up. I, I, I live-- Like, I'm a, I'm not a word sell. The, if you do the math on the potential of the company and just discount it back, I think their stock is like, like reasonably priced. I, I would have bought at this price. In fact, I did buy at a higher price than the current price.

   5. RORory O’Driscoll6:44

      Bunch of different things. One is I, I, I think the me- I, I h- totally agree. I think the meme stock thing is actually two parts to it. There's the, you know, price relative to value, and then there's obviously the, the, I think it's a combination of meme stock and activism. I think the, the interesting thing here is a set of investors from outside have been able-

   6. KNKaz Nejatian7:01

      Mm

   7. RORory O’Driscoll7:01

      ... to agitate and drive change. In this case, I think very interesting and good change, but it's kinda like this is what the evil activists would be like if they were VCs, and it was just kind of fun from a distance to watch it, just rattling the cages of the board and saying, "You need to do something different." And eventually the board said, "Hell, you're right. Let's do something different. Let's call Kaz and put these other guys back on the board." So I-

   8. KNKaz Nejatian7:24

      Yeah. I mean, look-

   9. RORory O’Driscoll7:25

      That's an interesting thing

   10. KNKaz Nejatian7:27

       ... I, Rory, I think, I think you're absolutely right. Look, I think there's a, the bull case for Opendoor is obscene. Just a, just obscene. Like it, it's hard to exaggerate how big this company can be. But, um, companies require good stewardship and operational excellence and aggressive execution, right? There's like, there are companies that can be run by professional managers. Like if you're, if you're a widget factory, professional managers are great for you. If you're a software factory, professional managers are to death, right? Like I, I'm no one's idea of a professional manager. I just, I... Not that dude. So like we're, we're going to create alpha.

   11. HSHarry Stebbings8:07

       Are you a software factory, though? But, like, you have a lot of real assets on your books. You have a lot of illiquid assets on your books. This is a very real wor- real world financial mechanics business in a lot of ways.

   12. KNKaz Nejatian8:20

       Mm-hmm.

   13. HSHarry Stebbings8:20

       It's not a software factory.

   14. KNKaz Nejatian8:22

       I disagree. I fundamentally disagree. Like, Opendoor is a software company that happens to have some assets. I think there's an asset light model here that could work incredibly well. There's an asset heavy model that can work incredibly well, and we'll have like literally all of them. I fundamentally just think you must judge companies based on where leverage comes from. Like you look at a company, you're like, "Ah, that's where leverage comes from." The leverage from Opendoor will come from software. We will build excellent software products for buyers and sellers of home and owners of homes, and we will attach services to those products.

   15. RORory O’Driscoll8:55

       And one level down, 'cause on that, do you think that that excellence... And 'cause there's two things you do. You have to be able to predict the price of an asset. Well, maybe three.

   16. KNKaz Nejatian9:05

       Mm-hmm.

   17. RORory O’Driscoll9:05

       You've gotta have a kinda top of funnel to drive in buyers and sellers. You gotta have a really big AI brain to figure out what these assets are worth, and then you gotta have transactional efficiency to make all the shit happen, like the processing, the selling, the repairs, all that. How do you th- And, and maybe those three things are the soft- what you're calling the software factory. Which do you think is the hardest part? Which do you think is the most important part?

   18. KNKaz Nejatian9:29

       So I think the last part is very software enabled, and generally I'm actually, I am twenty-four hours and twelve minutes into the job. I'm generally impressed by, um, the last part of the business already. It could be significantly more software enabled, significantly more AI enabled, but, like, I, I'm actually g- generally impressed. Um, but I think, like, look, the long-term leverage from, for this company becomes offering a fair price for a home, not trying to make all your money on buying homes at a discount. That's just like no one wants to p- to have like... Selling a home for a fair price and adding value-added services on top of it, right? Adding things that homeowners and home sellers want as a part of that transaction, and to have earned, you've earned the trust because the price is fair. The house is good. It's valuable. You're not selling lemons. Like you're offering, "Hey, like, like, we will get to a point where you will buy a home from Opendoor." I'm not saying tomorrow, but where you will be able to buy a home from Opendoor, and if you don't like it, you'll be able to return it. We'll get to that point. We'll get to a point where you'll be able to buy a home from Opendoor, and we'll stand behind it for the life of that house, and you'll be able to treat it as though it's a guaranteed asset that we will take care of and take care of you as a buyer of that house. As a seller of that home, we'll be able to get to a point where we will find you a new home. Like, you don't have one? Great. We'll find you a new one. Like, we will find a way to make the liquidity work in the long run, and we'll focus on both buyers and sellers. For what it's worth, this isn't uncharted territories in the public markets. Carvana has a very good model of this, where they make, where offer a fair price to buyer, fair price on the seller, make margin on added services.

   19. RORory O’Driscoll11:12

       Well, first of all, like big picture comment, I think this is one of the hardest business models out there. I think, you know, and that's not a, it's just like I totally see the upside, but truly, we look not at Opendoor, but some of the others. This is one of the most challenging problems I can imagine, right? 'Cause y- and you, you know, you made the Carvana analogy, and it's fair. I mean, as people know, Carvana was another high flyer in two thousand and twenty-one, plummeted in twenty-- selling cars, doing the same thing for cars, plummeted in twenty twenty-two. Investors, including Thrive, held, bought some more. Stock's up m- well north of 10X. Everyone looks really smart who held and bought. And obviously, if I was you, that is the mental model I'd be pushing all day, every day, right? But the corp, I always, my, my nag, one of, one of my many nagging worries on this is it's easier to price a car than a house, right? The, the, the nuance you have to get right, I would queer, I would wonder, and prove me wrong, where you, you can get within seven, eight, nine percent-Pretty accurately on comps. But it's the little shit that when you walk around the house, "Oh, they have an X, that garden's nice." It seems to me the last 8% of price, which is where you make all your margin, has a lot of variety. And I could be wrong, but that seems to me the hard part of pricing

   20. KNKaz Nejatian12:25

       Rory, I th- I, I think you are wrong.

   21. RORory O’Driscoll12:26

       Cook.

   22. KNKaz Nejatian12:27

       Um, there's very, there's a v- ... I, I think, I think you were right.

   23. RORory O’Driscoll12:30

       Yeah.

   24. KNKaz Nejatian12:30

       I think you were right three years ago.

   25. RORory O’Driscoll12:32

       Yeah.

   26. KNKaz Nejatian12:33

       I think three years ago, this was an incredibly difficult problem that required human beings to visit homes and look around and look at the shape of this garden. Like, that's a real thing. If you're one side of the street that has a slope, the other side doesn't have the slope, those two things are priced differently. But there's a reason why God invented AI.

   27. RORory O’Driscoll12:47

       Yeah.

   28. KNKaz Nejatian12:48

       This is a solvable problem today. Like, we don't need to limit ourselves to what human beings can see.

   29. RORory O’Driscoll12:54

       Agreed.

   30. KNKaz Nejatian12:54

       Like, this is a real thing. Human beings are variance-creating machines. Um, we can create, like, we can build software systems to solve these problems. Let me... Rory, this is... You know what the funny thing is? Um, Shopify is a notoriously bad business. It's a high-churn business selling to small businesses at a massive discount.
5. 17:56 – 25:06

   Kaz’s $0 Salary but $1BN Stock Based Compensation

   1. HSHarry Stebbings17:56

      Kaz, Kaz, how did the comp discussion go? You know, it's quite notable that you aren't taking a salary pretty much, or, like, $1 or whatever it is until you're like-

   2. KNKaz Nejatian18:05

      I would take less. I'm not allowed to. I'm not allowed to take less than $1. I would gladly take less than $1.

   3. HSHarry Stebbings18:08

      And so, and so you... Yeah, and so when you hit 30 bucks, you getBurmine your ice is a lot of money

   4. KNKaz Nejatian18:16

      Well, Ka- Kaz, yeah. Look, I, look, I, I think if I could make it the following way, I would've made it the following way. I think corporate executives should basically only get paid in options. I think it's a very weird world where we create an incentive for corporate executives to be bad at their jobs just to get paid. I think it's just so fucking weird, where, like, the thing you have created is be inoffensive enough not to get fired. That's very weird. I would have gladly just taken-

   5. HSHarry Stebbings18:41

      That's RSU life

   6. KNKaz Nejatian18:41

      I own no RSUs. Zero. Like, actually zero. Literally entirety of my performance m- money is based on the stock price going up and, like, like, the, the different cliffs. Some of it is, like, a phantom option where if the stock price goes down, it's worth zero. Some of it vests based on price. Like, um, there's a... This is, this is complicated because it's very odd, like, Delaware and SEC rules, but I would've gladly taken just options. In fact, that was my preferred state. But we have tried to construct a thing that looks like just options with some ups, like some vesting over time with stock price. But look, I don't have, I don't have Yahoo Finance on my laptop. I will not look at the stock price every day. What I will look at is delivering value for users and shareholders of this company over a long period of time, and that's what we're gonna do. Like, I think this company is incredibly valuable. I think, like you are... I thought when I joined Shopify that the market misunderstood the opportunity. I think the market massively misunderstands the opportunity for Opendoor, just, like, by order of magnitude.

   7. HSHarry Stebbings19:45

      Can I ask, how important do you feel it is that you have Keith and you have Eric coming back into the fray as well? That's another component.

   8. KNKaz Nejatian19:51

      Would, would, wouldn't have taken a job, would not have taken the job without them. Like, straight up wouldn't have done it. In fact, I said I won't do it without them. [laughs]

   9. HSHarry Stebbings19:59

      I love that.

   10. KNKaz Nejatian19:59

       And w- we're not... Look, we're going to do things that look odd, but what they look isn't important. What they are is important. Like, how things look is less important than what things are, and we need people who will be with us while we pick or take those risks.

   11. RORory O’Driscoll20:14

       I think that's super interesting, and it actually gets to some... We, we... Yeah, the whole private versus public thing, right? Um, and I th- and there was a super article in New York Times recently on, on basically why being public is a pain in the butt, right? And I think you're exactly right, Kaz. This is a refounding of the company, and if you didn't have that air cover from those guys coming on, it's just really hard for a standard corporate board of a public company to do the kind of pain you're gonna see in the next 12 months to turn this thing around, right?

   12. KNKaz Nejatian20:44

       Mm-hmm.

   13. RORory O’Driscoll20:44

       So I, I, I would agree with you. I think that if I were taking... If I was advising someone as a CEO to take this on, your first question should be, "Where is your air cover from entrepreneurial people, not the kind of people you find doing a public board for 200 grand, who will allow you do this?" 'Cause if they're not gonna... If you don't have that, invariably you g- you're like the poor guy at Intel. You have this big ambitious plan. You tell everyone on the board you have this big ambitious plan. They all agree, and then one year in it's like, "Oh my God, it's terrifying. We're out of here," right? So I, I think you're exactly right and it, it's, it's a rare combination to be able to fix the... To, to be able to... I won't say fix. To orient the board around the task at hand.

   14. KNKaz Nejatian21:24

       Yeah, dude, I'm not... Like, this is a very, um, uh... We have great board members, but I view them as, uh, colleagues and coaches.

   15. HSHarry Stebbings21:31

       Yeah.

   16. KNKaz Nejatian21:31

       There's a board member who's coming into the office in a couple hours 'cause we're gonna go through literally every house we own line by line together, um, with that board member. We're gonna sit next to me, we're gonna go through everything. Um, like, I... One of the first things I did was I got the board member and I went through literally every invoice the company had paid for the last 12 months. Like, actually every single one of them. Like, I reviewed, like, every line item. Our board members are going to join us along this mission, and they're gonna work as hard as we do. I'm, like, incredibly excited.

   17. HSHarry Stebbings22:03

       Do you want Sharmat to come back into the fray?

   18. KNKaz Nejatian22:06

       Dude, the world can't have enough Canadians, man. Like, it's a real thing.

   19. RORory O’Driscoll22:11

       Great answer. The man wins, Kaz wins. That was, that was a killer answer.

   20. HSHarry Stebbings22:15

       That was, that was good. He, he's well-trained. Uh, fi- final one from me and, final one from me and then we'll let you go. When you did... Made the decision, you have a huge amount on the table at, at Shopify-

   21. KNKaz Nejatian22:26

       Mm-hmm

   22. HSHarry Stebbings22:26

       ... and you left that for this.

   23. KNKaz Nejatian22:28

       Yeah.

   24. HSHarry Stebbings22:29

       How big is this then?

   25. KNKaz Nejatian22:30

       A few hundred million dollars.

   26. HSHarry Stebbings22:31

       A few hundred million dollars, exactly.

   27. KNKaz Nejatian22:33

       Yeah.

   28. HSHarry Stebbings22:33

       You believe that you will make more here, and what is that upside here when you did that evaluation?

   29. KNKaz Nejatian22:40

       I mean, look, I don't optimize my life for money. I just don't. I optimize... Uh, when my wife and I got married, we agreed we would optimize our life for leaving a dent on the world. Like, we will leave a dent on the world, and that's what we optimize our lives for. Having said that, I'm incredibly bullish on the bet. I would not have taken it if I didn't think it was gonna pay off. I'm very, very bullish on the stock. I'm very bullish on the company. I think this will... We will build, and this is my ask of everyone who has bought the stock and is cheering us on. We will build a generational company here, and they must hold us to account for doing that. Like, we must do both things. We must build a company that makes the world a better place, and we must deliver shareholder value, and both of those things are incredibly important. And I'm generally, like, I'm asking people who have bought this stock in hope that we will do the right thing to hold us to account and call us out when we don't do the right thing.

   30. RORory O’Driscoll23:36

       Look, I mean, this man has put his money where his mouth is.
6. 25:06 – 33:14

   Oracle and OpenAI Partnership: WTF is Going On?

   1. HSHarry Stebbings25:06

      Uh, we're gonna go back to normal programming, baby, and I wanna start with Oracle and OpenAI. Oracle touching a trillion dollars. Um, Rory, you're always quite good at setting the scene, and I actually got given some good feedback the other day, which is we need to set the scene for the stories. People love the analysis, but they like to know actually what happened. Can you just help set the scene of Oracle, OpenAI, what happened?

   2. RORory O’Driscoll25:30

      I think it is good feedback. I of- we often do forget, we dive right in. Uh, so step back. What happened is Oracle announced, I wanna say that whatever was Q2 results, they have an off-year... they have an off-cycle year, so it might've been Q1. And for what it's worth, they were actually a little light on the quarter's results. But they announced a future RPO, revenue performance obligation, of north of $300 billion. In other words, they said in the fut- we've got orders as of now that we have to deliver in the future for well north of $300 billion. Most, and they didn't say this, but you figure it out, but most of which is a big OpenAI order for around 300 billion of future cloud compute for their AI platform, and the stock exploded. The stock went up 36, 38%, I think briefly making Larry Ellison the richest man in the world. Yay, Larry. And, um, and co- Oracle touched a trillion dollars. So a total... I mean, it's unparalleled for a company, you know, a top 10 company to dr- jump by 38% in one quarter. So a huge jump. Since then, some skeptical commentary, but that's what happened.

   3. HSHarry Stebbings26:37

      How did we analyze it then subsequently? How did you feel when you read it? 'Cause as you said, there were skeptics. How did you feel?

   4. RORory O’Driscoll26:43

      I suppose a little skeptical. I mean, you know, positive spin. If you believe the revenue, 300 billion, let's say over f- let's just say if you think OpenAI has 300 billion to spend, plans to spend it with Oracle, and does in fact spend it over five years, that's 60 billion of revenue a year, divide by five. So even at a five or six times revenue multiple, that gets you to 300 billion in delta market cap, which is exactly what happened. So if it's 100% money good, and, you know, you can say it's some kind of recurring revenue thereafter, then it kind of roughly corresponds to the increase in value. It's just that then you say to yourself slowly, the customer promising to give you $300 billion is doing 12 billion in revenue, has raised, I can't remember, 40 billion total life to date, is still losing significant money, and therefore is gonna have to raise, as Sam Altman has said, a couple hundred billion dollars, he said 115, but who's counting, to be able to pay you that money. So you look at and you go, "This is a very levered bet on everything at OpenAI working." So to some extent, it's kind of like a proxy OpenAI stock. It's like I can't buy OpenAI in the public markets, so if OpenAI is successful, it will have 300 billion. If it has 300 billion, it will give it to Mr. Ellison. If it give it to Mr. Ellison, the stock will go up, buy Oracle, right? It feels non-risk adjust... It feels plausible, but non-risk adjusted. You're applying 100% certainty to two or three things, each of which have a fair amount of uncertainty associated with it. That was my kind of net takeaway.

   5. SPSpeaker28:23

      My real question was, um, have any of us care, given up caring whether any of this revenue's profitable? I think the bet that OpenAI can come up with the money is a reasonable one. They may not, right? There's some risk there. They don't... But, but so far Sam has found a way, right? I believe that, that, I mean, Jesus Christ, CoreWeave and everybody these days said they have insatiable demand, so that's okay. But no one cares that this adds nothing to Oracle's bottom line, and may never. No one cares that Oracle is basically, uh, a, a fungible, a, a fungible set of, of, of server services for folks that don't wanna bother to bring it in-house. I mean, this is a, this is a, for the foreseeable future, a zero net margin business for them, isn't it? No one care... Just no one... It's good for VCs. Like, we don't have to look beyond the top line. It makes our lives much easier. [laughs] We don't have to worry about these silly things like inference costs and gross margins, 'cause, uh, the public markets don't care anymore.

   6. RORory O’Driscoll29:19

      Well, couple, couple... What is... You are right. You know, from the per- perspective of, say, five or 10 years from now, the people selling cloud computing to the people who own the models will probably not make as much money as the people who own the models. That's a pretty obvious statement, right? Even though OpenAI is losing a lot of money now, being a commodity provider of services to them exudes over the medium term being an even less, being a more commoditized, less profitable business. So at some level-

   7. SPSpeaker29:48

      Yeah

   8. RORory O’Driscoll29:48

      ... you agree, is that I'd prefer to be, own the model company than the... I'd prefer to own OpenAI than CoreWeave, and to the extent that this is just CoreWeave 2, you're totally right, Jason. Now, the fun thing is we are dealing with the man who most successfully on the planet extracts grow, operating margin from software companies, which is Larry Ellison, and, you know, that's why he owns 41% of this damn thing, up from, you know, 27% a year, a, a decade and a half ago by just getting that free cash flow and recycling it back. But you're right, this does feel like putting, you know, getting 300 billion in revenue, and to your point, Jason, in return for which you have to spend a whole buttload up front on CapEx in return for a business that whatever, however profitable it will be, and maybe it is profitable, it won't be as profitable as the 41% operating margins that they currently get from selling databases. So I agree. Even after the revenue-

   9. SPSpeaker30:37

      But it's nothing today, isn't it? I mean, literally this business is consuming cash

   10. RORory O’Driscoll30:41

       I'm sure. Well-

   11. SPSpeaker30:42

       Right

   12. RORory O’Driscoll30:42

       ... yes. And-

   13. SPSpeaker30:43

       Yeah

   14. RORory O’Driscoll30:44

       ... yes, and I'm su- I'm, I'm, I'm trying to recollect from g- I'm-- And you probably have some kind of positive accounting gross margins, but really it's all about the assumptions you're making on your CapEx depreciation. And if you know over how many years you should depreciate the latest Nvidia chip, then that would be the key question. But you're right. As a, on a cash flow b-

   15. SPSpeaker31:03

       But this isn't like, this isn't a bunch of memers getting excited about CoreWeave. This is Oracle. This is a company founded in the '70s where the public markets are like, "We don't care that your new, uh, GPU hosting product, which has massive top-line growth, right? We don't care at all that it's contributing nothing to the bottom line. We don't care. We don't care even in iota," is what the public market said, didn't they?

   16. RORory O’Driscoll31:26

       Agreed. No, you're right. It is-- Jason, you're exac- and just to say you're exactly right, is that just like, I mean, I think it's equivalent, but with more success than the Facebook/Meta story. You have an existing business. It's freaking awesome. It's nothing to do with AI. It kicks off forty-one percent operating margins for Oracle, high thirties, forties for Facebook. And the market is saying to you, "If you got all that free cash flow, have at it, big guy. Throw it back in, see how it goes," right? And, you know, in the case of Meta, they're not penalizing him, and in the case of Oracle, they're actually rewarding him for doubling down on unprofitable growth. So entirely rationally, he's doing it, right? And it's gotta-

   17. SPSpeaker32:05

       Is, is this not that great? Is, is, is-

   18. RORory O’Driscoll32:07

       Can I say something, one last thing? It's gotta feel freaking great when you've been cranking like that guy has for fifty-plus years. Whatever it makes long term for the stock, the fact that you sprinted ahead and for a brief shining moment, the richest man in the world, probably, probably that alone is worth whatever future damage you've done to your operating margins. It's great.

   19. SPSpeaker32:27

       Is this not an ultimate sign, though, of where public market irrationality and exuberance is, that Sam Altman in this announcement says that with the margins associated to this order, and it jumps thirty-eight percent at this scale, is that not the height of irrationality?

   20. RORory O’Driscoll32:43

       You mean unli- unlike us sober, careful, and, you know, sober-minded private market VCs? Yeah. I'm sho- I'm shocked to discover gambling going on in the stock market, Harry. Yeah. It's pretty frothy, and I think you're dealing with... Look, 'cause we've been frothy in the private market for AI for two or three years, and probably the public market is saying, "I'd like to get on, get in on the game," and this is one of the few ways to play it. So I agree. It's frothy. Is it more frothy than any of the things you're seeing or I'm seeing? I don't know. Who am I, who am I to

7. 33:14 – 43:23

   Investor Diligence: Growth Over Margins

   1. RORory O’Driscoll33:14

      judge?

   2. SPSpeaker33:15

      The one, the one thing I, I do think is important, we mentioned the margin element. I have never before seen such lack of investor diligence on anything except top-line revenue growth, ever. Astonishing, where it's not included in updates, hundreds of millions of dollars wide without a discussion on margin, number one. And then number two, it's just like growth is amazing until it doesn't grow anymore. And when you look at this, for OpenAI to pay this, if they 2X between now and July twenty-six and then 2X again between July twenty-six and twenty-twenty-seven, they'll be at forty-eight billion and still twelve billion short per year to do this.

   3. RORory O’Driscoll33:58

      Yeah.

   4. SPSpeaker33:58

      At some point, the growth does taper.

   5. RORory O’Driscoll34:01

      Yes. Agree. I don't-- Do I think they're gonna collect three hundred billion dollars in orders from OpenAI? Absolutely not. There, I'll say it. I don't think that turns in all of that. I think it's, I think they've got a business. I think they'll get more revenue from OpenAI. Do I think the full last three hundred billion dollars will be wired in five or six years? No. I, I very much doubt it. But what-

   6. SPSpeaker34:23

      Is, is this market not just all about shouting as loudly as possible? Do you remember Stargate? We're gonna have five hundred billion dollars. What, what, what happened to that five hundred billion dollars?

   7. RORory O’Driscoll34:33

      Isn't this-

   8. SPSpeaker34:33

      Seems like there's a lot of-

   9. RORory O’Driscoll34:33

      Can I ask a really cynical question? Isn't this one of those where everybody just announces the same thing? So yeah, it used to be what, um, SoftBank, but wasn't Oracle part of that? And maybe now this is-

   10. SPSpeaker34:42

       But Larry was right. Larry was-- It did happen. This is a big part of it.

   11. RORory O’Driscoll34:45

       It's Stargate.

   12. SPSpeaker34:46

       This is-

   13. RORory O’Driscoll34:46

       This is Stargate.

   14. SPSpeaker34:47

       Honestly, to me, it's a reminder, we've talked about this, to really scrutinize Sam to see the future, 'cause he goes to Trump, right? And he's got, he's got Son from SoftBank and Larry Ellison in that awkward photo. Le- Musk wasn't there when he was still running things, right? This was a couple months ago. Announcing the Stargate thing, I'm looking, what's this uncomfortable Larry Ellison, who hasn't put on this s- doesn't look like he's put on a suit in three or seven or eight years, sitting there squirming in the White House. This was a s- uh, we should've bought Oracle stock that day. Like, why we didn't put the whole fund into Oracle when... 'Cause why is Lar- and why did Sam make him come, right? I mean, you gotta, we gotta do this, right? That was a telling moment to me, but I didn't get it at the time. This just seemed like the oddest photo op, and it seemed like dissing Elon Musk, but it wasn't that at all, right? This was, this was the future.

   15. RORory O’Driscoll35:36

       I mean, I think one of the things that's obvious from this is that everyone is getting what they want from this press release, right? Altman, I mean, Oracle is becoming the richest man in the world 'cause his stock's going up thirty-seven percent. You know, Sam Altman is getting, frankly, leverage in his negotiations with Microsoft by making it clear he has another CapEx provider willing to spend vast amounts of money. So to some extent, this is happening 'cause everyone involved wants it to. So, and I'm willing to bet they want it enough that they're not sitting there going, "Are we a hundred percent sure this is gonna happen? Or do we just have a credible case that says this might happen, and it will be good for us in the short term?" And momen- look, to be fair, especially when you're trying to do something as ambitious as OpenAI, to some extent, momentum is your friend, and momentum is a necessity. And things like this just keep building on the momentum and keep building on the sense of inevitability. And you're right, Harry. It's the role of investors to be a little more cynical and scrutinize and say, "Do I really believe that that's gonna turn into sixty billion dollars a year of revenue? Do I really, should I really mark Oracle up by that amount?" And clearly they forgot to do that this week.

   16. SPSpeaker36:46

       I just, uh, this may be a broader point, but I just feel like the whole venture landscape's just moved from a game of investing to trading in a way that we're all just hoping that someone pays a more irrational price than we paid and suspend disbelief in the meantime.Well, we've got a couple, I think we still have a couple good years until something happens, so might as well play the game

   17. RORory O’Driscoll37:06

       Are you, are you going to be the Chuck Prince of our generation? Remember, you know, while the band keeps playing, you gotta keep dancing, the CEO of Citicorp in 2007. Jason, you might regret that quote. But you-

   18. SPSpeaker37:17

       No, I, I think you gotta play, I, I mean, the, the-

   19. HSHarry Stebbings37:20

       I, I've, I've kept dancing with Hopin, BeReal, and Clubhouse, and you know what? The party s- the party stops. I'd rather stop dancing while-

   20. SPSpeaker37:28

       Yeah, but no, but what happens along the way is, um, there's exits. So I think the big question for venture, I think where we're gonna make a lot of mistakes in venture is not taking billion-dollar exits over the next 24 to 36 months. We're gonna triple down. We're gonna have... There's gonna be board members, "Rory, I know, uh, we, we've got a $4 billion offer for our latest AI tagging categorization, uh, software at, what, 3% gross margins. Let's not... I want 8, I- or 12 would be better." You know what's better than f- than 12? 24 [laughs] . And we're gonna say no to those fund returners, and we're gonna wake up, and they're gonna be worthless. I think that's the, that's what's gonna happen. It's, because if you're in the game now, you're gonna have, you gotta have a couple big exits and IPOs the next couple years or quit the game. You gotta have a couple.

   21. RORory O’Driscoll38:16

       First of all, you are right that that will invariably happen. I mean, we're at, just, look, we're, we're just at that stage in the cycle where you've got a large amount of euphoria, fairly untethered, and, you know, the positive spin, which I think is true, is you don't make these kind of technological leaps and technological investments without a fair amount of accompanying euphoria. This is a means to the end of moving the needle forward on AI, right? We gotta try a lot of stuff. A small amount of it will work. A large amount of it will fail, and a lot of money will be lost in the end. But the s- the good stuff will ultimately outweigh the bad stuff. This is the way it happens. But to Jason, your point in particular, I'm around long enough, I remember a bunch of those companies in '99, 2000, right? Where, you know, you got the offer for 2 billion for some fiber optics company or for some comm equipment box, and the board said, "Damn it, we want eight. We're turning it down." And then you'd meet the team two years later, and the company was worth zero, and most of those folks were shell-shocked. It's like, you know, winning the lottery and then losing your ticket. It was brutal, right? So I think being canny and shrewd about what chips you take off the table in the next couple of years, I think you're exactly right, Jason, will be a key part of the game.

   22. HSHarry Stebbings39:26

       I also think people mistake valuation for liquidity, which is like, just because it goes up doesn't mean you can get out. And if you can get out, it's often at a discount to that price round. And if you can, it's often in a strip where they'll give you 10 or 20%, but you can't get out as much as you could selling it all now for four. I don't think people think about that enough.

   23. RORory O’Driscoll39:46

       True, and I think one of the things we're gonna discover is when all this action was happening in the public markets, you had this weird, somewhat positive phenomenon, which is everyone up, uh, with constant liquidity, right? You know, you can buy in at, you know, 80 bucks a share. It goes down to 70, and you can say, "I was wrong. I'm out," and someone else thinks, "Like, I think it's gonna be okay at 70," and they go out, and they, they're wrong, and it goes to 60. And you can kind of parse out the pain among various investors who come in and out of the stock. The interesting thing on the private side is you've bought in high, and the whole point of private is there is no meaningful liquidity, and if you're wrong, you're gonna own it all the way down. It's gonna be a lot more fun on the upside and a lot more pain on the downside when you don't have liquidity to fulfill the ro- part of the role of liquidity is allow you to alleviate risk. That's just the game we're in, and that's just the nature of being private for longer. Bigger bets, bigger upside, bigger downside.

   24. SPSpeaker40:43

       Every single founder that I, this year, that has had, um, a strong M&A offer, I've told them to take it 100% of the time. Now, I actually don't necessarily want them to take it, but I want to be the guy, I don't want to be the guy saying, "I want to double down and quadruple down." I don't want to be the guy that a couple years later it didn't work out. So I'm telling them to take it, and if they come back and say, "No, I w- I'm confident..." Here's my new heuristic. It's so simple. "No, Rory, I'm confident we'll be worth 10 times as much. No, I'm confident we will IPO. I'm confident..." Like Kaz just left hundreds of millions of dollars behind at Shopify, okay? Right or wrong, that dude's confident. We just heard it, right? He knows. Now, it's not all about the money, okay? But he's confident this was the right decision. But I wanna ch- I want, I'm telling the opposite. I'm telling every founder, "Take it. Take it. Take any massive offer. Take it." And I want them to come back and say, "F no way. F no way. It's gonna be bigger." I don't want to have any of those regrets, and I think it's the right... And then I, I also think f- telling them to do that makes sure that I don't screw it up as a GP, right? It's just so easy when times are good to, to say, "Oh, Oracle's gonna get another 500 billion, aren't they?" [laughs]

   25. RORory O’Driscoll41:55

       Totally. And, you know, I would say, though, it's like, I don't love your sentence, but I actually think it's right. Your advice should, at some extent, be tempered by the time, right? The p- you know, the presumptive, the, the, the Bayesian prior at a time like this when valuations are at an all-time high should be some version of what Jason said. Now, it's still possible that you're the one in 10 for whom, you know, an all-time high is just a step on the journey, and, you know, maybe you should play the game out because you're so confident it's going to be amazing. But you're right, most of the ti- I mean, look, it's very noticeable that three or four times in the last year you've seen significant M&A driven by founders at the same price that VCs either had just invested or were about to invest, right? In other words, that's the founders say... And because the VC member is investing thinking, "Oh, you're worth 2 billion. I'm gonna give you money at 2 billion. I think you'll be worth 6." And then three weeks later, the foun- the founder is saying, "You mean I can actually get the 2 billion? I'm out of here." Right? I mean, to some extent that happened at Scale AI. I think there was a pending offer on Windsurf. And that's founders, Jason, maybe listening to you and being shrewd and saying, "I could be at a local maximum here. This is a good time to take the chips off the table." And there's a little bit of information in thatAbout how much, dare I say it, more shrewd they are about the value of the asset than the investor who is about to write a check at the same price.

8. 43:23 – 47:35

   Microsoft's Investment in OpenAI: A Financial Perspective & Who Has the Power

   1. HSHarry Stebbings43:23

      I completely agree. I, I also think it goes back to incentives and how investors, to what we said last week with Jeff, have many options and, you know, we wanna ride them as much as possible [chuckles] and founders have one, and it's their whole net worth in it, and that drives a lot of decision-making, I'm sure, tied to that. I, I do wanna be cognizant in terms of how we discuss the topics we have on the agenda. We mentioned Oracle and OpenAI. Microsoft and OpenAI's relationship is slightly changing, it would seem. Announcement of... Jason, why don't you give a snippet on what this is in terms of the news between their relationship and how it's changing?

   2. SPSpeaker43:57

      Listen, we got, we have more to learn. It is-- I, I-- It's, it's gonna be interesting. I mean, Microsoft, I think today said they're moving not just parts of Office to Anthropic, but that it is the default choice for several of their products and that Microsoft today said several months ago, they told their teams to start using Claude Code. Several months ago. So they've been breaking up at some level for a while, um, and, uh, I guess it's fine. I mean, I guess it sounds like we don't know the de- maybe Rory knows the detail of the deals. I guess it sounds like OpenAI is gonna get what, some of what they want. They're gonna get this revenue share, uh, reduced. Uh, they're gonna get their freedom to partner with whoever they want, and I'm not quite sure what the price in blood is gonna be back the other way. But already Microsoft's moving on, right? They're already moving on. They got the IP. They're gonna keep the IP, I guess, right? That, that they're gonna keep whatever IP they're allowed before AGI. So they've got all the code if they wanna do anything with it, and they've already moved on to Anthropic, which is good because I think, um, ChatGPT's pr- probably gonna end up being almost as good for coding as Anthropic. So the whole thing, the, the shifting sands of AI, it's, it's, it's, it's, uh, it's a lot to process.

   3. RORory O’Driscoll45:06

      Yeah, it is. And it's worth pointing out, it's some kind of interim MOU. It's not a final done deal. It's kind... I think it's, uh, both sides saying we're making progress here where we're ending up. But you're right, Jason. It's that this is a moving on. This is, you know, consciously uncoupling here, right? Um, because if you look at it, what... The end game is some version of... Yeah, Microsoft, because OpenAI had this weird structure, for reasons we all understand, Microsoft ended up with this weird investment that, in my view, gave them a fair amount of blocking rights in a lot of different ways. It gave them access to the, you know, forty-- I can't remember, was it forty-nine percent of all the profits to a certain amount? It had, you know, rev share. It had a lot of things that was effectively a bit of a poison chalice for OpenAI in terms of making it a real proper standalone company, right? And what's clearly happening now is it was a marriage of convenience for a while. Both parties are moving apart, right? And the, the rational... I'm not sure is the-- where it ends up, but the rational end game for Microsoft is we didn't get-- We, we, we got something along the way, but we don't need their model. We don't just need their model anymore. Anthropic looks to be more useful for this. We still have access to their model. We like that, but we can buy that on a third-party basis. Just give them money, be, be a customer of the model. We got some lift from AI in the short term. We have some business with them as a hosting provider for Azure. All those are good things, but in the end, my guess is they convert that thirteen billion dollar investment from a blocking kind of thing to a, you know, pick a number between twenty and thirty, thirty-five percent ownership stake in OpenAI. And, you know, if OpenAI is worth half a billion dollars, they put-- Microsoft will have put in twelve billion and probably be worth a hundred to a hundred fifty billion. It's a 10X, it's a 10X venture return on twelve billion. In one sense, it's a great return, but as you guys know, we've talked about this, it doesn't move the needle when your market cap is three trillion. You don't get paid as a large market cap company for making, oddly enough, a hundred billion dollars because it's like you've got a three billion market cap, it doesn't move the needle, right? So when you zoom out three or four years, I think the conclusion will be, wow, that was an interesting investment. We got a kinda bit of a lift from mi- from Microsoft perspective. We made a lot of money, but doesn't move the needle. We got some buzz on AI in the short term, but we didn't really get what we wanted, and we don't have what we need in terms of AI, and we probably gotta keep cranking on that.

9. 47:35 – 53:50

   How Anthropic’s Revenue Could Go to Zero Overnight?

   1. HSHarry Stebbings47:35

      Three years' time, how do you think the relationship will look between OpenAI and Microsoft and then Amazon and Anthropic, the pairings that we've seen so far?

   2. RORory O’Driscoll47:44

      I think it's clear that Microsoft will be a large shareholder, a commercial, a... Hopefully, they will be... Hopefully, OpenAI for them will be both a customer and a vendor because they will be selling Azure h- uh, they will be selling cloud capacity to OpenAI, but not on an exclusive basis. They will be buying from OpenAI access to the models, but probably not on an exclusive basis 'cause they'll be all moving Anthropic. So in other words, a perfectly normal relationship between the largest software company on the planet and, you know, this entity that they helped form, found, and start, but where, you know, it's now grown up. It's left the house. You know, they're no longer dependent. And it's just a perfectly fine arm's length relationship with a ma- with, with, with a massive equity ownership that's probably gonna make them a hundred billion to two hundred billion dollars, which is a lot, let me repeat, which is a lot for anyone else, but still not... I mean, the lift, the real value to Microsoft has been the lift in its perceived market cap, uh, no, its actual market cap from the perceived AI buzz in these two years where, frankly, they had nothing. And I think the real question will be over the, um, to put the heat back on the Microsoft team, the real question will be when OpenAI finally pulls away and you can't rely on bull- you know, not bullying. When you can't rely on your prohi- y- your complex ag-agreement with them to get access to the AI you want, have you built your own AI that matters? Have you done something? And if you have, that's great. And if not, then you missed that market.That's where that one will be. I don't have as good a sense on Anthropic and Amazon. I'm not as close to it. I- I'm not as informed on it, maybe. I'm not close to either, but my guess is much the same. Often when you p- when a big company s- partners with a small company, the small company gets smothered. In both these cases, the small company won. They got the money, they got the critical mass, they got the credibility, and now they've pulled away. And neither Anthropic nor OpenAI needs Microsoft or Amazon at this point. They don't need them for money. They don't need them for com- because we- the, the industry will give them infinite money. They don't need them for compute, 'cause Larry will give them infinite compute in return for money. They may... They don't even need them for distribution. So in fact, both these companies, ironically, just like Microsoft 30 years ago used IBM and then left them an empty husk, I would argue Anthropic and OpenAI have used their large corporate relationships, gotten the value out of them. It's still a bit sticky 'cause the agreement's weird, but fundamentally, they've made it. They're independent, standalone companies. "Thanks for your help, guys. Here's your equity position. You know, call me for the IPO."

   3. HSHarry Stebbings50:36

      And Rory, thanks to your description of an empty husk with Scale AI. I had them in my inbox this week asking to come on the show and tell us why they're not an empty husk. So thank you for, for that. Um, that'll be coming to a 20VC soon, uh, which should be an interesting one. I, I do want to discuss too-

   4. SPSpeaker50:53

      Well, you know, we all did think that for a long time when that... It was a weird deal. It was... I mean, Microsoft buying 49%, in essence, of OpenAI was the first of those deals, right? Those style deals, the Scale, Windsurf. It... But it didn't turn out that way. They didn't leave a husk, right? There were some superficial similarities, but in the end, uh, uh, we all thought... In fact, if we... Probably the first time we did this show, we probably might have still said that Microsoft basically acquired OpenAI. It was an acquisition in disguise. As it's turned out not to be the case. Not remotely the case, right? Uh, uh, kudos to Sam Altman for dance [laughs] dancing his way out of the, one of the greatest bear hugs of all time. He was basically had to sell his company to Microsoft to get it off the ground, and now he's gonna, now he's gonna get out of it. He's gonna get out of it. Like, wow. [laughs]

   5. RORory O’Driscoll51:41

      No, you're exactly right. In a way that the others... I mean, and that's because the founder, when the founder goes with the acquirer, it's a bear hug, it's an empty hug, it's an empty husk. When the founder stays independent like Sam, stunning win. I think you're exactly right, Jason. That is a... You... People... I mean, it is Paul Graham, you got to give him credit, said you could put him on an island with a bunch of cannibals and he'd be king. Well, you put him on a plane to Seattle [laughs] and he came back with a bunch of money, and now he's king.

   6. HSHarry Stebbings52:10

      This is what I find funny. We g- we go back to the Oracle and the OpenAI skeptics, and I'm like, "Fuck it. I'm not betting against him." [laughs] Like-

   7. RORory O’Driscoll52:17

      Yeah, no, he might find the... He, he, he... Exactly. He might find some of that mon- I mean, do I think that Oracle will book a fair amount of cloud compute from OpenAI? Absolutely. Maybe not $300 billion, but if he's willing to provide it at a lower price than Microsoft, my guess is those fine people at OpenAI will take it.

   8. SPSpeaker52:35

      You know, another thing when we had... 'Cause we had Kaz here, right? With his leaving 200 and something million behind. It's another thing, when you have post-economic people, it's difficult to fully predict the outcomes of these things, right? So not only did Sam not leave the husk, right, but his ability to have no equity in OpenAI, Microsoft couldn't pay him enough to move over to, to, to hu- to de-huskify because he had no equity to, to husk, right? I mean, Kaz may make a billion. Like, I mean, Ka- I mean, Harry was kind. His job is to make a billion dollars from, from Opendoor, right? But even risk and time adjusted, you know, leaving 200 million behind at Shopify and another 70 something million in grants and what he might still get, y- y- you could only do that if you're post-economic, right? I hate it. I especially hate it when, like, some, uh, guy that was a senior marketer at, at some company and spun out with a couple million bucks tells everyone he's post-economic. But Sam... But we just... Sam and Kaz are taking post-economic actions, and it's very interesting in today's world where a couple billion isn't very much.

   9. HSHarry Stebbings53:41

      I'm... Oh, I, I don't know how-

   10. SPSpeaker53:43

       In market cap, in valuation-

   11. HSHarry Stebbings53:44

       Okay

   12. SPSpeaker53:44

       ... not in personal income.

   13. HSHarry Stebbings53:46

       Right.

   14. SPSpeaker53:46

       Yeah, a, a couple billion dollar seed round, we're, we're barel- it's barely gonna make Harry's show.

10. 53:50 – 1:04:53

    Replit Raises $250M at $3BN Valuation and Higgsfield Raises $50M at $50M ARR

    1. HSHarry Stebbings53:50

       We're, we're gonna dive into kind of the application layer. And two that Jason is passionate about, and I, I'm really excited for this actually, is, one is Higgs Field and the, the other's Replit. Jason, which one do you want to start with there?

    2. SPSpeaker54:02

       Either one, man. I mean, depends what you want to talk about. I think... The, the, there's like a... There is one thread. There's, like, this Higgs Field Gamma thread, right? And I just think it's somewhat interesting, um, that both are slightly under the radar. I mean, the, the, the, the CEO of Higgs Field was not, not quite complaining, but sort of shouting this week, right, when he did a round, um, that, hey, he's gotten, uh, uh, in revenue and certainly in users, gotten there even faster than Lovable and Friends, right? Doing quick video for... I mean, I've been a... I, I'm a small investor. I've been a user since it launched. I mean, I love Higgs Field. Um, and Gamma at s- Gamma at 60 million this year. Gamma at 60 million, from like zero to 60 million this year. That's pretty good for, for slides.

    3. HSHarry Stebbings54:42

       Just to be clear-

    4. SPSpeaker54:43

       Yeah

    5. HSHarry Stebbings54:43

       ... Higgs Field is a AI video creation company that raised $50 million and also announced $50 million in ARR-

    6. SPSpeaker54:51

       Yes

    7. HSHarry Stebbings54:51

       ... in a faster timeframe than Lovable and Replit.

    8. SPSpeaker54:54

       Yes, and, and maybe Gamma's close too, right? I mean, we could talk about... H- Higgs Field's under the radar if you're not a creator using the app. Gamma, maybe folks on this pod have used it more often, it's not under the radar. I guess we could talk about that. My meta point is, uh, you know, my God, right? If you don't see some of these numbers, it's not just Cursor and Friends and Replit, which we could talk about. I mean, who would have thought that, that... I mean, listen, going back to Kaz, house, h- homes are a big market, restaurants are a big market, ecom... Like Shopify, but, like-Sometimes we, we don't even realize that, like, short video and slides are massive AI, just massive, and that Higgs Fields can do this in the shadow of Google even though they're using Google models, that they can do it in the shadow of so much competition. It's just, it's just this is why it's so hard to do a triple, triple, double, double. It's not just, it's not just Lovable. [laughs] There's so many Lovables. [laughs] There might be 20 or 30 Lovables.

    9. RORory O’Driscoll55:48

       And I think what you're seeing, I mean, stepping back, right? You know, y- what you're seeing here is that with AI, there's a series of things that, quote unquote, "normal people" could... ordinary people couldn't do before, be it coding or be it video creation. And these tools are making it accessible to everyone. So you have this... 'Cause it's very interesting. You have this step function, 10X, maybe 100X increase in accessibility of creativity or coding, right? And that's the positive momentum. And then the negative momentum on all these deals, the Replit, the, um, the, the Higgs Field is, oh my God, you don't control the underlying model. If you don't get enough spay, you know, will you have tr- There's a lot of risks on those deals, but sometimes it, it pays to zoom out to the big picture. The big picture is anyone with internet access today can create video, cute videos, can edit videos, can be creative in a way that five years ago you couldn't do unless you were able, you know, unless you were a trained, you know, special effects editor, and that's huge. And peop-

    10. SPSpeaker56:50

        Maybe, maybe six, seven months ago. Y- it's your right point. It's, it's, it's... But you couldn't do these things, and now you can do it for pennies. You can do it for pennies. It's beyond disruptive, right?

    11. RORory O’Driscoll56:59

        And, you know, anytime you're dealing with shit that everyone can do, you have the potential for these exploding growth rates, and you guys are living it with Replit and Lovable in coding, and I think Higgs is an example of that in creativity, and I think there's, there's gonna be more of them.

    12. SPSpeaker57:14

        Sometimes I'm just shocked by the venture. Like, sometimes I would look at some of these things. Like, I'd be like Gam- We use Gamma all the time. I love it, right? I love it. Um, but I'd be like, how the hell could that get to 60 million in this year? It's like, do we make, really make enough slides? Um, but to Rory's point, it's a way to, to create content you could not do before AI, so I get it. But it's just all... So many of these markets are bigger in the age of AI than they were pre-AI. I know it's captain obvious, but Higgs Field for short form, short videos and Gamma for slides, I, I... Even, like, Opus Clip was, like, the first little AI investment I did. Like, I got it, but I didn't think it could add up to so much revenue to make these clips, right? But, um, it's just it... You gotta get the spreadsheets right. You can't use the t- the TAM spreadsheets from 2021. [laughs]

    13. HSHarry Stebbings58:02

        I find this time a little bit like COVID, though, in terms of market forecasting, which is a real difficulty in understanding what is a sustainable market trend that will be meaningful and dur- enduring versus what is an experimental market that is cool to create but ultimately whimsical and doesn't last a cycle. And I'm finding that uncertainty very challenging as an investor, to be quite honest.

    14. SPSpeaker58:26

        But the thing is, like, we agree, but we... But, like, that conversation we've been having since the beginning of AI, and a lot of thin wrapper apps died for that reason, right? But what we are seeing, it's a valid concern for venture, but we are seeing at least is the, the nominal NRR is pretty high in these apps. So it may still crash and burn, don't get me wrong, right? But if you're using Higgs Field and Gammaable and Lovable and Replit, and you're seeing triple digit NRR, even if it's not the NRR we used to talk about for B2B, it's hard to say no as a VC, isn't it? It's hard to say no when you see 140, 180% revenue. You can say no and just sit at home and knit.

    15. HSHarry Stebbings59:01

        I don't, I don't know, dude. When the margins are where the margins are, you have to project out and go, "But-"

    16. SPSpeaker59:06

        But, but Higgs Field is profitable, is cash flow positive. It varies based on the application.

    17. RORory O’Driscoll59:09

        It varies based on the, uh-

    18. SPSpeaker59:10

        They're not all, they're not all Replit and, and Lovable with negative margins. Um, they're, they're not. It, it... But, but it's a fair cons- It's just... I guess my learning is it's not ob- Like, they're all over the place what the margins are, right? They're all over the place.

    19. RORory O’Driscoll59:22

        Agreed.

    20. SPSpeaker59:23

        Right.

    21. RORory O’Driscoll59:24

        And, and, and you're right. I mean, Harry, again, yeah, it's hard. Y- you've got to figure out which exploding growth company is going to be sustainable and which exploding growth company is not. But at least you're dealing with the problem of exploding growth companies, right?

    22. SPSpeaker59:38

        [laughs]

    23. RORory O’Driscoll59:38

        And, you know, right?

    24. HSHarry Stebbings59:39

        Y- yeah, y- yes, but, but, uh, you know, I'm an investor in a business, Airwallex.

    25. RORory O’Driscoll59:43

        Yeah.

    26. HSHarry Stebbings59:43

        Uh, very similar business as Stripe. This is a unwaveringly enduring, growing, strong market. Fantastic. Comparatively, these others are incredibly experimental, potentially groundbreaking, and potentially whimsical. Very different.

    27. SPSpeaker59:58

        Well, you gotta be able to tolerate a loss ratio if nothing else.

    28. RORory O’Driscoll1:00:00

        Yeah, they are different.

    29. SPSpeaker1:00:01

        You gotta be able to tolerate 30 to 40% of losing your money on it.

    30. RORory O’Driscoll1:00:04

        They are very different. And, you know, and I'm not naturally good at these creative deals 'cause I'm just not naturally... You know, I, I, I get all your points. It's my bi- And I tend to be the steady compounders. But I think y- different deals have different attributes. And, you know, again, think about it from a portfolio. You've got to look at these and go, some of these you will be flashes in the pan, but, you know, y- and I... So the question is, what's the distinguishing characteristic of the companies that explode and then sustain, right? And, and my gu- I'm kind of riffing here and we can talk about it. It's probably two things. It's probably having expansive white space that you can grow into, which your customers does. More things you can do versus getting cut off shortly. And then secondly, having a founder who's maniacally focused on doubling down and adding all the rest of the stuff. And something you guys said about Lovable and Replit a while back stuck with me, which is you can envisage a whole bunch of ancillary products around that, so as people build their websites, all the other things it takes to make that website work. And you can envisage building an economic model around the combined thing, right? So I think it's a combination of the opportunity and the gu- I think some of these things will be flashes in the pan. You know, to u- I'm not trying to be mean, but to use the Hop... Yeah, like Hopin in COVID, right? It will be a temporary phenomenon. It goes away.But finding the ones where you have that explosive growth and then can parlay it into enduring is gonna be pretty damn interesting
11. 1:04:53 – 1:15:03

    Why Adobe Have Failed in an Age of AI and What Incumbents Have To Do?

    1. RORory O’Driscoll1:04:53

       scary.

    2. HSHarry Stebbings1:04:53

       Kind of bringing this all together, the Higgs Fields, the Replit, the thing that could also kill them is actually the fact that Wix has Base44, which is actually doing incredibly well. The fact that Adobe or Canva could do what Higgs Field does, and with the existing distribution they have to it. Going to the distribution and going to the incumbent versus startup, how are we thinking about incumbent versus startup and the core crux there?

    3. RORory O’Driscoll1:05:24

       The market would say that the Wix acquisition has worked very well, and, you know, it's probably gonna be 50 million in ARR by the end of the year, so that's a win. The market would also say, you know, just based on the thing that Adobe and, you know, let's be honest, Salesforce, aren't seeing that kind... Uh, have tried to announce AI products and have gotten some traction, but aren't able to access that explosive growth, and I think market reaction, the Adobe stock price, kind of reinforces that. So it's not a kind of simple binary answer. It's some p- folks have pulled it off, and probably s- in fact, as I think of it in real time, because it's easier to make a... It's easier for 100 million to make a difference at Wix than it is to make a difference at Adobe or Salesforce, 23 billion in the case of Adobe, and 40-something in the case of Salesforce, where it's, it's hard for those incumbents to move the needle significantly, which is why the stock prices have been down, because you're not getting the AI explosion.

    4. SPSpeaker1:06:24

       Yeah, but I think the... So for sure. For sure. But I think the, to me, the Base44 Wix thing is interesting because we've been asking for a while, can the incumbents benefit from AI the same way the startups have, right? And we're looking, and we're looking at, we're looking at, um, ServiceNow kind of faking it, right? Uh, and we're looking... We had Marc Benioff, who we all love, but we've not seen it in the numbers yet, right? And so, and we see Palantir, but Palantir is a completely different company that is AI first. So we're not seeing the... And we're seeing it in our own portfolios. We're seeing a lot of our 2021 high flyers not exactly crushing it in the age of AI. There's the DialPads, the Talkdesks, there's the others that have, but a lot haven't. But what's interesting, then you see Wix come in, and they buy a little love, lovable Replit clone that is just a ch- cheap clone by one guy. I mean, kudos to him, right? Solo founder, right? Bought for 80 million using the same underlying technology, Claude Code, right? But they bolt on what Wix is good at, which is safety and identity, okay? And then they bolt on the frigging funnel. They push it out to their base. And if that's nothing to 50 million in a single-digit number of months, imagine it's 200, 250 million. And more importantly for the numbers, to Rory's point, if it's 10% market share-That's a lot for a, for a big company distribution to get in a couple months, 10% market share. So if Adobe could do that, if Figma could do it, right? If Figma can do it with its thing, you know, uh, could it be revenge of the incumbent? I don't see much evidence, but it's, it-- I like the w- the Base44 as one example of the revenge of the incumbent, right? I, I don't want all of our, all of our friends to go down into [laughs] irrelevance. I wanna, I wanna see Zoom back. I want to see everybody come back and be roaring in the AI age, right? Not just the new guys.

    5. HSHarry Stebbings1:08:13

       I mean, speaking of, like, incumbent and, you know, innovating as an incumbent, uh, while we've been on this-

    6. SPSpeaker1:08:19

       Yeah

    7. HSHarry Stebbings1:08:19

       ... I've been sent by a lot of people, uh, Workday acquiring Sauna Labs, uh, for $1.1 billion. Wow. They were, they were at, like, 50 in ARR. That's a pretty great outcome for everyone involved. [laughs] $1.1 billion to Workday. First, I, I think Sauna's great, Joel's great, but this was a, a second to Glean, very much so. Um, wow.

    8. SPSpeaker1:08:51

       But, you know, in these times, um, being number two can be a great place for M&A.

    9. HSHarry Stebbings1:08:56

       Yeah, absolutely.

    10. SPSpeaker1:08:57

        When number one is unacquirable, you get so many offers, right? Um, and, uh, just y- I, I wish I'd realized that as a founder, right? Um, I mean, knowing Rory, like, if I-- even if, even if EchoSign had just done okay and we'd gotten up to 100 million, just the folks that DocuSign turned down would've come and bought us for a billion bucks. Like, I wouldn't have had to do anything, just being number two. I would've just had to open the email and sold for a billion at a moment in time. Like, today it wouldn't have worked, right? So today is a gr- in the age of AI, you can't buy, Glean's unsellable, unacquirable, right? Lovable's unacquirable. Replit's unacquirable. So being number two for venture. And they'll p- and the other thing in frothy times, they'll pay up too.

    11. HSHarry Stebbings1:09:38

        Agreed.

    12. SPSpeaker1:09:39

        They'll pay, they'll pay two times, three times what they would've paid, uh, otherwise. So number two's great when number one's not available. Just don't raise too much if you're number two. [laughs] Don't make yourself unacquirable.

    13. HSHarry Stebbings1:09:50

        Can I push your thinking?

    14. SPSpeaker1:09:51

        Yeah.

    15. HSHarry Stebbings1:09:51

        Is number one really unacquirable when Scale gets bought for $14.9 billion? Are we not seeing the limits pushed for what is acquirable and what is not?

    16. SPSpeaker1:09:58

        Yeah, but it's gotta be a hyperscaler or someone-

    17. HSHarry Stebbings1:10:00

        Agreed

    18. SPSpeaker1:10:01

        ... like Workday c- Workday can only pay so much, Harry. Workday cannot pay $26 million to buy Glean. What's Workday's market cap today? Right? It just, it just doesn't have the capital to make, uh, to make, to make ev- all the VCs what they want.

    19. HSHarry Stebbings1:10:14

        Agreed.

    20. SPSpeaker1:10:15

        I'm not, I'm not, I'm not saying you're, you're... I think everybody's right, right? For sure, the hyperscalers are, can pay up, but, um, but also a lot of folks won't sell at any price. And so being number two, just as founders, it's a cheat code. Like, just, just don't raise too much. Be acquirable if you're number two. Be kind, right? And you'll be shocked in frothy times the offers you'll get. You'll be shocked the offers you get being number two. You'll be shocked.

    21. HSHarry Stebbings1:10:40

        Have you ever regretted selling, both of you?

    22. RORory O’Driscoll1:10:44

        Just for... I'm pausing and thinking. Yes, there have times when I-

    23. HSHarry Stebbings1:10:47

        A, a friend of mine said to me this week, "Harry, I've never regretted selling and making millions of dollars."

    24. RORory O’Driscoll1:10:53

        Yes, I could have made-

    25. SPSpeaker1:10:53

        As a founder or VC, though? That's different questions, as a founder versus VC.

    26. HSHarry Stebbings1:10:57

        He's a VC.

    27. SPSpeaker1:10:59

        Listen, I, I mean, Rory might have more ex- like, in my experience as a founder, I bo- I would say n- more than fif- 51% of founders regret it. I regret it. But as a VC, like, here's the, the hubris in this, the hubris in this. You're gonna tell a founder she or he can't sell and expect them to work twice as hard after you tell them to F off? At the end of the day, unless you're a total douche, if the founder wants to sell, you sell. It's not your decision. It's not your decision. That's the height of hubris in my experience.

    28. RORory O’Driscoll1:11:28

        A- agreed. Uh, uh, and I don't think you even do tell them. I mean, you asked me do I regret it. It's like, there have been times when I look back and I go, "Ooh, I think if we'd held, we would've compounded and been bigger." And you have objective facts that make you believe that, which still isn't the same as saying you regret selling. In fact, in that particular, one of the cases, I'm choosing my words 'cause in case my dear friend who it's relevant to is listening. I talked to the CEO many y- three or four years later, and I said, "Oh look, our competitor is now worth, you know, four X what we're worth. Do you regret it?" And he wisely said, "No. I took money off the table. I bought a house. I got married. I've got kids. I'm wildly happy. I'm doing another deal. Here, you want to invest? Here's the terms, and my life is great." So, I, so I, you know. So as an objective matter of fact, you kinda go, compounding would've been good in that case, but it wasn't to be, and I don't regret it vehemently. I'm just like, "Yeah, I would." Most of the time, yeah, most of the time, I'm just trying to think. There's only a few when you look back and go, "There was a lot more compounding in it." A lot of the time you go, "Yep, that was a good call." You know? And again, I think the more salient fact is this. Jason Wright is if the founder calls. So my MO is actually very different. My perspective is not, um, have an agenda one way or the other. Well, the first thing I always say to founders is, you know, if the liquidity window opens as a private company, you should pause and take it seriously, 'cause most of the time it's not open. So the mere fact that it's open, you have to pause and think. You have to change your game from, you know, you're 90% heads down, work hard, and now someone's made an offer. It's now time to get real and figure out-

    29. HSHarry Stebbings1:13:11

        Or do you not have to apply that same mindset as an investor-

    30. RORory O’Driscoll1:13:14

        Yeah, you do
12. 1:15:03 – 1:23:09

    IPO Insights: Figure, Gemini, and Via All Go Public

    1. HSHarry Stebbings1:15:03

       And that's a new world. Like, that, getting those funded is harder than ever when they're going from ten to twenty, but that's an entirely new discussion. Um, speaking of moments of liquidity, IPOs. We had a three and a half billion dollar IPO for Via. Uh, we had Gemini go out at four point four billion and thirty-two percent bump on the first day. And then we had Figure Technology raising close to eight hundred million dollars in their IPO. Gosh, how exciting and nice to have IPOs again. Which do you think is most interesting to discuss out of those?

    2. SPSpeaker1:15:38

       Well, can I add one thing, and Rory will know. It, it-- The, the busiest IPO week since twenty twenty-one isn't, isn't to be, isn't to be ignored or taken lightly. Now, it isn't the busiest year yet. It could end up. There's a-- I mean, it's, it's already September. Next year might be as big as twenty twenty-one, but, you know, getting back, you, you know, w- if you've ever been a founder or worked with a company that's decelerated, getting back to where you were is a big moment in time. Like, you should celebrate when you got back. So last week we were back to twenty twenty-one for a week. Maybe we'll get there for a month, right? And then you get there for a year. It's, it's a big, it's a big micro milestone to have a, a one week of twenty twenty-one.

    3. RORory O’Driscoll1:16:16

       I think they're, they're all interesting for different things. I think Figure is the most interesting, just to start with that. So let's look at it. And again, setting the scene, looking at those three IPOs, two of them are vaguely crypto related, Figure and Gemini. One of them is a kind of a very niche... Not niche, that's not the right word. Different SaaS co-- uh, primarily a SaaS company selling to governments around transport, has a lot of complexity, and it's not just SaaS. That understates the complexity of the business, the Via business. Um, but the other two... And then, so of the two, um, crypto companies, Gemini is the Winklevoss twins, a name of, you know, social network repute. Um, and Figure is Mike Cagney, who was the founder of SoFi. So the first thing you note here, there's three IPOs. Two of them are kind of second time founders, depending on how you adjudicate the Winklevoss case. Uh, so the F. Scott Fitzgerald line that there are no second acts in American lives is wrong. These are two out of three are second acts. Cagney's interesting because SoFi, I think it's an interesting company. Um, but the other, like, SoFi was an interesting company, very differentiated, has gone on to be TraMat's only successful SPAC and, um, you know, a perfectly great successful public company. And what Figure is doing is using the blockchain as a settlement mechanism for home equity loans and other kind of non-conforming loans. So at heart, it's a financial services company. It's a fintech play. It's lending money, which is one of the core things fintechs have done for, you know, two thousand years. But its interesting twist is it's using the blockchain to process the back office more efficiently. You know, in the end, it won't... You know, it'll rise and fall based on credit. You know, if you make bad loans, you lose money in, in the lending business. But there is an interesting twist around using the blockchain to instantly settle these loans, to be able to securitize them. There's some kind of securities law issues. But interesting company, clever, good twist on blockchain. Fin- I mean, first of all, yay everyone. Finally a use for the freaking blockchain that's standalone and independent of its kind of a trading asset. So that's what Mike Cagney's done here, and all credit to him. It's a good company. The stock popped nicely, right? So everything about that one to me is the most interesting. You know, Gemini, you know, it, it popped high and then dropped down fast. It was fun. All three stocks behave very differently. So even at the, you know, trivial level of the de- trading, Figure performed perfectly. Gemini popped way up and then intraday came way back down, right? Revenue's declining on that one. It's another crypto exchange. I never can tell them apart. It's just not Coinbase and not bi-- you know, whatever the Binance is. So I don't know why it matters. Revenue's declining, but, you know, God bless those guys. They've hung out a long time. And then interestingly, from a stock price performance, Via actually opened low, opened below the trading, below its offer price, and then bounced up during the course of the day, proving that it's not always free money to buy at the op- stock price. But yeah, so fun week for stocks, but definitely to me, Figure the most like, ooh, that's interesting. I'd like to learn more.

    4. SPSpeaker1:19:23

       I guess it-- the interesting question in the age of, of AI with, with Via Transportation, right? So founded twenty twelve, so that's thirteen years, right? Classic B2B plus. It's not just SaaS, but B2B plus. Four hundred and ninety-three million invested, four point two billion dollar valuation will fluctuate. So twelve years, so that the investors in the aggregate 10X the total capital invested. That was a, that was a, a, A plus but not S tier investment until eighteen months ago. Is it good enough today?13 years, 500 in, or four-- 500 in, four-point-something billion out. Um, that was great until recently

    5. RORory O’Driscoll1:20:02

       I would take it in a heartbeat.

    6. SPSpeaker1:20:04

       [laughs] Harry's not sure. He's not sure if he likes the fact that, that it has a defensible platform, big enterprise customers, or, or does he want to put more into Lovable? He's just not sure which one he wants to do. It-- They're both, both, both, both have pros and cons. He's d- he's doing both, actually.

    7. HSHarry Stebbings1:20:23

       I, I think at the end of the day, I'm thrilled to see IPO markets open. I'm thrilled to see exuberance. Um, I'm aware that it will take 12 months for people to truly get cash back, but I am a incredibly selfish, self-centered individual who wants LPs to have more money to put back into venture, and that will align perfectly with my fundraising cycles. And so inshallah, bring home some IPOs, previous generation, and fill up the LPs funding, uh, because we're coming for it.

    8. RORory O’Driscoll1:20:54

       Good to know, Harry. Good to know. And yeah, it's, it's, it was a good week.

    9. HSHarry Stebbings1:20:57

       That, that's how I felt. I was very excited for one though, which was, uh, Bending Spoons buying Vimeo. Bend-- I mean, sorry, you Americans, you love to always claim the dominance over Europe and technology. The European, the Italian buying the public American [laughs] company for $1.38 billion.

    10. RORory O’Driscoll1:21:19

        I mean, first of all, stepping back, Bending Spoons is a wi-- a, a quirky name, but a wildly successful buyout shop that specialize in these old assets that have some kind of brand recognition but no obvious model. The most obvious one being Evernote, which they bought and have, you know, streamlined, raised prices on, and I believe gotten it to, you know, a more profitable business model. So yeah, it's, I mean, it appears to be a s- it's probably a successful formula.

    11. HSHarry Stebbings1:21:49

        I think the interesting, the interesting thing for me is, like, they, they tend to buy assets very cheap.

    12. RORory O’Driscoll1:21:52

        Yes.

    13. HSHarry Stebbings1:21:53

        Centralize. Centralize and just eke out the profits. Vimeo, I don't know how cheap it is at $1.4 billion. Like StreamYard, they ... StreamYard they bought pretty cheap. Evernote they bought pretty cheap. And to eke out that was much easier. At a $1.4 billion entry, y-you're moving to a different scale of entry price that you're moving into. That's a different game of roll-up.

    14. SPSpeaker1:22:18

        I just have s- emotional attachment to the brand. As a creator, I've been using Vimeo since the beginning, right? Since when it competed with YouTube. So that's a smaller portion of the business. But it's $420 million business that's basically flat. It's an annuity, right? And they're buying it for then what? Three times revenue? Um, less, two point some- two, two, 2.5 times revenue. Um, so either they have to make it more profitable, right? Or they have to apply some folks that care more in software to inject a modest amount of growth in a time where Higgsfield and Gamma, you know, will do a third of their revenue in 12 months. Inject a little of that Higgsfield and Gamma love, and, uh, maybe they can do it. Maybe it's not all, um, uh ... Although I, I don't know that they've made people use Evernote more, the, the Spoons guys, the

13. 1:23:09 – 1:32:39

    Kalshi Quick-Fire Round: Adobe Up or Down by EOY? What Price Will OPEN Be EOY?

    1. SPSpeaker1:23:09

       Spoons brothers.

    2. HSHarry Stebbings1:23:09

       Right, team, are we ready for a quick fire? A Kalshi quick fire? Yeah?

    3. SPSpeaker1:23:15

       Fire away.

    4. HSHarry Stebbings1:23:16

       This, this will be great. Rory, you're gonna love this, okay? So we had the main man Kaz on the show. Opendoor today is sitting at about, I'm just gonna check for accuracy, $9.30 a share today. Okay? A stock. Um, where is it gonna be end of year, December 31st? It's $9.30 today. Where's it gonna be?

    5. RORory O’Driscoll1:23:38

       Kaz seemed like a very nice man.

    6. SPSpeaker1:23:41

       I got 24.

    7. RORory O’Driscoll1:23:42

       You got 24?

    8. SPSpeaker1:23:43

       That's my bet. My bet's 24.

    9. HSHarry Stebbings1:23:45

       He just asked AI, Rory. Do you not know this? [laughs]

    10. SPSpeaker1:23:48

        No, no, I just ... Actually, I just, I just did the way I do, uh, venture investments. I just do a line. This is the beauty to s- to being a late seed investor. Like, early seed you gotta squint. Late seed, I just, I b- I s- since first investment, just draw a line. It's pretty much accurate. Kaz is pretty damn good. The meme- the memers like him as near as I can tell from Twitter. I'm going 20-- I'm going 24. Um, I don't know what the bet is exactly, but I got 24.

    11. HSHarry Stebbings1:24:17

        24. Rory?

    12. RORory O’Driscoll1:24:18

        I think that's a great ... I mean, somewhere between 9 and 24, i.e., I think it keeps going up. I think it's an extraordinarily hard ... And I think this guy is so smart and Keith's talented. They'll make noise, move momentum, and I think in the near end, the stock will appreciate because there'll just be b- 'cause you can make the story feel big. I'm just gonna say it, I think it's a brutally hard business. Um, and over the next three to five years, you wanna believe in that vision of being able to help people in the most important financial decision of their lives. I just think it's an extraordinarily hard business 'cause there's a huge amount of arcane detail on every house, and everything's a special snowflake. So, um, I hope I'm wrong 'cause, like, he seems like a great guy. I just think it's a hard thing to build massive enterprise value in, but ...

    13. HSHarry Stebbings1:25:08

        Adobe is getting crushed by the markets, but the revenue is strong, continuing to increase. Will share price be lower or higher in 12 months for Adobe?

    14. RORory O’Driscoll1:25:21

        Adobe's been going, it's going to 10, 12%, right? And the multiple went way up, right, a year, year and a half ago. I think they're convinced having AI would be good for them or whatever. Some amazing post-COVID story. They p- you know, they obviously were really high in '21. I wanna say, I should know, 40 or 5-ish PE. You know, high price sales multiple. Dipped in COVID, sorry, post-COVID in '22, and then it came back strong. And all that's happened now is it's reverted back to what it should be. You know, five or six times revenue. It's a wildly profitable, slow growthThey've done some things in AI, enough to not feel stupid, but not enough to actually move the needle significantly. So it's kind of valued just right. It hasn't crushed, it hasn't fallen. It's just the euphoria has faded away and now it's, uh, I wanna say five or six times sales, 15 times forward PE, you know, company. I think it's still vulnerable to medium-term disruption from AI- AI, but I don't have a, "Oh my God, it's crashing from here." It's just reverted to what it's probably worth.

    15. HSHarry Stebbings1:26:29

        Rory, higher or lower?

    16. RORory O’Driscoll1:26:33

        Logically, what I said was fa- logically, my answer to the question has to be no more than 10% higher because if it grows 10% in sales, it should be 10% higher if it's fairly valued today. But I feel it's a low confidence comment. My point is, the salient one is your narrative, and I've seen the narrative on Twitter, is, "Oh my God, Adobe's crashing." The real narrative is Adobe's return to Earth. Jason hates that. When I'm boring you guys-

    17. SPSpeaker1:26:58

        I don't think you believe that the sto- that, that the stock price doesn't, doesn't, uh, assume a certain amount of forward growth in its current stock price. I don't believe you believe that.

    18. RORory O’Driscoll1:27:08

        Yeah. I mean, I think it do- it's, it's been growing-

    19. SPSpeaker1:27:12

        You don't, you don't like the, you don't like the Kalshi. Fair, fair enough. You don't like it.

    20. RORory O’Driscoll1:27:14

        No, I-

    21. SPSpeaker1:27:14

        I'm betting down. I'm betting sig- mid to te- down at least 10%. Um, and, uh, I'll tell you why if you, if you want my, my-

    22. RORory O’Driscoll1:27:21

        Yeah.

    23. HSHarry Stebbings1:27:21

        Yeah.

    24. SPSpeaker1:27:22

        Two reasons. One, uh, Scott Belsky leaving, bad sign for AI at Adobe.

    25. HSHarry Stebbings1:27:26

        Mm. I agree.

    26. SPSpeaker1:27:26

        You ca- the guy is not 70, okay? Uh, he's still got the fire. He goes off to be more creative. Gi- give him a, give him a, give him a couple hundred million like Kaz. Like, get this... Getting k- getting Scott to leave was a big blow and, listen, maybe behind the scenes I'm exaggerating his influence, but I- I've worked with a lot of the folks that are still executives today. It's a big loss for Adobe l- losing him in the AI, and maybe he, maybe he came up-- I'm confident he came up short of what he wanted to accomplish, right? It's a big company, a lotta, a lotta ships to move. But you're just at a loss without him. Two, this is my biggest tell of, of being worried about public companies today, okay? This is my, I real- this is my least favorite metric, even w- worse than Google's margin, I mean Oracle's margins on its, uh, cloud services. AI-influenced ARR. Adobe announces 5 billion of AI-influenced ARR. You don't have to say this if you have AI ARR. AI-influenced AI, ARR. That to me, any public company quoting billions of AI-influenced ARR does not believe they will have billions of real ARR. Um, just, I just think it's a b- both are a bad, are, are a bad sign at the margin, but this is a business that can't be killed, right? It, it, it is an enduring business.

    27. RORory O’Driscoll1:28:40

        Listening to you, Jason, you could be right. There could be a little more deflating it. You know, it's not going away, but it's 10% growth, it's slowing down. In retrospect, the real comment is how the hell did people think less than two years ago that it was worth 18 times revenues when it's worth six times today, right? I mean, what were people smoking, right?

    28. SPSpeaker1:29:01

        Yeah. A lot of Adobe's history is financial engineering and the move to the cloud, and they got a lot of run out of that, right? Um, but, um, but, uh, you know, in the end, Scott wanted to buy Figma. It didn't happen and he left.

    29. RORory O’Driscoll1:29:14

        They did at least try. They weren't left.

    30. SPSpeaker1:29:16

        They tried. They tried.

Episode duration: 1:32:49