SpaceX's Financials Leaked: Is it Worth $2TN | Meta Debuts Muse Spark: Are They Back in the AI Race?

1. 0:00 – 1:14

   Intro

   1. JLJason Lemkin0:00

      I don't buy Dario anymore. He may well be the second greatest founder of all time behind Elon, but I am just so burnt out of the Boy Who Cries Wolf

   2. HSHarry Stebbings0:08

      Starting off on the agenda, Anthropic unveils Mythos, but withholds it from public release because it's too good at hacking. Number two, public software stocks tumble to new lows with Citi saying there really is no floor. Optimistic. And then finally, Meta debuts Muse Spark. It's Alex Wang's first model from Meta's Super Intelligence Labs. Does it save Meta in the race to catch up?

   3. JLJason Lemkin0:33

      So I'm pretty bullish actually on OpenAI and the enterprise.

   4. RORory O’Driscoll0:36

      I think it's a two-way fight. Anthropic has the advantage of clarity and focus. OpenAI has the advantage of the consumer business.

   5. JLJason Lemkin0:43

      If your agents are only 60% as good, you're in a slow death spiral. It appears to be the most expensive IPO at scale of all time.

   6. RORory O’Driscoll0:49

      The Elon discount rate is zero, and the Elon probability of failure rate is zero to get to $2 trillion.

   7. JLJason Lemkin0:55

      I can't open the Strait of Hormuz myself. I can't do this. Like enough already. Let me just use my tokens. Ready to go?

   8. HSHarry Stebbings1:02

      [rock music]

2. 1:14 – 4:31

   Anthropic Unveils Mythos: The Model "Too Good at Hacking" to Release

   1. HSHarry Stebbings1:14

      Guys, I am so excited for this show. Uh, as we always, uh, have, we're gonna start with Anthropic. What else could we start with but Anthropic unveiling Mythos with the preview withheld from public release because it is too good at hacking. Discovered thousands of zero day vulnerabilities. Admittedly, some were quite old. Um, how did we think about this? Did it deserve the reaction that it got?

   2. RORory O’Driscoll1:43

      Which reaction are you talking about, Howie?

   3. HSHarry Stebbings1:46

      I would say widespread fear that, that was then shown in a loss of market cap of a lot of public companies in the US.

   4. RORory O’Driscoll1:52

      Let's leave to one side the was it a marketing stunt or did they have not have compute? Let's focus on what Mythos does in terms of cybersecurity and what your correct response to that would be. And, you know, if you read a lot of the stuff, it, it finds a whole ton of vulnerabilities, including some that have been literally there for years, right? So that's kind of the, oh my God, that's scary. And then you see... A-a-and that's why they withheld it and shared it with a bunch of security vendors, right? And then you see a bunch of kind of counterarguments that basically some version of this, which is using older models and using them well, you can actually get to the same outcome, right? You can find the same security vulnerabilities, right? And that's the counterargu- And there was a whole bunch of Twitters that said, "Eh, this is not a big deal." And, you know, I'm processing through from the outside and, and, and my conclusion is those people who said it's not a big deal are wrong, and Anthropic is right. And I was thinking about the metaphor here today, right? Because what they were saying is... And it's actually very interesting about the whole agentic revolution. It's kind of a microcosm that allows us to talk about a lot of things. It's like, basically, they are right, which is... Sorry, the, the, the naysayers are right, which is that you can take an older model, you can point it at some of these issues, you can kind of query, you can direct it a couple of times. And someone actually did the exercise of here's how I found the same bugs. I had to steer the model a little bit, and you got it, right? Um, but the comment is, Mythos just kicked off on its own, agentically, goes and looks at all the code and finds them on its own, right? And the metaphor I was trying to look at here is very simple. It's like, it's the difference between a rifle and a machine gun. In one sense, both of them can kill someone, right? But one shoots one bullet and then stop and reload, and the other just spews guns, bullets out. And in the First World War, you know, we all tragically learned that machine guns are... It might be the same thing, but quantity makes a huge difference. And I think that's what's really going on here. The speed at which this can process reason across large code bases means that they're just gonna find more bullets. They're gonna shoot more bullets. So it's not... So the kind of the, the Twitter cynical, it's not that different isn't true because it's the, it's the capabilities to do so much so quickly with such human direction that makes it definitely a quantum step difference in terms of real capability. My big aha was it's, it's, it's not overblown in the sense it can find stuff.

   5. JLJason Lemkin4:09

      I think that AI is enabling every single breach possible, every security hole to be found. Not a subset of the hottest companies, not folks trying to attack, uh, OpenAI APIs, but everyone. And like, for example, you know, the other day, MyFitnessPal bought Cal AI, right? Cool story, right? What was it, Harry? $100 million, 19-year-old kid from Miami, something like

3. 4:31 – 7:35

   Why Mythos is a Quantum Leap in Cyber Risk

   1. JLJason Lemkin4:31

      that, right? A great story. Two days later, it was instantly breached. All the records were stolen. 3.2 million records. Everyone's single use. Ev-everyone-- All the data on you, all your HIPAA data, every single thing on you was stolen within days. And it became a sport for a hacker. They just stole it all. Now, the root cause was, and actually this is surprisingly common, it's an issue Superbase and others had to deal with, um, they didn't have any authentication on Firebase. They-- It was o- But as most databases are now built by AI, as more and more apps are built by AI, um, the number of issues is gonna explode, and if Mythos and friends lets bad actors find every site the second it launches with any PII and steal it, I think we may enter an era later where sites get more secure as, as it's flipped on the other side. But I think we're gonna go through a transition phase where security's just getting worse and worse and worse because every single website can be instantly hacked and stolen from it. And the whole Mythos run, they said, I think Claude said it took, um, I don't know, I, I'm sorry, I'm gonna misquote the numbers. It took, um, $20,000 of credits or a couple hours or something like that, right? And hey, that's, that's enough that I'm not gonna do it against Scale's website. But if I could, if I could simplify that and distribute it against every single thing with any PI on it, you know, bad actors are just gonna hit everybody. I think it's a big deal. Whether this is a publicity stunt for not having enough capacity, I don't know, may-maybe, maybe a little bit, right? But, um, but everything's gonna be found, every security hole, right?

   2. RORory O’Driscoll6:04

      Ag-agreed, which is why the second comment I'll make isI, I, I thought that so the second com- is that the reaction to it in terms of security stocks going down, to me, didn't make sense. Because I'm g- like, what this says is there's no doubt that the process of... Going forward, part of the process of security will be to use Anthropic or another code model to check your code before you deploy to find these vulnerabilities. This will be a thing, right? Um, but someone's gonna have to administer that. Someone's gonna have to build frameworks and harnesses to do pre-screening code, and then, but then more importantly, everyone's gonna have to operate on the assumption that if you miss anything, they're gonna find it, which is different than if you miss anything and you're really strategic, they might find it, right? To Jason's point, if the other side now have machine guns, then you've got to build tanks, right? So what security is might change. The, the vendors who step up and meet the challenge will triumph, and the ones who don't will fall away. If Anthropic say that their model now allows anyone to find any vulnerabilities and they're gonna withhold it for six months, that means that in six months and one day, every bad guy on the planet is gonna be pinging your s- your code and trying to find the bad bits, right? So you bet you're gonna be investing in cyber. So I think th-the part that made sense was the this is a big deal. The part that didn't make sense is the cyber stock should go down, because I think you're gonna want way more defenses because the bad guys are more heavily armed. And yeah, as I say, it is an arms race.

4. 7:35 – 13:21

   The "Boy Who Cried Wolf": Jason's Critique of Dario Amodei

   1. HSHarry Stebbings7:35

      Do you buy Dario's it's too powerful, we can't release to the public? Is it just great marketing?

   2. JLJason Lemkin7:41

      I don't buy it anymore. I'll tell you some- one thing that changed with me with the Mythos thing, for what it's worth, um, I, I don't buy Dario anymore. What I mean is, listen, he may well be the, the second greatest founder of all time behind Elon. Look what he's done in five years, right? Five years to thirty billion. The gr- the greatest, um, grudge startup of all time, right? I mean, it's hard as a, as a founder to not, to your jaw not to fall on the ground. But I am just so burnt out of the boy who cries wolf. Ev-every job's gonna be destroyed. Everything is insecure, everything. Like, enough already. And like, I've heard it so many effing times. And then about Mythos, I have to hear that like he's created, uh, the spawn of evil if we're not careful. Like, I just can't... Like, I'm, I'm, I'm, I've rotated back to, to Team Sam after all this because I just can't take the, can't take the endless boy who cries wolf. It's an... Like, even if you're right, there's a... I can't open the Strait of Hormuz myself. I can't do this. Like, enough already. Let me just use my tokens. Seriously, I've lost confidence in his, not in him, him as a, as a CEO, but this endless marketing machine. I'm tuning it out now. I don't care anymore what he says about this stuff. I don't care.

   3. HSHarry Stebbings8:51

      What specifically, what specifically do you not buy? I'm just trying to understand where you are.

   4. JLJason Lemkin8:55

      Listen, if every... Look, Dario's like ev- 80% of jobs are gonna be destroyed in t- in two years. We need, we'll need no programmers by next week, okay? That endless thing. Maybe he's right, but what can I do about it? I heard you. I heard you the eleventh time. I heard you the eightieth time. I heard you on Joe Rogan. I heard you on, on, on, on TBPN. I heard you on Harry. I just can't... And then, and then the Mythos thing, and they were holding it back, and it's like, I believe you're m- you're, you're a safety guy, but if you talk your game too much, um, I just gotta check out at some point. Show me something that's inspiring. Like, I actually, I honestly feel like his message is uninspiring. That's the problem. It's uninspiring.

   5. RORory O’Driscoll9:33

      I'm gonna push back a little on that, um, but in the following way. I think a lot of, I think a lot of the doom warnings are wrong, and the doom warnings to date have been wrong. If you look at the unwillingness to release ChatGPT 2.0, which in retrospect was over- overdone. But I think the concerns are sincerely held, right? And yeah, it, it, it also... And it also is good marketing. I acknowledge that too. But I, I, I think the starting point is there is a belief here that these things could happen. To be very concrete, I think he's totally wrong about the economics, 50%... I think that's beyond madness, and I'm not worried about it in the slightest. But I do believe, and I've thought about this a lot because what I realized is if I'd met them at the CEO, which I didn't 'cause it was outside our price bracket, but if I'd met them, I would have done exactly what you did, Jason. I would have listened to the doom warnings and I said, "That's all silly and wrong, therefore I won't do the deal." Right? And what I've learned is something more nuanced. I think a lot of Silicon Valley companies have this, have a culture that's overreaching, and you listen, you go the grandiosity. If, if you're kind of a grounded person, you reject the grandiosity. But what I've internalized is the grandiosity is, is a rallying, is sincerely held, because I don't believe you can portray grandiosity consistently for five years if you don't believe it, so unless you're really psychopathic. So sociopathic, I should say. So, um, I, I think it's sincerely held, and I think it has a huge unifying effect on a company. Like take for example, Elon and we're going to Mars. Like, the minute we had to file an S1 and someone had to say, "You might have to go to prison if you say things wrong," we said, "We're not going to Mars, we're going to the moon." Right? So you could be cynical. If I'd looked at that deal much earlier on, I would have said the, the, the, the, the cynical but incorrect approach would have been to say, "I don't think they're going to Mars for here's ten reasons, therefore I'm not going to do the deal." The more evolved approach, and this is why I'm pushing back in on Tropic, is I don't think they're going to go to Mars, but I do think the Mars vision over twenty, thirty years is a rallying cry that will allows them to do amazing shit in the short term, which they've done. And I think the same thing applies with Dario here. It's like, I think it's all over... I think the, half of Silicon Valley, I'm gonna say it here, is running around thinking they're inventing the next thing after the atom bomb, and I simply don't. I don't think we're going to unemploy 50% of white collar workers. I think it's madness. I think it has some legitimate dangers in cyber security and bioterrorism, but they're manageable. I think we're all, it's all overwrought. But that overwrought his- I won't say hysteria, that overwrought intensityRight? Has allowed them to build a culture which had no churn, it's given them mission clarity, and then we'd given them... It's a, given them a $30 billion revenue line and a possibly trillion-dollar market cap. And what I've learned, and it's really hard for me, 'cause I, I find all this pablum bullshit. Like, it's like the Airbnb. Remember the Airbnb was the sharing economy, and Uber was the sh- remember the sharing economy? It sounded like a bunch of communism. We're all gonna sleep on each other's, you know, air mattresses. That was a visiony, airy-fairy bullshit, but turns out what really is gonna happen is people are gonna buy houses and rent them out, right? So what I've learned i- you know, Steve Jobs was a bicycle for the mind. It turns out we're all just gonna sit on our phones and, you know, watch Instagram and get depressed about other people's lives. But the vision oomphy bit, it just helps keeps the machine of innovation churning here, people. So what I've learned to do, which is really hard, is literally listen to the idealism. Don't say, "Do I agree or not?" Say to myself, "Will it motivate people enough to do something where there is economic advantage to be obtained?" And that's a very cynical, old person's perspective, but that's the context in which I say I think Dario believes all that stuff, and I think it's useful for them, and I think it's wrong. But it's damn useful, and it's worked.

5. 13:21 – 17:39

   The Oppenheimer Moment: Are Founders Using Doom as a Marketing Tool?

   1. HSHarry Stebbings13:21

      Jason, I get you. What do you want him to say then? Like, you said, "Oh, I didn't find him inspiring enough." W- what would, what would make you happy? What do you think he should say?

   2. JLJason Lemkin13:30

      And I think before things got tougher, I think Sam was good at teasing at this. I want him to take us to Mars. I want to see the good side. Even Vinod, who is very direct that there's gonna be a lot of job losses, right or wrong, Rory disagrees, but Vinod's very direct. His point is, it's gonna be o- okay, right? We will figure this out with AGI. We'll... Everyone will pay more taxes, even in California. It's okay. Marc Andreessen, his point is we're entering an area of deflation and abundance, right? I, I don't need, I don't need too much on the other side. I don't... I don't need the fluff, but I just need a little inspiration that there's some good, um... And I'm not saying maybe the lo- maybe the third hour of Dario's speeches have it, but everything I see on social media feels like he's an inadvertent Debbie Downer, and, um, it's just, uh, I'm tuning out. I'm just tuning out now, and maybe in the enterprise he's got a... We'll just see. Listen, I don't run a $30 billion company. It, this... It may, it, it may a- almost have to change as the years go on, as this works less well with the million-dollar customers, right? He may have to be more positive about the benefits [laughs] in your workflow.

   3. RORory O’Driscoll14:34

      I think, Jason, the odd thing is we're actually agreeing on one thing. Tune out the noise and just, you know, in the words of Haldeman, you know, "Don't look at what we say. Look at what we do." I always love quoting the Nixon White House as, uh, what used to be the most cynical White House we've ever seen, but we can come to that another day. And, uh, you know, ignore what all... Ignore what the peop- that people are saying, "Oh my God, this could eliminate white-collar jobs," and wringing their hands and saying, "This is awful." Look at what we're doing. We're shipping code. We're shipping software. We're doing $30 billion in run rate. Our shit's amazing. Turns out you're not buying the guilt. I mean, it's... You're not buying the guilt. You're not buying the hand-wringing. You're actually buying the revenue, and the revenue's amazing.

   4. JLJason Lemkin15:14

      I'm with you.

   5. HSHarry Stebbings15:15

      It's pretty amazing.

   6. JLJason Lemkin15:16

      I've spent a lot of the last year attempting to help founders that they genuinely need to move more quickly, that they are too complacent in their approach to AI, that th- and this is what I've... That they have a, at best, a 60% solution pr- 60% answer to the problem. I've tried. I've tried to vibe code in public. I've tried to build my own apps. I've tried to share how we've rebooted our teams to three humans and 20. I've done all this, and I, and I know it's profoundly helped a lot of people. I get so many messages, so many, so many public company CEOs, leaders reach out to me. Even me, I'm like, I'm almost done with this phase. Like, I have alerted you, okay? If after me, with my 10 trillion tweets and 2,000 blog posts and 54 20VC pods together, if you haven't heard the message that you gotta [laughs] li- like you gotta catch up on AI, may- maybe ha- maybe, uh... I'm no Dario, but even I'm ready to mo- to move on to the new world. I'm leaving the past behind. And if we're all gonna live in a world of robots and AI lawyers, so be it. Like, uh, you know, I'm, I'm ready to move on to the new world, and I'm almost... And I'm frankly ready to write off a, a lot of portfolio companies and a lot of public companies. It's time to move on, guys. If you're not gonna get there in April of 2026, then so be it. So be it. We'll... Let's mark, do a markdown and call it a day, and good luck to you.

   7. RORory O’Driscoll16:33

      I, I'm gonna close with the Oppenheimer quote. All of these founders have their Oppenheimer moment. They want to be Vishnu, the destroyer of worlds, and that's been... You know, they all reference the book. Obviously every- you know, s- so, so obviously channeling Sam and, well, channeling their, their kind of Op- um, kind of Oppenheimer moment, you know, with, with the new atomic bomb. My favorite moment in that movie was when Harry Truman says, "Get that crybaby out of the White House." In the end, Harry correctly says, "I dropped the bomb." The equivalent of that is if a whole bunch of people are fired, Jamie Mo- J- Jamie Dimon will fire them. He doesn't need you wringing your hands with guilt, Dario. It's okay, right? Other people... And it was a great moment when Harry Trum- correctly said, history won't say, "Robert Oppenheimer, you killed all those people." History will say, "You built the bomb," and history will say, "I dropped it," right? And so in other words, get over your guilt. Ship the product in a methodical fashion. Do be careful. I do think he was right to keep that product back, but in the end, you know, it's not stoppable. I, I appreciate that you're... I actually think he's very thoughtful about it, so I'm on his side on being thoughtful. I don't think it's fake, but this is gonna happen, and other people are gonna own the problem. Onwards.

6. 17:39 – 22:02

   Amazon's $20B Secret: Is NVIDIA's Chip Stranglehold Finally Loosening?

   1. HSHarry Stebbings17:39

      Onwards. The f- final element, which is, uh, connected but not the same, which is Mythos was trained entirely on Amazon's training chip-

   2. RORory O’Driscoll17:47

      I don't think that's correct.

   3. HSHarry Stebbings17:49

      Oh.

   4. RORory O’Driscoll17:49

      Straightforwardly. What, what, what makes you th- uh, uh... I'm sorry, I cut you off there because I've had too much coffee, but whatever.

   5. JLJason Lemkin17:54

      [laughs]

   6. RORory O’Driscoll17:55

      Um, w-

   7. JLJason Lemkin17:56

      It feels like a three-cup of morning, uh, morning for Rory, doesn't it, Harry, where you're saying three, three, four, four cups. [laughs]

   8. RORory O’Driscoll18:00

      Might be four. Okay. Well, keep g- sorry, Harry.

   9. JLJason Lemkin18:02

      No, no, I didn't...

   10. RORory O’Driscoll18:02

       Keep, keep going. Keep going, 'cause I'll let you finish your sentence.

   11. HSHarry Stebbings18:05

       Well, well, um, apparently Mythos was trained entirely on Amazon's Trainium chips. Um, Jassy disclosed that it's now a $20 billion annualized business growing triple digits. Um, uh, Trainium now is nearly sold out. Uber among one of their biggest customers.Question being, if this is the case, are we slightly seeing a loosening of NVIDIA's stronghold on the market? And does this change how we feel about NVIDIA?

   12. RORory O’Driscoll18:30

       First of all, I think you need to be really precise here, 'cause I checked... I didn't know this point, so I checked it. It's like, it, it sounds like you're s- a couple things. It sounds like you're saying, oh, my God, they're shipping Trainium chips to others who are using, who are u- buying chips and using them. They're not. They don't to a rounding error have a merchant silicon business. So they're not competing directly with NVIDIA. What is true is Amazon, instead of buying NVIDIA chips, is buying its own chips and then offering cloud hosting services and, you know, inference services and model training services. So it's not tr- tr- so think of it as less, oh, my God, someone's buying chips and competing with NVIDIA. It's that Amazon is not buying NVIDIA chips, instead using its own chips, and most of that runway is internal purchasing. So what they're really saying is Amazon is saying, "We have a CapEx budget of 200 billion a year this year," which probably means about half of that typically is chips. It's 100 billion. So where we can, we're buying our own chips. Of course, we are. And where we're not, we're gonna have to buy NVIDIA just like everyone else. So that's true. And then in terms of who's quote-unquote a customer, all they're saying is this, is when they're, either when they're, if they're doing training runs for Anthropic, which I'm sure they are, or they're doing inference runs, which I'm definitely sure they are, 'cause that's a product they offer through Bedrock. When they're doing that, they're running it on their chip. So yes, in that sense, in that sense, some of the Mythos model was pr- probably trained on Trainium chips, but not because Anthropic said, "Yo, I love Trainium." It's because to the extent that Amazon is offering them compute, some of that compute's on Trainium. That's all that's happening here. But, uh, y- all that said, it's still $20 billion that didn't go to NVIDIA, that went to Amazon, so it, it is at the margin meaningful. It's 10% of kinda NVIDIA's revenue, a little less than 10%. So it's... And so it's not a mega competitor. It's just an in-house bundled product at some significant scale.

   13. HSHarry Stebbings20:23

       I'm loving this Rory, Jason.

   14. JLJason Lemkin20:25

       Yeah.

   15. HSHarry Stebbings20:25

       Aren't you? It's like, whoo, someone came out with that and-

   16. JLJason Lemkin20:26

       Well, you know, 10% is mater- like we, I don't wanna s- we don't need to spend all over 10% is material-

   17. HSHarry Stebbings20:30

       No, you're right, Jason. It's a fair point.

   18. JLJason Lemkin20:31

       Right?

   19. HSHarry Stebbings20:31

       It's a fair point.

   20. JLJason Lemkin20:31

       And I guess the, the, the bear case is just everyone's building their own chip or deploying their own chip. Everyone's trying. Everyone's trying, especially on inference. And, um, you know, this is... And, and that just NVIDIA is dented. It's dented sufficiently to see multiple compression. It's dented sufficiently that our 401Ks go down more, right? It's really just that it's, that it, that when things are priced to perfection, there's dent, right?

   21. HSHarry Stebbings20:54

       Fortnite maiming markets.

   22. JLJason Lemkin20:55

       Yeah, Fortnite. NVIDIA may have its own Fortnite moment, as, as crazy as it sounds. It just may be the first 30 seconds of the game on a, on a relative basis. But, uh, yeah. But, but no one knows this better than Jensen, right? No one, no one, no one is, is friends with his frenemies and, and friend of partners and friend of better than [laughs] better than Jensen. No one's played this game in the history of mankind, of being kind to everybody, pulling back, being right, understanding the dynamics, and still winning, so crazy. Crazy good at it, right? Doesn't get his dander up on this stuff like most of us do. [laughs]

   23. RORory O’Driscoll21:27

       And remember, I, I think Amazon and NVIDIA had a famously di- have a famously difficult relationship, so they're probably the company most interested in not buying from NVIDIA. So I think, I think what you're saying is fair. At the margin, it's 20 billion. They'd like to have 10%. It's not meaningless market share.

   24. JLJason Lemkin21:41

       Yeah.

   25. RORory O’Driscoll21:42

       But, you know, the big picture comment is compute is scarce, chips are scarce. They're pretty much sold out. The stock's at 194. And, you know, it, it didn't super accelerate it when they did that trillion dollar backlog comment, but it didn't go down either. So, you know, I, I, I think we're up against a constraint limit rather than anything else.

7. 22:02 – 24:58

   Claude vs Lovable & Replit: Anthropic Moves into App Building

   1. HSHarry Stebbings22:02

      We're gonna stick on Anthropic, but Moon say, "Anthropic to now compete with Lovable directly. They launched recently in the last 48 hours a competitive product." Um-

   2. JLJason Lemkin22:12

      You sure it was launched?

   3. HSHarry Stebbings22:15

      Well, they announced it, yeah.

   4. JLJason Lemkin22:16

      Okay.

   5. RORory O’Driscoll22:16

      Harry, see, Harry's a media guy. He thinks when things are announced that they're real. Jason is a software guy. He actually thinks you have to ship product.

   6. HSHarry Stebbings22:23

      No, it's all about the announcement. Surely you've seen that in the last few days.

   7. RORory O’Driscoll22:27

      A- A- As the Lovable Replit guru here, look, I mean, Claude Code is clearly directly competitive with Cursor, and then you have this slightly different segment. I'd love your opinion, Jason, on the kind of the, the Lovable Replit segment. What do you think the compa- how do you think about the competitive threat from a Claude, from a slash Anthropic to those players? I mean, 'cause-

   8. JLJason Lemkin22:47

      Well, look, Eric from Bolt on these screenshots, Eric from Bolt said, "Oh, we, we all... I was with, I was at a dinner with the CTO of Lovable. We all knew this was coming. It was just a question of when." And then I asked him if he thought the screenshots were real, and he said it didn't really matter because, because it was coming, right? So, so that's, that's a, that's a, a number three or number four player's view. The meta question, you know, if this were, if this were 52 episodes ago, um, I'd be like, well, the, you know, it could happen, but it's, it's not important enough. They're gonna have to get into databases and hosting and identity management and OAuth and, and, and ch- and, and, and end user support, like consumer level end user support. They... Like it's a whole bunch of things culturally that they don't wanna do, right? But the pace of innovation at Anthropic is so intense that on a whiteboard it's hard not to wanna grab a couple billion of extra revenue from vibe coding, right? Because, because you're just, you're just a database and an OAuth, uh, at, at, and sort of, a- and, and a few other... You know, for them it's 30 days of work, right? Um, so I don't know. But the classic, the old school, the old school, the, the old school VC would be like, "It's distracting. Even if they launch it, they're not gonna maintain it. They're not gonna have support. They're not gonna ha- they're not gonna put all the resources you need to maintain it." But the, the truth is, and, and maybe Eric from Bolt's point is maybe if they don't directly compete at the prosumer level, right? Even if they don't build a, a base 44 Lovable Replit, they might just go halfway there, and that might be enoughLike it might be a, it might be something that developers use who just wanna get something going, right? It might be something that, that more technical product teams use, which is like the number one highest ROI category for Replit and Lovable, these, these product teams. And they may only target the, the nerdier, the more technical part of the market, and that might be sufficient to, again, maim, maim, maim, maim the folks, right? Um, it doesn't have to be 100%. They don't have to replace shopping sites and stuff like that to have a material presence. So but you know they're-- that Anton and, and Amjad and everyone thinks, thinks about this twenty [chuckles] six hours a day. How do we stay ahead, right? How do we stay ahead? Um, and, um, and it may just be maiming. If it happens, it may just be maiming, but maiming hurts.

8. 24:58 – 41:50

   The 60% Death Spiral: Why Public SaaS Stocks are Entering a Doom Loop

   1. RORory O’Driscoll24:58

      But Jason, those product teams could just use Figma Make, right? I mean, same, same, right?

   2. JLJason Lemkin25:02

      They can use Make. Um-

   3. RORory O’Driscoll25:03

      Don't feed... Ah, now you're just, now you're just fucking poking the bear, Harry. Please leave the bear alone. [laughs]

   4. JLJason Lemkin25:08

      Well, I'll tell you... Well, we could talk about Make-

   5. RORory O’Driscoll25:11

      And he's off. And he's off.

   6. JLJason Lemkin25:13

      [laughs] No.

   7. RORory O’Driscoll25:14

      Okay.

   8. JLJason Lemkin25:14

      I just, um... Well, well, let's stay on this topic.

   9. RORory O’Driscoll25:17

      Yeah.

   10. JLJason Lemkin25:17

       It actually ties to if we talk about software stocks, why I've become more pessimistic-

   11. RORory O’Driscoll25:22

       Yeah

   12. JLJason Lemkin25:22

       ... since the last show on them. But-

   13. RORory O’Driscoll25:23

       Oh, no. Why have you become more pessimistic?

   14. JLJason Lemkin25:26

       But because we are kind of ahead in this agentic thing, right? At least in the real world. I do talk to lots of teams, lots of senior product teams, lots of COs at massive... M- more than I ever done in the last ten years combined, okay? Every week, multiple Zooms, multiple calls, and there are exceptions for, for sure. But I would say here's why I'm pessimistic and why I think the, the drawdown is accurate even though I don't understand the public markets. I think almost everybody's building a 60% solution, and Make is an example. You look, and you look what Claude did or, or, or prompting did last November, and you've spent the last four to six months building something that's kinda similar to what, what these products were like five to six months ago, but you can't really explo- afford the tokens. You're worried about the cost. You can't build all the features. Um, you're trying to use cheap models to bring costs down. You're trying to limit it, and you end up with Make, but everyone has a Make. Why is Make so crappy? It's because you didn't care enough to spend the money or put the team, and Make is a good copy of Replit or Lovable from last summer, right? That's what happens. And, and by the time Make catches up to Replit and Lovable today, and then, and then they decide it's too expensive, and then they decide they have to lock it down because they can't afford the agents and tokens. Now you're nine months behind and twelve months behind. And so what I mean is... And, and so it's not just that you're have a 60% competitive solution. Here's the meta problem for the incumbents. You can't charge for a 60% solution. Here's the problem. If you could charge 60% of what Claude charges or, or Lagora charged or Replit charged, that'd be great. That would... That's enough to charge 60%. But a 60% product has to be free. It has to be included with your base charge. And while we're recording this, for example, today, HubSpot's launching its next group of AI agents, right? And I'm excited to try them, and I will be supportive. If they're only 60% as good as the standalone solutions, HubSpot cannot really charge for these things. You can't get away with charging another twenty, forty, sixty thousand dollars to a HubSpot customer if your agent is fine. It works like in isolation. When I meet with internal product teams at large companies at scale, they are so effing proud of themselves. They show me their agent that they built. They show me their vibe coding thing. And if I didn't use any other products, I'd think they were great too. Or if this was fifty-one weeks ago, I would think these products were great, and they're so insular at their two thousand person company in their, in their, in their fancy campus, wherever they are with their mugs, bringing their mugs to the meetings because, because at their pace. And, and, and they're failing even as they're proud of themselves with their 60% solution because the market will not pay. They will use it. Like they'll use your pro- your, your 60% solution, but they're not gonna pay for it. They're not gonna pay for it. And so you're, you're, you're stuck in this doom loop of, yes, I have an AI product as a public B2B company, but no one is willing to pay for it for a 60% solution. They're not willing to pay 60%. And so we can say all these companies have moats, and ServiceNow has the biggest moat of all, so it shouldn't be sold off and this and that. But if your agents are only 60% as good, you're, you're, you're in a slow death spiral, and that's what I see. I can't think of maybe one or two exceptions of everyone at scale where their agents are as good as either a standalone company or just what I can do in Claude. Now, I can't maintain Claude. There's a whole bunch of issues. But if it's only 60% as good, there's no way I'm gonna pay this, this AE that just called me up a hundred grand for it. I'm not gonna do it. It's not good enough. You... Checking the box does not work with agents. The check the box feature cannot be monetized in the AI era, and this is why I think they're all properly s- sold down because none of them ha- they all have 60% solutions. All of them. All of them, and they should be... The, the... [chuckles] It's, it's do or die, guys, because you can't sell these things. You can't sell these things, right? And that's... And, you know, the one... There's two counter examples. We could argue over Agentforce and, and the, the, the Base44 Wix one may not save Wix, right, which has repurchased like 30 or 40% [chuckles] of its company, but at least they made a bet that got them beyond a 60% solution, right, to nine figures in revenue.

   15. RORory O’Driscoll29:35

       I, I, I, I agree. I, I, I think... I, I think there's a lot to unpack on what's happening in SaaS, but I think I, I've internalized that Jason has articulated one of the big truths, which is unless you have a product that's good enough to charge for independently, you won't have revenue re-acceleration of any meaningful scale. And if you don't have revenue re-acceleration, then you're in a different valuation metric. And I'll talk about how to value a- value mature companies with probably persistent users but stock-based comp issues and no growth issues. And you can do that. And, you know, one of my rules is price clears all market. There's a price at which ServiceNow and Salesforce are all quote unquote "worth something." So zoom out a million miles. Jason is right. If you can't charge for your shit, you won't re-accelerate, and if you won't re-accelerate, you instantly move to another valuation bucket.Right? So I actually, I've, I've listened to you a few times, and I think there's a clarity of simplicity there, 'cause you can talk a lot about, "Hey, we're doing this or the other," but the gut level test is can you charge for it? So I, I really think it's a big freaking comment, right? 'Cause I've been wrestling with what do you use to sort out all these public SaaS companies and, you know, what are the... How do you think about it, right? And if you're in a market where there is hi- if you, if you're in a very workflow-centric market for the last decade, you are definitionally in an agentic-centric market now. There might be other things that are more payments related or stuff like that where I think there's different dynamics, but if you were in a workflow-centric world for the last two decades, like Salesforce and ServiceNow, you are in an agentic world now, and if you're in an agentic world now, you better have exactly what Jason says, agents that are worth the money, which means they do the work. It's actually a very brilliant t-test, and I think if I w- I'm literally looking at the horizontal software applications list for Morgan Stanley, and Jason, you're right. That was probably the first... If I'm thinking about how to value this bucket of one point six trillion, that is the first test. If yes, then you're on the increasing value scale, and you can make it out, and it's still gonna be hard. See WIC for details. If no, then you're in the, how do you value a company with, um, you know, mid, m-mid single to high single digits growth rate at best? Probably, I think an example of Salesforce, very sticky. And, you know, you might be hit... And I think th-that's a separate valuation question, right? I think that, you know, at nine times, these things are trading now at eight to nine times cash flow. You might be hitting a point where just the money allows you to be a deep value player. You know, the P/Es of something like Salesforce, excluding stock-based comp, are, it's eleven or twelve times forward P/E when the market's twenty, right? This is unparalleled, right? So if you wanna make yourself a value play, money can still be made, but it's, it's a grim way to make money. The only way to still be a growth play is to pass the Jason test. So that's my zoom out comment here, right? And a-a-a gain- y-you said it in financial terms a few weeks ago, which is re-acceleration, but today you're actually articulating the, the, the preset, predecessor test. If you have agentic workflows, then you will have re-acceleration, then you'll be in the Jason happy bucket. And if not, then you'll be in the s- the tragic value bucket, and you will have to do hard things that would make Dario and Sam cry if you're gonna make this thing cash flow. It's gonna be involve SBC reduction, it's gonna involve headcount reduction, it's gonna involve a, a bunch of grim shit, and you can probably still make money, but you're also top stopped. Nothing magical will ever happen to a high single-digit growth rate tech company that's kicking off cash. At best, you build a mini version of IBM, CA, and the top five executives make money. It's not gonna be fun. Right? So you're right.

   16. RORory O’Driscoll33:13

       Jason, would you buy ServiceNow now?

   17. JLJason Lemkin33:15

       No, I wouldn't buy any of them. I wouldn't buy... Because I, I'm looking, I'm looking for products that are more than a sixty percent solution. I don't s- it's just the m- world's moving too fast, and no one wants, um... When we started this, this pod, I wasn't sure if I believed it or not. I was probably on the fence, but there was definitely a sense that the models might plateau, right? That, that, that there'd be parity, um, that they're all pretty good. They all basically could, could, could, could do a chatbot. Um, it's clearly not the case today. If we tie, tie it to the beginning of this conversation, the models have radically accelerated their power since December, right? Since, since, since, since Opus four, five, and more, and we haven't used Mythos or whatever. It's gonna be even more powerful. And so I'm not optimistic that, that anybody, um, building to last year's spec slowly can compete. It's too furious. It's too furious. And, um, and I also think that the problem with moats is they keep your customers in, but they don't lure any new ones in. No one's excited to cross the moat except the folks that wanna breach the castle walls. This whole moat discussion, I think, is at the edge of moronic, right? It's at the edge of moron. Hooray, you have a moat, and your customer... I signed a five-year co- you know, the average ServiceNow deal is between three and five years. So what? That doesn't bring in anybody new. It doesn't bring in agentic revenue. It just means I'm trapped. Prisoners, prisoners don't create growth, uh, other than at the margin, right? Other than, other than with the margin.

   18. RORory O’Driscoll34:41

       First of all, I love the moat analogy. That's great. And what you're basically saying, 'cause I've listened to this, is that what you're basically saying is Jason is not a buyer of any stock that's not a growth story, right?

   19. JLJason Lemkin34:51

       Yeah, that's the same point.

   20. RORory O’Driscoll34:51

       And I think it's good, right?

   21. JLJason Lemkin34:52

       Yeah.

   22. RORory O’Driscoll34:52

       And I think, so, and I, and I, I've come to the conclusion you are right on that. And one of the reasons I enjoy doing this pod is when we argue, sometimes I change my mind, right? Because let's, I wanna play out the value track just for another few minutes, right? I think the problem with the value play, I think at this price, I think you make money on Salesforce, but unless they get regrowth, you're gonna make single digits returns, and the overall Ebbs and small cap is eleven, so you, are you gonna underperform? I actually think the other thing you're wrestling with i-i-i-in terms of these stocks is the following. The weird thing right now is the public markets don't have access to growth, to the growth side of software. They have... It's, so right now the trade is sell s- sell SaaS, buy semis, which effectively means sell SaaS, buy AI, making AI, right? What you don't have yet in the public markets is AI f- native companies starting with Anthropic and OpenAI, right? Uh, a-and therefore, you've, you know, it, it, Mythos is a wonderful word, 'cause in fact, you're comparing the practical values of owning Salesforce with the mythical values of owning this company that's growing ten X, where you've never seen the actual financials. No one's seen GAAP financials, but oh my God, it's amazing. And everyone's always gonna want the myth. You know, pick your girlfriend/boyfriend analogy. It's the, you know, the, the practical realities of the person you're with now versus the mythical example of something that could be. So my other aha is these stocks aren't gonna trade in the same fashion until five or six public o-of these, two of the foundation models and four or five otherUm, AI gen- AI-native companies are public, and then you can finally, as a public market investor, say, "Okay, now I can choose, do I want... Let's be put right. Do I want Anthropic growing at that one probably 5X at 30 times revenues with huge losses and big stock-based comp? Or do I want boring-ass Salesforce growing at 10% with 30% operating margins and at that point, no stock-based comp loss," right? At least now you can have a choice. The p- and then, then, then what'll happen is then we'll find out how to evaluate those two things. And that, you know, it probably gonna take six to 12 months after the IPOs. My point is, until then, what you're dealing with is the mythical desire for the as-yet unrealized relationship, right? So, these stocks are gonna trade for shit until then, is my big aha, 'cause no one's gonna be able to value them right. The only people that get out of that mess now are what Jason said. If, if you manage to claw your way to growth as a public SaaS company, then you do actually have some kind of chance of trading up. And, but if you've got to trade on fundamental value, y- y- you always gonna be chasing this kind of fear that the model companies can do everything you can. I don't think they can. I think when the model companies go public, people are gonna realize, oh, yeah, Salesforce in its current form will probably gonna be there for the next couple of decades. It's worth its cash flow. But Jason is still right. Unless it gets its shit together and makes great agents, it's, it's another IBM. And, you know, when did you last even... I don't even know the price of IBM, 'cause why would you? I believe someone's probably made money, but it's not my problem, right? You just become a boring-ass old thing. So, I think, Jason, somewhere... You're right, Jason. If you don't have growth... And it's an interesting question is, and, and Wix is interesting because, 'cause I think th- that's an in... They're kind of... They've done what you suggested, Jason. They're trying to get growth, and they're getting growth. And as yet, you're right. They did a buyback, and the stock's down 20% since then. So, my aha from that is-

   23. JLJason Lemkin38:22

       Yeah, so they, they spent 1.6 to buy back nearly 30%, as they bought it at $92, and the stock fell 23% on the week.

   24. RORory O’Driscoll38:30

       And whenever that happens, you got to say to yourself, "That wasn't a good week," right? It's, that's kind of like an inverse Bill Gurley. Instead of se- selling stock, instead of selling stock and then it goes up, you buy stock and then it goes down. That's like the IPO premium but the other way. It's like, oh, my God, that hurts even more. Let's talk about leaving money on the table. And I think the aha is, to Jason's point, they did one thing brilliantly, which is figure out they got to get product out the door. Maybe they should have sat on their capital for another six or 12 months, kept it in reserve to maybe buy another AI product or invest behind their AI product, because I don't think... I think these stocks are gonna bounce around in value trap land for a long time. So, now, you know, we may be wrong. If they, if they really nail their growth on the new product and their lo- and their kind of vibe coding product really accelerates and, you know, you look back six months from now and, you know, growth's at 15% and the stock's way up, you'll go, "Oh, yeah, it was fine. It was just a next-day reaction thing." But the, the point is, fix the Jason problem, which is core growth, before you try and do financial engineering. You c- and in Salesforce, don't fix f- financial engineering is useful, but it's not the solution. In the end, if all you can do is grow at 8%, you can twi- you can screw with your balance sheet to your little heart's content. You're never gonna matter a damn. As I said, you'll be IBM. They've screwed around with that stock forever, but nobody cares. You got to do the Jason thing first and put all your effort on that.

   25. JLJason Lemkin39:56

       It is tough that, you know, Salesforce did a big buyback too, right? I think they bought 25, they did 25 billion of debt to buy its stock. On a spreadsheet, this looks brilliant, right? We can support it, right? Um, yeah, we wish the debt was a little bit cheaper, right? It was a little... But, but, but this is the simplest thing we can do, retire a significant amount of our shares, right? Drive up our EPS and keep going our agentic transition. But, um, arguably, you know, the, the market at best shrugged it off. At best, it already priced it before it happened. But in the short term, no benefit. All this financial engineering that looks great on a spreadsheet, uh, amounted to n- to nothing in the short term, but 25 billion of debt.

   26. RORory O’Driscoll40:33

       I totally agree, Jason. And not only that, but I think one of the big advantages you have as a public company with cash flow positive is your financial flexibility. I wouldn't trade that for anything, 'cause look, one of the two things that happens, if the AI wave rolls on without a blip, then your stocks... And, and you don't have a growth story as a public SaaS company, then your stock's gonna be cheap two years from now. There's no hurry to buy it.

   27. JLJason Lemkin40:55

       Yeah.

   28. RORory O’Driscoll40:56

       Right? Second thing is, if there's a blip, then the guy in the market with a public currency and 25 billion in cold hard cash, maybe you buy five big things in private land that allows you to compete. Maybe you buy not Anthropic, but a second-tier financial, you know, um, model. Maybe you buy one of the big apps companies. I think Saa-

   29. JLJason Lemkin41:15

       If you can afford it, but if you can afford it. Well, Salesforce is one of the few people-

   30. RORory O’Driscoll41:18

       But they, but keep it-
9. 41:50 – 47:06

   Meta Debuts Muse Spark: Alex Wang's First Model from Super Intelligence Labs

   1. JLJason Lemkin41:50

      Come to daddy, I got money. Uh, on, on that topic, uh, Alex Wang, uh, founder of Scale, obviously now at Facebook following the acquisition of Scale. Meta debuts Muse Spark, first m- model from Meta's Super Intelligence La- Super Intelligence Labs, which obviously Alex runs. I mean, the candid, like, truth is I did okay. It was decent. My question to you on the back of this, it was decent, not quite as good as the others, but good enough. Is this Facebook back in the game, and is this a encouraging sign for Facebook where you feel more optimistic post it or less, given it didn't blow anything out of the water?

   2. RORory O’Driscoll42:35

      I think it's a win. If you're not in the game and then you get back in the game, that's a win. So if you're fifth, you win the game. I, I, so I to- I mean, you read all the reviews. You know, I haven't got hands on the model. I don't have the level of sophistication to evaluate, but I did read a lot of the reviews of people who did. And you're right, the summary is good in some of the things that they were working on at Scale AI a year ago, not so good at some of the newer things that the advanced labs have been developing for the last 12 months, which totally makes sense. You took your knowledge from a year ago [laughs] and you implemented it, right? But, I mean, leaving aside the question of does it make sense to be in this game at this level, leaving that aside, if you, if, if you decide, as Mr. Zuckerberg, that you wanna be in this game, then you achieved your mission. You spent fourteen billion dollars and you're back in the game. Now you gotta move up the league table, but yeah, I, I felt this was a phew, 'cause, you know, had you done all this and, you know, did a Llama Four, which was disappointing, where people are like, "It's not even, you know, credible," then you'd have felt like a moron, and you don't. So I think it was a win. Also worth noting that they're talking much-- being much more closed source, which is a significant thing, 'cause at some point, someone's gonna need the American version of open source, and Llama was that, and now they're pivoting more to being more closed source, which has implications across the ecosystem and is a bit of a bummer. But yeah, no, I think it was like a phew exhale. Um, not sure why we're playing this game, but if we're going to play it, I'm glad we're not losing anymore.

   3. JLJason Lemkin44:02

      Stepping back, though, to where we're going toward the back half of twenty twenty-six, um, I don't think if, if I, if I'm Zuck and I'm looking that Google owns its own models, which have become extremely competitive, right? Um, that's a-- that's one of my big direct and adjacent competitors. If I wanna be in the big leagues, maybe I just have to own this. Like I don't, I don't-- I'm not Apple. I, I don't want to be stuck buying tokens from Anthropic or OpenAI. I'm Meta. I have the, one of the dominant consumer advertising and other platforms on the internet. I have the dominant social networks, and I sure better own, I sure better own this. It turns out it is not a commodity, and maybe, maybe, maybe this is, I'm-- it's way too much money down the drain, but this is, this is core to our existential existence, just like it is for Google, and I don't, I don't wanna wither. I don't-- and it may be that may not have been where this all started, right? Um, but the goal of Facebook is not to provide, uh, API tokens like Anthropic. This is, this is not the, the direct goal, right? Or it certainly isn't to, um, to encourage the open source community to rise up and use Meta products. Um, this is to stay in the top echelon of, of software c- of, of consumer software companies, and it's worth fourteen billion. It's worth fourteen billion, right? If you just don't wanna be- become Apple and dependent on everyone else's models. You just don't wanna be that, right? And, um, you know, if you can just do better than the, the Kimi open source, et cetera, stuff Cursor's doing, it might be worth it just for that. Just, just to be in that, in that, in that zone between what I can just rework purely from open source into what I can buy from Anthropic. If I'm close enough and this is my core, it might, it might be worth owning. Ruthless, this is as competitive a company as exists on planet Earth, right? This might be the most competitive company on planet Earth is Meta, right? Ruthless.

   4. RORory O’Driscoll45:49

      Yeah, I mean, if you look at-

   5. JLJason Lemkin45:50

      Ruthless

   6. RORory O’Driscoll45:50

      ... if you look at the s- if you look at the big play scoreboard for that, it's like bet a billion on Instagram, win a hundred billion plus, maybe four hundred billion.

   7. JLJason Lemkin45:58

      Yeah.

   8. RORory O’Driscoll45:58

      Bet seventy billion on Meta, um, and VR, AR, lose it all. Bet fourteen billion on this and clearly have a win and, you know, somewhere in the middle between those two outcomes and you feel good. I agree.

   9. JLJason Lemkin46:11

      The other thing just, and again, it's not totally my expertise, but when, when I, again, when I look back when we started this show, a lot of folks thought AI would kill Google search and maim Facebook, that Facebook was dying as a platform, and that why-- Google search was, of course, dead. ChatGPT was going to destroy Google, right? Fast-forward today, these are record growth businesses now, right? Google search, we started the show talking about AI overviews and other things. Google search is a better business than it's ever been, as is Facebook and Instagram. So it makes sense to, to, to triple down there. This is not a time to retreat. This is not a time to retreat for either of them. It is not a time to retreat. It is a time to get that lance out, go straight into battle, just knock, [laughs] knock those other guys off.

   10. HSHarry Stebbings46:51

       Ma-Meta surpassed Google, I'm sure you both saw, as the largest ads engine in the world. I think Meta now-

   11. JLJason Lemkin46:55

       Yeah.

   12. RORory O’Driscoll46:55

       Yeah

   13. HSHarry Stebbings46:56

       ... two hundred and forty-three billion dollars to Google's-

   14. JLJason Lemkin46:57

       AI didn't kill it yet. [laughs]

   15. HSHarry Stebbings47:00

       And it's not-

   16. RORory O’Driscoll47:00

       Fucking hope, hope that stock price comes back. [laughs] Um,

10. 47:06 – 57:11

    OpenAI's $50B Ad Vision: The Plan to Monetize Intelligence

    1. RORory O’Driscoll47:06

       speaking of ads engine, OpenAI projects two and a half billion in ad revenue for twenty twenty-six. The ads pilot was a hundred million annualized in just six weeks. There were six hundred advertisers. We touched on it before, but they're guiding to eleven billion in twenty twenty-seven, twenty-five billion in twenty-eight, fifty-three billion in twenty-nine. Is ads the great comeback for OpenAI in H2 twenty twenty-six? Is this the shining light that we should be directed towards? It's both obvious and inevitable that a consumer product like OpenAI, ChatGPT, is gonna have to be ad-supported. So yes, they're making the moves, exactly the moves you'd expect, right? And yeah, the, and, and the little chatter of, "Oh my God, that's a bad idea," or, "It's not doing enough," that we saw from before, you know, a few weeks ago, it, it's all settled. Th-this is just gonna happen. Three people have done it at super scale already. Google has done it in two thousand and four on. Um, Meta themselves have done it in two thousand and e- really two thousand and probably seven and eight on, and two thousand and twelve in mobile. And then Ama- we always forget, Amazon, I think, got to about a hundred billion plus on ad revenue in the last, you know, kinda half a decade or probably seven or eight years at this point, right? So the m- the movie is clear, right? And yes, they got to get, and they're talking about getting to a hundred billion dollars in four years. It all makes sense, right? The funny thing is, and I looked at all that, and I thought, "Yep, that ti-" And I'm, you know, it's funny, I'm mentally giving them 100% credit for getting that. OpenAI is typically not unaggressive in its projections.So let's assume this progression is aggressive. You know, uh, this is gonna sound really awful, and I hate even saying it. Oh my God, a hundred billion is amazing, but it's not enough relative to the market cap. In other words-- So the bigger aha for me is you can build a hundred billion dollar ad business in ChatGPT, which makes sense. And in the context of a total trillion dollars of total ads, with Meta already having three hundred of that, Google already having two hundred of that, Amazon already having one hundred of that, and TV's got to eat too, you know, right? That's probably a realistic high-end estimate, right? What it means is you need another hundred billion plus from your enterprise business. That was the bigger aha for me is consumer alone ain't gonna be enough to feed this beast, because your competitor, who's all in on enterprise, is, you know, already at thirty, right? And you're-- So that was my-- As I say, I, I almost feel like a jerk saying it. It's like, "Hey, congratulations on your hundred billion dollar ad business. Probably one of the three or four best ad businesses ever, one of the best pro-launches ever. But it may be that corporations want to buy more intelligence than consumers do, and that a hundred billion consumer ads won't support your burn. You need more."

    2. JLJason Lemkin49:52

       The hundred billion is what? Fifteen percent of ad spend, right?

    3. RORory O’Driscoll49:55

       Yep.

    4. JLJason Lemkin49:55

       Of ad, development.

    5. RORory O’Driscoll49:56

       Ten, ten of the trillion worldwide.

    6. JLJason Lemkin49:57

       Ten something, fifteen. I, I like this as a goal for twenty thirty because it's clear what people should be doing. We can't just add a hundred million of ads to ChatGPT how it goes. We have to build something that is as bi- essentially as big as several of our competitors. It's well understood why it works. We're not directly in commerce. We don't have the advantages that Amazon does, right? Um, but can we achieve the scale of, of Facebook and others? Yes. This is our job. This is our job, guys, and every week we're gonna iterate on it, we're gonna improve it, we're gonna make it better. It is mathematically possible. This is not as aspirational as the enterprise stuff, right? It's mathematically possible. This is our effing job. We're gonna review it every week. We're gonna put some of our best team on it and, you know, it, it's, it's doable, and if it comes up short a year or two like Elon, I mean, it would suck for the IPO, but it's not the end. It, it's doable. It is achievable, right? And so I think because it is achievable, it will be achieved. I actually think it will be achieved.

    7. RORory O’Driscoll50:50

       I, I think you're-

    8. JLJason Lemkin50:50

       Yeah

    9. RORory O’Driscoll50:51

       ... you're exactly right, Jason. And it's clarity, a whole bunch of things they've been lacking.

    10. JLJason Lemkin50:53

        Clarity. On the enterprise side, I will say one thing. You know, there was this memo from this week that, that, that, that, that leaked from Denise Dresser, right, who's the CRO president, saying, "Wow, well, first of all, Anthropic's overstating their revenue. We're still ahead." And saying, "Hey, we have all-- You know, we have the capacity. They're out of capacity," and blah, blah, blah. Okay. The, the-- At first blush, this memo to me, I mean, it, it, it's, it, it, it seemed like a flashback to something that Marc Benioff might write, who I love, but more appropriate for Salesforce than for OpenAI when I first read it, right? And her last gig was CEO of Slack, right? So at first blush, I thought it seemed out of place at an AI leader. But then I thought about it and I'm like, this is the exact type of messaging you want to win traditional enterprise customers. So I'm pretty bullish actually on OpenAI and the enterprise because all this enterprise DNA they have, which probably didn't help a, a, a snail's, uh, a snail's inch the last twelve months, in the future when all the models are so powerful and big enterprises are trying to make decisions between a couple of top brands, I think, I think the ability to sell this directly to enterprise versus coming in from the bottom, coming in through the CTO, coming through the other, coming in from functional groups, is gonna be very powerful. So I think it may be hiring the-- You know, OpenAI said they're gonna double in size, right? And a lot of it's around selling motions to the enterprise. I think it's gonna work. I think they're gonna run a lot of the traditional playbook, which is gonna work better and better in twenty twenty-seven than what it did when... The last year was ask your developer. That, that was the land. And that's why Anthropic won. Ask your developer. I want... I don't want Copilot. [laughs] I want Opus. [laughs] And your developer picked everything and your developer picked it for your app, and it w- yeah, I'm, I'm using the old Twilio mantra because it worked for years until it didn't, and I think it's gonna work for LLMs until it doesn't, until the bud- until you go deep into traditional enterprises. And if OpenAI, which is, you know, it's gonna be the number one or number two brand for as long as we do this show, I think they may be able to outsell it versus, uh, "Hey, the world's gonna end from Dario. Thanks for letting me in the lobby. Everyone's gonna be unemployed next week." [laughs] That one may cast a chill in the CIO's office. "Thanks guys for having me. Most of you won't have a job next week." [laughs]

    11. RORory O’Driscoll53:10

        I, I, I would have two comments because I'm, I'm not quite in that place. Maybe three comments, right? And one is the-- one aha I had from this is that, you know, the, the comment on compute is the ball game, right? Is, you know, whatever about the long-term over investment, and I still angst about that, there's no doubt in my mind that right now everyone is compute scarce a-and there's going to be no restraint. No one's gonna blink on their investments for twenty twenty-six. You actually know the next four quarters of NVIDIA announcement. You know the next four quarters of every one of the infrastructure advan- which is every single thing we can make. If you can count the wafer starts at TSMC, you can predict NVIDIA's revenues. Everything is gonna be sold out from now and for the next twelve months, because if the rate limiting constraint is compute, then everyone's just gonna buy compute, right? So that was the first big thing. Compute is what... And yeah, they've got some interesting position relative to Anthropic in that they were more aggressive, so they have more compute. So yeah, that's, that's, that's one thing. It also means, by the way, the second consequence is you're gonna see some compute rash. People are gonna start allocating tokens to the highest, effectively the highest bidder. You're gonna see a lot of throttling. Like, you're gonna see these plans. Like, that's why they shot Sora. You're gonna see some of the Claude plans get throttled down. You know, that's what money is for. It's to allocate scarce resources. It's actually the definition of economics. It's the study of the allocation of scarce resources, right? And they're gonna start allocating those scarce resources of compute via price. So that's one big trend. Um, the second one, y- I don't know if you're gonna see that level of flip from, "Oh my God, it's all Anthropic" to, "Oh my God, it's OpenAI." I think it's a two-way fight. A-Anthropic has the advantage of clarity and focus.A- OpenAI has the advantage of the consumer business, right? And they're gonna have to slug it out, right? I take-- Hang on, hang-- But with the-- But, but I, I, I think Anthropic has the he- the, the little... Just the way they've played the last 12 months, have a slightly better lead right now, both in terms of perception and in terms of developer friendliness. But OpenAI is not gonna roll away and die, right? I think I wanna come back to the point I made earlier, which I've only processed true now, but sometimes it, it's important to say the big shit very clearly, right? If, if you do consumer versus enterprise, typically the biggest things have been a con- I mean, yeah, if you look at, you know, Google, Google's consumer business and ads is two-thirds of the value, and, you know, maybe the cloud is maybe one-third, roughly, right? And the big money has been in consumer, right? Bear with me when I say the obvious, but consumers actually don't wanna... They want really great ChatGPT. There might be some models like, you know, f- kind of friends and companion models. But fundamentally, when I go home, I wanna buy Netflix. When I go to work, I wanna buy intelligence. It may well be that en- the, the, the zoom out comment from all this shit is enterprise is two-thirds of the ball game in AI, and consumer is one-third or less, which is the flip of the last time. 'Cause you would've thought two years a- three years ago when ChatGPT exploded that that was a really great launching point, right? But if, in fact, enterprise is the better place, then yeah, you're gonna have a good consumer business, but the ball game may be compute, but the ball game from a customer's perspective may be two-thirds enterprise, one-third consumer, which is the mirror opposite of the internet. And that's just one of those, huh, big picture comment. 'Cause I realize I don't go home and wanna do cognition. I go home and I want Netflix. I go to work and I want thinking, and they're selling thinking. It's an enterprise business. And by the way, you get into a really fun and interesting discussion, which is above my pay grade, but I started to see comments about it is, do the things you do to make a consume- the model consumer-friendly, you know, the happy... Like, d- does the same model continue to work, uh, really amazingly well for both? You know, if the enterprise wants clarity and concision, if the consumer wants a little more friendly answers, do you really find that... Do you find the tone and the persona of the consumer model and the enterprise model start to become different? I don't know if that has implications. It's above my pay grade, but it's in the category of something to think

11. 57:11 – 1:02:45

    Token Maxing: How CIOs are Reclaiming Control Over AI Budgets

    1. RORory O’Driscoll57:11

       about.

    2. HSHarry Stebbings57:11

       I think, I think very much so, and I think you've seen it on, like, consumer research studies. So they've seen that actually younger people like OpenAI because it's much more supportive of their emotional challenges.

    3. RORory O’Driscoll57:21

       And in... You're exactly... And in, and in business, I don't want support. I wanna be told, "These five things are good and these three things are bad." Like, when we're doing investing, we don't want supportive, we want decisio- It's almost the exact opposite. I want harsh critique. This is a stupid deal. I want the AI to say, "This is a stupid deal, Rory. You looked at this three years ago. It was dumb then. It's dumb now. Stop, you idiot. Here are five fact-based reasons why this is wrong." And if you give that in a consumer app, you're not gonna have great lifetime value or retention.

    4. HSHarry Stebbings57:50

       Uh, to tie back to OpenAI-

    5. JLJason Lemkin57:51

       Yeah, it was interesting. You know, Aaron Levie had a, had a tweet this year, this week about his latest roadshow meeting with CIOs-

    6. RORory O’Driscoll57:56

       Yes

    7. JLJason Lemkin57:57

       ... from Box. And, um, he talked about how so many of the CIOs meeting with now are, are, are token maxing. And what he meant was they are now, they are f- f- they are creating i- ideally fixed token budgets. Really, I, you know, their, their dollar budgets rather than numerically tokens for the coming year, and they're making the departments fight it out per project. Now, this is where I think the game's gonna change again with the leaders, because when most of the budget is essentially rogue, when it's developer teams picking Anthropic almost universally last year, when you're giving them the budget because the, the throughput is so intelligent, you're finding budget for that team, um, or you're using discretionary budget to bring in, to bring in little agents, it's one thing. When the CIO takes control again of how many tokens across a large enterprise, that's a very different calculus of which vendor I choose from. And if the CIO prefers to buy OpenAI because it's got a more traditional sales motion, it's packaged better, it's better used, and there will be exceptions, there will be exceptions in departments. They will get exceptions. But overall, for the enterprise, I'm standardizing on OpenAI for 2028. It is the right choice for our Fortune 2000 company. It's just a different world when, you know, whatever, the sixty billion in OpenAI and ChatGPT revenue, all the enterprise stuff is still in some sense rogue today. So much of it is rogue. It is out of budget. It is out of band. It... And, and as that changes, it will change which vendor we buy from.

    8. RORory O’Driscoll59:22

       I- if you are correct, and I'm not sure you are, what it says is the people who should go into guidance counseling are Microsoft and OpenAI, 'cause they need to get their relationship back together again. 'Cause who is the dominant part to every single enterprise in, in the world? It's Microsoft. They need to get some couples therapy. They need to accept that they're different. They have differences, but they can reconcile, and they need to start... 'Cause otherwise, they're gonna get their clock cleaned. And that, frankly, as I think of, that's an indulgence that OpenAI can no longer s- afford, right? And o- because you're right, is that the other guys have stolen the march, uh, have stolen a march on the kind of developer love. Microsoft can go top-down. I don't care about your long-term competitive dynamics. You need to kiss and make up here, people. So if you wanna... A- and if, if we agree that enterprise is two-thirds of the game, Microsoft is the key. And so, you know, figure it out, go to therapy, talk to your issues, and get this thing back together again. And then the other comment to make is I just wanna give an advert for Aaron is that, uh, I, I read his tweet, uh, last week about his, you know, comments from the roadshow. And like I said this before, w- we were lucky enough to back Aaron sixteen years ago, and many years... In fact, last year, we had him back at our invest- at our annual meeting just to talk. Aaron is a walking investment insight. I mean, I read his tweets and I'm like, literally, I send it out to the group and say, "This is the latest thinking on what you should be thinking about, about what CIOs are thinking about. Just read this and then you'll know," right? It's just so... Uh, that was a such an insightful tweet about agents. He's not a doomer on employment at all. He's like-People are gonna be rolling this thing out, and if you understand what they're doing, you will have a role here. And he has a really good feeling that, you know, he talked about token maxing. It's like beyond Silicon Valley, there are gonna be meaningful budgets, there are gonna be constraints, and this thing... You know, just a real sense of how CIOs on the frontline are rolling out AI. I just, I just think it's excellent, so I, I follow him all the time.

    9. JLJason Lemkin1:01:17

       I thought it was so excellent, I actually messaged him and said, "Do you want to come on the show this week and do it?" And he said, "I would love to. Let's do it tomorrow." And that was this morning. So I'm actually doing a show with him tomorrow-

    10. RORory O’Driscoll1:01:26

        Oh

    11. JLJason Lemkin1:01:26

        ... about this tweet thread.

    12. RORory O’Driscoll1:01:27

        He's in that rare combination of frankly, you know, grounded enough in terms of 15 years calling on CIOs, 15 years calling on CIOs to really know what they think, and at the same time, frankly, young enough and flexible enough to really understand what AI is doing. It's literally like an investment insight. It's like a s- so one of my colleagues even said it when he spoke last. It was like, he said literally it was like having an invest- it was just like an investment memo spewed out on enterprise AI. Good for you, man. Good for you.

    13. JLJason Lemkin1:01:54

        Yeah, but here's the thing. Now just the one tough thing, and I almost don't want to say it-

    14. RORory O’Driscoll1:01:58

        Yeah

    15. JLJason Lemkin1:01:58

        ... uh, because I love Aaron.

    16. RORory O’Driscoll1:01:59

        Yeah, I get it. You can say it.

    17. JLJason Lemkin1:02:00

        But if he can't re-accelerate Box with his incredible depth of like, uh, 10 out of 10, right? If he can't re-re... What hope is there for so many other leaders, so many other unicorns and others? If he can't get Box to 20 to 30% growth, I'm, I'm, I'm giving up on, on the rest of the world.

    18. RORory O’Driscoll1:02:18

        It's a totally fair comment.

    19. JLJason Lemkin1:02:19

        Giving up.

    20. RORory O’Driscoll1:02:19

        Abso- and I, and I-

    21. JLJason Lemkin1:02:20

        Giving up

    22. RORory O’Driscoll1:02:20

        ... hope he is... I, I-- look, I admire them so enormously for g- and I really hope they can re-accelerate.

    23. JLJason Lemkin1:02:25

        Wow.

    24. RORory O’Driscoll1:02:26

        Yeah. 'Cause I do think his argument's excellent.

    25. JLJason Lemkin1:02:27

        'Cause he knows everything that's happening, and he's not pretending. He's not pret- he's not, he's not... Like so many folks are pretending. As engaged as he's ever been, right?

    26. RORory O’Driscoll1:02:34

        No, absolutely.

    27. JLJason Lemkin1:02:34

        As stressed as he's ever been. He can't work any harder. If he can't get this re-accelerated, [laughs] uh, good God-

    28. RORory O’Driscoll1:02:42

        No

    29. JLJason Lemkin1:02:42

        ... who the hell can? Who, who, who the [laughs] who the hell

12. 1:02:45 – 1:13:59

    SpaceX's Leaked Financials: The Math Behind the $2 Trillion IPO

    1. JLJason Lemkin1:02:45

       can?

    2. HSHarry Stebbings1:02:45

       We had the financials for SpaceX leaked, a five billion loss on 18 and a half billion in revenue. The reason it's so, I think, important for the audience is there are so many endowment funds and managers who hold SpaceX in some way who are awaiting the IPO later this year. Um, the loss is driven by the XAI acquisition, not by operations, important to add. Uh, but the $2 trillion potential IPO is a big number, and the math needs to be worked out.

    3. RORory O’Driscoll1:03:14

       Are you-- Okay, keep going, sorry.

    4. HSHarry Stebbings1:03:16

       So 18 and a half billion in revenue at 2 trillion is 108X. Did these f- numbers change your perspective? Did they confirm a opinion?

    5. RORory O’Driscoll1:03:27

       Didn't change, confirmed, but let's break it apart a little bit. The first is, okay, I'm gonna go all technical accounting on you now, right? Um, I kept... When did XAI close? Because pooled accounting is gone. Pooled accounting doesn't exist anymore, where you retroactively recast the financials as if the companies were together. So that's only the loss from when XAI was acquired, right? And I think it was late last year, early this year, so we actually don't know the actual run rate, right? Do you understand me? In other words, if the deal closed in the, in October 1st, then that would only reflect one quarter of loss. So anyone hypothesizing on it's profitable, it's profitable excluding that, or it's only, or it's quote unquote "only a $5 billion loss," until I see the actual GAAP financials-

    6. JLJason Lemkin1:04:09

       Yeah, exactly

    7. RORory O’Driscoll1:04:09

       ... I don't know shit, right? So let's start with that.

    8. JLJason Lemkin1:04:11

       It could be 20. [laughs]

    9. RORory O’Driscoll1:04:12

       Right, exactly.

    10. JLJason Lemkin1:04:13

        $20 billion loss. [laughs]

    11. RORory O’Driscoll1:04:14

        But I, but I, but I think the rough trajectory of it will be something like the following. We have an amazing, we have a m- an amazing launch business with a near monopoly on cost-effective launch, and that price could come down with the next generation rocket. We have an amazing business on Starlink. I think the X, the, the whole XAI, in retrospect, I think you'll look back and go, "I'm not sure I would have paid 250 billion for XAI." And then the question, as you say, is how do you value that relative to 100 times revenues? And, you know, we've talked about this before. I'm not gonna say it's right or wrong, 'cause I think what I would say is, obviously, very few things trade at 100 times revenues for any extended period of time. Let's just say that. So it's clearly underwriting a level of growth. It's underwriting a re-acceleration of growth, even of the Starlink business, which is plausible based on the future things they're doing, but feels like a lot, he said gently.

    12. JLJason Lemkin1:05:11

        It appears to be the most expensive IPO at scale of all time as a, based on revenue multiple.

    13. RORory O’Driscoll1:05:15

        Expensive as in revenue multiple, yeah. Agreed.

    14. JLJason Lemkin1:05:17

        Yeah, there appears to have no one at scale that has IPO- has ever, has ever IPO'd at a revenue multiple approaching this, right?

    15. RORory O’Driscoll1:05:23

        And the case will obviously be all the future things, you know, what is space? And you read the bull case, and as I say, as I say, I'm trying to avoid the, "I don't believe it." And I, I try to express my concern rather than saying, "Oh, I think that's crazy." I just say, you have a s- you have the existing business, and then you have a series of new initiatives around direct to cellular and all of which, and then obviously data centers in space. You can articulate a massive market, and the question, as I've said before, is, so you take these adjacent TAMs, and if you give them 100% probability of happening and 100% probability of them happening right now, in other words, no NPV because it takes five years to make it happen, then you probably get to $2 trillion. If, on the other hand, you apply a probability of it not happening and a time value of money, you get to a lower number. And maybe that's a good way to reduce it. I mean, the Elon believers are saying, "These are the future things, and I ascribe 100% probability of success," and it's like I'm gonna give him credit for today even though it's gonna take three or four more years. And so it's basically the Elon discount rate. The Elon discount rate is zero, and the Elon probability of failure rate is zero, uh, to get to 2 trillion. If you put a more conservative number in both of those, you probably end up in a different place. You still have the upside, you still have the long-term story, but are you getting paid for the risk? And that's a way of framing it that's not, "Oh, I think it's silly 'cause 100 times revenues is just too much." I think that's a reductionist argument. I think that what's really, what you're really saying is, "I'm looking at all this future TAM and perhaps being more sober about the probability of it happening." I'm revising my priors from, "Oh, 100 is crazy," which is just too simplistic, Rory, toWhat are you saying about these other markets when you feel that it should be at thirty times revenue? You're effectively saying maybe it takes four years for the data centers to happen and the direct to cellular to happen, and maybe the discount rate for that is fifteen percent, and maybe the probability of success is seventy, but not a hundred. And pretty... You know, you multiply all that, you gotta get paid for the risk.

    16. RORory O’Driscoll1:07:25

        Jason, what topic do you think we should discuss that we have left?

    17. JLJason Lemkin1:07:30

        Um-

    18. RORory O’Driscoll1:07:31

        Some private stuff.

    19. JLJason Lemkin1:07:33

        There's, uh-

    20. RORory O’Driscoll1:07:33

        We've been-

    21. JLJason Lemkin1:07:34

        [laughs] Some private stuff. Um-

    22. RORory O’Driscoll1:07:36

        No, some private market stuff. Simple, humble venture shit.

    23. JLJason Lemkin1:07:38

        The first... For what it's worth, the, the topic I put, but I actually, the, I don't think it's as interesting as a larger topic. A- A- AppLovin, eight hundred and ninety-eight employees. This is, this is, this is not a brand-new AI company. Last week, four point five million revenue per head. I've been thinking a lot about this. You have, you know, the Block memo and, and what Jack Dorsey wants to do. And you have, you know, every Andreessen chart of the week is showing how efficient the next generation is, right? How Eleven Labs and everyone's so efficient. Um, just the meta thing, my Captain Obvious learning from all the conversation I have is, um, it's a choice. Everyone wants to be small by choice, and this is what I think is going to be disruptive for the next year and a half. As VCs, you get really excited when you see an efficient company because all things being equal, "Hey, they don't need to fundraise as much. I'm gonna be diluted less. Um, it's less risky," right? Everyone loves-- Everyone wants to invest in the next version of Viva. We raised three, three million and got to thirty billion. That's the v- No matter what anybody says, that's the venture dream. We [laughs] -

    24. RORory O’Driscoll1:08:38

        That's as good as it gets, man. That is-

    25. JLJason Lemkin1:08:39

        We raised three million and we're worth thirty billion.

    26. RORory O’Driscoll1:08:41

        Totally.

    27. JLJason Lemkin1:08:41

        I don't care what you do.

    28. RORory O’Driscoll1:08:42

        Absolutely.

    29. JLJason Lemkin1:08:42

        Yeah.

    30. RORory O’Driscoll1:08:42

        No.
13. 1:13:59 – 1:23:43

    Thoma Bravo Shuts Growth Equity

    1. HSHarry Stebbings1:13:59

       There's two that I just wanted to touch on. One was Thoma Bravo shutting down the growth equity business. And is this, uh, foreshadowing of a load of other growth equity businesses shuttering, or is this just Thoma Bravo independent?

    2. JLJason Lemkin1:14:11

       Well, first, before you guys answer, can you educate me? 'Cause I'm, I'm ignorant. I don't understand the whole Thoma Bravo empire and what it t-truly means they're shutting down growth equity versus the other vehicles. I don't understand it.

    3. RORory O’Driscoll1:14:23

       I think it's pretty straightforward. The core business that puts ninety percent of the money on the table is buying control positions in software companies and, you know, with some leverage and running them, you know, adding, doing build and add on other companies to them and ultimately selling them either-

    4. JLJason Lemkin1:14:40

       For sure

    5. RORory O’Driscoll1:14:40

       ... to another PE buyer.

    6. JLJason Lemkin1:14:41

       Yeah.

    7. RORory O’Driscoll1:14:41

       That's most of what they do. It's ninety percent of the money. They started doing non-control minority positions in late stage high growth companies, and it's just a different business. But I just think it's different enough from the contr- like in, in a controlled position business, you're trying to co- you're trying to buy value. Now, we may look back and say many of the prices they paid for those controlled positions in '21 and '22 weren't value, but you're trying to buy value where you have control and you're going to be EBITDA positive and you're trying to pay down the debt and do all those things. You know, gr- classic venture growth, you're still, you're hopefully growing fifty to a hundred percent minimum, per our discussions. You're probably still losing money. You're not in a controlled position as the PE investor. And in a period like right now where your core business is threatened, the first rule of threatened is you retreat to the core. PE guys regularly come in to growth venture at the top of markets thinking, "This looks easy," and they regularly retreat from those markets when they discover it's hard, right? And, and, and they need to do-

    8. JLJason Lemkin1:15:42

       But shouldn't they be going back in in 2026? Is this a time to, to be reentering?

    9. RORory O’Driscoll1:15:47

       A- possibly, but... And again, a-not tr- but two reasons why not. One is your core business is under threat. Is that you don't wa- a-and y-you know, the, the one thing you don't want to be doing what your investors are saying, "We have this thing that ninety percent of your money is in, but we're futzing around with this other ten percent." Even if it's a good business, it doesn't matter, right? We gave you ten billion dollars to invest in control positions in software companies, and we gave you half a billion dollars to screw around doing something else. You're having problems in your core business. How about you fix that? It doesn't even rise to the level of is it a good opportunity or not. It's not the opportunity we have. End of.

    10. HSHarry Stebbings1:16:20

        You said retre- you said retreating to core, Rory.

    11. RORory O’Driscoll1:16:23

        Yeah.

    12. HSHarry Stebbings1:16:23

        I, I completely agree with you. Core is business... I'm sorry, I'm not, I'm never shitting on businesses, but challenged businesses like Coupa, like Anaplan, like Medallia-

    13. RORory O’Driscoll1:16:33

        I mean, I would say, well, then challenged-

    14. HSHarry Stebbings1:16:35

        Rory, can you help me? Like, this feels like a clusterfuck of pain

    15. RORory O’Driscoll1:16:40

        ... Separate comment. Yes. I mean, I think, look, the, th- one of the things is that, well, they're the same type of companies as were hit oh two four in the public market. So the same discussion we had in the public market supplies here. In other words, these are mature plain vanilla SaaS companies with single digit growth rates, right? They're just not traded every day in the public markets, they're traded in the privates. So the question is, what does that mean? The first thing is these kind of companies are trading, excuse me, at two to four times revenues, right? So the same equivalent companies in the private are probably should be caught value today at that, and many of them were bought at ten times and have leverage, right? So that's a pretty tough place to be. The negative spin is if you apply the same math of three or four times revenues and then deduct their debt, you have little or no enterprise value, right? And that's terrifying. And that means you could, you could see big losses in some of these PE funds. Now, the positive spin that they would give, which kind of goes back to Jason's thing, I'm not sure I fully believe it, is if these software marks in the public markets are totally wrong, and then two years from now they're back to eight times, then, you know, it'll be a tree that fell in the forest. No one will know, and in two years' time, they'll be able to go public with Anaplan again at eight times. And maybe that happens and maybe not. Um, but that would be one part of the why it's gonna be okay. If I was articulating as Thoma Bravo why it's gonna be okay, the first comment would be it's way overdone and these things are really worth eight times revenues 'cause they're profitable, and in the end, things trade at fifteen times cash flow, not nine times. We'll all be okay. That's one argument. And then the second argument could be some version of the Jason one, which is sometimes the advantage of private ownership is acute clarity. And if you're gonna make the transform to AI bet, I bet you these guys are gonna articulate that we will make that happen because we will own these things. We will replace management if they're not capable of doing it. We will hire other people that can do it. Maybe we'll buy assets. I'm not sure I buy that, but that's probably part of the argument, which is PE's argument has always been transformation, right? Now, the s- to date, the, uh, transformation has been about cutting cost and being more efficient. I don't know if they can pull off transformation where transformation is, as Jason says, taking Wix and adding, you know, not a six... T-to Jason's point, which I realize, not adding a sixty perc- if you add a sixty percent agent as a privately held company, you haven't passed the Jason test. Can they add-- The question you have to ask these guys is can they add a hundred percent agent that you can charge for? If they can and they rekindle growth to twenty, then they'll have earned their massive carryRight? If they can't and these things don't bounce back, then you're right, you could have a train wreck. And that's the game. That's their ball game right now, right? Which is why they're all looking for AI experts. It's why on a going forward basis, they're pitching buying new companies and kind of AI enabling them. But for their existing portfolio, it's all about, you know, what do you add to Coupa or Anaplan to make it AI first, AI forward at least, not AI first.

    16. JLJason Lemkin1:19:38

        On the one hand, I think we're gonna look back on this and see it's all a shame. Because if you have 10,000 happy customers, 50,000, 100-

    17. RORory O’Driscoll1:19:47

        Yeah

    18. JLJason Lemkin1:19:47

        ... 150,000-

    19. RORory O’Driscoll1:19:48

        That's a good point

    20. JLJason Lemkin1:19:48

        ... who are reasonably happy, not thrilled, but reasonably happy, and you've had now 12, 18, 15 months to build them an agentic product. You've had access to the LMS. You've been able to carve out 50 of your best engineers to work on it, and you didn't take advantage of your installed base for real, not in the moat way, not prisoners, but I mean, if you didn't take advantage of the fact that 90% of your customers are not at the bleeding edge of AI and sell them an agent, this is such a missed opportunity for the leaders. It's tragic. It's tragic because most folks have not made their decisions in agents. They just... And we're gonna look back, and we're gonna see these teams were so mediocre and so paralyzed, and I gotta tell you, when I talk with folks so out of ideas, people should not be asking me what they should do with their agents. They should be showing me their agents and asking me for constructive criticism on them, right? People are, are, are, are paralyzed with fear. They don't wanna work twice as hard as they used to, and they don't know what to build. And it's a tragedy because even today, selling to the install base is much easier than finding a new customer. If they're happy-

    21. RORory O’Driscoll1:20:50

        Yeah

    22. JLJason Lemkin1:20:50

        ... just call them up-

    23. RORory O’Driscoll1:20:51

        That's a good point

    24. JLJason Lemkin1:20:51

        ... they will take the meeting. And this is the great tragedy, and I think a lot of private equity firms are probably pretending, pretending their playbook's gonna work. I'm gonna hire this AI expert from Stebbings, Driscoll and Lemkin. It's two million a year. They're coming in with their ties and their checkered shirts, and they're gonna teach us how to do AI and get us to a 60% solution by the end of the year. It slips a bit, and it's just... it's, it's, it's a, it's a tragedy, and I'll tell you why it's a triple tragedy, okay? This is something I didn't know-- I mean, granted, w- in my brief tenure at Adobe as a VP, okay? And that was not a high point for Adobe. It was during the transition to the cloud. But I will tell you-

    25. RORory O’Driscoll1:21:28

        They said the same

    26. JLJason Lemkin1:21:29

        ... um, and I never, you know, I never underestimate competitors or big companies. I gotta be careful, right? But I will tell you what I learned at Adobe that folks don't realize. 100 surplus amazing engineers, either by design or accident. Either by accident, they were working on projects that weren't quite gonna get there, right, or they were available. They were available. More... Now, sometimes they were on the back half of their career. Sometimes they weren't quite as, as ra- as razz as the top engineers at Replit or Lovable or Cursor. But I mean great... My CTO is the toughest critic, would actually say, "These-- let's go fi- let's go steal these five guys. They're actually great." They exist. So it is a crying shame you can't take a team six at Anaplan, at Coupa, at whatever, build the world's best product, and ship it to your 10, 20, 50, 100,000. This- it's-- we're watching tragedies in the making, and it- it's sad. It's sad because they're still deep down running the dated playbook of a big release every four to five years and a quarterly release which changes a few pixels and adds some workflow. The deep down... all the companies I've talked to are still running that playbook, and it's a tragedy because they have, they have, they have the opportunity, but Stebbings, Dr- Driscoll, Lemkin AI Consulting is not gonna get them there, and that's who PE firms wanna do, bring in these guys. It d- it's not gonna work, and they, and everyone is right. They have the base. They have the opportunity, and, um, you know, and they're gonna end up in these Medallia death spirals where they're defaulting on, on debt and defaulting on billions of dollars and, and, and they can't, they can't afford it, and they... And it's just... and, um-

    27. RORory O’Driscoll1:23:03

        And it just becomes a drag. You're right

    28. JLJason Lemkin1:23:04

        ... it's not too late to still sell to your install base.

    29. RORory O’Driscoll1:23:06

        To make the, to make the math work on the LBO, they don't need to attract a whole bunch of new customers. You know, they, they already... Once you do the PE deal, you've already accepted that you're not trying... you're not a growth story anymore. But to Jason, Jason's exactly right. If you can upsell, you know, 20, 30, 40% more by delivering this, you know, 100% agent, it mightn't be the next most amazing company, but you'll cash flow positive, you'll pay off your debt, you'll create enterprise value, and five, 10,000 customers aren't gonna have to do a migration in two years when you file for bankruptcy. So I, I agree with J- it's a, it's a bounded problem. It should be solvable, but it's not going to be in many cases.

14. 1:23:43 – 1:30:20

    Who IPOs First; OpenAI or Anthropic?

    1. RORory O’Driscoll1:23:43

       What?

    2. HSHarry Stebbings1:23:43

       I'm gonna ask you two questions.

    3. RORory O’Driscoll1:23:45

       Oh, God.

    4. HSHarry Stebbings1:23:45

       And y- you got the binaries on them.

    5. RORory O’Driscoll1:23:48

       Oh.

    6. HSHarry Stebbings1:23:48

       So who's gonna go out first, OpenAI or Anthropic?

    7. RORory O’Driscoll1:23:52

       Anthropic.

    8. HSHarry Stebbings1:23:54

       Ooh.

    9. RORory O’Driscoll1:23:55

       SpaceX, Anthropic, OpenAI, in that order.

    10. JLJason Lemkin1:23:57

        It appears that SpaceX has already filed, and they're on track, so the, we already know the answer there. The fact that Anthropic just added the Novartis CEO to the board, that's a sign they're getting ready to IPO as soon as they can. [laughs] I mean, I'm sure he's gonna add value in healthcare, but that means nothing but we're trying to IPO very soon, right? Th- that and finding who the hell will chair the audit committee are clear signs you're gonna IPO as soon as possible. So given that they have that and OpenAI is sending out war memos, I'm just voting that, that they go out first.

    11. RORory O’Driscoll1:24:25

        Yeah, not even a difficult question.

    12. HSHarry Stebbings1:24:28

        Will Sarah Friar, the CFO of OpenAI, be there when they go out? Yes or no?

    13. RORory O’Driscoll1:24:33

        Look, I do know one thing. CEOs and CFOs have to, A, A, have to, A, have to be widely aligned, and B, the CFO should probably report to the CEO, right? And, and right now I believe the CFO in this case reports to the president, Vijay, which seems an anomalous arrangement, right? And so maybe rather than kind of doing, you know, so-and-so is in or out, what I would say is this: If that IPO is gonna happen, and if this team is gonna make it happen, then they need to be in absolute sync, and they probably need to have a more traditional reporting structure so that people don't have one more thing to think about or why this company is weird. I mean, I always tell my CEOs up and down Stack, "Dude, on the things where you're unique and different-You know, where you're changing the world, do it as different as you like, but all the boring stuff, just give the market what it wants. It wants the CEO or the CFO reporting to them. They wanna be in sync. It makes everyone's head hurt if the CEO and CFO are saying different things about something as fundamental as whe- when we're gonna go public. That... You know, stop the leaking, stay in sync. It's... You know, that's just not a thing. You- no one wants to hear that. No one wants to hear that because those are gonna be the two people on the roadshow. They should be able to finish each other's sentence. You should be able to put them in separate rooms like a police interrogation room, and each of them should say exactly the same thing, and they should stick to their story. The idea that you have separate stories from the two, it's just not... It's just palpably absurd. So rather than saying who's in and who's out, that's what you gotta do. Again, back to the same therapist that they're using for their relationship with Microsoft could actually do some internal relationships too. Interesting.

    14. JLJason Lemkin1:26:06

        But I will say two things. One, on the one hand, i- i- in isolation, if I'm running something like any- any- anything at scale, but especially at OpenAI, I want no daylight between me and my top lieutenants. No daylight. Okay? Now, you could argue a CFO's job is to create a little bit of distance, to be that objective person in the room, and, and there is some truth to that, right? But there can't be daylight or it's not going to work. So if there is that daylight and it were that simple, you make a change, and you make a change before the IPO so it's least disruptive. Now, having said that, if you are running a company at scale and there is already a ton of transition on the senior team, but... Which there has been, ton of turnover. I've seen a lot of times roles like CFO and others where you're like, "Listen, I just don't wanna change one more thing." Like, yeah, there's some issues here, but Sarah is so experienced that things work. Like, the workday finally works. We finally got all these things to work. This is not, "I got 99 problems," this is not one that I wanna tackle. So I have often seen something like this where you shouldn't have the daylight, but it's not, it's not s- it's not poltergeist-esque streaming through, and y- and it's just not enough of a problem. Um, if your management team is super stable, you have time to work on these things. But sometimes islands of stability in your management team, even if they're not perfect, um, y- it's just not worth another turnover on the senior team. It takes its... Every time you replace someone, it takes its toll on the team, especially if they're popular, especially if they're liked and respected. It just... Especially if they're... If, if everyone thinks they're terrible, you move them out and then, and there's a, there's cake and a party on Friday. But I wouldn't be surprised if she's pretty popular in her own way, and it, it takes its toll.

    15. RORory O’Driscoll1:27:42

        The raw ingredients of success are there. The raw ingredients of success are there to have OpenAI be an amazing mega IPO. Just, you know... And I say, Lily, get your therapist to make up with Microsoft, get your therapist to make up with [laughs] get aligned with your CFO. Focus on the two big things, which are getting the ads product out and getting the enterprise cranking, and stay the course. You have the compute, and get it done.

    16. JLJason Lemkin1:28:07

        If you have an executive that's truly arguing with the CEO in public, in the media, right? And/or like Dario back in the day at OpenAI, going directly to the board with craziness, they gotta go. Like, it doesn't ma- they gotta go. They... You cannot be out in the media arguing with the CEO, and you cannot be Dario, no matter how smart you are, going to the board and saying, "I will only stay at OpenAI if I directly report to the board." Like, it doesn't matter how good you are, and this is brutal. Sometimes you have to let some of your best people go because it's too dysfunctional. They gotta go in those situations.

    17. RORory O’Driscoll1:28:36

        Whenever you get a phone call as a VP from a board member, from a VP, you're like, "Okay, there's a problem here." Now, maybe the CEO goes, maybe the VP goes, maybe there's a problem and you can solve it. But you went, uh... I'm not gonna be as absolute as you gotta go, but your antenna go up, you know, an entire notch when you get that call. And you're right. You... And as for briefing and... I mean, look, most companies aren't interesting enough to have a media briefing. It's almost like these companies have become a, you know, political level drama. And I just saw a fun tweet from Martin Casado. It was just basically saying, you know, enjoy all the drama, enjoy all the petty backstabbing and all that. It's 'cause this is such an exciting moment that the media is focused on. And because they're focused on it, you get all... This is just what happens when you're in the center of the universe in terms of tech. So roll with it. But you are right, Jason. You wanna be the tight-run ship in this sloppy, sloppy world.

    18. JLJason Lemkin1:29:27

        And whatеv- if any VPs get this far on the pod, whatever you do, do not reach out to your VCs to say there's problems with your CEO. You will lo- you're losing your job. And not only are you losing your job, it doesn't matter if you're right. You're, you're-

    19. RORory O’Driscoll1:29:41

        We could talk about that-

    20. JLJason Lemkin1:29:41

        At some level, you're probably right. If you, if you're a passionate VP and you wanna... And you, you see issues in the company, you reach out to Rory or Harry on the board, odds that you're 100% wrong are 0%. Like, you're... But you are not gonna la... It's not worth it. You are not gonna... What are they gonna do, fire the CEO over you? Zero point... Unless there's fraud, 0.0%. You're gone. You're... Maybe in three months or it may be that afternoon, you're gone. Just don't do it, VP. Just resign. Just resign with grace. Yeah, it's a much longer discussion, but yes.

    21. RORory O’Driscoll1:30:09

        What, what's the Shakespeare q- quote, Rory? The, the world is a stage?

    22. JLJason Lemkin1:30:13

        "All the world's a stage and each of us play our part," yes.

    23. RORory O’Driscoll1:30:16

        I had to finish on a Shakespeare quote. Incredibly cultured. Thank you so much, guys.

Episode duration: 1:30:30