The Twenty Minute VCThe Impact of H1B Visas on Startups in the US & NVIDIA Invests $100BN Into OpenAI
EVERY SPOKEN WORD
85 min read · 17,489 words- 0:00 – 1:17
Intro
- JLJason Lemkin
Well, I'm excited because just like 2008, at the moment, I'm 0% cash.
- HSHarry Stebbings
[crickets chirping] You're 0% cash?
- JLJason Lemkin
Founder Friendly has become bullshit, right? Any hot AI deal, there is no diligence provided, nor is any done. It's just done on Saturday. All you can lose is one extra money.
- RORory O’Driscoll
Having an early success is highly correlated with future success. Partly you get the referral effect, but partly I think it's that you just have the stomach to roll the dice, and you get way more.
- JLJason Lemkin
This is an epic monopoly like we've never seen. Think how much ChatGPT already dominates our lives. It's the Standard Oil of tech.
- RORory O’Driscoll
It's just this really weird dynamic. You've got this company, what, $4.5T with only six customers. That's bad news, but the good news is all six of them are determined to spend themselves into oblivion to win the prize. It's a fascinating game.
- JLJason Lemkin
Ready to go? [upbeat rock music]
- HSHarry Stebbings
Guys, I am so excited for this. We have a lot to get through. I, I even have graphs this week. I mean, this is like... You see this? This is-
- JLJason Lemkin
Yeah
- HSHarry Stebbings
... this is intense. I don't know what they are, but-
- JLJason Lemkin
That's how many GPUs you're buying from NVIDIA? Is that what, what's your-
- HSHarry Stebbings
That's-
- JLJason Lemkin
... what's 20VC's commit?
- HSHarry Stebbings
[laughs] Uh, it, it's, it's up and to the right. That's all I-
- JLJason Lemkin
Up and to the right
- HSHarry Stebbings
... that's all I see from this graph. [laughs]
- JLJason Lemkin
[laughs]
- HSHarry Stebbings
Now, uh,
- 1:17 – 5:45
Nvidia's Massive $100BN Investment in OpenAI
- HSHarry Stebbings
w- how, what else do we start on? NVIDIA invests $100BN into OpenAI. I wanted to start on this. Is this an infinite money printing machine where we have NVIDIA invest in OpenAI, who commit $300BN to Oracle, who then buy more NVIDIA chips? Is this just the way to print money these days?
- RORory O’Driscoll
Uh, first of all, it's not an infinite money machine 'cause it will end, right? What it-- The way I thought of it is on the way in thinking about this is basically Sam's gonna get to make the bet he wants to make, which is apply infinite amount of capital and see how long these scaling laws last, and no one's gonna call timeout until you actually hit a wall, right? 'Cause what this says is NVIDIA's gonna get rewarded for, you know... Everyone's gonna book gains, and if it all works, it'll all be good. It's like, like any aggressive financing strategy, if the underlying business works, everyone looks smart. The debt gets paid back, the equity goes up in value, and everyone's a hero. And if it doesn't work, it all comes back and bites you in the ass, right? So what this means is if it turns out that those set of OpenAI projections of, you know, 'cause $100BN plus of revenue or whatever the numbers are, are real, we're gonna get to find out because no one's gonna call timeout along the way, at least for another year or two based on this because everyone's getting... You know, the capital's being made available and everyone involved is getting kind of mentally marked up. So that's, that's my takeaway. They're gonna get to find out here.
- HSHarry Stebbings
I have to interject. You said there Sam gets to see if scaling laws do continue. I thought we all agreed that they didn't continue, and that's why GPT-5 was focused on efficiency, and that's why we actually didn't see improvements in the way that we thought they would. I thought we were already reaching that.
- JLJason Lemkin
I think you gotta... Listen, the one thing I've learned over the course of this show is to really listen to what Sam Altman says, um, because Elon Musk will say something and it happens. He's just like a couple of years off, right? Um, but it always happens, the self-driving cars and the rockets, right? Sam says something and it, it happens like kinda soon, and he says it without, uh, off the cuff. And he's sitting there with Jensen and, uh, Brockman th- this week saying, "This is just a start. We need three orders of magnitude more compute than this. We need three or- not 10 times as much, three orders of magnitude more," he says. And then he writes today calmly, and that just with this first slug, the $100BN, hopefully we'll cure cancer and educate all students on the internet, right? There's a lot going on there. [laughs] He, there's a, the $100 bill- He, then he said Stargate and we didn't understand it. Now he didn't just say $100BN. We can talk about the roundtrip revenue. Is it really roundtrip revenue? There's some interesting questions, right? But, but he and [laughs] the president said it was on- they need three orders of magnitude more than this to achieve what they're predicting today, their, their goals. This is not Sony baloney. This is what they have on a, on a, on a whiteboard in a spreadsheet. [laughs]
- RORory O’Driscoll
To be clear, I didn't say it was correct, um, Harry. I just simply said we'll get to find out, right? I'm not sure I believe that the marginal $300BN will earn a return on capital at all, right? But my point is simply, yeah, there's some aggressive business projects where you go, "I wonder, can we invest that?" And you're just not able to make those investments, so you don't get to find out. And then there's deals where the market says, "Here, you can have the capital, have a go." This is one of those deals. We will find out. I mean, as, you know, the cliche goes, that's why they play the game, right? I, [laughs] I'm somewhat more skeptical because I think the level of heroic assumptions you have to start making to make these investments all work is high. But the truth is we're human beings and we tend to... Like when someone is as astonishingly right as OpenAI has been over the last six years, it's just human nature to say, "I'm gonna continue backing this bet as long as it works," right? We're not... You know, and what that means, by the way, is the consequence of that is it goes on until it stops. In other words, you got someone who's clearly gonna keep doubling down, so the doubling down is gonna keep taking place until the return on the double down isn't there, right? Is that now? Is that already happened? Is that gonna happen three years from now? I don't know. That's... Yeah, I can speculate why I think no, but doesn't matter what I think, is that the market has said, "Have a go. Here's $100BN."
- 5:45 – 22:24
Is Anthropic Negatively Positioned by OpenAI Gaining NVIDIA Investment
- HSHarry Stebbings
If you are Dario today, are you thinking, "Wow, we are in a significantly disadvantaged position as a result of this," and does this $100BN move the needle significantly more in favor of OpenAI?
- RORory O’Driscoll
The question is what, what is it giving you? It's giving you capital and access toChips
- JLJason Lemkin
Mm-hmm
- RORory O’Driscoll
So do you feel constrained by those? You probably aren't constrained by a lack of capital. You know, my understanding, my understanding is they were beating people off with a stick on the recent Anthropic round, and if they decided they want another $10 billion, it'll be there tomorrow morning. So they're not capital constrained. So maybe you'd say it gives you some preferential access to GPU that OpenAI now has, but I don't know. Right? So I mean, yes, in the, "Oh my God, their capital is bigger than my capital" wars, I think you'll feel the need to respond and do something, but it'd be interesting to actually pencil out what exactly other than momentum and bigness, what problem you're trying to solve.
- JLJason Lemkin
Well, they, I mean, Anthropic's not gonna be able to build its own GPU like ChatGPT is. It's not going to be able to lease, create hundreds of gigawatts of compute without that capital. It's not gonna be able to build its own GPU. I, I, when I... Another thing I thought through all this news, which, which didn't really come up in any analysis I saw, I was thinking about this a little bit. I'm thinking another thing that Sam is very clever on is toeing the line on being a monopolist. OpenAI does not want to be a monopolist, right? Nor does NVIDIA. They both want to be very careful in how they position themselves. Um, that, I think NVIDIA has an existential risk, which is everyone is trying to take their share, right? Google has its own TPUs, Amazon's trying, right? OpenAI is building their own to, to, to take away market share, but they both need to be careful. But OpenAI, I don't think they want 99.9% market share. I, I think they could be... They, they've already been through enough drama and trauma with Microsoft and throwing Sam Altman out of the company and bringing him back. You need, they need, like, their, uh, they need their number two [laughs] uh, possibly or, or they're at risk, right? Because they might be a monopolist in some ways today at a consumer level. Uh, uh, OpenAI.
- RORory O’Driscoll
Oh, I, I saw it. What, yes.
- JLJason Lemkin
No one... I use Claude every day. Like, but you're weird if you use Claude, right? On the consumer level, they border on Google Chrome levels of market share, and Sam's very careful to not denigrate others, right? To, other than a, a few jabs at Elon, um, because he, he needs a little bit of this so that he's not ripped apart as a monopolist over time. Like, this is an epic monopoly like we've never seen. Think how much ChatGPT already dominates our lives. It's the Standard Oil of tech.
- RORory O’Driscoll
I, I, I feel the need to cynically say [laughs] that the objection to monopoly is the extortionate excess profits monopoly ab- extorts from the consumer. Never have there in that basis been a less successful [laughs] monopoly than ChatGPT because they're subsidizing, I saw, we'll, we'll talk about it later, an estimate of the consumer surplus delivered by ChatGPT in the tens of billions of dollars. So, um, and to some extent, Jason, that was glib. I hear what you're saying. It's obviously not a cash extraction monopoly at the moment, but you're right, they have commanding market share in the consumer chatbot market, you know. Though I think between Gemini and Perplexity, I think they would argue not, not a monopoly. I think NVIDIA, frankly, is far closer to being a monopoly in terms of market share than ChatGPT, which is why I thought you were going there. And I do think it's interesting there's a whole bunch of people talking about building processors to try and take away that revenue, and I'm sure they're hyper-aware of that. It would be fun to know what, if any, agreement was made on OpenAI making their own chips as part of this deal. Right? It's hard to imagine giving equity to someone who's literally building a com- when they're one of your six largest customers and are building a competitive product. So that's a little something it would be interesting to know, but that on the other hand, is a detail that probably will not be highlighted just given the dynamics.
- JLJason Lemkin
Well, NVIDIA's weird too because it's, it's, it, it has e-elements of a monopoly, but it has elements of a monostopy too. It only has two customers. I mean, it has a long tail of customers, but it, it has to be, make sure it only, doesn't only have one customer. It has a risk of only having one customer. [laughs]
- RORory O’Driscoll
I think you're right. I think six customers I saw on the last, um, uh, uh, quarterly accounted for something like 83% of the revenue, which again, which is aston... First of all, let's step back. That's astonishing. Look at the market cap. They're a $4 trillion market cap. Look at the two other $4 trillion, three, $4 trillion market cap companies, Apple and Microsoft. Apple has two billion customers, everyone on the planet. Microsoft has probably a couple of 500,000-plus meaningful enterprise customers. These guys have six. [laughs] When you say it like that, it makes you realize, frankly, and again, I don't want to be the Debbie Downer, how single-threaded the market cap of the largest company on the planet is on the spending decisions of six or seven people. Now, the good news for NVIDIA, and this is why I go back to the consequences here, none of those six or seven people look like they're blinking. You know, OpenAI ain't blinking. Google's made it clear multiple times, I saw a good quote, is it from Booker Capital? That, you know, just reminding us Google have said over and over again, "I ain't blinking." Um, obviously Facebook, uh, Meta has indicated an absolute willingness to tear up the book and do anything it takes to win. So, and Oracle ain't blinking. So it's just this really weird dynamic. You've got this company, what, $4.5 trillion with only six customers. That's bad news, but the good news is all six of them are determined to spend themselves into oblivion to win the prize. It's a fascinating game.
- HSHarry Stebbings
What's interesting for me is the revenue concentration expands it just from these providers in this space to the data labelers as well. You know, we, we just had Macaw on the show. Two Macaw customers make up 55% of the revenue, I spoke to the other four main providers. It's exactly the same, and it's the same two customers across them all. It's fascinating. They are incredibly promiscuous with their data labeling providers, and they just use all of them, and they are the two same for every one of them.
- RORory O’Driscoll
Yes, because that's the only people who want to buy this shit at scale. I mean, I always like to distinguish that the AI revolutionBut there's the AI CapEx boom. I mean, there is an AI boom at the apps level. In other words, yes, adoption's taking place, but the scale of excel- the, the real wow in the last two years has been just the fact that the CapEx boom, that the markets and these six deciders have been willing to let the CapEx get so far ahead of the revenue, right? That they've been willing to say, "Let's spend in aggregate $600BN of CapEx per year on a market that today, depending on how you add up all the revenues, is yielding $30 to $40BN in revenue." It's amazing. And anything co-attached to that CapEx boom has just killed it. And you're right, the data labeling, you know, which I'll be honest, we looked at some of those in '16 and '17 and we're like, "Ugh, is this a really great business?" In theory, no. If you have a services business and you're only selling to six customers, you can make this intellectual MBA case that, oh my God, they'll get ground down on price. That case is totally wrong because those six customers don't have time to optimize. No one, no one of those six customers are trying to optimize their cost basis. They're just trying to build as fast as they can, and if you're Merker, if you're Surge, if you're, if you're anyone in the, in the line of that, you're just picking up your dollars and stuffing them in your bucket as fast as you can.
- HSHarry Stebbings
It feels so nuts to me seeing $100BN go into an OpenAI, and that as a headline. Rory, wh- when you compare it to any other time that you've been investing, does, does this match any other time in terms of what? Holy cow.
- JLJason Lemkin
Shock. It's a good question. I think these analogies fall apart because the scale is so many orders of magnitude larger, right? The, the only thing that's different, that, that's similar is the s- the sense that it's unlimited, right? That it's unbounded, right? And we actually have more skepticism today than we probably did back then. Rory's skeptical of, uh, of the limits here. Um-
- RORory O’Driscoll
I totally agree. I think I'm not skeptical of the long-term trend. Does it feel like '99? Not complete analogy. History doesn't repeat, it rhymes, but it's more like '99 than anything else I've seen in the last twenty years, right? I remember, you know, Nortel and Lucent making big vendor financing commitments to their big bandwidth customers to sell equipment, just as NVIDIA is doing today, though interestingly, NVIDIA's doing it as equity, not debt. But fun- I do remember that sense. Uh, Jason, you said it, an unlimited possibility, um, like, you know, the future's so bright, you gotta wear shades, and that just kinda endless belief, and I remember it also collapsing very quickly in 2000, right? Now, to your point, Jason, everything people said at the time was true, right? In the end. I actually still have the Mary Meeker book from 1996 that, uh, '97 on my desk that kinda called, these are the big trends, content, commerce, and collaboration, I think were the big internet trends. And yet pretty much everything happened over the intervening twenty years. But obviously, the time element turned out to be important, and there was like a five or seven-year period where the market had gotten ahead of itself, and it was a pretty ugly retrenchment.
- JLJason Lemkin
I mean, I think Harry's got a good point. This ig- this, this limitless potential we've o- this is the first time we've seen it back then, right? It's not like other booms, this limitless potential. It's not the cloud boom when we were all locked up in our, in our homes. This is a feeling it could be limitless. What's so different though in the Web 1.0 days is there just wasn't enough money. I mean, Amazon almost ran out of money after its IPO. Now, bless their souls, we've got i- it, we've got all the leaders running around guaranteeing each other's stuff. CoreWeave can now not go out of business. Like in, in 2000, CoreWeave would have imploded in months because it would have run out of money. Now NVIDIA's agreed to buy, uh, 300 years of its capacity. [laughs] Everyone's guaranteeing everyone, so this unlimited capital, yeah, of course, maybe it ends, but it-- that's nothing like the Web 1.0 days. Noth- there was just no money. Okay, NVIDIA, uh, fiscal year 2023, $3.8BN in free cash flow, fiscal 2023. Pretty good, right? $3.8BN. Fiscal 2024, $27BN. Fiscal 2025, $60BN. $100BN or something the next fiscal year. That's a lot of cash to reinvest from your balance sheet. It's, you should-
- RORory O’Driscoll
Funny you should say that-
- JLJason Lemkin
Yeah
- RORory O’Driscoll
... because I actually looked at the same number this morning, and yes, the free cash flow is $60BN. I was surprised that... So on the other ha- so that's obviously to state the obvious, A, a lot of money. Let-- And again, the bear case. That's a lot of money, and a lot more than it was two or three years ago, right?
- JLJason Lemkin
[laughs]
- RORory O’Driscoll
In that context, I was surprised they have a, they have a buyback program. They've been buying back, they bought nine billion of stock back last quarter. I would've, you know, which is just interesting at this period in the cycle, and they've authorized a $60BN buyback program. So in other words, there's a buyback program equal to the free cash flow for the last year, which is just interesting and aggressive. Cash on the balance sheet, hadn't looked forever. It's $60BN, which is a lot, but it's only one and a half, 2% of the market cap, right? You kinda go and say here is that if this amazing market doesn't keep going just the way it's going now forever, then you could find yourself going, "Hmm, maybe I shouldn't have bought back $9BN worth of stock at whatever it is, one eighty a share." And I'll look back on that and say, "That might have been a mistake." And again, I feel like I'm the d- the doomer here. I'm not a doomer. I think the trends are great, but it's just a very fraught-y time, and-
- JLJason Lemkin
You're, you're right. In all fair- like I, I, I wish I'd done the math ahead of time. What I saw when I was at Adobe, which it, I think NVIDIA's doing the same, it's not a brand-new company, NVIDIA, right? Is they, th- boom aside, they do try to buy back equal to the option dilution, the, uh, the RSU dilution, right? It was, it was almost one-to-one when I was at Adobe, right? So every, every sh- it, the, the... This is how you maintain your EPS at Adobe, was by buying back everything equal to the dilution you give out in RSUs, which was just frankly a cash equivalent until the, the market boomed, right? It's a one, almost a one-to-one.
- RORory O’Driscoll
A- a- and flagging vigorously my opinion on that as I've done when I've been on boards, I think the buyback the same as you're diluted is as dumb as rocksRight? You should buy back when your stock is cheap, and you should sit on your cash when the stock is dear. Right? I, I think the idea of linking it to your equity dilution, again, reminding us, we said we'd level up. Lots of pub- remind the listeners, lots of public companies obviously issue stock to their employees, and there's this ostensible rule that maybe you buy back in the market around the same number of shares as you've issued to stock to keep the share count constant. And as I said, and you're right, Jason, loads of people do that. I think it's absurd, but what can you do?
- JLJason Lemkin
It at least keeps your stock-based expense honest. Like if, you know, a lot of folks losing money are pretending it's not an expense. If you're profitable and you buy it back, it's like, look, this is the same as cash. It's just a little bit of financial engineering.
- RORory O’Driscoll
Yeah, but it doesn't appear in the P&L.
- JLJason Lemkin
[laughs] Yeah, for sure.
- RORory O’Driscoll
But I think the fundamental question is this. Look, again, it's back to the s- the zoom-out comment is the same. In a bull market, no one focuses on balance sheets. We only talk income statements. And, and when things get tough, you're like, "Ooh, wouldn't mind having some extra money around." And stock prices that were high can be low, and they might... Typically, corporations historically have a terrible record in terms of they typically buy back stock at peaks and, and don't buy back when it's cheap. And I see no reason why humans won't, will change this time.
- HSHarry Stebbings
Ladies and gentlemen, study Larry Ellison, the master of this. [laughs]
- RORory O’Driscoll
The master, who, who exactly when it was cheap, bought it all back a- and, and then used the capital to totally change the game to the, the current game of CapEx and investment, and has made it work.
- HSHarry Stebbings
Rory, that's great, but what about me? Your favorite thing about chatting to me-
- 22:24 – 41:59
Is Triple, Triple, Double, Double Dead
- HSHarry Stebbings
Um, dude, dude, I, I, I have the everyone in my Twitter being like, "Hemant saying triple, triple, double, double is dead is the top." So like, there are-
- RORory O’Driscoll
[laughs]
- HSHarry Stebbings
... many signs that people think are. I, I disagree with that. I do wanna discuss 75% of VC dollars in 2025 went to 19 companies. Is this just an extension of Mag Seven and concentration of capital? Is venture itself changing where we're all doing a Kleiner Perkins and moving late stage to get into the surefire winner?
- RORory O’Driscoll
First of all, it's obviously a stunning fact, but a better way, if I may say, of thinking of it is not has venture capital changed? It's that the, the 25% that's remaining is in fact the same venture that's always existed. It's, you know, roughly, it-- I mean, I think in our space, you know, 1,000 something odd series A's every year, certain percent would go to B's and, and that business has stayed the same, you know, plus or minus 10, 20% for the last 10 or 15 years, you know, with fluctuations. What's really happened is on top of that business has emerged this totally separate business called, as you say, ultra late stage, you know, private public style investing. And I, I just think of that extra 50 billion a year or whatever it is added on top. Didn't change my business. It just means there's another business that you can choose to be in or not that exists one layer up, you know, one, one maybe two orders of magnitude above you in the, in the valuation world, and it's still private, it's still, quote-unquote, "reported as VC." It's just a different business. And it makes sense that that's way more concentrated. You have, you know, A is more concentrated than seed, B is more concentrated than A, C is more concentrated than B, 'cause at every step some people fall out of the game. So the longer you hold private, the more concentrated it gets. You know, in the limit, maybe we're just left with two foundation models and Databricks and Stripe raising a Series N or G, you know, X or whatever it is, right? But it, it all makes, quote-unquote, "sense." It's just the way the late... It's a, it's a different business than-See with ABC Venture Capital, it just gets reported in the same bucket.
- HSHarry Stebbings
You guys have taught me so much, but one thing that Jason's always taught me is, like, try not to predict out several rounds and just predict out the next round, and can you see a 3X there? And I really like that framing. We as a team do it. The hardest thing I find is, honestly, we are getting it wrong. A, a lot of we, a lot of our businesses now are, are growing nicely, and I cannot predict what the next round wants because it seems to be moving so much, and I'm having a real problem predicting financing markets. Are, are you in the same boat?
- RORory O’Driscoll
First of all, I'll go back to the rule. I actually think Jason's tool is a very good one. We've evolved to the same thing. You, you, you, you, you, you can have a high level generalize what this company can ultimately be worth theory of the case, but I think Jason's exactly right. It's far more useful to say to yourself, "What does this..." 'Cause you don't have visibility on five years except at a macro level. But what you can say is, "What's this company gonna do in 18 to 24 months, and do I believe it can raise a follow-on round at a step-up to our valuation commensurate with the risk?" And that's a much more tangible discussion. And I think every... I'm sure, I'm not gonna say every VC, but you evolve pretty quickly to realizing that's actually the right way to think about it. You know, you sit there and go, "If we do this round and they make their treble," despite what you say, Hemant, "Will we be able to get a two, 3X step-up in the next round?" So it, it, it is a great rule 'cause it's deeply practical, right? Much more so than forecasting long-term returns. Is the market fluky now? That's a different question. Um-
- HSHarry Stebbings
Jason, can you predict which of your companies will be hot?
- JLJason Lemkin
N- not challenging you. I think it's always been easy when something is super hot to know it's super hot, right? When you add top... Now may- maybe Hemant's right, maybe the top 1% has changed, or the top point, 0.1%, maybe we could be analytical about that. But when you're in it, there's... And you can fall out of it, as we all know, right? Um, but when you're in it, you know. Like, there's, there's no doubt, right? Um, [lip smack] what is, um, what's weird today is that level just below it, right? Where it's unpredictable. Like, someone may see this as an outlier and preempt at a very high price, and others may see the risk beneath the surface, be concerned about margins, be concerned about churn, be con- Like, it's very easy to criticize a lot of these companies on churn and margins, right? And so if you're just below that, whatever that, that S tier is, that's where I find my, uh, my ability to predict, uh, very, very murky. Very, very murky. Um, and then the one I disagree with you on, but I agree with you from, from Twitter, is I think the ones one layer above that, if they are triple, triple, double, double, and you meet with enough people and you're not burning a lot, I do think you get funded. Like, that's where I, I quote disagree with you. But it's a lot more frigging work. It's a lot more work to get funded growing 100% at 20 million or 110% at 10 million than it was 24 months ago. It's just a lot more work, 'cause you can't get the meeting.
- HSHarry Stebbings
I would, I would, I'd just add one nuance. If you are in a slightly weird space that is traditionally unloved, like restaurants or... Like, no one likes selling to restaurants, as an example. It's a hard business. Then where they would've taken a bet on you before with triple, triple, double, double, now they're not. Now triple, triple, double, doubles, mm, growth and you're in a mm space. They won't.
- JLJason Lemkin
Or, or maybe, I think it's unpre- I would say the opposite looking at Owner, right? Which we know, right? Which is as they have dominated-
- HSHarry Stebbings
But they are growing way more than triple, triple, double, double.
- JLJason Lemkin
It's faster, but then what, my learning is it, it, th- these models, like, if you're growing at outlier rates, you're an outlier. Like, I don't really care if it's tagging or at some... I mean, y- we all want it to be AI native, right? Uh, but if you are hitting those numbers, people don't even dig beneath the surface, do they? They don't even care if there, if it's a lot of forward deployed agents or this or that. I, it's, but I, but I, but listen, if you're the 11th undifferentiated restaurant SaaS struggling to build a point of sale at a million in revenue, people don't wanna take that meeting, do they? At 50 million, 100 million growing triple digits, they'll take the meeting. There's only so many of those. There's only so many folks growing beyond triple, triple, double, double at 50 to 100 million. They'll, they'll take, they'll take the meeting. [laughs]
- RORory O’Driscoll
I, I agree. I, I think that whole meme is a little overdone, right? The whole, oh, three, three, two, two, double, triple, it's not good enough. Of co- There are examples of companies doing better than that. A small number, but a meaningful number of companies doing better than that, right? But that's not the only game in town, and I think that if you really have clarity on that kind of traction, especially at any ki- you know, and, and some reasonable scale, right? I, I, I totally think you're getting f- funded. I mean, I think you raise a separate question. Is, is what's really going on a story belief? People don't believe that the, the, the growth will happen in the future. But look, I mean, you just had a couple of IPOs where companies are going 30%. Obviously, that's at scale. So as long as you're on that kind of trajectory, I don't believe it's as vehement or as kind of sharp a line as some of the kinda Twitter thread, the Harry Twitter thread with Hemant makes it, right? Yes, there's a small number of companies growing significantly better than that, especially early on in the foundation models, but I don't think it's the only game in town.
- JLJason Lemkin
But let's, for sure, it, look, it's sensational, right? We could break it down. I, I, I, uh, there's a version of it I saw this week that was, uh, less dramatic, which was Iconic, right? And Iconic had two billion dollar exits this week, Iconic growth, okay? It had Netskope, which no one talked about, eight and a half billion dollar exit, and they congratulated themselves on DX, which Atlassian bought for a billion, which I don't know how much they put in because they described themselves as essentially bootstrapped, right? So I- Iconic couldn't have owned a f- a third of the company, right? But, but, but, and, and are those, are even those rounding errors compared to, uh, Anthropic? Right? It's just, this was no, this, they, they equally congratulated, but, but, uh, but what, with the fund sizes and expectations, do those, do those meet the bar? Do DX and Netskope meet the bar in 2025 is a different version of Harry's question, isn't it?
- RORory O’Driscoll
Well, and as an absolute number, it's a great return. Let's start with that. I mean, again, you know, you are, if you have a $10 billion fund, you don't care. But most funds, those are excellent exits. I mean, you know, we, we-You know, like Netskope, superlative company, did a great job, built a big business
- JLJason Lemkin
Superlative [laughs] .
- RORory O’Driscoll
Yeah. Yeah, they are. Well, they are.
- JLJason Lemkin
But do they count in 2025?
- RORory O’Driscoll
Yes, of course they count, because they go in your bank account, and that's the mission, right? If you own 10% of Netskope, you have a $700 million equity position in a freely traded public stock. Maybe you paid $100 million for it, you have a 7X, that's great. It's a great outcome.
- JLJason Lemkin
I don't think of this every day, but I do think about me and Emergence2 back in the day, and Emergence2 was a incredible fund, right? So many winners in cloud, right? The Vivas and all those. And, uh, I was an asterisk at the bottom of that outcome. I was an asterisk. The returns were so gigantic. I mean, that was a whatever, a 10X plus fund. I was just a rounding error in other exits, right? Um, and, uh, I just s- kind of think about who gets to be in the asterisk at the bottom of the DPI table [laughs] in 2026. 'Cause I was in the asterisk back then and it, you know, it's cool, but it didn't feel great to find out I was in the asterisk.
- RORory O’Driscoll
Interesting, but... I, I understand what you're saying, but let's talk about multiple and then let's talk about absolute amounts.
- JLJason Lemkin
Mm-hmm.
- RORory O’Driscoll
As the OpenAI cap table, quote-unquote, crystallizes, right? I think some of the early investors in 2019, and I'm doing this from memory, based on their ownership versus the original capital in, it's around a seven or 8X, right? So it's a magnificent company. It's the most important company of the last decade, right? But the actual multiples earned are really good. But so someone who did the Series A at Netskope also made a seven or 8X. And in the end, now maybe the, the s- the, the absolute sums might be different, you could put more money to work, but it's just worth pointing out on the basis on which as an investor, as you invested in tho- if you made those two bets, one of them being OpenAI from 2019 to today, and one of them being Netskope from 2017 to today, your IRRs might be different, but in both cases you made a 7X. And all 7Xs are exactly the same, 'cause money is fungible. That's why we invented it. There's very few ways to make a, a good return on a large amount of money, which is why the bigger the fund size, the more you have to be in only five or seven deals. But there's quite a lot of ways to make meaningful equity returns on good outcomes. You know, $5 billion plus IPOs can result in a perfectly great 10X. So I, you know... And everyone's gonna cash the check. So I, I'm here in defense of none of those are boring, and there's more ways-
- JLJason Lemkin
I find that scary listening to you, Rory. Sorry. A $5 billion IPO does a 10X. [sighs]
- RORory O’Driscoll
Well, I'm, again, by the way, it's not a 10X on the Series A. I'm actually just doing it 'cause I, I calculated, I'm not gonna name the inve- I can't name one of the investors, 'cause a lot of them, very wisely in my opinion, have piled into the follow-on rounds. So you probably, your return on your first money is a 25X. Your return on the last round is a 3X. Blended across everything, you have a 7X. So, but it's a 7X on, you know, 100, 150. If you want to talk about the return on the Series A, my guess is it's 25, 30X at least. It's a great return.
- JLJason Lemkin
But it is also a company where 10% of the world's adult population is a weekly active user.
- RORory O’Driscoll
Well, now going back to OpenAI, the other 7X. Yes.
- JLJason Lemkin
Fuck.
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
10% of the world's population [laughs] is a weekly active user.
- 41:59 – 54:17
Navan Files to Go Public at $8BN
- HSHarry Stebbings
W- we say about risk-return analysis, concentration of assets. I, I hope it's okay. I hope he doesn't mind me saying this, but Oren Zeev, a lot of concentration across funds in Navan, and at points that has looked very, very nerve-wracking. Point being when it went to zero in COVID.
- RORory O’Driscoll
Right.
- HSHarry Stebbings
Um, they announced, obviously, they're filing their S1. Um, I thought interesting elements, six hundred and thirteen million revenues growing thirty-two percent year on year, ten thousand customers, hundred and ten percent NDR, which is good. Not, not best in class, but good. How did you guys think about this S1 announcement?
- RORory O’Driscoll
Well, before we talk about the S1, let's go back to Oren Zeev. Well done, Oren. Good guy. He's m- I mean, exactly. You m- I mean, think about it. You made a very non-diversified bet. It's terrifying. You then, let's all remind ourselves, you then had COVID in your travel company. Your revenue probably went to zero in March of two thousand and twenty. And to go from there-In a non-diversified bet, having an S1 on file for a perfectly doable nice IPO, I can imagine the exhale when this puppy prices. So well done him and his investors.
- JLJason Lemkin
I mean, you guys are better experts than me. Is it really as concentrated as it sounds? I mean, if these are SPVs and opportunity funds and other things, this is-- is this him really putting 80% of a main fund into Navan or is this a-
- RORory O’Driscoll
Mm
- JLJason Lemkin
... stacking a whole bunch of vehicles?
- RORory O’Driscoll
I have no idea.
- HSHarry Stebbings
I, I have no idea. I, I mean, bluntly, I don't think it's-
- JLJason Lemkin
It just may not be as conc- Like, it may be a lot of his book, but it may not be as concentrated per, it, it, for his early stage fund as it sounds, right?
- HSHarry Stebbings
But like 20% of a fund, dude, is, is a lot, and 20% across multiple funds-
- JLJason Lemkin
I don't think it's a lot. I think you gotta put... If you have a small-- Like, what's, how big was his core fund in that, right?
- HSHarry Stebbings
Do, do, do you, do, do, do you have 20% of your fund in any company?
- JLJason Lemkin
Um, that's the g- Yeah. I'm a pretty concentrated investor, so I'm gonna get to 10% almost in two checks into any deal. So yeah, I don't think it's that. Because if, listen, if you have 100 bets, it makes sense if, but if you have a breakout winner, th-this, you should put 20% into your winner, right? It, it, it's, I think 100 is risky. Um, I don't think it's gonna... Like, like, because Rory can help me do the math. Once your fund is up four or five X, 20% of the initial principal's not that much of your NAV.
- RORory O’Driscoll
Yeah, once you're up. I mean, I would-
- JLJason Lemkin
Yeah, once you're up
- RORory O’Driscoll
... these are all trade-offs. Concentration results in in- you know, increased out- can result in increased out performance at significantly more risk, right? And the question is, are, again, are you getting paid for that extra risk? I don't know if I'd have the stomach to put 20% in one deal, and I ho- I want to honor the fact that Jason clearly, and you know, Founders Fund, in my view, one of the most successful firms, have the stomach for that. And maybe it's just a risk tolerance perspective. I'd find 20% hard.
- HSHarry Stebbings
Brian Singerman was-
- JLJason Lemkin
Like, I'll give you a learning I had, uh, f-for what it's worth, from Byron Deeter, right?
- HSHarry Stebbings
Yeah.
- JLJason Lemkin
So, uh, I, I forget exactly how it works, so I'm, I'm mixing up a little bit. Harry just had him on his show. But there were like X number of partners, okay? And each essentially were allocated a, a, a tenth of the funds or a sixth of the fund nominally, and Byron put 30% of his into Twilio, roughly, okay? Now, that wasn't 30% of Bessemer nine or whatever it was, but it was 30% of his career in that fund, right? So is the math really that, that different in that sense, uh, right, for the GP?
- RORory O’Driscoll
It is, because, um, for the GP in question, no, but for the firm, I mean, yeah.
- JLJason Lemkin
Well, for sure.
- HSHarry Stebbings
Yeah.
- RORory O’Driscoll
And, you know, it's-
- JLJason Lemkin
But a similar, but it, it's a similar risk at the GP level, isn't it, putting all of his chips into Twilio?
- RORory O’Driscoll
Yes, it is a similar risk for him, but i-it's not, yeah, but it's not the risk his investors wanna undertake at the fund level. So-
- JLJason Lemkin
[laughs]
- RORory O’Driscoll
... fine, fi-fi, you know, in other words, it might be fine for an individual GP to have 30% of their book. It, look, it's the same reason, step back, guys, it's why these macro managers, best business on the planet, by the way, have these little pods. Each individual pod is taking wild risk, and then the macro manager is sitting back and basically anyone who underperforms by, you know, more than the tolerance just gets whacked and you put a new one in, right? So you get the person on point is taking a lot of risk and a lot of upside and a lot of focus, but there's always this intermediary layer that's saying, "I want a little bit of risk smoothing out and risk management." And I do-- So I do think most, not all, but most investing vehicles have some element of risk diversification in them. There's very few people... There's, there, there's not a huge appetite in most markets for undiversified single s-single stock risk, which of course, interestingly enough, there is right now in, as you say, the Anthropics and OpenAI's of this world.
- HSHarry Stebbings
I always remember Brian Singerman teaching me that, um, capital concentration limits are the enemy of great venture returns, and that's why they have 33% of their fund in Airbnb. Now, I, I don't have the balls he does, uh, sadly, otherwise I'd be much richer, I'm sure. Uh, but I always remember that. O-On Navan, uh, take, point, point taken, Jason, in terms of level of concentrations.
- 54:17 – 1:02:17
Lockup Periods and Liquidity
- HSHarry Stebbings
that matter. So, uh, I have to ask. You know, you always get these newspaper articles that are like, "Oh, Index made $5 billion," and big numbers thrown out. But you've got a lockup period, and then as the major investor, you can't sell all in one. How does it actually work genuinely when you are a large shareholder, they IPO, what's that timeline to liquidity?
- RORory O’Driscoll
Sure. Uh, first of all, yes, it is, it's a totally funny thing 'cause, 'cause the other thing, just to put it out there, just say it, is, is that, you know, you, you tend to report as an investor your holdings. You know, you're the named person on the thing, so in a, in SEC filings, it looks as if you own not just your shares, but your partner's shares and the LP shares. So suddenly, s- I mean, there's some... I mean, let's take the Index example at Figma. You can probably Google the partner in Index, and they'll say, "Net worth at Figma stock, $3 billion." It's totally misleading and results in a whole bunch of charities calling you and saying, "Please give me some of your $3 billion." And you're like, "I don't have $3 billion. You know, I got 20% of $3 billion divided five ways, and it's got six months before the lockup." So yes, you do get that effect, um, at times.Yeah, it just-- look, it's just a process of time. I mean, you, you have a lock-up most of the time. One of the attractions of direct listing is you don't. The lock-up is typically six months, and they can be waived earlier. Sometimes you see these performance triggers where if the stock trades above a certain amount, you can waive the lock-up early, which is nice. And then after-- so after that happens, the next thing is-- the other thing that sometimes happen is in the lock-up period, if the stock performs well, right? And by performing well, it means, you know, trading well above the IPO price, which gets back to this whole thing of IPO pricing. If the stock, quote-unquote, trades well, you can probably get a secondary done, which means that you can sell more of your shares in the lock-up period via a registered offering, right? And that's attractive because it's, you know, it's liquidity in a structured deal where you just get your capital, right? And it's one of the reasons why, this is a cynic, it's one of the reasons why at the margin, a ten or fifteen percent pop on the stock isn't, quote, the worst thing in the world, because everybody who buys at the IPO is happy. And then six months from now, if there's going to be a secondary, which means a structured sale, you know, y-you can't get a secondary done if the stocks trade down. If you go public at fourteen bucks a share, and six months later you're trading at twelve or ten or nine, it's extremely hard to get a secondary done. Whereas if you go public at fourteen and it trades up to eighteen or nineteen and you make your first quarter, then you can easily get an IPO do-- a, a secondary done. That's the second way out. So you, you, you, you, you... The end of the lock-up when... And then other than a structured secondary, your choice is distribute the shares to your limited partners or sell. And the truth is, it takes a lot of time, especially if you're on the board, you have reporting obligations, you have quiet periods where you're not able to sell, and it takes a long time to get out of a position. Typically, my gu-- eighteen months from the IPO, plus or minus maybe twenty-four.
- HSHarry Stebbings
Is it not just better to sell before in a pre-IPO secondary?
- RORory O’Driscoll
No, probably. Not all the time. Again, you have to have-- it gets back to the same two criteria. You have to have an informed opinion on the value of the stock, and then you have to figure out your risk tolerance and institutional kind of issues on top of that, right? But I mean, look, to the extent that the median stock pops and then trades up, you'd probably be leaving some money on the table. But there's been times when that's been the right call.
- HSHarry Stebbings
I, I asked Hemant in the show, like, you know, "Do you believe that you are fundamentally a better manager of public stocks than your LPs?" And he said, "No."
- RORory O’Driscoll
No.
- HSHarry Stebbings
"But we, we do understand that there's some who have this rule that they have to systematically sell the minute that they're distributed to. And so in that situation, we will deliberately hold on because we're not saying we're arrogantly better," but they have this systematic, bluntly strange rule in certain cases, or ineffective in a lot of cases, where actually they need to hold on. I thought that was interesting.
- RORory O’Driscoll
And he's broadly correct. Some LPs choose to automatically sell, and the logic is, look, they're not tru-- they're inheriting a stock they don't know anything about. The person who knows most about it, which is the GP, has elected to distribute it. So there's some signal in that, and it's just not the asset they wanna hold. So I, I get the logic of the distribution. Well, I get the logic of the rule.
- JLJason Lemkin
Hold is your best time to trade on ille-- to legally trade on inside information, though. If you're on the board or close to it, it's your best time to trade on that illegal information-
- RORory O’Driscoll
Or it's the worst time-
- JLJason Lemkin
... by not trading.
- RORory O’Driscoll
By not trading.
- JLJason Lemkin
Yeah, you can hold legally with inside information.
- RORory O’Driscoll
Yes.
- JLJason Lemkin
It's a privileged position. You can sit on that board and know what's coming next quarter and tell no one and hold. Now, you gotta be careful if you distribute or sell, you have to be a little thoughtful [chuckles] about your timing. But you have this special thing where you can hold on inside information.
- RORory O’Driscoll
Yeah, you're right. There's no securities law violation on holding. Equally, just to, just to say it, though, the, the thing is, if you have negative information, you absolutely can sell. So it's not a, it's not a one-way win street. But you're right. One of the interesting examples, I remember one case of that where on a public company I was on, that was around six or nine months where we were in active M&A talks and, you know, you'd have your LPs ask you, you know, "What's go-- why don't you sell this stock? It seems very fully appreciated." And you know, you can't say a word. You just have to say, "We're taking everything under advisement," and you're sitting there knowing we're about to get a thirty or forty percent premium once this deal closes. So yes, you do have that... 'Cause it's a, and it's a great point, Jason, 'cause sometimes LPs ask, in my view, correctly, you know, what's the advantage of being on the board once you're public? And, you know, there are disadvantages, right? But it's not a one-way street. The disadvantage is limited trading windows, but the advantages are you do have an inside seat on something like driving to an M&A or an upside outcome, and you have a better sense of the company's performance. So it's a toughie. Um, y-you err on the side of-- I find you err on the side of getting off reasonably quickly because, you know, you do wanna get on to the next business. But I don't, on the other hand, believe in just bailing day one. So I've generally found you get off within twelve to eighteen months of the IPO most of the time. And at that point, you know, you're distributed, you've done your job, you shouldn't just be on, you know, for other reasons. That said, it is worth pointing out that the two venture investors in the NVIDIA IPO in nineteen ninety-seven, Mark Stevens and, oh my God, and Tench Cox of Oak, of Sequoia and Oak, have stayed on that public board to this day, and I believe the board package, as you know, the equity you get as a board member has been extraordinarily, extraordinarily worth their time. Let's just go with that.
- HSHarry Stebbings
[chuckles]
- RORory O’Driscoll
Extraordinarily so. Like-
- HSHarry Stebbings
And there's one I, I'm-- totally can't remember, so I'm not even gonna try, but who's never sold a share.
- RORory O’Driscoll
Yeah. I think it's Mark Stevens has never sold a share. Um, I think, yeah. Yes, that's good. No, you're probably looking at a billion dollars plus, maybe many billions of dollars. That's good. Yes. It turns out being in the best c-- being, being early in the best, in the largest market cap company on the planet and never selling any shares turns out to be a remarkably good way to make money.
- JLJason Lemkin
I think it's impressive f- and I'll, and I'll-- But just like the concentration in Navan, it's just a hint less impressive than it sounds. It's very impressive, right? But when you're up enough personally, it makes sense to hold your w- all your winners in the public markets be- for taxes and other re-- There's just no reason if you're personally up enough, uh, to, to sell any winner, right? For-- With all reasons. You might as well let it ride, right? Unless you're s- If you know it's going down, sell it, right? But, but, uh, s- but you wanna hold on to an asset that will continue to appreciate essentially tax-free. There's a lot of advantages to it, right?
- RORory O’Driscoll
Pointing out that portfolio theory would say something different. I, I, emotionally, I'm with you. I liked holding on to the companies I'm involved with. Portfolio theory would say something different.
- 1:02:17 – 1:07:40
Impact of H-1B Visa Changes on Startups
- HSHarry Stebbings
I'm not breaking the rules here, I don't think. You can tell me if I am. But it's a very significant part of our ecosystem, and I mean it directly applied to tech. I'm not going into politics. But H-1B visas was announced in terms of the hundred thousand dollar, uh, fee or payment that's needed now for new H-1B visas to be granted. So I'm not going to Trump or politics very deliberately. Do you think this will have a material impact on s-startups, early-stage companies, and the teams they build?
- RORory O’Driscoll
It will have an impact. It will obviously, at the margin, be negative, right? Because at the margin, immigration has obviously been extremely good for the tech ecosystem. So you can make that as a definitive statement, right? You know, you ask material is... Material is a harder thing to assess.
- HSHarry Stebbings
Well, there were four hundred and forty thousand applications in the last year. Um, those, they generated between nineteen and hundred and twenty billion dollars of GDP for the US.
- RORory O’Driscoll
Yeah, I mean, seventy, yeah, seventy thousand accepted. I think there's seventy, seventy-five thousand a year, one or the other, right? And yeah, I, I, I think at the mar-- Look, I think at the margin, if you were to have any rational immigration strategy, these would-- and you were to rank all of the people [chuckles] you wanna let into your country, STEM graduates who found companies that employ mill, uh, thousands of Americans would be top of that list, right? You could argue that some higher fee, there are-- So some program like the exceptional program we have, which is separate, all the H1Bs kind of make sense. You could argue that some increased fee might mitigate some of the arguments against the H-1B, which is, you know, some folks would make, which is, is that you, you know, you are-- Some of the applicants are at least doing much simpler work that could be done by folks in the country, and therefore, "Hey, maybe it should be charged more than that." I think the way this has been implemented, the absolute sum, all those things aren't great. Um, and I think the real truth is, rational immigration policy for something like this gets caught up in, as you say, a whole swirl of other emotions around wider immigration issues and what it means. It seems to effectively preclude any sensible, rational policy on, you know, for this kind of highly skilled immigration, when it's pretty obvious that, you know, w- that a rational program like this would be extremely good for the US.
- JLJason Lemkin
Well, look, I think, um, anyone that has been doing this for a while, um, that isn't just three kids, um, working nine nine six in SF has had H-1B folks on their team. I have. I've had great folks on my team. I would-- My s- especially my first startup, which was hard, it had a material science component. It wouldn't have been possible without H-1B, uh, at least on its surface, okay? I had H-1B. I had two folks with H-1Bs on my f-- They were transfers, right? I didn't, I didn't sponsor them. I had them on my first team of ten. I had two. Wouldn't have had my first exit or my first startup or save hundreds of more of lives from my first startup. So can't, uh, for sure, right? Um, and what we want at a meta level is e-everyone great coming to the US. That's what I selfishly want. Every single talented person that can help, uh, keep our NVIDIA shares high-flying coming to this country. I, I want it selfishly and, uh, ethically and personally. So it sucks, right? But I do say, but going-- but at a very tactical level, we find ways, okay? The O-1, like, if you look at the companies you've invested in, they're all O-1s now, okay? Everyone finds a way to get an O. At least all the founders get O-1s. And O-1s have a lot of cons, right? And you've got to keep them going, and it's stressful. But there, there's ways, and so I do think the impact will be modest, and the big tech companies will just pay up, right? But I think it's terrible [chuckles] . But I think the impact will be modest at the moment if it doesn't expand. Um, but I've, I've, we've, we've all had great H-1Bs on our team. It sucks.
- RORory O’Driscoll
Exactly the pragmatic point. If, yeah, if you're willing, if you, if you see the strong-- I appreciate you saying that, Jay. If you see the strong positive that the program brings in aggregate, you can say there's a little bit of abuse, but it's worth the tax. If you're on the outside and you're incensed by immigration in general, then you ignore the great people who've been enabled by H-1Bs, and you focus on the abuse, and you say, "This is awful." Pick a company. Microsoft is using H-1Bs while laying off Americans. It's easy to give that speech, right? There's no accident that the countries that have the most skills-based point system are the countries that have least angst about immigration. A hundred thousand dollars is kind of a rough American proxy for skills-based. In a rational world, you do what, let's, let's remind ourselves what Trump at one point said he'd do, which is attach it to every STEM degree, right? You're trying to find some proxy for let in the people who are best for America, right? That seems to be a reasonable rule, 'cause let's be frank, everyone wants to get to America. God knows I did, right? So you have to have some rule that isn't everybody. So a logical rule is what's good for us, and you could imagine a point system, STEM, all that kind of stuff. The money thing is just a very c-- I think it's trying to be a very crude proxy for that, and I think, you know, with, with people being more cooperative, you could probably come up with a better scheme than pick a dollar sum and make that the deci- deciding
- 1:07:40 – 1:16:16
Notion Hits $500M ARR Re-Accelerating
- RORory O’Driscoll
factor.
- HSHarry Stebbings
Final one before we do a Kalshi quick-fire is just Notion hitting $500M ARR I thought was really impressive. You know, it's like-
- JLJason Lemkin
And accelerating. So okay, I'm gonna say it then. Ha-ha-ha-Harry, they're not trouble, trouble, double, doubling, right? Is it impressive? I mean, I think it's impressive, but th-this is almost a counterpoint to the, oh, only thing that matters are things going faster than SaaS. This is a mid-sized SaaS company. We excel at probably, I don't know, 30%. It's great.
- HSHarry Stebbings
Why did I think it was, uh, impressive? I think it's to Jason's point. It, it's hard to get a re-acceleration at scale. Uh, I think trouble, trouble, double, double is absolutely dead early stages.
- JLJason Lemkin
Agreed. I was giving you a train.
- HSHarry Stebbings
Trouble, trouble, double, double at hundreds of millions in revenue is phenomenally impressive to me.
- JLJason Lemkin
Agreed.
- HSHarry Stebbings
Uh, and at $500M in revenue, you could actually squint and see my $10B stock, which I have since it acquired some of my companies, reasonably being finally up to the watermark of $10B. I'm like, "Eh, 20X." It's a bit punchy.
- JLJason Lemkin
[laughs]
- HSHarry Stebbings
It's a bit punchy [laughs] with, with that growth rate. But-
- JLJason Lemkin
Those pesky 2021 valuations. [laughs]
- HSHarry Stebbings
Oh, Jason, $10B. [laughs]
- JLJason Lemkin
[laughs] Klarna doesn't even talk about it anymore. [laughs]
- HSHarry Stebbings
I mean, what it points to is, you know, reports of their death have been greatly exaggerated, as Mr. Twain would say, right? It turns out these mid-tier, significant scale SaaS companies, they don't have to just become s-something totally different, but they have to embrace and lean into the AI trends while still being fundamentally the thing they are, not trying to be, you know, a totally different company, and you can get, you know, re-acceleration. And I agree with you. I was giving you shit, but you're exactly right. You know, 30% acceleration at $10M isn't what the paper it's written on, but if you're at critical scale within striking distance of an IPO and you can use kind of an AI-enabled story to get you back over 30% plus 40% growth, you know, you have an IPO in your future. They IPO today, where do they price? Well, we can tell because, I mean, w- crudely estimating, I don't know of the growth rate, but let's assume it's 30, 40%. I doubt it's really doubling. I could be wrong, but just looking at the head count, I mean, they have 1,200 odd people, which probably 200, you know, which doesn't get you to doubling based on the growth rate. A 30% grower, I mean, Netskope and Navan and, well, Netskope is priced already. You know, it's seven, eight, nine times NTM, so something like that, four or five billion, maybe more if the forward growth rate is a little better or if I'm underestimating the revenue. But yeah, a long way from $20B, and it'll be interesting to see how they digest their preference issues. But a great outcome. I mean, $5B, $7B, $8B is real money. No, I know. I got in at, I got in at 10. Well, Harry, you see, I don't know if I would. That's your problem, not theirs. It's not my fucking problem. They bought my company. I didn't have a choice. [laughs]
- JLJason Lemkin
Well, it's a little bit. I mean, it does hang over the heads of most founders, the, the, the, the high valuations. They, they've, they've, they've compartmentalized it, but it's not. It's a little bit their problem.
- HSHarry Stebbings
Yeah. It, it is their problem, and as I said, the real question then is how does it get un- well, playing that out, how does it get unwound? And we talked about this in the context of a couple of the prior IPOs. I don't think you should stay private just to earn your way back into $20B. I think you can go public, and then I think it will boil down to, you know, you, you might go public and either the stock gets converted, or as we've discussed, the preference remains outstanding until it grows into it. But yeah, I don't think you can hold the rest of the company up just because 5% of the company paid $20B pre. Do you think Airtable will make it back? I got a ton of Airtable from them buying a load of my companies again. [laughs] Just help me out. Just, like, help me with my planning. All these companies are gonna be priced on the fundamentals. This has got, this does go back to the maybe a more prosaic version of the Hamad comment, right? Which is sto-stories at the forefront can be priced on sizzle. S-stories that are 10 years old are gonna be priced on fundamentals. If they have $200M in revenues growing at 20%, they'll be priced at five or six times. If they have $300M or $400M growing at 30% or 40%, they'll get a decent seven or eight multiple, right? I don't know because I haven't seen the data. It's hard to get to scale in these markets. You know, you have the dynamic of Microsoft at all times. There was a period of time when all those companies felt euphoric, right? And you know, it felt unbounded for Notion. It felt unbounded for Airtable. And then a little bit, the tide went out of the productivity tools market. A little bit, Microsoft just started grinding away at everybody as they've done in so many other markets. And then the world's moved on to AI. So now these are perfectly good companies that are just gonna have to find fundamental value based on, you know, revenue multiples and even, God forbid, free cash flow.
- JLJason Lemkin
I think it's, for what it's worth, I think just like there was a time when you weren't allowed to talk about Web 1.0 anymore, it just didn't matter, I think we can't talk about 2021 valuations anymore. It's time to, it's time to just flush them down the toilet. I wrote down everything, I guess a year and a half ago, whatever, I get, uh, that I wrote every-everything that had a hint of froth. I have one deal I'm still carrying myself, right? Because it's over $300M in revenue and growing. I'm holding it as 2021, but I'm not gonna at 12, uh, whatever it, the, the Lord says at 12:31, I'm marking it down this year, and it's time to just forget about those valuations. It's just, just forget. Just pretend they, you know... Maybe you can't pretend. Mark them down, even if they're personal, and just forget about them because it's too far in the past now. Four years, like, it's time to move on from those, from those, uh, from those decacorns of 2021. [laughs] I mean, Klarna was, what, $40B? Right? Time to move on. Time to for- time to move on.
- HSHarry Stebbings
Its peak was 45. Sequoia, which SoftBank did, um, Sequoia brilliantly did the round at five or six, and obviously two or three X'd that, and I think overall seven X'd their overall investment.
- JLJason Lemkin
I think we're not allowed to talk about these rounds anymore.
- HSHarry Stebbings
Agreed.
- JLJason Lemkin
I think we're getting it, but, but we're getting at the end of this year, this is your la- you've got 90 days left to kvetch and complain about your 2021 valuations, and on January 1, 2026, no one is allowed to talk about their 2021 valuations anymore.
- HSHarry Stebbings
The only problem with not talking about your '21 valuations, Jason, is that we seem to be determined to make exactly the same mistakes in 2025.
- JLJason Lemkin
Yeah, we, we need the runway to make them again, Rory. We need to focus on making the same mistakes again and not be hampered by them in the past. [laughs]
- HSHarry Stebbings
Okay. I'm seeing less diligence now than I did in '21.
- JLJason Lemkin
There's no diligence, Harry.There's none.
- RORory O’Driscoll
Not maybe.
- JLJason Lemkin
There's, on any hot AI deal, there, there is no diligence provided, nor is any done, right? It's just done on Saturday. Why would you do diligence? All you can lose is one extra money. Why would you do diligence?
- RORory O’Driscoll
Again, uh, you can say what you like. As long as you don't put this quote on the, out under my name, Harry, I'm happy.
- JLJason Lemkin
No, no. It's, it's-
- RORory O’Driscoll
I mean, me- me- me- look, we're finding, again, to be the boring guy here, we're finding that what you have to do is you have to do your due diligence prior, right? You have to come to the table with, with, with an informed opinion, which you can either pull out of your ass or try and do some pre-work, right?
- 1:16:16 – 1:19:48
Why Founder Friendly is Total BS Today
- HSHarry Stebbings
Or just, or just do what we do, which is say, "If you want that decision timeline, that's not our type of deal. Sorry, we're not gonna engage."
- JLJason Lemkin
Yeah, but I think many firms looking at h- I get s- I mean, many of the best companies don't provide that, that flexibility today. They, they don't. It's literally... Now, the best founders wind them up, right? Give them breadcrumbs and give them data ahead of time, right? If you want a big check, you gotta do that. But when they're ready, it's one day, dude. It's one day. M- You can say no, Harry, but you're an aggressive investor. You're gonna say yes to a couple. I'll, I'll, I'll bet you that SaaStr tattoo, you're gonna break your rule a couple times. But you, it's the right, it's the right response, right?
- HSHarry Stebbings
Dude, I'll get a SaaStr tattoo if Rory gets one.
- RORory O’Driscoll
Well, then you, then you're fine. I, I, I plan to die with my body unblemished with tattoos.
- JLJason Lemkin
It's not just being founder-friendly. We all want... Anyone that's been a founder wants to be founder-friendly, right? I, I want it to be an extreme, but not allowing diligence, for all intents and purposes, y- you g- you're running a risk.
- HSHarry Stebbings
Have you got less founder-friendly?
- JLJason Lemkin
Less founder-friendly? I am more founder-friendly, but it is less appreciated-
- HSHarry Stebbings
[laughs]
- JLJason Lemkin
... by far. I am the most founder-friendly I've ever been in my career, uh, and it i- I, I get less... I, I, I catch more crap for it 'cause everyone, everyone says, "Great job," and everyone's jostling behind the table and everyone's manipulative, and I'm the only... And yeah, I'm-
- RORory O’Driscoll
Oh, poor Jason.
- JLJason Lemkin
No.
- RORory O’Driscoll
I mean-
- JLJason Lemkin
You asked, well, you asked the question. Founder-friendly is as bullshitty as pulling the term sheets in 2025. It's as bull- both... Founder-friendly has become bullshit, right? And, uh, but it's table stakes. It's table stakes to get into the deal. You gotta be founder-friendly, right? Founder-friendly is writing the check when no one else does. That's founder-friendly. That... Founder-friendly is when no one else is there at the board meeting anymore and you're there and you still have a W on the other side of it. That's founder-friendly. Founder-friendly is when you actually recruit the executive for the role, not just say, "Who are you looking for? I'll send it to my talent person," and do nothing. These are things that are founder-friendly, right? Not saying gr- "Great job" no matter h- how you do.
- RORory O’Driscoll
Funny, I, I find myself oddly agreeing with much of that. I mean, what I've internalized is no matter how... In the game of founder-friendly, it's not a winnable game. So what I say I'm trying to be is founder honest. I want to be founder honest, which is I want to tell you exactly what I think, which I think is more useful than, "Great job" if it's not doing a great job, right? And I think you're right, Jason. The only way to judge who really is founder-friendly is how they behave in a tough deal. There's no information on how you do in a good time, right? And I've just internalized that most people don't check that, and that's just the way it is right now, right? And so it just becomes this meani- y- you end up with this meaningless trying to prove something in a bull market that you really only will demonstrate in a bear, but that's okay.
- HSHarry Stebbings
I am just gonna say this before we do a Kalshi quick fire because Jason won't, but I always remember the RevenueCat founders telling me about Jason, like, wiring them money from, like, his personal account. [laughs] And it's just like, whoa, that does-
- RORory O’Driscoll
Got it. I remember that. It was the SVB weekend. We were literally on Sunday having a partnership call doing a whip around to say who could cover which companies when, yes, when, when the, when the recap came in and the US government stepped up. But yeah, it was interesting who... Yeah, that... You, you only know what people are like in a tough deal. It's also true, by the way, in VCs. You can only decide which VCs you really like when you've been through a tough deal with them, 'cause then you know.
- 1:19:48 – 1:25:38
Kalshi Quick-Fire Round
- RORory O’Driscoll
Anyway, we've got a Kalshi here.
- HSHarry Stebbings
We're gonna do a Kalshi quick fire. So bet us on when will a final TikTok deal be reached between the US and China? Come on, Rory, you love this round.
- RORory O’Driscoll
I hate this round, as you know, but I'm gonna vote for never 'cause it's just so much fun for the big guy to keep dangling it. This is the b- I mean, I'm being slightly glib here, but planning to do the TikTok deal has been the most fun anyone's ever had 'cause you have favors to throw people, et cetera, et cetera. Look, I'm sure it'll get done at some point, but-It's not knowable by me
- JLJason Lemkin
Look, I, I, obviously there's a lot of complexity here, right? But, but I'm gonna say the next 60 days because I think this, the, the definitely somewhat toxic H-1B stuff, this is a lot of tariff posturing too, to get these deals with China and India just done, and I think they're gonna get done. And so whatever this crazy deal is, it's gonna get signed in the next 60... I think these deals are gonna get done this calendar year, and I think it's gonna get signed. And I think hopefully this H-1B thing kind of diffuses too, 'cause now it's, it's not for existing. You know, everyone had to freaking fly back in 24 hours. Right now you don't have to do that, and, uh, a lot of these things may kind of evaporate as the tariffs get re- resolved. So I'm, I'm betting 60 days
- HSHarry Stebbings
Meta smart glasses, another fail for VR or mega success?
- JLJason Lemkin
Z- zero percent chance they're a success. What's the bet?
- HSHarry Stebbings
Wow. Why?
- JLJason Lemkin
'Cause I owns like eight pairs of the existing ones.
- RORory O’Driscoll
The Luxotticas
- JLJason Lemkin
No, the meta ones that already work. That, that, that-
- RORory O’Driscoll
Oh
- JLJason Lemkin
... that, that just, that, that are light and work. B- because we just don't need to play Tron in our eyes. We just don't need a seventh screen. It's another solution in search of a problem, in my, in my opinion. We just don't. There's just only so many times I need to be on the podcast with Harry looking at my notes in, at, i- in the size of my, like, 11-inch thick Gen 1 new ones. It's just, it's just, uh, not... It's a, it's not a, it's not a huge problem in the real world
- HSHarry Stebbings
Oh, no, I think it'll be a success. I think it-
- JLJason Lemkin
These thick, huge things that you, you saw?
- HSHarry Stebbings
As you look to dis- disintermediate-
- JLJason Lemkin
I'm buying several pair. Don't get me wrong. I'm buying several pair
- HSHarry Stebbings
If, if he... Well, I'm just saying, if you look to disintermediate a phone and actually have a life where you can unify computer and v- like vision and living, yeah, that makes sense, no?
- JLJason Lemkin
I think in a-
- HSHarry Stebbings
Like we talk about the pen-
- JLJason Lemkin
I think in a typical VC lifestyle-
- HSHarry Stebbings
We talk about the pen and the notebook now
- JLJason Lemkin
... it makes sense. I think, I think, I think in that. I think for the normal world, uh, we're not looking to... I mean, look how successful ChatGPT is. It's the same paradigm we've been using since, uh, since forever.
- HSHarry Stebbings
It is, and look at Jony Ive coming along-
- JLJason Lemkin
Chat
- HSHarry Stebbings
... with a device. We'll see.
- JLJason Lemkin
May- We'll see. It's as risky as the Meta AI glasses are. It's just risky.
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
It's just risky
- HSHarry Stebbings
But you were certain, Jason, they would work.
- JLJason Lemkin
What's that?
Episode duration: 1:25:48
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Transcript of episode oZ7eeLU-G-Y
