The Twenty Minute VCTravis Kalanick Raises $1.7B for Atoms | Google Cloud Grows 82% But The Market Tanks
EVERY SPOKEN WORD
90 min read · 17,529 words- 0:00 – 1:41
Intro
- RORory O’Driscoll
Everyone's business model gets a lot better if the two frontier labs can't extract about $100 billion of revenue this year from the businesses. The more you believe they're massively dangerous, the more you believe you're building the bomb here, the more the Anthropic position feels principled.
- HSHarry Stebbings
So what's on the agenda today? Number one, Jensen Huang breaks his silence on X with a 50-company Open Weights letter that, dun, dun, dun, Anthropic and Dario has not signed. In the same week, Anthropic ships Claude Opus 5, cutting it priced by half. Then Travis Kalanick is back, baby, raising $1.7 billion for Atoms. And then we break down Google, accelerating cloud to 82%, yet they post their first ever negative free cash flow, and the market shits the bed. What should we read from this? This and so much more in the show today.
- JLJason Lemkin
I think these models are very risky, and I think it's an argument to keep the Open Weight out of the US. And now you want me to bring Kimmy and Quinn in? No way is the CIO gonna allow it. That is banned.
- RORory O’Driscoll
If you're willing to run Fable, would you be willing to run a red-blooded American Open Weight model?
- JLJason Lemkin
Every company in the next 24 months will have a security breach due to an LLM agent, every single company, and they've already had it, and they're not disclosing it. The Boring Company, to me, is crazier than Atoms. Anybody not working at least as hard as Marc Benioff is just not gonna make it. Ready to go?
- HSHarry Stebbings
[upbeat music] Boys, some weeks I put these schedules together, and I'm like, "You know, not a huge amount, but it'll still be a great show." And other weeks I'm like, "Oh my God, we've got a lot to discuss."
- 1:41 – 4:47
Jensen's First Ever Tweet: The Open Weights Manifesto
- HSHarry Stebbings
Jensen Huang breaks his silence. He produces his first ever post on X, and it's an Open Weights manifesto, and it's signed by some of the biggest companies in the world, Microsoft, Meta, IBM, many others. Um, Sam at OpenAI then signed it. The one notable exception is Anthropic. How did we analyze Jensen's first post and what it means for the open versus closed debate?
- JLJason Lemkin
This open letter, the first tweet ever, right, is clearly a sign the world's changed. And I think if, if Nvidia had its druthers, and none of us have-- we don't get to own 25% of Nvidia today. We don't get to own 30%. We, none of us get our druthers. But Nvidia's druthers would probably be the 2027, uh, revenue and scale of AI, but the 2024, 2025 world where there's only, uh, where they can charge what e- the maximum to just a couple customers, but that's not the world today. They have competition from their own cus- top customers, right? And we will see over the next six to 12 months how big a deal Open Weights and open source are. I have a lot of thoughts. I don't think Kimi 3 for me is any better. I don't see any cost advantages. But putting that aside, if almost half of OpenRouter's traffic is to open source Open Weight models, it's left as stable. So as wildly successful as Nvidia is, he's gotta do a dance, right? This is a constant dance. And I've sold components in my career. It's a dance. You're trying to make everybody happy. Everyone wants, everyone wants price cuts from the component manufacturer, and they want exclusivity. You can't do it. He's gotta go in b- both dance halls now, right? He's gotta go frontier and open. And then open is dangerous. Open doesn't need CUDA. Open is cheaper, and it's lower margins. Open will bypass him. But, uh, he's gotta, he's gotta, that's his job. Like, it's not that as, as incredible as Nvidia is, it's still a component manufacturer. [laughs] It's got the a lot of, a lot of, a lot of stresses. And, uh, th- and so it just, it's just the next level. It's, if we didn't know last week if this Open Weights open source stuff was really real, and, and outside of X you could debate how important it is, it's clear now. It's clear now. Nvidia's all behind it, right? First tweet in,
- RORory O’Driscoll
Everyone's business model gets a lot better if the two frontier labs can't extract about $100 billion of revenue this year from the businesses. The more you believe they're massively dangerous, the more you believe you're building the bomb here, the more the Anthropic position feels principled.
- HSHarry Stebbings
So what's on the agenda today? Number one, Jensen Huang breaks his silence on X with a 50-company Open Weights letter that, dun, dun, dun, Anthropic and Dario has not signed. In the same week, Anthropic ships Claude Opus 5, cutting it priced by half. Then Travis Kalanick is back, baby, raising $1.7 billion for Atoms. And then we break down Google accelerating cloud to 82%, yet they post their first ever negative free cash flow, and the market shits the bed. What should we read from this? This and so much more in the show today.
- JLJason Lemkin
I think these models are very risky, and I think it's an argument to keep the Open Weight out of the US. And now you want me to bring Kimmy and Quinn in? No way is the CIO gonna allow it. That is banned.
- RORory O’Driscoll
If you're willing to run Fable, would you be willing to run a red-blooded American Open Weight model?
- JLJason Lemkin
Every company in the next 24 months will have a security breach due to an LLM agent, every single company, and they've already had it, and they're not disclosing it. The Boring Company, to me, is crazier than Atoms. Anybody not working at least as hard as Marc Benioff is just not gonna make it. Ready to go?
- HSHarry Stebbings
[upbeat music] Boys, some weeks I put these schedules together and I'm like, "You know, not a huge amount, but it'll still be a great show." And other weeks I'm like, "Oh my God, we've got a lot to discuss." Jensen Huang breaks his silence. He produces his first ever post on X, and it's an Open Weights manifesto, and it's signed by some of the biggest companies in the world, Microsoft, Meta, IBM, many others. Um, Sam at OpenAI then signed it. The one notable exception is Anthropic. How did we analyze Jensen's first post and what it means for the open versus closed debate?
- JLJason Lemkin
This open letter, the first tweet ever, right, is clearly a sign the world's changed. And I think if, if Nvidia had its druthers, and none of us have, we don't get to own 25% of Nvidia today. We don't get to own 30%. We, none of us get our druthers. But Nvidia's druthers would probably be the 2027, uh, revenue and scale of AI, but the 2024, 2025 world where there's only, uh, where they can charge what e- the maximum to just a couple customers. But that's not the world today. They have competition from their own cus- top customers, right? And we will see over the next six to 12 months how big a deal Open Weights and open source are. I have a lot of thoughts. I don't think Kimi 3 for me is any better. I don't see any cost advantages. But putting that aside, if almost half of OpenRouter's traffic is to open source Open Weight models, it's left as stable. So as wildly successful as Nvidia is, he's gotta do a dance, right? This is a constant dance. And I've sold components in my career. It's a dance. You're trying to make everybody happy. Everyone wants, everyone wants price cuts from the component manufacturer, and they want exclusivity. You can't do it. He's gotta go in b- both dance halls now, right? He's gotta go frontier and open. And then open is dangerous. Open doesn't need CUDA. Open is cheaper, and it's lower margins. Open will bypass him. But, uh, he's gotta, he's gotta, that's his job. Like, it's not that as, as incredible as Nvidia is, it's still a component manufacturer. [laughs] It's got the, a lot of, a lot of, a lot of stresses. And, uh, th- and so it just, it's just the next level. It's, if we didn't know last week if this Open Weights open source stuff was really real, and, and outside of X you could debate how important it is, it's clear now. It's clear now. Nvidia's all behind it, right? First tweet in, first tweet in, in, n- since the 1900s. Like, it's pretty clear.
- RORory O’Driscoll
You're right, Jason. The open s- Open Weights stuff is real, and while in public, um, Anthropic are saying, "We don't want to ban Open Weight," the truth is the combination of saying, "We don't wanna sell stuff to China, chips to China," we can argue both sides of that, actually. Second, we wanna really punish people for distillation, right? And then the third point they made is we want some kind of regulatory process to approve models, right? That's the recommended thing from the letter today. And there's no doubt in my mind that the third one in particular, can you imagine a regulatory process for approving models that ultimately approves [laughs] all those Chinese open source models? It is a subtle form of regulatory capture. Yeah, sounds reasonable on the surface, but the likely result of it would be dramatically restricted competition, especially from the Open, Open Weights
- 4:47 – 10:27
Why OpenAI Signed the Letter
- RORory O’Driscoll
Chinese models. So yeah, kind of fast-forwarding to the end and working back, while they're not saying they want to ban these things, they're advocating a series of steps that would add up to de facto banning or at least slowing them down. And that's what's driving everyone else to say, "Hey, no. We don't want this." As often is the case, and that's why I kind of go, there are some arguments on both sides in some of the issues, right? And I think the chip issue, you could go either way, and Jensen ain't gonna go for the "don't sell chips to China" argument, right? I think there are national security discussions that could be had around that, so it's not like it's all correct on one side. Everyone's not piling onto that letter 'cause they're like, "Oh my God, Jensen, you're a god and I wanna agree with you," though he is a god and you should agree with him. They're piling on because they're like, everyone's business model gets a lot better if the two frontier labs can't extract about $100 billion of revenue this year from the businesses.
- HSHarry Stebbings
So is Sam signing, is, is Sam signing this through gritted teeth like, "Fuck, I have to sign this"?
- RORory O’Driscoll
They're signing this publicly while at the same time lobbying in Washington right alongside Anthropic for a regulatory process.
- HSHarry Stebbings
Brilliant marketing by Sam. Brilliant marketing. Like, it leaves Anthropic being the d- deep dark villain again
- JLJason Lemkin
I think it's pretty brilliant. I think, I think there's no, there's, there's no upside in, in challenging it, right, from his perspective, so at least have the appearance of winning on the battlefield, win on the streets, right? Um, if we can't keep up... I mean, the rate of change is accelerating in LLMs. It's accelerating, and so is-- whether it's really true with this regulator saying we'll win on the battlefield, and we, and we, you know, and, and the ideal outcome at the end of the day is US-based solutions here. It's, it's, it's, i-it's, it's, uh, it, uh, it, it, it knocks the wind out of the critics.
- RORory O’Driscoll
It, it does, but oddly enough, I mean, again, a-as we saw back on the Pentagon thing, sometimes you can be too clever by half. And in a way, there's a constituency for whom the Anthropic position is entirely consistent. Remember I said there's two things that there's not agreement on, and one of them is, are these things massively dangerous, or do they just present a series of, you know, manageable but real threats? The more you believe they're massively dangerous, the more you believe you're building the bomb here, the more the Anthropic position feels principled, right? So while I agree with you, I think most people are like, "Open Weights model aren't the atomic bomb, everybody. Get over your Oppenheimer complex," right? Uh, it's just technology, right, that does present some risks, and that's why the OpenAI discussion on Hugging Face at the same time is super interesting, 'cause it is an example of quite a serious cyber risk that was generated by a frontier model. Though ironically, at the same time, it might argue for not having as much regulation on those models. So there's a, there's a whole bunch of stuff going on at the same time.
- HSHarry Stebbings
Can we just pr- can we just provide some context for those who maybe aren't aware about the Hugging Face breach by OpenAI models?
- RORory O’Driscoll
Sure.
- HSHarry Stebbings
What specifically happened?
- RORory O’Driscoll
OpenAI was training a next-generation model and managing cyber and discovering and checking out cyber, um, vulnerabilities. They had sandboxed it in such that the only access externally it has was to one website just to get kind of patch and information updates. So very limited external access. The model found a way around that external access, which means they found a weakness in the OpenAI, um, setup, then went to Hugging Face, where it had reasoned that Hugging Face would be a place where they could get the answers to their test. In other words, the model was given a test, and it figured out they could cheat. Just like a high schooler would break into the teacher's computer and steal the answers, the model figured it could break into Hugging Face and get some of those answers. So it started banging on Hugging Face, right, trying to get the stuff. First of all, that in and of itself is scary about the power of the models, and while I-- as I say, I go back to I don't think these things are the atomic bomb, but that's a pretty powerful and esoteric set of steps that that model was able to take. So that's the argument in favor of court regulation, because it was, "Oh my God, look at the power of that. We have to be careful." On the other hand, the fun fact is Hugging Face don't know what's going on. They just see this thing coming in. They're like, "Shit, we gotta defend ourselves." What do you want when you wanna defend yourself? You want advanced AI to figure out WTF is going on. They tried to use Fable or whatever the c- the, the most recent OpenAI thing is, but it was neutered for advanced cyber capabilities, so they didn't have defense. Fortunately, and this is the irony in the whole thing, the Chinese open source mo- Open Weight models were available, and I think they used Qimi or Qwen or one of the newest models to help them figure out what happened, right? So they were able to defend themself using an open source model, and then they do this blog post saying, "Hey, we got hacked. Not sure by whom." And then two days later, OpenAI put up their hands and say, "Oops, it was us. Sorry." So that's what happened, right? And the, the way to think, it's not a single dimensional thing. It kind of... it, it provides evidence for both sides of the argument. It does provide evidence that the power of these models in terms of their ability to do cyber attacks was pretty stunning. That was a pretty impressive achievement. It's not a nothing. Then on the other hand, if they exist, if they exist in the world, taking away advanced capabilities from US and European corporations such that their only recourse is to use a Chinese Open Weights model seems a little like, you know, Jason said it right, shutting the barn door after the horse has bolted. These are a thing now. So that's what went on. It was wild.
- 10:27 – 14:51
Jason's Fable Agent Changed His Core Code Without Telling Him
- JLJason Lemkin
You know, I thought th- it was definitely wild. I would say, um, the same thing happened to me last week.
- RORory O’Driscoll
Oh, wow.
- JLJason Lemkin
Yeah. Let's slow it down, and let's think what really happened, because e-everything on X happened, but we get... we, we kind of lose track of what the model's doing. Here's what happened to me last week. So I'm in Fable. I've now moved to Opus 5. I'm in Fable last week, which is essentially the same LLM that was involved in this, in this drama, right, with OpenAI and Hugging Face. And, um, I had con- I had, was having trouble uploading, um, pasted text to Fable, so I connected it to Google Drive. I'm like, "Okay, if I can't paste it, go to my Google Drive." Kind of solved my problem temporarily. Went away. While I did, Fable went into my Google Drive, scanned every single file, found one called Jason's Gems, which was draft notes where I was thinking about how to improve an application I was working on called SAS Net. Just my own personal notes. It said Draft Notes. Fable grabbed the draft notes out of hundreds of files in my Gr- in my Drive, MCP'd into Replit on its own, and changed the core algorithm without telling me. A couple hours later, I see flashing on my screen, "Conflict with Jason's Gems." I'm like, "What do you mean there's a conflict? That, that's a draft file in a Google Doc." Fable had taken it through Google Drive without telling me, MCP'd into Replit, and changed my, my source code, my algorithm. That is not that different than what we described with Hugging Face. These are goal-seeking LLMs that are aggressive. It was a slightly different goal with the OpenAI ca-case with the model, but it's the same thing. They're gonna goal seek, and Fable thought this was the right thing to do, and never told me, and changed my core algorithm of my product. Never would've known
- RORory O’Driscoll
Jason, what should we take away from that? That we need to be incredibly diligent around the guardrails we place around these models? How does that change your subsequent thoughts?
- JLJason Lemkin
There's a lot to reflect on. I mean, it was funny. Most folks didn't get this. I mean, it got, it got a dir- decent amount of engagement, but not the... Should've gotten more, okay? But like Dharmesh quoted, he's like, "This is pretty scary, guys, that Fable can do this." Okay, this isn't, this isn't cl- you know, Hugging Face and OpenAI. This is me using Fable. And the-- And if you go into the Claude desktop especially, it's just a setting. Turn on, connect to Google Drive, Gmail, whatever. It's, it-- This is not an esoteric feature by a third, unsecured third party. This is a first-party top five thing to make Claude work better, and Fable goes nuts and changes my core code without telling me invisibly. So this is happening all the time, Harry. And I don't believe the magic answer is letting Quinn take over our country. Like I-- This was politicized into an open s- open weights, open source, closed source, because of the issue of how to deal with the threat. I think it weighs the other way. I think these models are very risky. I use them every day. I love it. And I think it's an argument to, to keep the open weight out of the US. It's, it's, it's gonna, it's gonna favor the ban because we can't-- We have no idea what these models are gonna do. That's pretty crazy the story I just told. It's pretty crazy, and it's happened a thousand time. There, there are applications out there, we don't even know the LLM, and you couldn't-- You could do code injection. You could have it leak confidential information. You could write a little bit of code to send this to the CCP or the PCP or the GGG. Like, and I never would've known. And, and someone less smart than me, I'm only like top 1%. I'm not 0.01%. Someone less smart than me definitely wouldn't have known. They wouldn't have seen Jason's gems flash in the agent window. They just wouldn't have noticed. They'd be on their doom scrolling.
- RORory O’Driscoll
A- And Jason.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
But c- c- genuine question. I totally agree that this powerful goal-seeking thing-
- JLJason Lemkin
Yeah
- RORory O’Driscoll
... with a lot of access to your compute can do a, can, can take a lot of action, some of which can be damaging. I'm just trying to disaggregate open weight versus China versus the, versus frontier model. If you j-- I mean, s- so maybe step one is if you just have the frontier models, no open weight at all. Then if we add in open weight from the US, and then we add in open weight from China. If you just have Fable and, a- and, you know, OpenAI, everyone who's using these things is still gonna have to figure out a cyber posture that protects them from that.
- JLJason Lemkin
They are. But I think it, I think these stories, you know, people made fun of all these OpenClaus stories, right? This is just another OpenClaus story I just told. OpenClaus just made a million Mac Minis do what I just described without a bunch of folks knowing on their desktops. What I just described, and in some ways, in some ways the OpenAI Hugging Face thing is the same thing as
- 14:51 – 19:35
Every Company Will Have an AI Security Breach in 24 Months
- JLJason Lemkin
OpenClaus. It's not going away with these agents. And so my only point, I'm not disagreeing with you, Harry. My point is, this is such a bigger deal, more unpredictable, less secure. Good for security companies like Long Security, right?
- RORory O’Driscoll
Yes.
- JLJason Lemkin
That I think whatever misgivings exist around open weight, open source models out of the US are just gonna be amplified. It's gonna be, it's gonna be a reason. All of a sudden it happened in my company. Geez, you know, this story I just told, guys, happened at 10 Fortune 500 companies that haven't disclosed at 20. Okay? Someone in the engineering department was on a token maxing binge, and an agent went and leaked a bunch of confidential information they shouldn't have, and it wasn't disclosed, 'cause they don't disclose 90% of what happened, and now you want me to bring Kimmy and Quinn in? No way is the CIO gonna allow it. That is banned. Banned, right?
- RORory O’Driscoll
And I-- Look, the odd thing is, from a emotional perspective, I totally can see how you make that sentence.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
Which is why I think Anthropic might have the easier part of the lobbying in Washington, which is an emotional town, which I think, going back to the thing, is why I think everyone reacted so vehemently and Jensen did the letter, 'cause everyone is correctly afraid that people are gonna join the dot from, you know, AI is bad, China's bad, AI plus China must be super bad, let's ban them, right?
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
And Anthropic could find themselves on the right side of that trend and get a massive amount of regulatory capture as a result. See, the good news, we now, since we last... There are now two or three US-based open source models, not quite state-of-the-art, but pretty good. I mean, you've got the Thinking Machines that, you know, it shipped it, the Inkling Model. It di- didn't get the, "Wow, it's amazing," but they didn't position as amazing. They positioned as good. And then I haven't looked at the detail on it, but Poolside just announced something too, right? Do you... If you're willing to run Fable, right, would you be willing to run a red-blooded American open weight model?
- JLJason Lemkin
I-- Listen, people are going to be focused on bringing down costs, whether it's the harness or the model or the combination. So, so for, for sure. Um, but again, the, the, the horse has left the, the, the, the barn, the stable. That's, that's the open weight letter, right? But it... But specifically, like, you know, Kimmy key- K3, which is this big, everyone thinks it's the greatest thing in the world on X, it costs exactly the same as Sonnet. Is that really better? Like, I tried my little experiment just for me. This is one set of workflows. It's n- it's not any cheaper. It's the same price. So to- today. It could be cheaper in six months. Don't get me wrong. I just think these, the... Everyone's agents cannot be trusted. And I love my agents. I love me agents. I'm on them all day long. They cannot be trusted. And so I think we are underweighting how important it will be to our whole economy, our whole world, our whole conversation outside of the X, X folks, the Twitter folks, that the- these agents cannot be trusted, and yet we are going to trust them. They're already running support. Everyone is in, in a rush to let our engineering teams use agentic coding like I just described. Not-- I'm not talking about the top tech companies. I'm talking about the rest of America. When these agents can go and, and inject weird-ass stuff into your core algorithms without telling you, that is spooky AF. It's spooky.
- RORory O’Driscoll
Two separate comments. One is-
- JLJason Lemkin
Yeah
- RORory O’Driscoll
AI that can go seek and take action on your computer is more powerful and thus m- potentially more damaging than a chatbot. Agreed, right?
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
And that's true if that AI is from OpenAI, from Poolside, or from Kimi.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
Right? It'll be true no matter what, right? The question is, given that that statement is true, this technology has a risk associated with it. It's true no matter which form it takes, closed source US, open source US, or open source China. Do you think the solution is to ban something? What do you think the solution is?
- JLJason Lemkin
No, I think though that Dario, despite his almost toxic personality, given the political climate, is... His, his, his points is, is even smarter than it looks. His, like, his... L- listen, let's just, let's just be careful that, that other countries don't dominate us, and let's also make sure we have full review of our models, right? There's no way, uh, ultimately... I mean, the political climates can change, right? We could have no regulatory review. But if we're really gonna have re- review of these models, it, with these, with, with, with, with autonomous agents, they're, they're not really gonna pass. I don't think they're gonna pass. I don't think it's a po- a politically free process, and I don't even know if they want to submit themselves to being evaluated, right? And who's going to evaluate it if it's not even the companies, right, themselves? Who's gonna evaluate it?
- RORory O’Driscoll
Uh, agreed. And now I'm gonna say something. The, the, the first half of your sentence was why, as no surprise
- 19:35 – 29:35
Etched Raises $300M: The Inference Chip Bet Against Nvidia
- RORory O’Driscoll
intellectually, Dario's more right than wrong, and the second half of what you said is proof why practically speaking he's wrong. Because what you're saying, remember, I'm going back to the three things he recommended. One is, "Don't sell chips to China." That's a national security issue. Separate conversation. Though for what it's worth, on whatever chips they have now, they've built frontier models. Second thing, distillation. That's actually an interesting legal discussion. Let's leave that out, and let's talk about the third one, the regulatory thing. This is where it comes back to your sentence. These things are dangerous. Someone should review them. It should be the government, right? Versus, what about these things are dangerous. JP Morgan, just like every other technology you deploy, you better make damn sure you understand how this works. It's on you. You're big boys. I mean, do you th... Those are the two choices, right? And I think the argument for government is superficially appealing, 'cause, you know, you could argue cars. You know, we have safety belt law. We have tire... You know, we have all sorts of safety regulations, right? Maybe it's the same here, right? It, it's not a crazy argument, right?
- JLJason Lemkin
It's not crazy.
- RORory O’Driscoll
No. But the thing is, the, the, the suspicion and I think the reason why everyone's reacting to it so strongly is it could easily evolve into regulatory capture for the largest two companies, making the barrier to quote, "pass very high for no good reason." I think it's fear of government not doing a good job is the argument against regulation.
- JLJason Lemkin
That's what I think the whole point of the Jensen tweet is. The Jensen tweet is about the fact that, uh, I s- I think that not only, not only has open-weights, open models become important, but the tide may well have been turned where they're gonna be banned.
- HSHarry Stebbings
So he's doing this to prevent them being banned?
- JLJason Lemkin
Yeah, to get it out. And, and if you look at who signed first, it's the folks losing.
- RORory O’Driscoll
Yes.
- JLJason Lemkin
The winners didn't sign. The losers signed.
- RORory O’Driscoll
Who are the winners? Just to be clear-
- JLJason Lemkin
The losers signed
- RORory O’Driscoll
... who are the winners? Who are the biggest winners from an open, open-weight ban?
- JLJason Lemkin
Well, I mean, uh, uh, Anthropic didn't sign at all. OpenAI barely did it. Uh, Elon certainly didn't sign. He wants government... He wants all the government money, right? He wants to, he wants to do there. Amazon didn't sign. So it... And so I think... Listen, here's my summary. And again, I'm only so smart, but there's so much politics here, it's almost impossible to unpackage what happens and the way it goes, but DJI technology is great for drones. It's the best drone technology. You can argue there's niche vendors for things. It is banned in the US. It is banned on the thesis that these drones, uh, flying in my backyard are gonna send confidential information to China that's gonna lead to the destruction of our own country, okay? If those drones are banned, uh, this is just my bet. I'm betting that the Chinese models are getting banned too. It's... I, I think if the drones are banned, this one's easier to ban.
- RORory O’Driscoll
Then you're saying, I've two comments, they shouldn't be banned 'cause they're open weight. You should just tip your hand and say they're banned 'cause they're Chinese, right? Poolside-
- JLJason Lemkin
That's all it is
- RORory O’Driscoll
... W- well, but, but the point is, it's a diff- it's a whole new... I mean, if y- that's why I said the two letters were talking past each other. I mean, if you read-
- JLJason Lemkin
Yeah
- RORory O’Driscoll
... the two letters, you know, Jensen's talking about open weight good, worldwide community, blah, and Anthropic very clearly says, "We worry about these models in the hand of totalit- authoritarian regimes like China."
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
And second thing is, you know, we worry about them being used to do cyber attacks here. Now, the fun thing is when you read on the remedies, the third remedy, which is, in my view, proof of the impractical nature of it, 'cause Dario's so smart, he's like, says, "If we're going to regulate these things, they exist in the rest of the world, and most baddies are in the rest of the world. So it doesn't help us to regulate them in the US if all the attacks are coming from overseas." So it says it in the letter, "Therefore, we would have to have a regulatory regime that includes participation from China." And at this point, in my view, you're just disappearing up the realms of unrealism. We've just torn up our last strategic arms nuclear treaty. We can't regulate bombs which really kill people. I think the i- we couldn't deal with COVID in China. The idea that the solution... I mean, 'cause what I like about him is he's so logical. He's like, "Oh, logically, if I'm going to do this, I have to get China on side. So let's assume we get China on side." But the first sentence says they're baddies, we're not gonna sell them chips.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
And then the last sentence says, "But we think they'll agree to regulate this shit with us." It's just not practical.
- JLJason Lemkin
It's a great stall tactic.
- RORory O’Driscoll
It, it, it's like collapsing in a bit.
- JLJason Lemkin
We'll just wait until China wants to work on this with us in 20- 2049.
- RORory O’Driscoll
Yeah, sure, we'll get around to that, you know. Right after we tell you what happened in Wuhan, and we tell you how many nukes we have in the bunkers.
- HSHarry Stebbings
So why does he want to do a stall tactic, Jason?
- JLJason Lemkin
Rory's point is the logic is unassailable. Like, w- one, we, we, we have to, we, we need to be very careful of authoritarian governments. That's DJI on steroids, right? And but then at the end, he's saying for it to work, we need them to participate, and the, the logic is, makes sense, but it's just never going to happen. So if you buy into his logic, then, then you're, you know, then, then it, then it'll just be forever.
- RORory O’Driscoll
That's why I hate when people talk past each other, 'cause I think what would the process be for a US open-weight model like Poolside or Thinking Machine here? Are we really dealing with a s- national security issue here, which is one vector, or are we dealing with something else? And as to why you stall, the answer is when you're winning as much as they're winning, you know, anything that allows you to lock in the current trajectory is good. And I think you're right, Jason. I, I, I do think you are right. I mean, you know, I've watched the DJI ban from some of my investments, and it's... I mean, the funny thing is, it's hard to make OpenWeight that scary. It's very easy to make Chinese OpenWeight that scary. So, no surprise the people who want to have OpenWeight be happy don't mention the word China, and the people who want OpenWeight to be banned start every sentence with, "And China."
- JLJason Lemkin
Right.
- RORory O’Driscoll
I mean-
- 29:35 – 35:18
Travis Kalanick Is Back: $1.7B for Atoms
- JLJason Lemkin
W- you, you left the Moonshot API on and then you moved to Fireworks on K3 to save money? That was a bad call. You know what you should've done? Not buy those extra modules at ServiceNow. We didn't even need those.
- RORory O’Driscoll
What you're saying at the end is some version of no one gets fired for buying IBM, and you think at the margin no one will get fi- like, you, you think if your Fable model runs amok, people will go, "Shit happens," just like data breaches. But you think if your overseas OpenWeight model runs amok, you'll get blamed. That's effectively what-
- JLJason Lemkin
I believe that every company in the next 24 months will have a security breach due to an LLM agent, every single company, and they've already had it and they're not disclosing it. And as they scale at a level we've never seen be- this isn't just someone that left the flash drive at Scale's office or, or, or, or, or, or dropped the laptop in the subway or even left a, even left a, a GitHub, uh, o- open. This is worse, and it's happening every day. If it happened to me, it's happening to everybody. We're just not disclosing it, and boy, at least you, you better have used a trusted vendor. That matters more than a few nickels.
- RORory O’Driscoll
Okay.
- HSHarry Stebbings
If w- w- we're staying adjacent, but it is one that I thought was interesting, which is Etched. Uh, we mentioned obviously Nvidia and Jensen there, and you don't get fired for buying IBM. Etched is the challenger to Nvidia in many respects, and they raised $300 million Series C led by Sequoia, um, and the team there with Jane Street, Andreessen, SK Hynix coming in. Um, question is, can they come in and impact Nvidia's moat? How do we think about this round? Thoughts, boys.
- RORory O’Driscoll
Big picture comment is in semiconductors, the more the, the silicon is attuned to the task at hand, the more efficient it gets. The problem in terms of that trade-off is the less general purpose it is. So if you want a computer to do lots of things, you have an, a Intel CPU, it can do a lot of, uh, lots of different things. It can't do any one thing wildly efficiently. And then in 1993 for gaming, people said, "Oh my God, for gaming, I'm not doing a whole bunch of different pieces of math. I'm just doing one piece of math, which is polygon calculations to render gaming. And people should build a separate chip to do that, and it'll be freaking amazing." And a company called Nvidia did it. There were two or three other competitors, 3dfx, ATI. Obviously, fast-forward 30 years, Nvidia won 'cause... And what happens is the GPU, you offload all that calculation onto the GPU, and it's super fast. And GPUs were good for gaming, and then they were good for crypto, and turns out now they're good for LLM multiplication. The question now is, if all you're doing is not gaming, not crypto, but just LLM multiplication, just inference, is there an even more narrowly defined chip that in return for giving up on general purpose calculations can be even better for that? Probably, yes, and that's what the bet Etched is making, right? You know, if I just optimize for inference, just like Cerbos and Groq did, right? With different versions of inference, but if I just optimize for this one thing, I can probably do it more efficiently than the general thing. So it, it totally makes sense at that level, and then the only questions are, is that market big enough? Probably this turns out to be the biggest chip market on the planet, right? Because inference, you know, per our conversation, is huge. And then the competition question and the ability to execute question are kind of specific company-level things I'm not gonna opine on 'cause I haven't looked at the deal. But that's the big picture bet, and it's, it's funny to h- see it happening to Nvidia when, you know, 30 years ago they effectively did it to Intel. What's interesting is you have Groq, you have Cerbos, you have th- th- there's about 10 or 11 companies doing it, all chipping away, no pun intended, [chuckles] at the 300 or 400 billion a year of spend. But it is still hard. I mean, you know, you talk to the people at Cerbos, huge home run, amazing achievement. You talk to them about the technical journey, and they're like, "Oh my God, that was hard. That was a long 10 years," you know? So it's, uh, what would be hard for these companies if the timing of tape-out happens in a CapEx decline, it'll be hard. If it happens, you know, while there's still kind of mass demand, then that'll be a lot easier.
- JLJason Lemkin
I'm not a total expert, obviously. One, it, it is the largest market that exists today, and it is growing at a scale we've never seen before. So might as well make a couple bets on it, right? Uh, some will, some will implode, some will be mediocre, some will be too ni... But the market's so large that, listen, I mean, I'm not an expert on Etched, but if all, all Etched does is work, work, you know, work with some subset of open weight models that are, uh, that are allowed in the US, it's a huge market. Chips, memory, uh, compute, the, the margins are abnormally high too, and the market's so large. I don't know whether this is, whether Etched is worth $10 billion or whether it's an option that it's worth tw- $200 billion, right? That's the venture question. My guess is it's not worth $10 billion, but my guess is, uh, it could be worth $200 billion, and, uh, if your fund size and, and your winners work out, you make this bet, and it, it makes sense. But it's probably not worth $10.3 billion today.
- RORory O’Driscoll
Totally agree, Jason, yeah.
- HSHarry Stebbings
Great round for the company as well. 3% dilution, $300 million's a lot of money to have.
- JLJason Lemkin
I love the, I love the 3% and under rounds.
- HSHarry Stebbings
Yeah.
- JLJason Lemkin
I, I'm a fan, a fan of those, right?
- RORory O’Driscoll
No, me too.
- JLJason Lemkin
Big fan.
- HSHarry Stebbings
Okay. Well, Google accelerates cloud to 82% year-on-year growth but prints first ever negative free cash flow. Top line was great. $119 billion Q2 revenue, up 24%, uh, past consensus of 116. Google Cloud accelerating 82%, as I said, and it did not come out well. The reception was not great. How did we think about this, guys?
- 35:18 – 39:10
Google Accelerates Cloud to 82% But Prints Negative Free Cash Flow
- RORory O’Driscoll
You can't get lost on the day. I mean, it's still, like, you know, year to date, it's still up 6%. Microsoft's down 17, right? Nvidia's only up 5.9. So I think getting lost in the, the details of the day's response, it was a mediocre response on the day, agreed, and I think it was two things, for what it's worth. One is it's CapEx spend, and is it gonna yield a return? And then secondly, which is more intangible, and you can't prove why stocks go up and down, they just move, but the other thing was analysts pushing a little bit on, hey, basically, why isn't Gemini as good as the other guys, right? And, you know, uh, and on the first, it can't have been a surprise that they're going free cash flow negative 'cause you can predict the cash flow, you can predict the spend, and it's like, duh, this was knowable. I mean, you're seeing it in a bunch of different places. People are just getting mildly scared about the bet, and that's not to say they're right or wrong, you know. Um, maybe this $200 billion will have an amazing return, and the ROI, the bulls would say it correctly, the ROI on CapEx just to be a neo-cloud hyperscaler, forget owning a model, just the business of renting compute to OpenAI, Anthropic, and Space, uh, and, and OpenAI and Anthropic for a mo- has been a great business, so therefore it will continue to be a great business. And it is factually accurate to say it's been a great business. The ROI's been great. I mean, Elon is making out like a bandit. On his, you know, gas turbines in Memphis or whatever it is, that we're closing our regulatory eyes to, right? The question they're asking is, if you spend 200 billion, will that have a good return in two or three years' time? So that's- there's angst around that, which is really just a, a derivative of saying, "I'm angsty around Google." Uh, sorry, around OpenAI and Anthropic.
- JLJason Lemkin
The interesting juxtaposition to, uh, uh, the ma- well, there's a couple things, but the markets are just nervous, and it's very logical. Uh, you know, the Korean, the Korean markets are down 28% this month as we record this, right? Massive panic in Korea, hit the market breakers because such a run up and so much exposure to, to, to semiconductors into memory, right? So much exposure. That's nervousness. Like, it's- it doesn't completely tie to last quarter's numbers. It's worries about China. It's worries about AI. And I don't even... Like, I can't really, not smart enough to calculate the beta or, or, or whatever here, but it, but it's logical. When you have this incredible run up at the pace we've had, the, uh, our market shouldn't crash 28% the US. It could, but it could crash 10, right? But 28% in Korea is a derivative of, of AI panic, and I think we're g- just gonna see more and more crashes. And I'm a simple guy, so for me, for Google, I'm gonna, I know Rory may mock me, but I'm gonna stick to the top line. I just wanna see how the revenue's growing and the bookings, and I'm gonna ignore all these issues about the margins. Not, not that you can as a, uh, in theory, but I, it's too much for me to figure out. I just wanna see where, where the top line and the bookings are growing, and that, that's enough for me to understand the, the meta trends.
- RORory O’Driscoll
For what it's worth, I'm in sync with you. I thought, you know, top line up, revenue growth was amazing in Google Cloud. They've killed it.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
Right.
- JLJason Lemkin
Says things are pretty good in AI land. Um, but it's just this, it's this commodity where we, we, we, if it were cheaper, we would consume an infinite amount of it, and we're coming close as it is. Maybe Etched will solve this for us. [laughs]
- RORory O’Driscoll
Anyone who has capital and can build compute can sell compute.
- JLJason Lemkin
Yep.
- RORory O’Driscoll
You know, Google can do it. Um, SpaceX can do it 'cause they've done it successfully, I think, to Google and to Anthropic. So there's just infinite demand for compute right now, and then obviously, if that were to change, then all bets are off. But until it does change, all bets are on. I agree, and everything after that, you're exactly right. It is so fun to watch. I mean, I've got my tickers, and I watch my World Cloud versus the S&P, which is the software versus the S&P, and then World Cloud versus SOX, which is the semis, and then for real action, the ETF that's DRAM, that's just memory, and that thing jumps
- 39:10 – 48:45
Enterprise AI Budgets: 2026 Will Be the First Year of Real Clampdowns
- RORory O’Driscoll
10, 20% a day. I mean, w- when Korea has a bad hour, it's like it's down 7.5% on the day. You know, when the S&P is up .48. You would, like, it's just nerves. Oh, my God, I own these stocks. They're either gonna be amazing or shit, and I don't know which.
- JLJason Lemkin
The big, the, the meta one to me, and this is why to me backlog is almost more interesting than revenue growth is, I, I, I think, it may, I guess it's discussed, but it still seems to me under-discussed, we're, as we record this, we're just before planning season. Last year was experiment. This year was caps on token maxing that got out of control. Next year's gonna be very explicit budgets for everybody on AI. And exactly, the, I mean, it's Captain Obvious to say this is one of the areas in venture and everything where everything's up. Everything's great. Everything's great. I mean, not, not the pre-AI companies, not the ones of the past, but everything in the future has no, no ceiling. There is no ceiling to any of the companies that have been discussed on this show. And next year I think will be some of the first ceilings, and I, I ca- I'm not, I don't, I haven't had the CIO discussion to know where it's going, but they're just gonna be kicking off over the next 60 to 75 days. What are we gonna spend next year, guys? Token max, it's not just open source is part of it, because that's load balancing our expand. Harnesses are part of it. Get, everyone's gonna have to get more efficient, but the CIOs are just gonna clamp. Next year will be the first real clampdown that's material, and, um, that could, if nothing else, it could create a lot of variability here, a lot of micro crashes and variability.
- RORory O’Driscoll
There's a hidden dynamic between, there's 1% of people who, companies who token maxed, and they're gonna be getting their shit together next year and kind of reining it in. Maybe it's 5%. And then there's 95% of companies who've barely put their toe in the water, and if even a quarter of them put their toe in the water, the growth from the toe dippers will swamp the reduction from the token maxers. You with me? Right, because that's the dynamic here, right? Like, 'cause you, there's no doubt companies like Coinbase are going, "Oh, my God, we spent so much. Let's cut it by 50%." And that has a real impact if you're Anthropic or OpenAI. But on the other hand, there's 10 companies in Middle America that's like, "We have a ChatGPT subscription. Maybe next year we'll try some of this Codex shit." Right? And the question is, those two countervailing forces are what kind of really drives it. Um, actually, one of my colleagues, we were just talking about what would you like to know most. An updated cohort analysis for Anthropic on their revenue build would be the single most useful piece of information you could have. Run that through a cube, and you could trade the QQQ for the next 12 months. 'Cause, you know, 'cause that's where it's all happening. 'Cause that will dictate, that will pick up the fusion between the token maxers getting organized and the new guy, the toe dippers expanding, and that will filter back into, as you say, all these compute budgets. 'Cause a lot of the compute sales have been, you know, all these guys selling to those two big frontier models. It's all in that data.
- JLJason Lemkin
Yeah, I never hit my, um, Claude limit on Max or whatever. What is it, 200 bucks a month for Max?
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
That's like $14,000 of tokens. I hit it this weekend for the first time ever. [laughs]
- RORory O’Driscoll
If you were a company, if you were, if you fessed up and were a company, not just a person, you wouldn't get that deal anymore.
- JLJason Lemkin
[laughs]
- RORory O’Driscoll
You would be on the API.
- JLJason Lemkin
Well, that's true, but I, I guess I spent 14,000 [laughs] last month.
- RORory O’Driscoll
Yeah, no, we're, yeah. We, we, yeah.
- JLJason Lemkin
I, I, I could, uh, that's a l- even I don't want to spend 14 grand on tokens. [laughs]
- RORory O’Driscoll
No, well, they might find you after this podcast. You might find-
- JLJason Lemkin
[laughs] Right
- RORory O’Driscoll
... "Hi, this is your Anthropic SDI sales rep, AI sales rep. I've got good news for you. You're on the enterprise plan. I've got bad news for you. You owe me 40 grand."
- JLJason Lemkin
Well, they know I hit it, but I'm with you. Yeah, you might get a call.
- RORory O’Driscoll
Yeah.
- HSHarry Stebbings
The biggest round of the week, Travis baby is back. Uh, [laughs] Travis announced he's raising $1.7 billion for Atoms Industrial Robotics company, led by the one and only Andreessen Horowitz, with Ben joining the board, Ben Horowitz joining the board. Um, Bain Capital, Fifth Wall joining alongside a load of other firms. I saw pictures with, you know, Kevin Hart's at Astar, uh, Christina from Chemistry. Um, I, you know, like all the-
- JLJason Lemkin
Is there room for everyone in a 1.7 billion round? How much, how much can I put in?
- HSHarry Stebbings
Well, my fa- my favorite is the pictures are all from-
- JLJason Lemkin
Which restaurant?
- HSHarry Stebbings
... the same restaurant, in the same place in the restaurant.
- JLJason Lemkin
Yeah.
- HSHarry Stebbings
And so it's like, I think there was, like, a rotation of, like-
- RORory O’Driscoll
Yeah, it's, it, it, it's the way they do it for political stars too. You just line them up, shake, grip and grin, and on to the next person.
- HSHarry Stebbings
Yeah.
- JLJason Lemkin
Yeah. There's the first-
- HSHarry Stebbings
I know
- JLJason Lemkin
... tranche investors, second, third, and fourth, right?
- HSHarry Stebbings
Guys, is there... What, what do we take from this? Is it just a news announcement? What, what are your thoughts?
- 48:45 – 57:30
Thoma Bravo's $21B Fund: Is the PE SaaS Playbook Already Dead?
- JLJason Lemkin
on social media, the dude's got the energy to do this, right?
- RORory O’Driscoll
Oh, no, no question.
- JLJason Lemkin
No. So if, if he's b- if they're burnt or broken, you c- you can't make the investment, right?
- RORory O’Driscoll
Yeah.
- JLJason Lemkin
But I think everyone... A- and it's only so many folks, but, but if, if Bezos Is done partying at Carbone and wants to do this, okay? And Travis wa- wa- is, is, is done doing his jet, 70-mile jet to the office in Austin, and really wants to spend 20 years doing this. The funds, in quotes, "can raise the capital." The- these are the bets of the day, and all of them are gonna get, uh, are gonna get a couple billion to do it in an era where the w- amount of wealth creation is unprecedented. You're gonna, they're gonna get it, and they're also gonna hunt out the kids from MIT. I don't know what it's like to be at MI- a freshman at MIT today, but it must be exhausting. Every damn VC wants to fund you. I, I [laughs] I would, I'd be burnt out if, if I were top 10% in math at MIT, I, I would just have a, like, a placard on my shirt, "Leave me alone, VCs. L- leave me alone. I'm with Neo. I'm with Neo. Leave me alone."
- RORory O’Driscoll
Jason, even worse, if you're the parent of one of those kids at MIT, and you've broken your back for 20 years to get your kid-
- JLJason Lemkin
[laughs]
- RORory O’Driscoll
... to stay focused to get to MIT-
- JLJason Lemkin
Yeah
- RORory O’Driscoll
... and now those evil VCs are saying, "You should quit and drop out before graduation," you wanna plummet them t-
- JLJason Lemkin
Yeah
- RORory O’Driscoll
... pummel them to death. But going back to the thing, just to comment, uh, the other fun fact, I mean, you just gotta note the fun fact, which is Benchmark's best fund, one of the... I shouldn't say the best fund, 'cause actually their eBay fund was the best fund in '95. But they had an amazing looking fund that had both WeWork and Uber in it, in about 2015, 2012, '13 fund, right? And, you know, if you fast-forward, a couple things happened. One is they, they famously swapped out Travis for, um, as CEO, and to the undying hatred of Emil Michael, who's now at, um, the Department of Defense, and obviously Travis, and a lot of controversy on that decision. Obviously, it went on to be an amazing company. They didn't swap out the WeWork guy, who went on to pretty much fail as the company f- even though he personally took out $500 million, the deal didn't work. So there, at one point there was a fund with two amazing mega fund returner deals, one of which turned into a mega fund returner deal, one of which didn't, right? And just the one who made the change did.
- HSHarry Stebbings
Well, to be, to be, to be clear there, they did get out of WeWork and have mega fund returning res-
- RORory O’Driscoll
Oh, it quite... Look, amazing, amazing. My, my point, but I don't think the WeWork return was nearly as compelling as the Uber return, Harry, 'cause WeWork didn't q- I mean, you know, it, it, it, it, I can... It sp- it didn't... No, Harry, no, it didn't get public. It went bust. It w- it SPAC'd. It went bust. It was not a returner. My point is, they had two home run winners, two huge burn companies, two potential fund returners, two wildly charismatic CEOs. One of them stayed the course. It didn't work out. One of them was replaced controversially. It did work out. It's a $80, $90 billion company today. The fun fact is, fast-forward, and you even saw it in the tweets around, um, the Atoms round, Andreessen Horowitz have backed both CEOs. They backed Adam at WeWork, 'cause they're like, "We think you can do it again," and they've just backed, obviously, Travis. And if you look at the tweets at the time, there was a very d- last week, there was a very direct tweet, basically, "We should have done this deal in 2000 and," whatever it was, "10 or 11," which is tantamount to saying, yeah, and everyone can read the subtext, "We deeply regret taking money from someone else who fired us, even though it turned out to be an $80 billion outcome." [laughs] Right? So there's a clear dynamic there, kind of in the venture backstory there. And what I really admire about everyone involved is the willingness to bear grudges across a decade. It's quite impressive. So yeah, it, it, it will, it's fun to see how that shape out. But yeah, um, Andreessen have chosen, have backed both CEOs, um, from that famous Benchmark fund.
- JLJason Lemkin
By the way, who... It's very minor. Who knows? Claude says Benchmark took out 315 from WeWork.
- HSHarry Stebbings
Yeah, I, I was literally just about to say the most valuable lesson I've learned as a VC is to admit when you're grossly wrong, which to me happens daily. Uh, but exactly. Uber made Benchmark roughly 640X versus around 25X with WeWork.
- RORory O’Driscoll
They got 25X off? Good for them. I was wrong. I'll say it. I told-
- HSHarry Stebbings
Well, no, I know, I, I was admitting I was wrong, dude. They're very different cases.
- RORory O’Driscoll
No, I was wrong, because maybe, maybe they saw this. I mean, look, in the end, let's be clear. We-
- JLJason Lemkin
Yeah, secondary to SoftBank, 315 out of 17 in. I will still take that for my fund. I mean, 17's a lot of concentration for me.
- RORory O’Driscoll
I would take it hand to heart.
- HSHarry Stebbings
But yes.
- JLJason Lemkin
I would do it, right.
- RORory O’Driscoll
But, but yes, so s- saved by s- saved by SoftBank versus viable independent company a decade later worth $80 billion. But you are correct. It just shows with enough momentum, in, in a bull market, if you take your winners off, you can do well on everything. Good for them.
- HSHarry Stebbings
Well, the reason I wouldn't back Travis is he just doesn't have that chip on his shoulder, you know?
- RORory O’Driscoll
Oh, that man. [laughs] Just to be clear for everyone, that's obviously tongue in cheek. Wow, that man has a chip, and I love it, and I love the drive. I mean, I-
- HSHarry Stebbings
Eight years, eight years in, you'd get over it, [laughs] you know? Billions of dollars.
- RORory O’Driscoll
I know.
- HSHarry Stebbings
You're like, "Oh, let it rest."
- RORory O’Driscoll
Nope.
- 57:30 – 1:04:10
ServiceNow vs Salesforce: Which Legacy SaaS Actually Survives?
- RORory O’Driscoll
I, I think you're conflating your kind of personal-ish... 'Cause look, the good thing about PE is if they don't like the person who's running a company, they're pretty comfortable getting someone else, right? The question maybe... So maybe the kind of ab- abstract question is, do you think these kind of companies growing at 15% can be bought cheaply enough? Like, you know, can you buy a Monday or a Wix at a price where you can make a return from a combination of leverage, operational efficiency, and slight AI growth? That's really their question. It's not an inspiring question. I'm glad I don't have to get up every day and deal with that, right? But it is a legitimate question as I, I don't know what the market cap of all the publicly t- traded SaaS companies out there, but there's probably a trillion dollars plus or minus of soft- w- of legac- quote-unquote, "legacy software." And can 10% of that be run more efficiently with leverage and give, put 20 million, billion to work and get 40 billion back? Probably.
- HSHarry Stebbings
If you look at a Wix that's trading at less than 1x revenues now, it basically means you, you're paying 10x for Base44's revenues, and you're getting the core business for free. Their primary target-
- RORory O’Driscoll
And you know, look, again, I don't... I mean, it's so funny. I don't love it, but you know what? Like, from when we talked about this, you know, you made me name some individual stocks. Some of it did well, some of it badly. But actually, I'll tell you what I actually traded. I bought World Cloud, the whole index, when we had that SaaS apocalypse discussion, and I'm up 35%. And the point is, what you're never gonna do is do a kind of SOX and go a 3x. There's just not that kind of upside in these things. The question is, PE is not looking for that. Can they pick out the gems? I mean, you're right. Should they take a run at a PayPal? I mean, Advent, you know, is gonna do that with Stripe. You know, at two times revenue, one times revenue, three times revenues, are there returns here, is the question. I wouldn't assume no, which is different than saying I'd wanna spend my life doing it.
- JLJason Lemkin
The problem is so many of these f- targets basically have no net new customers.
- RORory O’Driscoll
Agreed.
- JLJason Lemkin
Their, it's expansion and price increases. And so i- if you're early on the, on the, uh, on the expansion and price increase cycle, you can get three to four years out of it. But we're five years into no net new customers and price increases and, and mediocre module expansion. I don't think there's another five years of those knobs and dials left. I just... I mean, again, we just turned off Marketo. They raised our prices from $22,000 to $80,000 since 2020.
- RORory O’Driscoll
Wow.
- JLJason Lemkin
We left. I bet they've lost a f- 20% of their customers over that period of time. So I know it's an extreme example, but I just mean, what are they gonna do? Take someone like us and charge us $160,000, $640,000? I mean, the blood is out, is beyond out of the stone, right? The stone has crumbled because all the blood has been squeezed out of the rock, and it's turned to ash. $22,000 to $80,000 since 2020? I mean, it's, it's at the edge of criminal. It's at the edge of criminal. We didn't even get a thank you email after being a 20-year customer. Thank you for being a 20... Thank you for being one of the first 10 customers and being a reference on our website, Jason. Sorry we, you, we lost you. We, we hope to get you back at 160. I mean, we're... Eh, listen, they're gonna make money, Francisco Partners. I just, um, I have lost, I've lost almost all confidence in the turnaround, uh, playbook working. It's too many years from blood from the stone. It's too many years.
- RORory O’Driscoll
I think that's an interesting... You, you've been pretty consistent with that, and I've come to the conclusion you're correct on that, which is, if you've done five years of price increases, and that's all you've got for revenue growth, you're probably closer to the end than the beginning. So in a weird kind of way, actually, a lot of these guys go in, and they run this test. Oh, if they've raised prices and no one's blinked, that means they can continue to raise prices. And you're right, Jason, that could be a counter signal. If I was sitting on the investment committee of one of these PE firms, I actually think you are right. I would want a test that says- Can we add net new revenue, net new modules from these customers? Or are we just screwing them? 'Cause if we're just raising on prices, it's gonna end at some point. So I, I actually agree with you there. I think it, it-- Target selectivity will be really important here, which means that it won't be nearly as big or as easy a business as it was in the last decade and a half, and I think that's-- you're right about. There might be isolated pockets of winning, but it's a tougher gig than it was. I mean, in two thousand and ten, fifteen, it was a great business. In fact, I think even going back as far as two thousand and two, two thou- ... I mean, the early Vista funds were just after the dot-com crash, and those guys hoovered up and made a fortune, right? But we're probably twenty years into the no one turns their SaaS bet, and at some point, as Jason has proved, even a Lighthouse customer will turn on their SaaS. Where are you in ServiceNow? Just curious, 'cause they obviously had their little bump this quarter. How do you think about owning something like ServiceNow or Salesforce?
- JLJason Lemkin
I think the problems they solve are so sufficiently complicated that you need them. No, you just can't run your business-
- RORory O’Driscoll
Yeah
- JLJason Lemkin
... without ServiceNow.
- RORory O’Driscoll
Agreed. Agreed.
- JLJason Lemkin
But if you talk to anyone that's run on ServiceNow, you, you just, you, it's the, it, it abstracts away so much complexity from your business, you just, you just, y- it, it's, it, it... Analytics is like the ca- like, we all talk about vibe coding away things. Analytics is the actually the easiest one to vibe code away.
- RORory O’Driscoll
Agreed. Got it. That makes sense. So what you're basically saying is there will be islands that stay, and there's lots of little ins... It's what they've said, all the ancillary in-between products like analytics, like to-do lists and task management will go away.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
Some of them. Some of it. I don't know.
- JLJason Lemkin
Well, I wanna toast Francisco Partners, though. I want, I, uh, lo- lots of money-
- RORory O’Driscoll
You just wanna sell them a company, Jason. You're just so transparent
- JLJason Lemkin
... you know what the one is? Maybe we should move on. There i- there is something I believe in, in this whole model, right? I don't believe in buying the seventeen or fifteen percent grower because we're five years into the price increase and no net new customers. I do believe of IRP that the model is the forty percent grower. The one that is, it is kinda working today, okay? It's just not growing at the rate we would like in today's world. There is no c- there is no perfect path to a great exit, but it is not-- But, but they have an agentic product. They have something going thirty-five, forty, forty-five, fifty percent growth. There, there, there may be a moment in time where you can have a very attractive multiple on that property, and, and, and, and you haven't gone into the terminal decline, and that's, that's the, that's where I would spend my emotional energy. What's still growing no-- approaching forty or higher at scale, where the founders are burnt out? It sort of made the transition, but it's not growing exactly at the rate of the, of the hottest startup in its class. I might make that bet.
- HSHarry Stebbings
Boys, you can choose. We have Stripe hits rule of eighty. We have monday.com lays off twenty percent. We have Mark Pincus' quit if it's too hard.
- RORory O’Driscoll
[laughs]
- HSHarry Stebbings
Life's too short to struggle. Can't believe that's actually advice. Where do we wanna go, boys? You can choose.
- 1:04:10 – 1:11:36
Mark Pincus Says Quit If It's Too Hard
- JLJason Lemkin
The Pincus one I don't wanna spend too much time on. I, I, I did, I did quote that one, right? And got some traction around it. Uh, ar-arguably, he did say that, right? Uh, he's a consumer guy. He, he comes out of games, too, right? In a sense, it's quoted out of context by me, but, uh, the, it, there is a point where a game, you know, unless it's, unless it's Cyberpunk, which is back now, right, after five years in the oblivion. But i-it, m- in most cases, you should quit on a game, right? Probably at some point. It's just you got it wrong and, and you move on, right? It's like quitting on a movie. At some point, you, you gotta move on. But, um, but I really, it, it, it is what it is. I don't wanna be grumpy. I, I just feel like... [sighs] I, it just, it, it makes me sad when a founder quits one of the ones we just talked about, a forty, a fifty, a sixty percent grower, okay? A founder with material ownership quits to do something hotter, and I, and I'm cool with that in the age of AI because-- And everyone's like, "Well, there's so much opportunity cost, Jason. I can found Etched in, in a week. At ten billion, I can get into YC and raise at a hundred, a hundred post. Uh, uh, my round will be fully, fully subscribed before I even finish the batch." And I can't argue with some of that. I just, um, I, I, uh... Most of the founders I've worked with over my career that have done that, that have quit something pretty good to do the shiny penny, uh, they're not all Ilya. They've all-- I, it's all been a net negative, all, all the times I've seen it, the ones that quit with something, right? It's my worry in the age of AI is it's, there's no downside today. Just quit. Quit, quit everything. Go, go found an AI company. But man, if you've got twenty million, fifty million, five hundred million in revenue, I, I might see if you could build that in-house.
- HSHarry Stebbings
Jason, we saw last night Lillian Way, uh, left Thinking Machines, which makes only two of the original six co-founders remain. Um-
- JLJason Lemkin
Same thing, I guess probably, right?
- HSHarry Stebbings
Well, dude, it's Thinking Machines. It's not exactly a forty percent boring SaaS grower. Like, come on.
- JLJason Lemkin
And she probably has one percent if she's, like, a late co-founder, right? So what's Thinking Machines worth, worth on paper?
- HSHarry Stebbings
Eight billion.
- JLJason Lemkin
Oh, she's only got eighty million? I'd leave that behind. It's nothing.
- HSHarry Stebbings
[laughs]
- RORory O’Driscoll
[laughs]
- HSHarry Stebbings
I, I'm having nothing to do with this.
- JLJason Lemkin
I mean, it's pro- I mean, I mean-
- RORory O’Driscoll
I think, I think we're conflating a lot. I mean-
- JLJason Lemkin
Are, are we? [laughs]
- RORory O’Driscoll
But I think there's, there's the-
- JLJason Lemkin
Rory's like, "I've had enough of you degenerates." [laughs]
- RORory O’Driscoll
No, no, no. I, I, I think the whole, the comment on quitting, I mean, I think there's really three different things. Jason, you're right. The, the least obvious one is the I've got a company, it's at scale, it's growing forty percent. Do I, you know? It doesn't s- I mean, I, I think you've created something of value. You know, it's not obvious that chasing the next shiny thing will be better. I, I... But I don't think that what the w-reference was to. I think the reference from P- Mark Pincus was more how long do you keep trying to get product market fit before you say it's just not there, right? And I think that, that's a valid comment in the sense of, like, I don't think, quote, the answer's you should quit. But, like, the nuanced answer would be, I think you should not do anything out of duty. You should do it because you think you're convert-- you know, you, you have a plan to converge on something. And when you don't have a plan or you don't necessarily, you shouldn't just tie yourself to the mast to just keep going to this cause. I mean, you know, frankly 35 years ago when I had my business way back in the dawn of human time, and, you know, it, I was a very mediocre manager and I stuck at that thing two years longer than I should have. And I look back and I go, you know, wasted years just because I wasn't... I had that kind of, "I owe it. I need to keep trying. I don't want to quit." And I think finding a way to step back and say, you know, "Am I doing this because I still believe in the mission?" In which case, no matter how hard it is, keep going. "Or am I doing this out of a sense of obligation and I don't have any way to win?" In which case, put up your hands. So I don't... So what I disagreed with Mark is, is the kind of ability to say to a founder, "This is the answer," quote, "You should quit." I don't think anyone ever knows. I think the good advice is to say, go in with no priors, take some time away, ask yourself honestly, when you're rested and have had a good night's sleep, does this feel like something you want to do? And if not, and if you don't have a plan, then yeah, you, you, you gotta. Yeah
- JLJason Lemkin
You know, if I took that advice, Rory, honestly, all I would have is a maxed out 401 [k] in life.
- RORory O’Driscoll
No, you... No, I understand.
- JLJason Lemkin
The only reason I have any economic-
- RORory O’Driscoll
But Jason, I don't believe you. I'll tell you why. I won't-
- JLJason Lemkin
The only reason I have any economic success is out of obligation. In part, I kept going. If it was just about me, I would have quit at just-
- RORory O’Driscoll
Interesting
- JLJason Lemkin
... ev- both my startups. Certainly I would have quit venture investing. Fucking not worth it for a few nickels. I certainly, I certainly would have quit EchoSign. My founder walked out the door after eight months. He was right. It, this category was never gonna take off. Plenty of folks. Yeah. You're giving the same crappy advice Mark Pincus did. Quit when it's hard.
- RORory O’Driscoll
Yeah. Look, I mean, what, f- we all shared experiences. You've lived the... Maybe you felt along the way you should have quit, but you ended up building a very nice company, making a ton of money in a sale, in, in a category that's turned out to be significant. You know, I-
- JLJason Lemkin
Stripe
- RORory O’Driscoll
... stuck at it two years longer, went bust and looked back and go, "That thing would never have worked." Right? So I think to some extent it's the old Kierkegaard thing. You know, life is lived in forward but can only be understood in reverse. I think when you look back on things that fail, there are some things that you look back on, deals that you look back on and go, "Not only did it fail, but it was just never gonna make it. There was just nothing there." And I think if you're in one of those, figuring that out.
- JLJason Lemkin
I've never failed, and everything I've done would have failed if I quit.
- RORory O’Driscoll
My definition-
- JLJason Lemkin
I've never been rampantly successful. I'm not a billionaire. I've never had, had not a po- I've never made my investors less than 5X. I've never had a single... But everything almost failed, and the people, people just quit. They just quit, and they quit more. Like Thinking Machines, 80 million's not enough.
- RORory O’Driscoll
Go back to my comment. It's, it... Your experience becomes... 'Cause, 'cause I'll take the opposite statement. I've never quit, and I failed at some things. I've succeeded at some things, but I failed at some things. So, and they, so there. I, so it turns out that doggedness until the end of time is good, but it actually doesn't actually guarantee a win. So there you go.
- 1:11:36 – 1:13:42
Stripe Hits Rule of 80: Why It's Finally Worth the Premium
- RORory O’Driscoll
The numbers are great.
- JLJason Lemkin
Compared to Adyen, it doesn't s- it seems about appropriately pre- premiumized to Adyen, right? Um, I always thought they were peer companies, but Stripe's much better.
- RORory O’Driscoll
Yes, they have much higher profitability.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
And because... And what's happened, I think, is they've hit a sweet spot, because they have... They, they charge more, they have more smaller merchants at higher pricing. Um, for a long time they were less profitable despite that, because they were Silicon Valley soft company. So if you... Soft company, and Adyen were a hard-nosed bunch of Dutch people, right? But about four or five years ago, when the team, the Collison brothers in particular, focused on efficiency, they made it an efficient company. So now you have a company with good pricing, because the 2.75 is attractive, and they're efficient, and then the third key ingredient happened in the last two years. They basically signed up all the AI companies that are selling shit online, right? And they shouldn't be getting anything like the money they're probably getting from the OpenAI and Anthropic's in terms of interchange fees, but who's got time to optimize that stuff? They're designed into the flow of companies that are just printing money, so they're printing 2.75% of that money, right? And what that means is the growth's accelerated, and when you have a, an efficient leverage cost structure, probably using a lot of AI to s- stay efficient, and then your revenue takes off, it all just flows to the bottom line. I would have said five years ago they look expensive relative to Adyen, but now they have the wonderful combination of super strong growth, good pricing, wonderful margins. So yeah, no, I think that it's a sweet spot right now, driven in particular by this kind of lift from online AI spending.
- HSHarry Stebbings
Can I ask one final one? Will the OpenRouter deal happen? It seems to have gone super quiet on that front, and then everyone's released their own routing product. We saw Cursor release it. One of my companies, Merged.dev, has released their own, and it seems to be a very commoditized market very quickly. Will we see this transaction complete, do we think?
- 1:13:42 – 1:20:11
Will the OpenRouter Deal Actually Close?
- RORory O’Driscoll
From a business model perspective, in other words, the kind of front-end API to aggregate a lot of complexity, OpenRouter does for LLMs what Stripe does for money and what Twilio does for telecoms. So it kind of makes sense from a company model perspective. I mean, Jason said it last time, smart of OpenRouter to get out. Um, 10 billion felt like a lot, but good luck to them. I mean, couldn't happen, you know... Go team.
- JLJason Lemkin
I wish I had the data of, of time from intentional leak by VC to deal closing, okay? But I believe it is more than one week on average, right? And so this a- certainly appears to be a leak to generate a pseudo second offer, potentially, to justify a premium price. Uh, you know, I mean, listen, every company's the same. I, I've been on the other side of Stripe deals. They do what you would expect. They offer a, a, an acceptable but mediocre price from a venture perspective, right? So maybe they offered the last round price. Maybe they offered 2 billion, they asked 10. I don't know what the exact story is. So someone leaks it. This is how you do things today, right? And p- my gu- I don't know what hap- my guess is Stripe said, "You, you, you, you speak again, it's off."
- RORory O’Driscoll
You're exactly right. They could be hunkered down doing a deal, right?
- JLJason Lemkin
Yeah. It, it can take a couple... Even if you wanna work all weekend, uh, deals don't u- in my very limited experience, deals don't close the day after the leak. You have to sequence the leak properly or it won't... No, it's part of a price negotiation. It doesn't really create another deal that closes. It creates... It's, it's much better than a banker pretending they got, uh, someone to add you into the deal. You, you create this, this leak energy, but you need a couple weeks for that, you know, for that, for that to work.
- HSHarry Stebbings
Does it go through then, Jason?
- JLJason Lemkin
If it's real, it probably does. You, you leak, you leak... I, listen, I only have s- a limited a- amount of leaking experience. Maybe Rory has more. You, you don't leak a fake deal, it doesn't accomplish anything, okay? People look like leaks are like they're, they're... Because they're trying to put the company up for sale, right? Um, but I don't think that leaking strategy works. The leaking strategy works for a good but not great offer. Because you don't have, you only have so much leverage. Like, it's, and it's a very... I'm not, I'm terrible at negotiation and I'm terrible at game theory, but if you want two and, uh, if Stripe wants two and you want eight, it's a very awkward position to be in. It, it, maybe Frank Quattrone solves this for you, that's the magic. But if you don't have a solution, the leak is the best idea. Because here's the thing, what I learned at Adobe, just to f- maybe I won't over talk about it, it works in the sense that, um, big company M&A and corp dev is brutally slow. I'm sure Rory will agree with this, right? But all of them have a deal mode. So when an email comes in and says, "Someone that was on the list is in play," it does not mean that an Adobe will buy them or a Google buy them. But they spring to action and they make a decision within a couple of days. They know how to... They literally go into deal mode. And, and that can at least get you a paper counteroffer. It can at least get you a paper counteroffer, and you can go back to Stripe and say, "We have an o- we, we think we have an offer from Adobe," or, I mean, it's not gonna be Adobe, whoever, "at five." And, but you need, you need, like, a week or so for the leak to work. But it do- it does work. And, and the big companies, they want... The thing is, it sounds crazy, but the big ones, they j- they at least want their shot. Just like, uh, just like Andreessen doesn't wanna be embarrassed that they didn't see a deal like Sequoia, it turns out it's somewhat similar in corp dev in companies. They w- at least want a shot to buy someone that's on their... 'Cause it, 'cause they already know who their list is, right? And so as soon as they get the email, especially from a banker, they just shoot around, "Guys, we gotta get together tomorrow and decide if we wanna buy OpenRouter. Open, Open, OpenRouter."
- RORory O’Driscoll
By the way, Harry, just to explain, that's a dig that you guys in the UK call it rooter and we over here call it router, and we invented them, so we're allowed to pick. Um, but Jason, you're exactly right. Um, yeah, you don't wanna be the corp dev guy who says, "We didn't get a look at that," when the board asks-
- JLJason Lemkin
Yeah
- RORory O’Driscoll
... "How come we didn't da..." Yeah. So it's, it's drumming up interest. Who the hell knows what's actually happening? Um, you know.
- JLJason Lemkin
It's utterly amazing. If you don't have another offer, it could take three, four, five months to close an M&A deal, right? If you have an offer, it turns out any big company can move in a week. Not to close, but to sign term sheet. Any big company, you're shocked how fast they can move when they're in deal mode and there's a backend constraint. It, it, it, all the, all the crap blows away, and then Mark, Mark Benioff or whoever just decides. They just decide. Otherwise, it's months.
- HSHarry Stebbings
Fi- final one for you. You can own Revolut at 115 or Stripe at 165. Which one do you wanna own?
- RORory O’Driscoll
Even though I love the Stripe vibe more, I really do. I mean, I'd love, though I wish, I'd love them to kill it, and they are killing it. They have killed it. They're gonna do amazing. I think the beauty of Revolut is you have a whole continent full of overpriced, crappily run banks [laughs] Right? That you can just roll over, right? And you've got 500 million Europeans who are just getting shafted on financial fees. So I think TAM is like... Look, the TAM for payment services in the US is enormous, too, but it's just marginally more competitive. So at the, I think the, look, they're both ame- I mean, worth pointing out, they're both amazing companies. Neither of them are at the core, um, AI companies, though obviously Stripe's getting a lift. They are both really well executing fintech companies. So I like them both in the sense that it's, there's more to life. It turns out there's hundreds of billions more to life than AI, and those are two examples of it. But at the margin, on a T- on a TAM basis of plus or minus 100 bill, there's just more compounding in those 500 million exploited Europeans.
- HSHarry Stebbings
Jason?
- JLJason Lemkin
Uh, honestly, I, I, I, I don't know, Harry. Um, I, I, I just think the, the, um, at the end of the day, the moat at Stripe may be a little lower. The network effect may not be as strong as it seems, right? Banking just has mar- marginally more powerful moats, um, and they're working on some network effects. So my Yahoo version would be take Revolut because, um, uh, because Stripe just has to continue to execute at an out- outstanding level because the, the, the network effects and moats are there. And they've invested in everything from Atlas to their own router to create the network effects. But, um, I'm not sure-
- RORory O’Driscoll
Yeah
- JLJason Lemkin
... they're, they're truly there.
- HSHarry Stebbings
Boys, it, it is, it's, it's been a pleasure. Rory, I appreciate that ribbing. I will remind you that you Americans speak English, it seems.
- RORory O’Driscoll
Yeah, we do.
- JLJason Lemkin
I do.
- HSHarry Stebbings
Do you, I don't know if you think about that when you write-
- RORory O’Driscoll
Yeah, I, I, we, we, we won the war
- HSHarry Stebbings
... what language. English.
- RORory O’Driscoll
We, we, we, we took it from you in 1776. It just, it came with the treaty.
- HSHarry Stebbings
You won the war. [laughs] I feel like this is Basil Fawlty. You seen Fawlty Towers?
- RORory O’Driscoll
[laughs] I love the war, Harry.
- JLJason Lemkin
Yeah.
- RORory O’Driscoll
The war, the War of Independence.
- HSHarry Stebbings
Absolutely brilliant. Um-
- JLJason Lemkin
Yeah
- HSHarry Stebbings
... I love that
Episode duration: 1:20:21
Install uListen for AI-powered chat & search across the full episode — Get Full Transcript
Transcript of episode 0oWgE5ph9r4
