Valar Atomics Sues Day One Ventures | Meta's Back to the AI Frontier | NVIDIA's $30B Reflection Deal

1. 0:00 – 1:07

   Intro

   1. JLJason Lemkin0:00

      I think Zuck's had a lonely stretch. I think it's been a tough job. There's a material chance Meta has a, just a monster AI product on its hands.

   2. HSHarry Stebbings0:07

      What is on the agenda today? We have Valar Atomics sues its own pre-seed investor, Day One, and the Pro Rata debate that ensued on Twitter. Then we have Meta, Zuck, and Alex Wang. The bromance is real. They're crushing it with Muse Wonder, their new model. And then big tech, they go shopping. Amazon in talks to buy Descartes, and NVIDIA circling around Reflection for a whopping $30 billion. This, and so much more

   3. RORory O’Driscoll0:33

      We roughly generated 20 plus or minus decacorns per decade for the last five decades, and we generated 42 decacorns in less than a full year of this decade.

   4. JLJason Lemkin0:44

      I think everyone without massive scale is living a worse SaaSpocalypse than in March or April because no one wants to buy software. Everyone's breathing a sigh of relief. I don't think we should be breathing any sighs of relief. Ready to go?

   5. HSHarry Stebbings0:55

      [rock music]

2. 1:07 – 7:07

   Valar Atomics vs Day One Ventures: Is Pro Rata Broken?

   1. HSHarry Stebbings1:07

      Boys, it is my favorite 90 minutes of the week. We have some big stories. I love the, like, salaciousness of, of this market. I remember when it was b- quite boring. I look back. And so we're gonna start off with the news of the day. Valar Atomics sues its seed investor over Pro Rata. And so the, the backdrop here is that Day One Ventures put about a million dollars into the seed and $15 million into the A. They hold about 5%, and the fight is over August's billion-dollar Series B. It's six billion led by Sequoia, and basically the CEO asked every major investor to take zero Series B allocation. But there's a spring back clause, which basically meant that Day One wouldn't relinquish this and basically put up a bit of a fuss when everyone else didn't. How did we think about this, and is Pro Rata outdated in modern venture?

   2. RORory O’Driscoll2:05

      And just to remind everyone, Pro Rata simply means if you want 5% of the company, you can get 5% of any round, and, um, so you can, quote, "protect your ownership." Typically, all major investors get that, right? But un- but it's typical also that a majority of the investors can waive it for everyone. So someone can say, "Hey, you know, if most of us don't wanna do this 'cause we wanna do a different thing for the company that's right for the company," normally you should just be able to waive it, and then those rights go away for everyone, so it cancels the problem entirely. So, but then you mentioned that the second thing is you have these weird spring back rights, which it's something like if, if, if we waive our Pro Rata rights and then one of the investors who had Pro Rata rights gets to put some money in, then you can say, "Hey, you waived, but then you took care of yourself specially. That's kind of unfair. It's not really a fair vote, so I get my spring back rights, too." And that's what I think Day One is, uh, was asserting at one point in time, and there was actually another level of add, but those are the two big rights.

   3. JLJason Lemkin3:03

      I think, as usual in these disputes, no one's 100% right here. R- It's rare, it's rare in life. Uh, there are disputes where someone's 100% in the wrong, and even when you look back, you might say, "You know what? May- maybe I contributed just a little bit [laughs] to that." Here's m- here's my read of the situation for what it's worth. Here's, here's the more interesting thing. What, what happened. Um, I, I ... Listen, we only can read the tweets, right? Uh, and I love the fact that immediately everyone was all over it saying that Day One was suing their portfolio company, which was completely wrong, right? Uh, it was quite, it's quite the opposite, right? Uh, they, they may have hired, uh, a Quinn Emanuel, now a notorious firm, but it's, it's, it's Valar that wants declaratory judgment to move on. They just want an answer, right? So all of a sudden X decided that Day One had sued their portfolio company, which wasn't true. The other thing that I think if I read what Masha, who's my co-investor and owner, I don't know her that well, but I have observed her behavior, um, and she's a good investor. Um, it sounds like to Rory's point, what really happened was, um, Sequoia came in very aggressively and said, "We're gonna make, we're gonna make you a great offer. We're gonna make you a fast offer. It's clean, it's simple," and just like Sequoia and Index and others do, everyone has to w- waive their Pro Rata so that we can get our ownership target. And I can say as a seed investor, this happens all the time. It happens all the time. It ... The big fu- the big funds, in fact, they put it in their term sheet without even checking it. Their lawyers immediately put in that my Pro Rata's waived in every single round, okay? So what happened here, um, probably annoyed, uh, Day One because they clearly had, even though they're a $450 million total fund, they have more funds, whether it's SPV or whatever. So this annoyed them. They wanted to do the Pro Rata. So be it. And then Valar said, "Oh, we're actually letting one of our investors invest because they're strategic." Now this would, this might piss me off, too. What is tr- First of all, if they're strategic, they're already on the cap table. You got the strategy. You already got the strategy you need. If they're a new investor, right, if, if someone wants to invest and help this nuclear, uh, startup go further that's truly strategic, let, let 'em to hell in, right? But this is someone already on the cap table that wants to own more, which I get. That probably means they're adding more nominal value than your early investor, which I get, but this is the whole point, right? This is, you're not supposed to play favorites. And so I get all of it. Having said all of this, I've, I've observed versions of this many times. I've observed VCs suing your, uh, suing the, uh, suing their portfolio companies for doing the wrong thing. When founders have decided to do this, you just gotta get with the program. At the end of the day, if, when the founders are in the wrong here, and the big funds often convince founders to do some things that are a little bit wrong, you just gotta get with the program. It's not your company. You gotta get with the program and agree with it.

   4. RORory O’Driscoll5:46

      It, in order to be clear, say, "Hey, that feels unfair, but I accept. I'm not gonna waste time with Mr. Quinn and Mr. Emanuel. I'm just gonna go with it." Is that what you're saying?

   5. JLJason Lemkin5:54

      You might even ... Listen, if it's, if you feel so wronged, and I'll tell you why I think that, that she, Day One feels wronged if you want. If you feel so wronged, maybe you do send a letter, okay? And maybe you don't hire Quinn Emanuel. Maybe you hire, uh, Stebbins and, and O'Driscoll because they're not quite as intimidating. Maybe once in a while you send a letter, which you shouldn't, but you do, but then you gotta let it go. You just gotta, you just gotta get in line and move on. It's not your company. It is not your cap table. And this isn't just assets. These aren't just ... I mean, the founders have to work at this company for 20 years, right? That's the, that's the uncomfortable part. Um-

   6. RORory O’Driscoll6:26

      Yes

   7. JLJason Lemkin6:26

      ... but the fact that they bridge the company When no one else would. Led the rounds when no one else would, and then were discarded later, you know, that can hurt. It, uh, it's happened to me several times, and it hurts as a human being. It does hurt as a human. I don't have... I didn't have 100 million lined up to do the Valar round, don't get me wrong. But multiple ti- I've had three or four powerful companies where with a small fund, I had to bridge or do an A, B, or C, which I don't even have the resources to do, and then sometimes the founders just forget it even happened. And it, that would bother me.

   8. HSHarry Stebbings6:58

      So I, I actually agree with everything you said there, Jason. The challenge is you are seeing people like Ali Partovi, who's a fantastic investor, who's made a lot of money for his investors, and he's brilliant,

3. 7:07 – 15:14

   Should Seed Investors Give Up Their Pro Rata Rights?

   1. HSHarry Stebbings7:07

      come out and say-

   2. JLJason Lemkin7:08

      Yeah, I nominated him last year for Investor of the Year, right?

   3. HSHarry Stebbings7:10

      ... yeah, come out and say, "We ra- waive our rights, and we don't think it's right." And many great investors support him. There is a moving tide towards pro rata rights not being included.

   4. JLJason Lemkin7:21

      Yeah, but you know why he said that? It's 'cause his fund doesn't need them. His fund doesn't need them. [laughs]

   5. RORory O’Driscoll7:25

      Yeah, yes. I mean, 'cause, 'cause you then have the, you know, the Garry Tan comment on how pro rata rights is what made his IRR, and I think initialized one of his funds on, on one of his, on Coinbase, right? I think, look, if your model is all seed and no follow, then you can waive your pro rata rights no matter what. I mean, the interesting question is, will the mega fund be raising its, w- waiving its pro rata rights? In other words, is Sequoia coming into this round and saying, "I'm not gonna take anything on the follow-on round"? So I, I mean, I, to me, I always think anything that a majority can control in a cap table which is heterogeneous, where there's lots of people, should be roughly fair, right? If a majority can waive pro rata rights if it's good for the company, you know, typically two or three of the VC investors can get you there and it should all be fine, would be my, would be my assumption most of the time, right? I do think for the seed guys, some, I mean, it, I g- I'm, I'm not a seed investor obviously, but I can see why it sticks in the throat of a seed investor who takes all these risks, and, you know, most of the deals don't work out, and only a few of them work out well, and they're gonna wanna grab some of that when the guys coming in later say, "Oh, thanks for everything and now you get, now, now you should waive." I, so I totally see that.

   6. HSHarry Stebbings8:33

      So is it complete bullshit that we have to just let the big platforms come in with their term sheets that automatically waive our rights?

   7. JLJason Lemkin8:41

      Well, look, I would say... Uh, you see, I... Look, there's obviously many types of rounds, but I would say roughly there's two later stage rounds, okay? There is the Sequoia Index or whomever that wants to take all of it. They have the resources, the capability, the fund size, and they're ver- they've been very aggressive since for 20 years, right? These terms are not new. We take the whole round, everyone waives. This is not a new thing. Some funds do that. And then, or sometimes you'll find other investors that are growth stage that their target's 5% or 7%, and all of a sudden everyone gets [laughs] can, can, c- can play in the round. It really seems like there's two types, and founders get really pressured to go along with the program. That, look, the Sequoia brand is super powerful, right? It has been since the 1870s. And y- you're treated with love, and you're paraded in the office, and you're given, these days you're given a very generous evaluation set of terms, right? And you're given help, and you're, and, and you feel great. And, "I just ask one ask. We have a target, Harry, and we just need to own 15% of the company, 10% of the company. So I just ask that you let us do the whole thing." And nine times out of 10, founders agree to it without c- thinking, and maybe that's the right thing to do, maybe it's not. But there's another category of investors that that's not their target, right? There's plenty of growth funds that isn't. And, and it's just, uh, it, it, it's the way it, it, the sharp elbows are in the industry. This is not an industry full of soft, c- cushy elbows. And, uh, it's, uh, it's just, this is a mes- messy, messy way for it to spill out, right?

   8. HSHarry Stebbings10:07

      Um, so, so Jason, you're on the side of Day One. Rory?

   9. JLJason Lemkin10:12

      I think everyone's wrong here.

   10. RORory O’Driscoll10:13

       Yeah.

   11. JLJason Lemkin10:14

       I think it went too far. I think the CEO handled it poorly and said he w- he wished they'd never been an investor when he cl- they clearly bailed him out multiple times. That's not cool, right? And hiring Quinn Emanuel for a very aggressive investor is a step too far. They both, they both did the wrong thing.

   12. RORory O’Driscoll10:31

       And yeah, I agree. 'Cause I think... No, play it out here. I mean, um, I'm just wondering, because, I mean, now down in the weeds of s- what are you actually gonna win here? Uh, it, it... Whenever you start an argument, and I do this a lot too, you forget to ask yourself, "What are you gonna win?" Right?

   13. JLJason Lemkin10:46

       Yeah.

   14. RORory O’Driscoll10:47

       Because, uh, first of all, you've waived your pro rata rights. So if you want 15%, you know, long, uh, you're 5%, you're not gonna get 5% of the round 'cause someone's waived the rights, right? Once that's happened, it's all up for grabs. The spring back is, it's only proportional to how much the other signi- the other person who got to come in on spring back rights puts in. In other words, if the strategic got to put in 5 million, then your ratio is relative to that, so it mightn't be a whole ton of money anyway, right? So you're suing for the right to get 10 or 15 million bucks in at 5 billion pr- 6 billion pre when you already own 5% of the company, which is worth $300 million. What are you doing here? Right? Even with $100 million, right, you have your win. Picking this fight's a mistake. Whenever you pick a fight with a founder, and occasionally you do it when you're not thinking, it's just not worth it. H- I'm, I'm kind of with Jason, is that both people can be intellectually wrong, but pragmatically right. Uh, it, pragmatically this is a, you know, whine, say, "I'm hurt," and then move on, right? And we've left out the whole Russia, Epstein dimension. There's a whole bunch of noise around that that's very Twitter-centric about Day One, and I know nothing about it. I'm gonna acknowledge it, and I'm sure at some point it'll be used in the defense. But I, I think forget that. Leaving that aside even, I think the pragmatic thing is, what are you fighting for relative to what you already have? Why are you doing this?

   15. JLJason Lemkin12:07

       That's just my... For what it's worth, I, uh, that's just my l- life lesson, is y- it, listen, it, what, if you are, quote, air quote, "wronged" by a founder as a VC, uh, raise... In fact, it happened to me once with Harry years ago. Um, raise it, raise it once and let it go. Raise it once and... I made this mistake once years ago. Around years ago, Harry doesn't even know, he wrote a small check in to a company he didn't know, and a very large fund. This is w- one of the rare cases where I wanted my pro rata. It was important to me. I don't really care after the second check, but I needed to get my second check in. And I love h- this guy Harry Stebbings, but I get an email that Harry's investing in the round. And I'm, I'm cut back to zero. And I'm like, "I was the f- only investor in this company for years. I bridged you, I helped you. I've been the only one. And I love Harry, but ex- I know he has this fabulous podcast, but why is Harry getting an allocation and I get nothing?" This is a true story. And, and it was so... And I think that when I said it that way, and I shouldn't have s- quite said it the way I did, it was so obviously wrong that Harry got his allocation that it really bent the relationship with the founder. Didn't break it, but it bent it, right? 'Cause there was no good answer to why Harry, Harry gets his allocation and I don't. Um, and it took me a- And I learned from that, don't even say it because the decision's been made. It doesn't [laughs] , it doesn't matter if it's right or wrong. Let it go. It doesn't matter. [laughs]

   16. HSHarry Stebbings13:21

       But Jason, I felt a real bond with you as a result of that. You sacrificed yourself-

   17. JLJason Lemkin13:25

       You don't even know what happened until today

   18. HSHarry Stebbings13:27

       ... for my allocation.

   19. RORory O’Driscoll13:28

       Yeah. Say, say, say that, Harry. Say that.

   20. JLJason Lemkin13:29

       This was five or six years ago.

   21. HSHarry Stebbings13:30

       [laughs]

   22. JLJason Lemkin13:30

       You never even knew until today. [laughs]

   23. HSHarry Stebbings13:33

       Uh, dude, I have no idea what company you're even talking about right now. I, I hope it's a good one. Um-

   24. JLJason Lemkin13:37

       It's a good one. Yeah.

   25. HSHarry Stebbings13:38

       Oh, good.

   26. JLJason Lemkin13:39

       But, um-

   27. HSHarry Stebbings13:39

       Then, then fantastic. Great

   28. JLJason Lemkin13:40

       ... but you gotta let it g- you gotta let it g- t- to- t- you gotta let it, you gotta let it go, right? And, um-

   29. HSHarry Stebbings13:45

       Jason, I thought that was incredibly nuanced commentary, by the way, from you on that. I was very impressed. [laughs]

   30. JLJason Lemkin13:50

       The interesting thing for this is everyone's so biased on this issue. I've never seen more crap, more selfish, uh, takes on Twitter that, that are seen as generous, like, you know, uh, you know, I, uh, well, I, you know, I'm only a pure seed investor. I don't need pro rata, right? And then you see other folks who are like, "This is the most important right. It is, you know, uh, uh, under the constitution of venture capital investing." And if you peel the layer back, everyone's biased in the answer they give, right? It's just you can't, you can't get a straight answer on this, right? The only thoughtful answer I ever heard, the last time this issue came up a couple years ago, I remember what Keith Rabois wrote, which was, I thought, a simple answer. He's like, "You could get rid of pro rata, but it's core to our business model as larger funds." Maybe it was at Founders Fund at the time, right? And he's like, "I just have to pay a much lower price then, worst case."
4. 15:14 – 18:53

   Meta Returns to the AI Frontier With Muse Wonder

   1. JLJason Lemkin15:14

      mine. [laughs]

   2. HSHarry Stebbings15:14

      Moving swiftly on, we- I, I love the bromance and partnership that is Zuck and Alex Wang.

   3. RORory O’Driscoll15:22

      Oh, yes.

   4. HSHarry Stebbings15:23

      I j- I just, I- it's, like, uplifting in ways. They're cool to see together. I like how they-

   5. JLJason Lemkin15:28

      And they, uh, match. I like how they match. That's my favorite part. The outfits match.

   6. HSHarry Stebbings15:31

      Did, did, did you, did, did you see Zuck drinking the Guinness in the cheeky pint, and then he pulls away and it's, like, clear that he's never tried Guinness before and he hates it?

   7. RORory O’Driscoll15:41

      [laughs]

   8. HSHarry Stebbings15:42

      Um, but Meta is back at the frontier with a new model, Muse Wonder, just shy of Opus 4- 5.5 on independent index. Let's start there. I don't want to add too much. Um, how do we think about this, guys? Another meaningful movement from Meta into the model layer. Even more pros for Zuck?

   9. JLJason Lemkin16:03

      It's a zero.

   10. RORory O’Driscoll16:05

       It's a zero.

   11. JLJason Lemkin16:06

       Yeah, because there's no API. We can't even use it. Like, o- it's only for internal use by Meta. So who... Like, this is the most performative, um, eval I've seen to date of a, of a never-ending spiral of performative evals. I'm not saying they're not nominally true. I'm not saying that you, you don't wanna celebrate the team, congratulate the team. You do wanna do it. Clearly the team has done good work at some level, right? But, and I'm, I'm, for the show, I'm like, "Okay, look, I'll, I'll hook it up," you know? Oh, it's on- you can't use it. You can use it if you, in Muse. So what's the point of a model that it allegedly has parity for the same price, it's not even cheaper, and you can't use? This is, this is the height of, uh, of, uh, performative evals. [laughs]

   12. HSHarry Stebbings16:47

       It's available in Muse code. It said it had a Meta Mo- uh, it said it had an API as well. I didn't check the API. You saying it's not up yet?

   13. JLJason Lemkin16:53

       You c- I can't... You can't put it into your own app, no.

   14. HSHarry Stebbings16:56

       Okay, got it. That's a fair comment from a business impact, but nonetheless, you have to give him credit for getting, you know, at the risk of sounding like someone we all know, back in the arena. Um, you know, they were, you know, they, th- they were competitive early on with open weight. Then they kind of faded back way to the back of the pack, and now they're up front again, no- notably with closed source models. So we've decided that if we're gonna spend $100 billion, we at least be able to charge for the damn thing is the takeaway, right? And you know, it'd be interesting to see if anything comes of the enterprise business, but at the very least, you, you know, the Muse instinct war will now be powered by a super modern model. But yeah, uh, that, that's the takeaway. And yeah, $12 billion got you more than you thought a year ago.

   15. JLJason Lemkin17:41

       Yeah. And, and to the body language thing, got him a right-hand man.

   16. HSHarry Stebbings17:44

       Yeah. And great tweets.

   17. JLJason Lemkin17:45

       That's what I saw on the cheeky pint thing. It is, um-

   18. HSHarry Stebbings17:48

       Yes

   19. JLJason Lemkin17:48

       ... I think Zuck's had a lonely stretch. I think it's been-

   20. HSHarry Stebbings17:51

       Aw

   21. JLJason Lemkin17:52

       ... a tough job. No, no. It's hard being a foun- CEO.

   22. HSHarry Stebbings17:54

       Totally.

   23. JLJason Lemkin17:55

       It, it, it's been lonely, and I think it's been lonely since the beginning. It's been lonely before the IPO. I think he had Sheryl Sandberg back in the day. He's had others, but clearly he, you know, having... It, it's not easy to pay someone $10 billion and have them stick around and work that hard. Like, it's, it's easier said than done, right? And it's, and it's even harder to find someone you can truly trust in that body language, right? It's, uh, it's, uh, it's key to making this work, right? I know he's got all the other folks, the Nat Freemans and the, the, the, the Daniel Grosses and all these guys, but, um, har- hard to get a right-hand person. It's, it's hard. So I think that's, that's, that's the untold story. To, to Rory's point, this may be a, been a great deal for Scale, right? It may, it may turn out... We, we kind of la- almost laughed at it when it happened. Not literally, right? But, uh, may turn out to be the, the next WhatsApp or Instagram. But I th- you know, the more interesting, I, I, I wasn't that impressed with a model I can't use. Hard, hard for me to get too, too excited, right? Um- The fact that, you know, it's just gonna make the Muse app better, though, is super interesting.

5. 18:53 – 20:31

   Could Meta Have a Monster AI Product on Its Hands?

   1. JLJason Lemkin18:53

      I, I really-- I-- Who, who-- The world changes so fast, but I think there's a material chance Meta has a, just a monster AI product on its hands. Just m- The amount of investment into it is so high, the capabilities are so high, the autonomy is so high. Um, and now you're gonna make it 10 or 50 times more powerful. I mean, you know, uh, this could do better than the AR/VR goggle stuff.

   2. HSHarry Stebbings19:18

      Jason, have you tried Instinct now?

   3. JLJason Lemkin19:22

      I, I've, I've got my 22 invites, and I appreciate it, but, uh, I will, I will for the next show.

   4. HSHarry Stebbings19:26

      Oh, wow. Okay.

   5. JLJason Lemkin19:27

      Wow.

   6. HSHarry Stebbings19:27

      Well, dude, I'll, I'd be interested to hear what you think. Um, R- yeah, Rory, are you on Instinct or Muse?

   7. RORory O’Driscoll19:34

      Yeah, no, I try both of them. I mean, I just do boring shit. I don't need it to tell me, you know, the meaning of life. But I use restaurants and travel and, you know, basic, you know, what should I do and stuff. And I have a daily tech update from both of them that when I remember, I compare and contrast. So yeah, I mean, it's, it's a ni- it's a nice product. I mean, it's-- I, I, I'm deriving value from it. Um, yeah.

   8. JLJason Lemkin19:55

      A funny little story. Before Muse Wonder, this last week, our Muse and Replit, kind of like hugging face and, uh, on the OpenAI issue, set up their own private bulletin board to talk. They built it, Muse and Replit, on their own, without telling us, uh, to solve some issues. Um, and, uh, they did share it and then disclose where it was, and luckily, the, the communications were in English. But they didn't, they didn't wanna wait for conversation to go back and forth, so they set up their own bulletin board insid- inside of Replit, so they could talk and work on applications

6. 20:31 – 24:35

   NVIDIA Eyes a $30BN Deal for Reflection

   1. JLJason Lemkin20:31

      around the clock.

   2. HSHarry Stebbings20:31

      The amount of Muse and Instinct competitors right now is pretty astonishing. Um-

   3. RORory O’Driscoll20:35

      I'm sure.

   4. HSHarry Stebbings20:36

      Uh, really. Um, okay, Big Tech goes shopping, baby. We have two rumors that are circulating. Obviously, we don't deal in rumors, so I'd love to start with the first one. Um, Reflection [laughs] um, which, for those that don't know, is a fantastic team building open source models in the US, um, backed by Sequoia. Uh, I think the last round was at $25BN or so, and the rumor is that NVIDIA is buying them at a $30BN price. This is on the back of them buying Poolside for $12BN, which is in the open model game as well. Guys, how do we analyze Jensen further going into the open model space?

   5. RORory O’Driscoll21:16

      Yeah, and by further, just to be clear, you're, you're reminding us that they already bought Poolside. They already have their Nemotron existing model. And I think the answer is, as we've discussed several times, if, if you're in the chip business and all, you know, and you, you've got-- and your biggest customers are-- some of your biggest customers are clo- close source model companies, zooming out, you got-- If you've got a pile of money that's gonna go into that collective pool, it's in your interest that more of it stay with you and the chips and less of it stay with the model companies, right? So by definition, you love open source model and only one chip provider, just like on the other side of the table, the model companies love closed source models and everyone having their own chip provider, right? So it's, you know, we're friends, we're the best of friends. We lend each other $100BN or so, but we're watching you closely, and we wanna be able to fight back if you get margin greedy. So it just all makes sense.

   6. HSHarry Stebbings22:11

      Do you think it'll go through, Rory?

   7. RORory O’Driscoll22:13

      When you've got $5 trillion, if you want to buy something for $30BN, you can buy something for $30BN. Whether or not there'll be that whole pushback after the Groq thing, w- w- will the structure of an acqui-hire work now, or will there be pushback? Who, who knows? The world is pretty busy right now. It's not like these next two months are gonna be, um, idle time for the US government, so who knows? But I think that they'll try.

   8. HSHarry Stebbings22:37

      If you're on the board, would you say sell or would you say reject?

   9. RORory O’Driscoll22:42

      Oh, I'd hit the bid. Um, I mean, because they're amazing companies, but the standalone business, you know, the-- If you have an open weight model, you know, you're relying a lot on the monetization as inference. Are you in that? You know, I, I-- I've always thought open weight is really exciting, but how does it work monetarily? You know, if you're getting these kind of excess prices, the value to the acquirer is very high, right? And the, the market cap of the acquirer is very high. This might be a moment in time that doesn't come back.

   10. JLJason Lemkin23:14

       It's also, honestly, it's-- I have been on the other side of it. It, it's very stressful to say no to NVIDIA, knowing that they're gonna directly compete with you and promote your competitor. If you don't-- Like, we're, we're doing this. We're investing $50BN, $100BN in our own open weights model, US-based open. We're gonna continue to do it. This isn't a one-off. And you have a chance to take seven or nine million, but if you don't, we're gonna, we're gonna, you're gonna be a bigger and better competitor. It's not, it's not a simple, it's not a s- It, it-- You can say no, but it is a little scary. It is a little scary when you say no, and they're gonna buy other people and get bigger and bigger. It, it, it doesn't change the game, but it, as a founder, it certainly weighs on you when you get that "build by our partner" sort of threaten, threaten with a smile message, right? Yeah, so I would take it [laughs] unles- unless you're confident. You gotta have the winning hand, and, you know, we don't know where it's gonna go, but, you know, Salesforce announced they've got their own models that are built on Nemotron and built with NVIDIA. The, the, the, you, you know, we gotta, you gotta predict where this is gonna be in 18 months with NVIDIA putting all of its software engineers and all of its team behind it, right? This is a software company, not just a hardware company. And y- I don't know. You could imagine that the moat here between software, hardware, model is so powerful that in 12 or 18 months, why would you want to use any other sort of open weight, open model other than NVIDIA's? Like, today it doesn't, it doesn't seem logical, but I, I could imagine it being the case in 18 months. It's just, it's such a perfect

7. 24:35 – 26:45

   Does NVIDIA’s AI Push Make Thinking Machines Less Attractive?

   1. JLJason Lemkin24:35

      combination.

   2. HSHarry Stebbings24:36

      Does it make Thinking Machines- more or less attractive at 44 billion, which is the round that they're raising now?

   3. JLJason Lemkin24:45

      Do you get pro rata rights in the round? Do we have a sense? Do, do we know?

   4. HSHarry Stebbings24:48

      Straight good question. Now let me just check my Quinn Emanuel-

   5. JLJason Lemkin24:50

      Otherwise, I'm lowering my price substantially to Keith's point. [laughs]

   6. RORory O’Driscoll24:54

      As long as there's either a larger acquirer to get pay more or an obvious clear business model. I mean, there's examples on both sides of the table. There's companies who were last and made a ton after all the early guys sold, and there's companies where the early guys made a ton of money and then everyone after that kind of sorry they're still in it. It, it's all so situation dependent, it's useless to have an ironclad rule. You know, you just got to know what g- which the game here is. And again, I go back to if ... You know, I, I believe Thinking Machines has, you know, grown nicely in revenue, but you've got to have a lot of clarity on revenue and revenue visibility, um, to, to make that call. Now, you know, we're just gonna see. I mean, by the ti- ... It's interesting with recording on Tuesday, um, publishing on Thursday, and on Wednesday, Anthropic's doing its investor meeting, and I assume the, FY, the Q3 revenue numbers will leak within 24 hours. So, you know, it's not like there aren't big revenues attached to these businesses. They're the biggest revenues ever seen, but the only question is, you know, h- how will it check out? How will it check out for, you know, one level down, like Thinking Machines?

   7. JLJason Lemkin26:01

      The sort of poolside, uh, why we're selling memo that we just couldn't af- get enough compute. We just couldn't afford it. We could not keep up with the arms race. I mean, it, it does sort of ... It, it's not as simple as 44 billion versus whatever. Can, can you even get the compute to be competitive? Like, I don't kn- I don't know. I, I, you, uh, you need someone that's even closer to it than I am, but my gut is no. My gut is you can't get enough compute to be competitive. Everything's being taken, right? Even, uh, Anthropic st- reaching out to Muse, saying, "Fa- Meta, can we get some of your computes," right? Uh, maybe, maybe they'll give it to Thinking Machines, I don't know. But, um, the, the, the, that war has just begun. You can't, you can't even get memory, let alone compute. It's not as simple as software, right? So I don't know.

8. 26:45 – 29:03

   Investment Committee: Jev Raises $870M at a $7.5BN Valuation

   1. HSHarry Stebbings26:45

      It's time for Investment Committee. Jason, uh, on the agenda for today we have Jev and-

   2. JLJason Lemkin26:52

      Yes

   3. HSHarry Stebbings26:52

      ... Typesafe, the parent company, raises an $870 million Series A at a $7.5 billion valuation weeks after launching Jev. Uh-

   4. JLJason Lemkin27:03

      Yes

   5. HSHarry Stebbings27:03

      ... Andreessen led, Sequoia participating, one of the largest Series A rounds ever. What, uh ... Jason, will we be participating in this round at $7.5 billion?

   6. JLJason Lemkin27:16

      Well, listen, obviously we're lucky to get into the second close because there's, there's, there's plenty of money that wants to get in at 10, 12, and even 15 today. So I, I recommend ... We can't even get our full allocation. I recommend we put in the maximum amount we can out of the fund because it's already valued more than this, right? That valuation is several weeks stale. Um, and Jev usage has quadrupled just since Andreessen actually shook hands on the deal. So we have no choice. We have to be all in and get every share we can. Um, I've asked, I've a- I'm asking that we can get all the, the early investors to waive their pro rata. Um, that's my only requirement. But we want to put in every share we can. Um, are we worried about competition? Are we worried that it appears that Cloudflare already has a competitive product? Are we worried that OpenAI appears to be having a competitive product? Are we, are we worried that Anthropic could even give this away for free? Are we worried that A- Amazon has suggested they're, they're building their, their own version of Jev? We are, but at growth like this is the point of venture, boys. And if we don't do this, we should just stay home. We're raising new funds every 12 to 13 months. These are massive funds. We have to deploy it into winners. And to be clear, and we have years of data on this, not every winner wins, but you can only win by being in the winners. This is a winner. Will it be a winner in a year? I don't know. It is one of the massive breakout winners today. We're still getting to invest at 7.5 billion. We can probably do a paper m- paper mark up to 15 and tell our LPs we're geniuses. I say we buy every share, block the pro rata, and do as much founder secondary as we can.

   7. HSHarry Stebbings28:38

      The terrible thing about that parody is it's so spot-

   8. RORory O’Driscoll28:41

      It's not a parody

   9. HSHarry Stebbings28:42

      ... the, it's accurate as hell.

   10. RORory O’Driscoll28:44

       Totally. It's not a parody at all. It makes you realize, yes, you can do this job in three-minute sound bites. But yeah, no, that's, that's, that's, that's the story here. What a-

   11. HSHarry Stebbings28:53

       Ja- Jason, c- can you, can you paint the upside for me on Jev? How does this become a wildly successful, massive company? Where's the $500 billion-

9. 29:03 – 33:38

   How Jev Could Become a $50BN+ Company

   1. JLJason Lemkin29:03

      I'll tell you the, the, the, the, the, the, uh, just at a tactical level, at a builder level, right, which is that, you know, no, no models are particularly... Going back to the evals and the meta whatever the, the Muse, the Muse Turbo, none of these hit 90s or 100. All these models are, are, are h- h- are, make many errors and many issues, okay? They're not reliable. I, I, I could tell you endless issues from this week. Um, it, I, I ... You know, Jev is a classifier, which we're now in classifier 2.0. We're, like, in A ... A- And it works, and it's, m- maybe it gets 70% to 80% of carefully prompted matches right. Um, will the Cloudflare team keep putting as much effort in as a standalone team? Will Amazon, will OpenRouter, will all these people try as hard, or will these be niche products with not enough revenue that they don't have time to invest in, and that these guys at Jev just get, make classifiers do something they couldn't do before, get, get incredibly high resolution rates, and then they can expand it? You know, right now it can basically answer simple, uh, you know, you can ask relatively complicated questions, but you only get binary outputs. That's why it works so well, right? Rory or Harry, who's my better investor? Rory, Harry, Ha- Rory, Rory, Rory. Um, they're gonna get better and better and better, and I don't know that even if the Cloudflare Amazon teams can catch up today when it's easy. It's easy to build what OpenRouter was six months ago today, right? But are they gonna maintain that investment? I think as VCs we have to make this stressful investment that a core team that is very strong out of OpenAI that is doing nothing else will pull ahead from the seeming parity you can achieve today. I'm actually willing to make that bet. I, because I'm using Jev a lot, and I can already see that if, if, if it never changed Maybe I would swap it out, right? But if it gets better than the rest, there's no way I would change. Even just somewhat better on its, on its evals, it would be... You would never use anything else. So I'm, I, I would still make that bet today that this, this team will do nothing else. And I don't think the inference costs are gonna destroy them. I think the $750, this, this is, this is a low inference model. Um, I don't know the training costs. I think $750 gets you pretty far in this spa- for real. I think it gets you further than it gets you at a Thinking Machines. It might get you two or three [laughs] years of runway. So I'm, I'm, I'm cautiously bullish that a focused team rather than four smart kids at Cloudflare can, can, can maintain its lead and get to accuracy levels, to summarize, that were never possible before. That's the unlock. Jev is super fast and super cheap, okay? And it is accurate enough to use for maybe 10% of your AI use cases. If they make it hyper accurate, it changes the game. It changes the game.

   2. RORory O’Driscoll31:34

      A- a- and that's the theory on the... Just get back to the numbers. If it's 20% of your total u- we said this, I think, like, two weeks ago. If it's, if, if total AI Frontier Inference is a $200 billion market, which it better be in a year or two or we're all in trouble, then 20% of that is $40 billion. And if, if the price of that goes down by, you know, 80%, you still add y- $8 billion, and $8 billion, uh, and if they get half of it, that's a $4 or 5 billion revenue company, which is probably worth $50 billion. That's the case. All, every one of those sentences is credible, and then the biggest question is, you know, the other competition. But to Jason's point, the, the, the, the business is there.

   3. HSHarry Stebbings32:11

      What worries me in every justification for a lot of these prices is, wow, the liq pref's only a billion one, and it's such a strategic asset with a good team that the downside protection is they'll just get bought by a great acquirer. I just hear this every single time, and maybe that's true, but not everything has a downside protection of being acquired, does it?

   4. RORory O’Driscoll32:32

      It does until it do- I mean, it does until it doesn't, and that's meant to be glib. But look, in a world where you've got 12 companies above a trillion dollars, all of whom are acquisitive, all of whom are in a wild, tearing hurry to build companies where time is money, then, and especially if the l- legal window is open, then there's gonna be a lot of acquisitions, and the logic is true, right? If the market slows down, then all this stuff will go in the wa- in a bad place at the same time, right? So, you know, it'll be true until it's not.

   5. HSHarry Stebbings33:02

      Mm-hmm.

   6. RORory O’Driscoll33:03

      Right? Um, but right now it is.

   7. JLJason Lemkin33:05

      I think it's overstated. I will say today it feels like a liquidation preference in, in, uh, in Jev is much more valuable than 1,000 liquidation preferences in 1,000 2021 unicorns. Those, those are worthless.

   8. RORory O’Driscoll33:18

      Yeah, no.

   9. JLJason Lemkin33:19

      Many of those will end up being worthless. So we overstate the value of the liquidation preference, right-

   10. RORory O’Driscoll33:24

       Yeah

   11. JLJason Lemkin33:24

       ... to, to get the deal through the-

   12. RORory O’Driscoll33:25

       Yeah

   13. JLJason Lemkin33:25

       ... the committee. But they have real value today, right? Uh, it's just, uh, I'd rather have, I'd rather have [laughs] this, this, this liq preference than, than, uh, than s- uh, quite a few from 2021.

10. 33:38 – 39:01

    42 New Decacorns in 2026: Are We in an AI Bubble?

    1. HSHarry Stebbings33:38

       Okay, you said 2021 there, Jason. 2021, there were 34 decacorns. Yeah? We now have a record 42 startups that have become decacorns in 2026.

    2. RORory O’Driscoll33:52

       As they say in the Simpsons cartoon, that's 2026 so far, right? Uh, with a quarter to go. Yeah, there was 34 decacorns in 2021, right? So in other words, it's, we're more, more decacorns than the last time things went horribly wrong. That's the first obvious description. In other w- 'cause if you look back on those decacorns, Mira was a decacorn in 2021. You know, um, Airtable was a decacorn. I don't think they'll be the same, but just worth pointing out. I think the more funny sta- statistic is this. There are, in the public markets, a grand total of 98 decacorns ever, right? And if you look at them by decade, there's a scary word. It's like, and you take the private and the public decacorns as of the start of this year, we roughly generated 20 plus or minus decacorns per decade for the last five decades. And we generated, what did you say? Um, 42 d- decacorns in one t- in, in less than a full year of this decade. Now, there is some, obviously, market caps continually go up. All those things point in your favor. But it is stunning to think of 20 to 30 decacorns per decade, and then 42 decacorns in less than a year.

    3. HSHarry Stebbings35:08

       Hmm.

    4. RORory O’Driscoll35:09

       And, you know, that does only, that does only 98 public company... I just said to, 98 above $10 billion, another 30 above $100 billion. So 130 companies in total worth $10 billion or more since the dawn of, in tech, since the dawn of American capitalism, and a further 42 this year.

    5. HSHarry Stebbings35:28

       Rory, uh, like, scra- scratching the, like, obvious itch there, you're basically saying that we're in a bubble.

    6. RORory O’Driscoll35:35

       I, I don't know if I'm say- uh, you're trying to make me say I'm in a bubble. I, I just think that, uh, well, we got the pref, as Jason points out, so we're all fine. Um, it, put it i- what you can say for certain is the production rate of decacorns is higher compared to anything we've seen before, including five decades of data in the public markets, right? It definitely f- I mean, either this is the most economically transformative event since the Industrial Revolution, or we're getting a wee bit ahead of ourselves.

    7. HSHarry Stebbings36:05

       Which would you pick, Rory?

    8. RORory O’Driscoll36:07

       Maybe the better answer is this. I'm actually gonna go back to the pref answer, right? It's kind of funny because you have to remember all these private company valuations, that valuation is set by someone who does have a liq pref, right? And once you have a liq pref and you believe it exists, you can say to yourself, unlike a common stock where it trades every day, you can say it's a 1X plus option value, right? And the thing right now is option values have high value because there's a lot of val. Some, apparently three companies in this decade will become worth a trillion dollars. Many will become $100 billion, even if it's 10. It's rational to say there's some non-zero probability this company becomes fricking amazing, and my downside is a 1X. To, to make it concrete, I don't think all these stocks would trade at 10 Billion or more if they were all traded on the public markets

    9. JLJason Lemkin36:58

       That's not giving me an answer

    10. RORory O’Driscoll37:02

        I think it is

    11. JLJason Lemkin37:03

        Well, we're all, we're betting this is true, right? I mean, uh, Menlo had some math when they raised their last fund, it was, I think it was a $3 billion fund maybe, right? For the, to deploy the next 12 months. That, that they're betting their, they'll have at least four $25 billion-plus exits to make the fund, right? That's just the math. It's not complicated, right? Um, that they can do, that they can do that like clockwork. That's the bet. The AI spend and the recent exits of the last X months justify it. Um, historical evidence, uh, makes it suspect. Um, so are you, are you, are you living the moment or are you living as a student of history? Um, I, I, I just don't think in venture there's a lot of upside in being a student of history, even though we have one starring on the show, which I'm grateful for. But where, where... I don't know if it, if it gets you the huge carry checks

    12. RORory O’Driscoll37:48

        And in fact, as I looked at this data, which one of my colleagues was doing for something else, I think what you act- what I actually realize you need to do is then you say to yourself, "Okay, if you extrapolate, what level of growth are you assuming to make this math work?" 'Cause yes, Jason, you are. In other words, 'cause every year, I mean, every decade it looks bigger than the last decade, with the exception of the 1970s, 'cause stocks go up, right? Um, but the question is, I mean, you made a comment, four 25 billion-plus outcomes, right? And i- in a world-

    13. JLJason Lemkin38:17

        Per fund [laughs]

    14. RORory O’Driscoll38:17

        Per fu- per fund, yeah. And there are only 130 above, um, 10 billion ever. So there's probably only be 70 above 25, right? And so you gotta get four new ones. It's, it's doable, but you can't miss, you can't miss a lot here, dude

    15. JLJason Lemkin38:33

        So that's what Andreessen got so right. People, when we started our invest- well, well, and maybe pre my investing career, but people mocked Andreessen in the early days for overpaying and doing this wrong and saying, "We have to be in all the winners." And they just did the math. Yes, you have to be in all the winners, and even a lot of the winners you won't make money in because you'll overpay, but the super winners will make up for all of it. It's, it's just basic. And everyone mo- all the yahoos mocked them, and they were completely right. The price of, uh, overpaying for a winner [laughs] is get- being in the super winner Well,

11. 39:01 – 42:27

    Isomorphic Labs Eyes a $40–50BN Valuation

    1. JLJason Lemkin39:01

       talking of super winners, Jason, do you want to come back to the investment committee? We can do a DeepMind. Demis Hassabis-

    2. RORory O’Driscoll39:08

       Oh

    3. JLJason Lemkin39:08

       ... the legend that is Demis Hassabis, raised at about $10 billion, give or take, from Thrive-

    4. RORory O’Driscoll39:15

       Oh

    5. JLJason Lemkin39:15

       ... a matter of months ago. Now, Isomorphic Labs, his company, in talks to raise it between $40 to $50 billion price. We gonna do this? I mean, generational talent is generational pricing today. Certainly, I, as, as, as much as I believe in the, uh, in the Jev teams and the TypeSafe teams, he's gonna pull together a team like's never been seen since the dawn of mankind in artificial intelligence. Maybe he fails. Maybe he's had enough of it. Maybe he's enjoyed life in London too much, too many posh c- clubs life. But I think I've seen the fire, and this, it, it is a scary bet. Um, we have our liquidation preference, and no one will be able to assemble a set of talent like this. This is the next and last generational ta- chance to cherry-pick the best of the best of the best, and this is the job

    6. RORory O’Driscoll40:02

       I think-

    7. JLJason Lemkin40:03

       I agree

    8. RORory O’Driscoll40:03

       ... the interesting thing about this company will be that unlike the vast bulk of the, um, revenues that come from the foundation la- foundation models where it's, you know, intelligence automation, where the value capture is replace labor, right? Here, the value capture is not replace labor. It's actually make science discoveries, right? And the way... 'Cause, you know, if, you know, 'cause p- you know, when you discover, when you do a molecule, if, you know, i- if you automate the $500 million of science spend that you pay w- science wages to, that's not really gonna cut it. What you really wanna do is, you know, when you create the $200 billion drug, you wanna get 10% of that on a royalty basis. So it's kind of the, as the models devour all the knowledge worker dollars that are available to them in terms of direct replacement, at some point they're gonna have to monetize via creating whole new things with their intelligence. And, you know, it's a lot more credible today just given the amo- the math, the recent work they did on math, which as one mathematician correctly pointed out, isn't really that... Yeah, you don't actually get paid a whole ton for solving Stokes-Navier, whatever it is. But if you can discover the next GLP drug, that's a winner, 'cause those things do money. So it's a, it's kind of, it will be interesting to see. I'm, I have in the past said it's, it's hard to get the drug companies to extract t- t- meaningful royalties when they've still gotta do phase one, phase two, phase three, and many of these companies end up being drug companies down the line. It'll be interesting to see what happens here. But it's where, it's a big pile of money if you can extract the value, not just from a labor percentage. Sorry, that was a long one

    9. JLJason Lemkin41:41

       No, no, I think we're all gonna be on 10 GLP-1-like drugs in a few years, and, uh, I, I think, I think, you know, we never really got the full story on Anthropic's wet lab. I think the potential here is even greater than is let on. I think the potential for drug discovery is probably massive, and w- you know, we're, we're going from weirdos microdosing to finding out we're all gonna have a set of drugs that, that dramatically extend l- longevity and quality of life. And yeah, if, if, if they can radically accelerate it, own the IP, and have other people do the hard work, maybe AI really can reboot the entire industry fairly rapidly. N- not all of it, of course not all of it, not the trials and not the rest, but man, if you could get a GLP-1 out five years faster Do you, Jason, do you actually buy that? I don't mean that cynically. Do you think that's possible? Uh, the, the, the, the drug stuff?

12. 42:27 – 43:50

    Why AI Drug Discovery Could Be Bigger Than Inference

    1. JLJason Lemkin42:27

       Yeah Yeah, only very recently did I buy it. I thought it was wackos and Brian Johnsons- What caused you to change your mindset? ... and people selling crap. What's that? What caused you to change your mindset? Because the m- the medical evidence for GLP-1s is so, it's so profound. It's so, for heart disease, for so many other things. And I think our ability to, and I think our ability to tailor d- dru- drugs to extend longevity is the, the massive market. It's better than inference. You know, if you, and if you talk to any just physicians at the cutting edge now, they're all saying to anybody, like your hip or whatever, "Just, just don't ki- hurt the other one. Like, just get there..." Like, in another couple years, the amount of longevity we're gonna able to achieve is so much higher that I just think the wackos or the microdosers of SF and Brian Johnson made me skeptical. But, but Just the, the overwhelming evidence of the benefits that, that almost everyone should be on a GLP-1, right? And, and the fact that we're gonna get better and better at figure all this stuff out, I mean, we are just, we're just w- walking sets of cancer and heart disease and other things that, um, having material impacts will r- radically extend longevity, radically extend longevity

    2. RORory O’Driscoll43:34

       There's a whole sequence of steps before you even have, you know, adequately good molecule identification with some understanding of how it works, and then you still have all the different bio phases. So as I say, I do believe it'll be harder to capture value than you think, but I'm really glad they're

13. 43:50 – 49:37

    The Explosion in Robotics Training Data

    1. RORory O’Driscoll43:50

       trying.

    2. HSHarry Stebbings43:50

       Guys, I wanna talk about one which may be a little bit earlier than usual, but we had Mecca, which is the Mercor or the surge for robotics data, physical world data that can be implemented in most often robotics, raises 60 million Series B from Sequoia. The reason I wanted to bring it up is that, you know, we have Micro AGI in Europe, which has posted race to 100 million very quickly. There's Mecca, which is well over 100 million in ARR. There's another provider that I'm forgetting the name of, ExSoft or ExoSoft or whatever it is, that's again over 100. And we just see the sheer volume of data providers over 100 million. What should we read, infer, analyze from this?

    3. RORory O’Driscoll44:34

       Well, you can infer da- Let's do data in general and then robotics. You can infer from data in general that, you know, Tropic and Opening AI spend a large amount of money on training data, as do the other three wannabe foundation models, and there's an entire industry that suffers to take care of that, right? It's an interesting business 'cause you only have five or six large competitors, and they all obviously wanna go on and sell to enterprises, but the vast, vast bulk of the dollars come from a relatively small number of enterprises. And, um, a- a- and, you know, those companies are growing very quickly 'cause, you know, the foundation model companies want, want an- want data, they want it now, and they're willing to spend big to get it. So they've been able to go from zero to hundreds, and in the case of some, billions very quickly, right? And the interesting thing in the foundation model s- cases, there's clearly an end revenue source that's paying for that. In the case of robotics data, it all makes sense. It's the same analogy. There's a bunch of companies really interesting doing various forms of models for robotics. Um, it's obviously early in its development life and deployment life cycle. I mean, you've got, um... So, you know, you've got the early burgeoning spend. You've got the 10 million and the $100 million deals, and you can get that on venture dollars from the robotics companies and from, yeah, and foundation model companies too 'cause they wanna be in robotics. I think what's gonna scale that to a billion or two billion is when the deployments happen, and that's still unproven in terms of timing, right? So, 'cause I mean, the humanoids, I saw a GXO, which is a logistics company that one of my companies deal with. They sent me a post, one of the guys there did, and it w- the summary of the post was 42 POCs of humanoids, zero deployed. And then there was some thread about the BMW relationship with Figure, where again, you know, we talked a big game, but the humanoids aren't out there. So I do think there's a deployment issue in robotics which will filter back upstream to a dema- to a ultimately spend on data business until such time as the unlock happens at the deployment level. But for now, you know, definitely making hay while the sun is definitely shining.

    4. HSHarry Stebbings46:39

       Are we doing Mecca for my investment committee, boys?

    5. RORory O’Driscoll46:41

       Well, it's... Th- you, you have to do the second half of the Q- Sequoia round at the regulatory 20X step up or whatever it is they deem to be appropriate. Um, so no.

    6. HSHarry Stebbings46:51

       Okay.

    7. JLJason Lemkin46:51

       Well, it's just, I... Listen, I'm not smart enough to really know. I do think it, it's an interesting play in the sense that obviously the current level of interest in robotics is beyond an all-time high, right? It's, it's, uh, and, and, um, and they all need training data, right? And, um, it, it, uh, and you can be skeptical of some of these folks, but the demand for high-quality training data, even if it's just paying people to wear sensors and do work, it's, it's just off the charts. I met, I met a founder at YC Demo Day. He wasn't in this class of YC, he was just there that I knew from Sastre stuff, and he tilted his company into doing just spec- you know, a very niche version of training data, and he did 30 million in, in 60 days. And he said the problem is they just don't wanna do all the stuff that he's asked to do. He's like, "We have 300 million of demand. It just takes so many specialized humans in so many countries to do this niche product. We don't... We're turning away 270 out of 30 'cause we don't wanna do it," right? So if you could nail that two by two of being able to provide the, the data labeling, the humans, the everything, you have the right one. Maybe I'd rather do this than invest in a bunch of robots that are gonna, you know, throw Aunt Bessie out the, out the door or smash, uh, uh, their fist through, through my kitchen when they're trying to grab the pots. I'm, I'm certainly skeptical of the residential ones. Maybe this is the safest place to put our money. [laughs]

    8. HSHarry Stebbings48:05

       Oh my God, I would way rather do this than any robotics company.

    9. RORory O’Driscoll48:09

       But the absurdity of that is you can't... These things aren't going to exist unless the robotics companies are successful. So I disagree.

    10. HSHarry Stebbings48:15

        Well, no, no, no, no, no, no, no, because I, I'm saying I don't know which robotics company will be successful. I don't know what form factor-

    11. RORory O’Driscoll48:20

        No, well, that's like saying-

    12. HSHarry Stebbings48:21

        I don't know what vertical-

    13. RORory O’Driscoll48:21

        Yeah, I know, but-

    14. HSHarry Stebbings48:22

        But I believe that robotics will be, so I wanna be in the infrastructure that allows-

    15. RORory O’Driscoll48:26

        Yeah, yeah. Yeah-

    16. HSHarry Stebbings48:26

        ... any of them to be

    17. RORory O’Driscoll48:26

        ... I mean, that's, but, but pushing back on that, that's like saying I wanna do Scale AI, which is a, or Mercor, which are great companies, instead of Anthropic. If I had a choice, I'd do Anthropic. If you can pick the winner, pick the winner, right? 'Cause the model companies are by definition bigger than the companies that sell to the model companies.

    18. HSHarry Stebbings48:42

        Sorry, I didn't quite understand that analogy. Uh, it's, it's a bit like saying, "I wanna be in Scale, not, uh, Lagora, because I don't know who's gonna win the application layer, but I do know that models are gonna need to get better." That's a better comparable, which would be understandable, I personally-

    19. RORory O’Driscoll49:01

        I, I just... What, what you're, what you're saying implicit in that is you believe... There's a statement in that, that each robotics company has its own foundation model and the, you know, the companies like we're in the Generalist, Pi, and Skilled. Like, if Generalist, Pi, and Skilled become the dominant foundation models for robotics, then it is equivalent to the, my foundation model comment. But if every robotics company has to build its own specific model, then yes, then it becomes a very s- fragmented market at the model layer. And I don't know. It's definitely one of the areas where I have- I have a fair number of robotics investment and the least amount of clarity.

14. 49:37 – 55:12

    Anthropic Cuts Haiku Pricing by 90%

    1. HSHarry Stebbings49:37

       Okay, boys. There, there's a lot else. Guide me in terms of where you would like to go. We can talk about Anthropic cutting the price of Haiku by 90% as the price war with OpenAI further intensifies. Jason, I'm, I'm relatively intrigued to hear your thoughts on that, given how intensely you use them and-

    2. JLJason Lemkin49:56

       I mean, look, um, w- I know we've talked a lot about this kind of stuff on the show. I, I, I will say it's under-discussed. Um, these models, Haiku 5.5 and Sonnet 5.5, they're, they're great, and they're really, from my perspective, the first thing that's actually been deflationary with LLMs and AI. Nothing else has been deflationary, because no matter how many you talk about token prices falling, we've been consuming so many more tokens, we're not getting the benefit of it, right? None, none of our portfolio companies are seeing their cogs fall in AI, are they? Uh, not, not really, right? Um, the- everything that we've, we've all consumed so many more tokens and used more and more of the, of the state-of-the-art frontier models that we haven't seen inflationary benefits. These, to me, are the first ones that... Yeah, that are deflationary. Haiku f- basically, you know, since the beginning, since before the show, there's always been the N minus one model, which isn't quite the frontier one, and you, you get the last year's, you get last year's Cadillac and fins for this year's shiny n- it, it was sort of worth it. But now, um, Haiku 5.5, which is a joke, I mean, developers would laugh at you if you used H- Haiku 5.5. Like, it's almost as good for a lot of use cases as Sonnet, and it, it's, it's a tenth or the 20th the price. It's like shock. It's so cheap. It's almost... Haiku 5.5 is, like, the first reasoning model, and you can dial up how much reasoning you want, that you can almost not care about what it costs like Jev. We haven't had this before that worked for me. We haven't had a reasoning level model where you didn't have to stress every token, every dollar, because it is, it is a tenth the price of what Sonnet 4.5 was. It's a tenth the price. So I think it's disruptive. Sonnet 5.5 is interesting as an aside. It's, it's basically, you know, it seems, at least in the testing that I've done, it, it's, um, it's almost as good as the Opus models before. But what's interesting, it's only about 10% cheaper than the previous Sonnet, but it's twice as fast, and these evals don't talk enough about speed. Like, this is why a lot of these things are useless, like Groq and others, because they're too slow or they time out. Speed, like, if you can have your chat go twice as fast, it's a big deal, right? And Sonnet 5.5 is twice as fast, 10% cheaper, not that much, and better. Speed is also deflationary because you can do more and more quickly. So for me, th- these two plus Jev, the first time we've seen deflation. And, and, and yeah, you're gonna have your Jevons paradox, so we're gonna use even more, of course. But this is the first time you could literally go in, swap out models, and have much more speed and pay a lot less, like in a week. And I think it, it's exciting, and I think it's most exciting for like B2B stuff, where we're all still s- we're all still making these trade-offs for a lot of B2B apps, right? We're making how, how much, how good can we make the resolution? How good can we resolve this issue? How good can we do this workflow? If it's twice as fast, and in some cases a tenth the price, um, we sure b- better see a lot of results at the next board meeting. No more excuses, boys. It's the first one at a practical level I've seen that's deflationary.

    3. RORory O’Driscoll52:50

       And, and I think the next interesting thing will be, you know, call it Jevons, call it price elasticity, 'cause, you know, price elasticity simply says, you know, if you reduce something by 90%, as, you know, if it's... Yeah. For, for a proportional reduction in prices, does the net dollar spend go up or down? And, you know, your bet, the bet obviously they're making is it's highly elastic, and it goes down, and you end up spending more. And we'll, and, uh, and we'll see. That's obviously the bet. I mean, you wouldn't want to be p- you would not want to be cutting prices in a demand inelastic product, because then you'd have the classic problem of high fixed costs, low demand expansion, and lower prices, which is terribly, horribly bad, right? So, uh, the bet here, as you see these price cuts, is in fact that this stuff is very, um, elastic in terms of demand.

    4. JLJason Lemkin53:42

       And I assume we'll see it in the, in the S1 soon enough. I assume... Listen, all the accounting for these LLMs is gonna be interesting, right? But I assume you can, when you, when you're using Haiku or Sonnet, when you're using es- essentially the N minus one or N model, the only cogs is gonna be inference, right? You can basically write off the training cost 'cause you can assign that all to, to the frontier models, to Fable and Opus, right? Assuming that's the case, it's, it's sort of a win-win all around, right? Because I believe that Anthropic's inference margins are quite high, right? Before... I believe it. But I believe their real-world gross margins are still pretty crappy because of training costs, right? So I, I think it'll be interesting to see how they break this out, right? Um, but I think it's ex- I think it's exciting. But yeah, we'll just use more. It, it... There's gonna be a lot of stuff where it's, it's like, you know, it, taking a 20-minute shower when you don't have to pay for the hot water. You never get out, right?

    5. RORory O’Driscoll54:29

       Yeah. No, I mean, just as a reminder, and I agree we will, and I, I agree with that assessment, but when you cut prices by 90%, we're gonna use more doesn't cut it. We gotta use 10 times more, right? Otherwise, demand elasticity is less than one, and you actually, revenue goes down, right? Just-

    6. JLJason Lemkin54:42

       Yeah

    7. RORory O’Driscoll54:42

       ... to be... But I agree-

    8. JLJason Lemkin54:43

       I do think we'll use 10 times as much, 'cause what's gonna happen, instead of sampling something-

    9. RORory O’Driscoll54:47

       Yeah, you'll do it all

    10. JLJason Lemkin54:47

        ... you'll just, you'll just do it all.

    11. RORory O’Driscoll54:48

        That's what my colleague said-

    12. JLJason Lemkin54:49

        Right?

    13. RORory O’Driscoll54:49

        ... on using Jev. You'll use it in every row of the database.

    14. JLJason Lemkin54:52

        Everything. And, and it's so fa- and the key, the key is speed, Matt. We don't discuss speed as much. Jev is so fast, right? Um, and, um, Haiku 5.5 is actually slower than the one before, but it's not even comparable. Sonnet's twice as fast. You can just use more of it 'cause it's faster. If it's slower, it doesn't, it doesn't really h- you can only use so much in parallel. But yeah, you're, I, I agree with your part. You just use it for everything.

15. 55:12 – 56:39

    Does Cheaper Frontier AI Kill Open-Source Models in the Enterprise?

    1. HSHarry Stebbings55:12

       What does this mean for open source in US enterprises? Does this make it inherently less attractive, where you're like, "Hell, I can get Haiku and Anthropic for 90% less"? That really reduces the attractiveness of open source.

    2. JLJason Lemkin55:25

       That's why I thought... I said on the... Well, I don't know whether it was Dev or, or, uh, Jack, but I said you could imagine it would all flip around next year, uh, then the whole OpenRouter thing would, would change and, and pe- people are not loyal. No one wants to use, right or wrong, no one wants to use at least China-based open weights models. N- no one in the enterprise wants to use them. So when you have a, a domestic solution, ideally from a vendor you already... that's already been qualified and trusted. I'm not saying it will happen 'cause there's a lot of smart people working at, at DeepSeek et al., right? I mean, some of the best of the best. But you could imagine that this being a, a moment in time, and in 12 months from now they- they're, they're niche models that are, are not, that are, that are used by co- some companies we invest in, uh, but, but really in the enterprise are n- almost non-existent. I could imagine it, right? Again, I think Salesforce making Fin rip it out before the deal closed is telling. Like, p- it's just, it's a moment in time, maybe that won't hap- but I just, uh, some people don't want these, the, the, the, the China open weight models, they just don't want them.

    3. RORory O’Driscoll56:21

       But, but they'll have Reflection and they'll have-

    4. JLJason Lemkin56:24

       Yeah, they may... That's why the Open Rider could f- maybe if NVIDIA buys Reflection, then Reflection plus poolside plus everything ends up being th- you know, 50% of the usage and 15% of the revenue. It would, it wouldn't, wouldn't surprise me at all, right?

    5. HSHarry Stebbings56:36

       Jason, what else tickled your fancy from this schedule?

16. 56:39 – 1:01:05

    Should Founders Sell If the Acquirer Will Fire 80% of the Team?

    1. JLJason Lemkin56:39

       You know, [laughs] I mean, I almost don't want to bring it up, but, uh, but it's-

    2. HSHarry Stebbings56:43

       You do

    3. JLJason Lemkin56:44

       ... but, you know, um, but, uh, Bending Spoons laying off basically all of Airtable, um, not a surprise, right? But man, I mean, I wrote this when it happened and no one cared. I'm like, "Guys, everyone's talking about the money and the ARR revenue and the d-" and I'm like, "You realize almost everyone's losing their job?" I didn't see anyone care, give a, give a rat's arse about the fact everyone's gonna lose their job. I'm like, "Everyone lost their job at Vimeo, everyone lost their job at Evernote, everyone's gonna lose their job at Miro." And I, I, I barely saw a tweet about anyone giving a rat's ass. And, and I'm not even judging 'cause this is capitalism, but man, when you s- as, when you sell your company to Bending Spoons, you just gotta realize your entire team's gonna be gone. And do founders owe anything to their teams? Do boards of directors own anything to their teams, or do they just owe their best returns to Cedars-Sinai, right? Um, do you have any moral obligation to sell to someone that's gonna lay off 80% of your, of your team within weeks? They are stakeholders, especially if you're cashflow positive and growing like Miro and Airtable, right? They both have hundreds of millions in the bank and growing. Um, do they matter? Do they matter legally? Do they matter ethically? Do they matter at all? Or is this just part of the startup game? I wouldn't do it. I would not sell. I, there's no way I would sell my company and have 80% of my team laid off. I just would never do it.

    4. HSHarry Stebbings57:56

       No, no, but, but just pause, Jason. Can... Let's just, uh, stay on that. You have a fiduciary responsibility to your board and to your shareholders if you're Miro, say, and that is the best and only offer for you. What do you do?

    5. JLJason Lemkin58:11

       I think Rory can help remind me. I do think legally you have an obligation to your shareholders above your employees, right? I, I believe that. I, uh, I'm mixing up my Delaware law. I'm pretty sure that's true, right, legally?

    6. RORory O’Driscoll58:20

       Yeah. For a public company, it is the only, um, obligation you have, and they're extraordinarily clear on that. And even if in your mind you're thinking about something else, you never say it in a public company board because it just lays yourself open to shareholders. You, your sole job when you enter into an acquisition period is to maximize value for shareholders. So yes, that's there. I actually don't know in private what the actual-

    7. JLJason Lemkin58:41

       But they're private, right?

    8. RORory O’Driscoll58:42

       Yeah.

    9. HSHarry Stebbings58:43

       So, so Jason, would you not sell if you're Miro, which is a private company?

    10. JLJason Lemkin58:47

        I wouldn't, I wouldn't do it. No. I wouldn't, I wouldn't... Uh, the people that work for me so hard, uh, I wouldn't, I wouldn't let them all be laid off the next week. No, I wouldn't do it. Like, long story short-

    11. RORory O’Driscoll58:56

        F- f- f- f- fi- pushing only on that, I hear you, and obviously if you have another alternative that even if it's gonna make you less money, you might well choose to sell to them. The question is, if you're locked into a forever march where, you know, over the next two years a lot of them are gonna leave anyway, right? Because when you get on the forever march, as you know, retention is the problem, especially for the best people. There's a little part of me that says accepting that having that kind of talent repurposed is actually just better for everyone. Go into the Bending Spoons deal, but cut your deal on your employee economics up front so know what everyone's getting into, right? 'Cause I do think that the death march will get old pretty quickly. And, you know, you'll try and do the noble thing for your employees and then over the next two years they'll all peel off anyway and you'll be left with your even more empty husk that's now worth one times revenue. So I, I hear you, and I'm normally the softie in this group, but sometimes resolution is worth it even for the employees.

    12. JLJason Lemkin59:53

        It's complicated.

    13. RORory O’Driscoll59:54

        It's complicated.

    14. JLJason Lemkin59:55

        I just don't think of there's... I don't think that there's an acquirer you can be more sure will have, will lay off all, all, the vast majority of your team than the Bending Spoons.

    15. RORory O’Driscoll1:00:05

        No, the, the mission is clear.

    16. JLJason Lemkin1:00:06

        You don't know what Vista's gonna do. You don't know what Thoma Bravo's gonna do. You don't know what Francisco Partner, but you know what the Bending guys are gonna do. They're gonna just axe almost your entire team, right? To a next level I've never seen before, right? Maybe Constellation does this, I don't know. But, uh, I've, I've never seen it before.

    17. RORory O’Driscoll1:00:20

        For what it's worth, I think Bending Spoons has an... I mean, Conste- they, they all are very efficient. Bending Spoons has a cen- um, a bigger centralized component. I think Constellation's argument is everybody runs on their own, but we don't spend a ton of money in sales and marketing and you gotta have 40% EBITDA, I don't care how you do it. I think Bending Spoons' argument is all of the above, plus all your GNA is centralized, all your people are centralized, so you just need even less, right? So it's variations on a theme of lean and mean and even leaner and even meaner.

    18. JLJason Lemkin1:00:51

        I'll tell you the other one just on the theme, a- and Harry you can cut me off if you want, but I was thinking about this. You know, the great, the g- and I put this... I, I'm very sensitive of this. I'm, I, I, I... As, as we had on the Dev podcast, I'm confused what loyalty means in the AI age, right? I've got

17. 1:01:05 – 1:02:27

    Cloudflare Cuts 20% Despite Strong Growth

    1. JLJason Lemkin1:01:05

       many flaws, loyalty isn't one of them. Um, and, um, but, uh, you know, Cloudflare's an interesting one because a lot of folks are doing little layoffs. Uh, N- Netflix 5%, oh, ho, ho. We'll get HubSpot 7%, you know, get... Cloudflare earlier this year crushing it. Had a great year the whole year, right? Even during the SaaSpocalypse. Matthew just came in and said, "I'm laying off 20% of the team."

    2. RORory O’Driscoll1:01:25

       Wow.

    3. JLJason Lemkin1:01:26

       Just doing it.

    4. RORory O’Driscoll1:01:26

       Missed that.

    5. JLJason Lemkin1:01:26

       He did it in one day. And the ev- the, they beat the quarter. They re-ac- they v- accelerated growth even more. The stock price is up like 80% this year. And it's not, it's not Bending Spoons, he didn't decide to gut Cloudflare. But he made the right call. He's like, "We're not failing. We're an AI beneficiary, but we are too slow. We're wasting too many times on a lo- too much effort on folks that aren't gonna get us there. I'm gonna do one 20% cut, not 'cause we're struggling, but because we're cr- to grow even faster" and they've re-accelerated. Um- And, uh, you know, I think Bending Spoons, it, it will- i- I don't know. But, but, uh, some of these are just too small. That's why when I see these layoffs, I always think, um, as, as much as I care, I'm like, "They're too small." Cloudflare did 20, and it worked.

    6. HSHarry Stebbings1:02:08

       The hard thing for Bending Spoons now is it actually has to find large enough companies that it can buy. There's lots of smaller companies, but it needs to find large enough revenue-based companies [laughs] they can actually buy. That was what was really interesting when I spoke to them. Um-

    7. JLJason Lemkin1:02:22

       Yeah, it's 3% organic growth, so if you wanna grow e- 80% like they are, you gotta buy big

18. 1:02:27 – 1:06:01

    Bumble Goes Private: Can AI Reinvent Online Dating?

    1. JLJason Lemkin1:02:27

       stuff, right?

    2. HSHarry Stebbings1:02:27

       Honestly, Jason, the churn on these companies when they buy them, though, I mean, the numbers are just phew. You have to price increase to the max just to keep this, these businesses going. Um, while we were talking, it may be uninteresting to you, I might have been a user of this company in the past. Bumble has announced that it will be taken, Rory, Bumble, if you don't know, you probably don't, and they are being taken private by Mr. Ravi Gupta in his new firm, uh, Ethic- Ithaca Holdings for $1.3 billion, I believe it is. Um-

    3. JLJason Lemkin1:03:02

       Cool. Good premium

    4. HSHarry Stebbings1:03:02

       ... it's a pretty cool bit of news, a holding company taking Bumble private.

    5. JLJason Lemkin1:03:07

       Yeah. It w- was, market cap was, like, 500 million before the deal, right?

    6. HSHarry Stebbings1:03:10

       Yeah.

    7. JLJason Lemkin1:03:11

       Yeah. Go- good premium, man. VCs have always hated it, right? The churn, the, the c- the c- the, the problems with the customer lifetime value, they've always hated it, right?

    8. RORory O’Driscoll1:03:20

       It's funny 'cause, you know, uh, y- given the percentage of people who meet on the apps now is 50, 60%. But if you think about it, there is a business that provides the most basic human need, which is marriage, et cetera, dating, marriage, like, literally the thing that people care about the most. Just look at the number of pop songs that are about it versus everything else, and all you get is a few lousy billion bucks. I mean, you're solving the needs of half the Western world, and all you get is a couple million bucks. It's a funny world. Billion bucks.

    9. JLJason Lemkin1:03:45

       Listen, I, I could be wrong. I'll give you the bull case on Bumble, right? Just, just as a builder, right? And then this may be, this may be wrong. Um, I, uh, having built a matchmaking app for our SaaStr Community, having thought through this in AI, you can do so much more with AI than you could do before, right? I haven't used Bumble, no criticism, right? Um, but I, I, I can only assume the matches are, at best, mediocre, right? Uh, they're visual, and you have a, a fairly small amount of data to grab from, right? You know, uh, if Bumble can ha- Bumble has massive historic data. If you can get other data and you can use AI to make dating better, and if you have a data science team that can do this better than others, e- uh, everything's competitive. But I could imagine it being, the, the outcomes being much better with AI, right? Much better with deep analytics across lots of data. I mean, I'm, this isn't, this is Captain Obvious, obviously not new to the team. But, uh, I would imagine there's a bull case where someone could, could actually make much better matches, charge more for it, right, raise prices, because it's much better, right? Instead of going on 20 horrible dates or getting a bunch of creeps, you have five great ones, right? Uh, you know, the old, old E- eHarmony idea, but it actually works. Anchor high and qui- quintuple or 10X the value of this business. That, that would be the bull case to me. Um, but they're not the only guys probably thinking about it in the space, right? How to use more data and AI to make better matches.

    10. HSHarry Stebbings1:05:06

        Totally. And also actually how to use synthetic versions of yourself, AI avatars that represent you, and then you can go out and meet 100 different people without actually spending any time meeting anyone. What a wonderfully antisocial way to date. Um-

    11. RORory O’Driscoll1:05:19

        I don't know if AI-

    12. JLJason Lemkin1:05:19

        Yeah, but it might work. But it might work [laughs]

    13. RORory O’Driscoll1:05:21

        Yeah. I- in the end, I do b- I, I do believe the object of dating is at some point to make contact in the physical world, as I understand the mission. So-

    14. HSHarry Stebbings1:05:29

        Rory

    15. RORory O’Driscoll1:05:30

        ... that works for a while, but at some point-

    16. HSHarry Stebbings1:05:32

        That sounds terrifying. Oof.

    17. RORory O’Driscoll1:05:34

        And well, you're just gonna have to m-

    18. HSHarry Stebbings1:05:36

        We sit, we sit scrolling, which is why-

    19. RORory O’Driscoll1:05:37

        Yeah

    20. HSHarry Stebbings1:05:37

        ... we have such a good business. [laughs]

    21. RORory O’Driscoll1:05:39

        Yes.

    22. JLJason Lemkin1:05:41

        Yeah, but AI should get to know you. If AI can reduce the friction, the, the, the wasted time on dating, the wasted time and money, the ROI is really high, right?

    23. HSHarry Stebbings1:05:48

        I totally agree. Jason-

    24. JLJason Lemkin1:05:50

        Right?

    25. HSHarry Stebbings1:05:50

        Any other topics-

    26. JLJason Lemkin1:05:50

        What's a date cost, 200 bucks to, a good date? You know, I put that, I put 150 on Bumble AI, I'm already 50 bucks ahead.

    27. HSHarry Stebbings1:05:57

        Jason, any final ones? 'Cause Rory's not gonna give me a suggestion.

19. 1:06:01 – 1:12:16

    Why the SaaS “Apocalypse” Is Worse Than It Looks

    1. JLJason Lemkin1:06:01

       This one is barely worth talking about, but 'cause you had it on the list. Um, it's just worth reflecting on as we, we're in Q4 of the year. Do I have this right? Yeah.

    2. RORory O’Driscoll1:06:09

       Yes.

    3. JLJason Lemkin1:06:09

       We're in Q4, right? Reflecting on the SaaSpocalypse for a moment, right? And I really don't even wanna talk about it in 2027 because 2021 is so far behind us. But I, I think the SaaSpocalypse is still here. I think about this a lot. What I mean is the, the SaaSpocalypse of when, when we're, you know, earlier this year, was in part a short-driven thesis that we would vibe code our way out of all these applications, right? The market became, uh, feared that. Growth, growth for many leaders slowed at the same time, which seemed to self-reinforce the fact that we'd vibe code the old app. And, and we reached all-time lows in, like, March or April, something like that, right? And, uh, the, the markets roared back, right? Um, you know, uh, NASDAQ's up 22% this year. I have a saastr.ai index. You can see at SaaStr, uh, of those, I think it's up 28%, or the W- World Cloud's up 25%, right? So nominally, the SaaSpocalypse was a joke, and Marc Benioff made this point at the low that this, this too will pass. And nominally it did. Like, that, that fear passed. But I, I just say two things. For anyone, what I... Here's what I think about this. One, i- it passed for those well above a billion in revenue.

    4. RORory O’Driscoll1:07:17

       Agreed.

    5. JLJason Lemkin1:07:18

       I think it only passed for those with massive scale, and I think everyone without massive scale is living a worse SaaSpocalypse than in March or April. Because no one wants to buy software. So I think we need a new term, but everyone's breathing a sigh of relief. I don't think we should be breathing any sighs of relief.

    6. RORory O’Driscoll1:07:34

       A- a- agreed, because if you think about it, all that happened is it's a mature, consolidating industry now. And what happens in mature, consolidating industries is that the market leaders have scale, they have market cap, and they have a leverage, and they're just gonna start, you know, you're seeing Benioff doing it. You're gonna see acquiring companies. And then the ones they don't acquire, you can grind out, right? 'Cause you might just, if you're already at 40 billion, you're money good. You got cash flow, you're good, right? If you're at 100 million, you're trying to get to 300 million in a SaaS product, it's really hard today.

    7. JLJason Lemkin1:08:03

       Yeah, and I wonder if, if we even s- When we started the show, it seemed like 500, you could IPO at 500 million. I'm not, I'm not sure after Orin friends that's even true today in the SaaSpocalypse. I don't know that 500 is durable or safe any longer, right? You might need a billion and a half or two billion of ARR as a software com- as to, to have a safe IPO. And that, outside of Jev and friends, that has a lot of implications-

    8. RORory O’Driscoll1:08:25

       Yes

    9. JLJason Lemkin1:08:25

       ... that the SaaSpocalypse is worse than we thought. 500 million isn't good enough anymore. Now it's gotta be one to two billion in ARR for these companies to go public, and the, the, uh, the math gets harder and harder. So I don't wanna talk about it forever 'cause it's a new world, but, uh, it, it's as, it's, it's, you know, the only thing that is safe is scale.

    10. HSHarry Stebbings1:08:44

        Credit to the few who are able to transition pre-plays into post-plays, of the pre-AI play to the post-AI play, like an Intercom did. One of our businesses last week, I'm not allowed to say how much it sold for, but it sold for a very large amount of money. Not billions-

    11. JLJason Lemkin1:09:00

        Yeah

    12. HSHarry Stebbings1:09:00

        ... but hundreds and hundreds of millions.

    13. JLJason Lemkin1:09:02

        Good for you.

    14. HSHarry Stebbings1:09:03

        Tech, Techwolf to SAP.

    15. JLJason Lemkin1:09:05

        Yes.

    16. HSHarry Stebbings1:09:05

        Um, and it was, it was a pre-AI enterprise software company in the HR space of all spaces, and it was able to transition into an AI first company and sold to SAP for a big amount of money, the biggest ever for Belgium, which isn't particularly saying much, but still, uh, big. Um, and so I, I think there is still room, but the transition will be awfu-

    17. JLJason Lemkin1:09:28

        But I don't think, in all fairness, like, and congrats to the, to the Techwolf guys. I, I remember actually I forwarded that to you in 2020 here. I, I, I, it was in, but I just didn't get the HR thing. Um, or, or even Fin. Like, like, okay, I don't think they count, and Intercom and the team is great. I'm a minute shareholder. Rory's a shareholder, but it, that's not true scale. That's not a billion north in recurring. So those deals are great for the founders, and they're fine for s- for the VCs, but they don't, I don't think they counterman this point that the apocalypse is as bad as it ever did. Kudos to, to, uh, to the Intercom for building an AI native ex- reboot of the company to nine figures in revenue, but that's very different than building to a billion growing 50%, and the, the journey, uh, so I don't think it countermans that, right? It's, it, and these exits, Menlo, Menlo's point is we need three $25 billion exits per fund. Tech- Techwolf and Fin don't count.

    18. HSHarry Stebbings1:10:19

        Well, not, not for Menlo, but for my fund they return 24%-

    19. JLJason Lemkin1:10:22

        Yeah, it made a difference to how many. I mean, I think there's two separate points. One is, I mean, think you should dis-

    20. HSHarry Stebbings1:10:26

        Your fund was smaller

    21. JLJason Lemkin1:10:27

        ... hang on. You should disaggregate them. One is, who does the $500 million exit count for and who doesn't? Yeah, if you're a megafund it doesn't count. If you're a n- normal size fund, you really can make good money there. It's not to be sneered at when the check hits. You know, um, that's the first comment. But the second comment I think is the more interesting one you're implying, Jason, which is post-SaaS apocalypse, there's just not going to be as many of them, because e- let's just say there's 200, 300 of these similar size SaaS companies. Big Tech can only buy so many at a time 'cause ti- it's a distraction, so they get, get hoovered up at the rate of 10 a year, and that's, like, infinite time. Right? That's the real issue, which is, is that because there's no crit- there's no probability of getting critical mass and scale and an exit, you're just done. You know, uh, not done, but you're just destined to be one of hundreds of midsize companies trying to compound your way to something that matters, and you very much have to proactively get AI native, try and drive to an outcome, try and be important to some other company, or be happy running your company for the next decade and, you know, taking a, you know, a dividend. Because, you know, I mean, you, you could cynically say the same is true in AI apps. There are way too many apps relative to the likely number of half a billion or billion dollar outcomes. But in an expanding market, all is forgiven. You know, what is product categories look like company categories. Everybody expands just like SaaS did 20 years ago. It'll all be great until you hit the tipping point again.

    22. HSHarry Stebbings1:11:54

        Can I ask, guys, I don't wanna be mister negative or finish on a negative.

    23. JLJason Lemkin1:11:59

        No.

    24. HSHarry Stebbings1:11:59

        But Flock Safety had some problems with privacy backlashes previously. We touched on it very previously in an episode.

    25. JLJason Lemkin1:12:07

        Yep.

    26. HSHarry Stebbings1:12:07

        Now they're cutting 270 people, 18% of staff. Is this a company in real trouble? Is this-

20. 1:12:16 – 1:16:58

    Is Flock Safety in Real Trouble?

    1. JLJason Lemkin1:12:16

       I, you know, I saw a tweet, you know, I, I prefer the crime to the surveillance. Personally, I'd prefer the surveillance to the crime. I'd prefer the surveillance was actively controlled. You know, we talked about that a while back. The problem here is a bunch of, you know, renegade, you know, off-limits use case for law enforcement not doing it in the right way or not even doing it for law enforcement at all, but checking up on pers- their personal lives, has now damaged the brand, I won't say irrevocably, but yeah, it's a pretty tough problem. You know, you wouldn't wanna be Flock right now and, um, trying to, you know, position this because, you know, whenever red and blue America vote hates you, you got a tough thing going. And I, again, I d- I defend that, the other side. I, I do think the crime deferral is really worth it. I think in, you know, I think the, the improvements in crime in San Francisco and New York, they're just awesome, and it really expands things. So I'm, I, I, I'm not, not a hater, but it, it always sucks when the public has you, you know, when everyone has you like that. So I don't know. I'm sure, I'm sure it bottoms out, but it's a tough, not just a comms problem, it's a tough business problem too, and it-

    2. HSHarry Stebbings1:13:22

       But I'll tell you my, my concern, which is, this worries me with a lot of startups, is I, I don't know that they have a strong enough engineering team, and I think they cut too many corners, because the security issues they've had are unacceptable. They've had, uh, they've had cameras just streaming, uh, unsecured across the internet. They were using dated versions of Google on old Android tablets to save money that were no longer supported or had security patches in the last year, year and a half. This is u- unacceptable from a company where security has to be at, at its core and paramount, and it's happened multiple times. Um-

    3. JLJason Lemkin1:13:54

       Interesting, 'cause I was more focused on the unauthorized use, but you're saying there's also been access. That, that sucks, 'cause that's on them.

    4. HSHarry Stebbings1:13:59

       I'm saying they cut, start- all startups cut corners. It's how you get off the ground. It's something we don't, we underdo- we don't like to talk about too much at board meetings. But when you are ultimately a security company like Flock, may- maybe the police departments don't understand the corners you cut, and maybe the VCs don't wanna probe, but the, there are certain companies where you can't cut too many corners, and I worry Flock cut too many. It's just n- wasn't, didn't build safe hardware or software. And if you're not investing in the hardware and the software, what about the rest of the team? What about other vulnerabilities ac- up and down the stack? It's culturally consistent, and so I don't wanna pick on them because I think they've done a lot of social good, but I, but I wonder if they cut too many corners and now they're reaping, uh, reaping what it comes from it. Um.

    5. JLJason Lemkin1:14:40

       Hmm. I think the-

    6. HSHarry Stebbings1:14:42

       Stored images unencrypted. The cameras sent credentials in clear text. Pressing the button on the back of the camera would open up a Wi-Fi any attacker could get into. The police interface didn't require any authentication. This is not, this is pretty bad stuff, right? [laughs]

    7. JLJason Lemkin1:14:59

       Security patches stopped in June 2018 for many of its cameras

    8. RORory O’Driscoll1:15:03

       Ouch. Those are not good facts, I will admit.

    9. JLJason Lemkin1:15:06

       Not good f- And so you, you, it's... And is it ever just that? It's always more when you pull on the string, right?

    10. HSHarry Stebbings1:15:12

        I mean, it's a very valid worry, to be fair. And actually, I didn't, I wasn't aware of the security vulnerabilities there. Um, but on a theme that Rory loves, um, Jensen Huang's just announced that he's gonna invest 2 billion more into European AI companies. So go Europe, hey, Rory.

    11. RORory O’Driscoll1:15:28

        Go, go, go Europe. Yeah, that's about, that's about the way I

    12. JLJason Lemkin1:15:30

        How much is that, how much money is that for NVIDIA?

    13. HSHarry Stebbings1:15:32

        It's about a coffee. About a coffee.

    14. JLJason Lemkin1:15:34

        [laughs]

    15. HSHarry Stebbings1:15:34

        Maybe, maybe a coffee and a croissant, you know?

    16. JLJason Lemkin1:15:36

        2 billion.

    17. RORory O’Driscoll1:15:37

        I, I think the cash flow is 150, 160. Yeah, so it's, it's, you know, it's, um, 1% of cash flow. Yeah. Don't, don't spend it all at once, kids. You know? Um, me, yeah.

    18. HSHarry Stebbings1:15:48

        I, I did debate bringing it up because I wasn't so confident-

    19. RORory O’Driscoll1:15:51

        No

    20. HSHarry Stebbings1:15:51

        ... about the rebuttal.

    21. RORory O’Driscoll1:15:52

        No, I'm not gonna be... No, I'm your, yeah. It's, Jensen is just gonna spend that money wherever he can to fragment this market. Okay.

    22. JLJason Lemkin1:16:00

        Well, probably also, Ro- Harry is much closer to this than I. I'm not an expert, but anything you can spend to deflect any anti-Americanism is worth, is probably worth the money up to a certain point, right? K- keep your head down. Don't, don't be associated with any anti-Americanism. A couple, a couple billion here and there to mitigate it is probably a great investment, right?

    23. HSHarry Stebbings1:16:16

        Y- you know what, boys, no one's talking about, they should be, is like the downfall of France. I mean, Jesus Christ.

    24. RORory O’Driscoll1:16:22

        Yeah.

    25. HSHarry Stebbings1:16:23

        Uh, I, I mean, you talk about a failed ecosystem in Paris.

    26. RORory O’Driscoll1:16:27

        Yeah.

    27. HSHarry Stebbings1:16:28

        Uh-

    28. RORory O’Driscoll1:16:28

        It, it's really good of them to step up and make the UK look great.

    29. HSHarry Stebbings1:16:32

        I know. Do you know what? Genuinely, yes. Thank you so much, France, for making us look like-

    30. RORory O’Driscoll1:16:37

        Yeah, no, totally. Yeah

Episode duration: 1:17:09