Zuckerberg Back on X Challenging Codex & Claude Code | SK Hynix’s $26BN IPO

1. 0:00 – 2:13

   Intro

   1. RORory O’Driscoll0:00

      As three inveterate Twitter junkies here, we know where the action is, and it ain't on Threads, [laughs] okay? Let's be honest, people. If there was action on Threads, Harry, you'd be there.

   2. JLJason Lemkin0:09

      I would.

   3. RORory O’Driscoll0:10

      If there was action on Mars, Harry, you'd be there. [laughs]

   4. JLJason Lemkin0:13

      [laughs]

   5. HSHarry Stebbings0:14

      This week, number one, Apple sues OpenAI for trade secret [laughs] theft. Number two, Meta fights back on the coding model front, and Zuck is back on X. And then number three, SK Hynix prices a $26.5 billion NASDAQ listing, bringing the compute and infrastructure layer to the public domain.

   6. RORory O’Driscoll0:34

      To some extent, it may have been a distraction for OpenAI that they were so successful in consumer. If this was a mercy killing, Apple may have done them a favor. In the early stage, when you're on the board, you can't invest in two competitors. In the late stage, structurally, you have to.

   7. JLJason Lemkin0:46

      If you don't wanna be worth 1X, like, do something before it's too late, man. Ready to go? [upbeat rock music]

   8. HSHarry Stebbings1:02

      Guys, it is so good to be back. As always, uh, there is a lot for us to discuss. Um, why don't we start with the trillion-dollar company that is Apple as it brings in another trillion-dollar company in the form of OpenAI, where Apple sues OpenAI for trade secret theft. Essentially, one of Apple's long-term 24-year vets was taking secrets to OpenAI and sharing information that he shouldn't have been.

   9. RORory O’Driscoll1:33

      Just to be clear on... This is a really serious thing, and there's actually some conclusions that we can share with listeners in a second, but on the facts, the 24-year veteran is Tang Tang, and he- he's named in the suit, but the person who is alleged to have taken the secrets was the six-year Apple employee, Cheng Liu. Tang Tang is- is in charge of the hardware division at OpenAI after having been a super-secret executive, senior executive at, um, Apple, and the allegation for him is that he encouraged hires to bring this stuff over, right, which is just slightly different, right?

   10. HSHarry Stebbings2:07

       Um, absolutely, and he encouraged them to bring actual parts for show and tell.

2. 2:13 – 8:00

   Apple vs OpenAI: The Lawsuit That Could Change AI

   1. RORory O’Driscoll2:13

      Exactly. And, you know, I think the big picture here is, in partic- I mean, let's, so let's start with the advice to anyone listening. Don't ever do this 'cause, uh, the person on point, the individual who brought that stuff across, B- I read the lawsuit this morning, 41 pages, didn't read it all, but kind of gl- got through a good slug of it. There's a lot of fact-based evidence that the person who took this stuff did it, and he's screwed, and the first thing he's going to discover is there's no gratitude in l- in litigation, right? You think you're quote helping a new employee or trying to get a job. They're gonna burn you so fast your head's gonna turn, right? They're gonna say, like Claude Rains in Casablanca, "I'm shocked and appalled to find that there's gambling going on here," and he's gonna be left high and dry. Don't ever, as someone interviewing for a job, ever do this 'cause you're gonna be screwed. That guy's toast, right?

   2. JLJason Lemkin3:06

      Yeah, that-

   3. RORory O’Driscoll3:06

      Because-

   4. JLJason Lemkin3:06

      ... that, I hadn't thought about that. You think you're helping your company. He's already lost his job. W- forget what his com- his exit package is. He- he's already gone, right? You're not helping your company.

   5. RORory O’Driscoll3:15

      Agreed, so he's out. And then the next level up is the gentleman you mentioned, Tang Tang, who is... He also has some issues. It's not as clear because there's no fact-based evidence, but it's not just hearsay 'cause a bunch of folks have said, "You know, he did it. He encouraged me to do this." And even in the email traffic with Cheng Liu, there was a lot of, "Hey, we were asked to do this." So the risk he's up against is- is that in- there's now gonna be a ton of deposition, a ton of discovery, and if there's any smoking gun that has him emailing or encouraging people to say, "Hey, bring in information when you're coming in for your next interview here at OpenAI," then he's screwed too, and the same thing will happen. 'Cause, you know, now when you get to the highest level, look, Apple, in one sense, is quote-unquote happy because they're really pissed that 400 people from Apple have gone to move to OpenAI. And traditionally over the years, Apple has always hated, in my view, you know, almost to the point of not being appropriate, people leaving their place and going to someone else, and really leaned on other, um, companies to not hire, right? And I think, as I said, at some point, that gets inappropriate, and see this whole Steve Jobs kind of issue 15 years ago. But the bottom line is they're now looking at this and going, you know the way when you wanna get something for something, and then the other guy makes a foot fault, and they're, "Now we have him." So they know they have the junior guy. They probably have the VP of engineering, and they're gonna twist the knife, depo everyone, and see how high up it goes. They're pissed, and they've got leverage, so it's a tough place to be, right? 'Cause really what they want isn't... I mean, you know, they care about these secrets, but what they're really dealing with is, you know, the big-picture comment is OpenAI's been talking about building a hardware device. That's obviously why they're hiring 400 people from Apple, and Apple's pissed, and now they've got some leverage, and they're gonna find out what's going on here.

   6. JLJason Lemkin5:04

      Yeah, you know, it's a tough one, to Rory's point, that we all have history in our, in our operating or investing experience where you do hire folks for their domain expertise every day, right? That's employment portability. And where the line is for train- trade secrets, it's, um, it's actually somewhat nuanced, not only in the law, maybe Rory will challenge me, but in practice 'cause not everyone gets sued, right? Um, people are stealing trade secrets all the time that shouldn't be, right? You- the salesperson's gotta be careful when they take the Rolodex. Once in a while, they get burned for that. Once in a while, a sales rep actually, they lash out when one goes to a competitor in your portfolio. They get sued for taking their, their actual Rolodex, not their conceptual one. They get sued for downloading, uh, the CRM when they leave, and Jesus Christ, hacking into the old, uh, I- iFolder or whatever the hell he did-

   7. RORory O’Driscoll5:52

      Yeah

   8. JLJason Lemkin5:52

      ... and take documents from Apple after you leave, it happens, but, uh, um, that- that's too much, right? Um-

   9. RORory O’Driscoll5:58

      Too much

   10. JLJason Lemkin5:58

       ... but still you don't always get sued, and it's tough, but if we can't hire domain experts, sometimes we- we- we can't all invent LLMs ourselves. Sometimes we need a little help.

   11. RORory O’Driscoll6:07

       J- Jason, you're exactly right, but I actually think it actually makes the point that you didn't need to do this, right?

   12. JLJason Lemkin6:12

       Didn't need to do it, yeah.

   13. RORory O’Driscoll6:12

       Because stepping back, California is one of the most liberal places in the country in terms of employment, right? Which is, you know, there's no non-competes. There are, uh, kinds of, non-compe-competes are typically unenforceable.

   14. JLJason Lemkin6:24

       Yeah.

   15. RORory O’Driscoll6:24

       And what does... And there's this doctrine called inevitable disclosure, right? Which is if you acquire knowledge in one company, and you go to another company, and you use that knowledge, the California courts are pretty friendly, and they'll say, "It's inevitable 'cause it's part of your trade." So they'll even say, you, "We can't stop you using the tricks you learned at company A at company B." And let me give you a very practical example of that. Anthropic is the biggest beneficiary of the inability to enforce non-competes and the doctrine of inevitable disclosure.

   16. JLJason Lemkin6:55

       Yeah.

   17. RORory O’Driscoll6:55

       'Cause those seven employees who left, they basically walk out of them. Because they're way smarter than this guy, they probably didn't bring anything, no pieces of paper, no stolen code. But next morning, they start up and they say, "We just were thinking about this last week, and we can keep thinking about this, and everything in our brain is owned by us." And there's lots of states in the union where you can't do that.

   18. JLJason Lemkin7:16

       I wonder if Anthropic could've been started in Massachusetts.

   19. RORory O’Driscoll7:19

       Funny.

   20. JLJason Lemkin7:19

       Probably not, right?

   21. RORory O’Driscoll7:19

       They could've soon... No, uh, you're exactly right, which and I think California's, even though it sucks as the employer, I think California's been right. Oddly enough, the rare policy triumph for the great state of California. It's been really good for innovation in the Bay Area, right? So you already have that very friendly employee thing, right? And given to Jason's point, given you have that, given you have that inev- why put yourself at risk by stealing some shit that you just don't need? Sorry, Harry, you were going to say something.

   22. HSHarry Stebbings7:45

       Well, my question was, okay, so these individuals are screwed, um, [chuckles] to be blunt. What does it mean in terms of timeline for OpenAI? Does it cause meaningful delays? Does it impact-

   23. RORory O’Driscoll7:56

       Mm

   24. HSHarry Stebbings7:56

       ... their ability to ship their hardware product when they wanted to?

3. 8:00 – 11:03

   Is OpenAI's Hardware Dream Already Dead?

   1. JLJason Lemkin8:00

      Listen, if I had to read the tea leaves, hardware's probably on the bubble. This was one of Sam's initiatives that made sense when everything was working and OpenAI had an, an unassailable lead over, over its competitors, right? Now, everything's, uh, you know, we chopped Sora. Why the hell did we buy TBPN, as great as it seemed six months ago, right? Um, hardware s- uh, seemed like a great deal for $6 billion when I could get the legendary Jony Ive, but his, his team stole everything. What's the point of, like, this is just a effing distraction for something that's gonna hem- it's gonna hemorrhage cash.

   2. RORory O’Driscoll8:33

      I totally agree.

   3. JLJason Lemkin8:34

      I'm all in. Uh, well, if we go back 60 weeks ago, I'll, I'm all in on persistent AI around us, so is Zuck, like with his new eyewear and all that, but this has got to be almost on the cutting board. It's like the Apple Car. It's got to be close to being cut, and I think the reason this lawsuit may have happened is to push it over the line of getting cut. Just kill it, guys. Like, it's not directly cause and effect, but it really could push it over the line to just let's, let's put, let's put a pause on this for a year, boys. Let's put a pause on it for a year.

   4. RORory O’Driscoll9:01

      I, I, I didn't pile in on that initially, 'cause I feel I'd pile in on this point, but I totally agree. I remember when they did the individual deal, I was like, "This is stupid." I, the n- the o- sometimes, you know, the, the, the cliché, keep the main thing the main thing. The main thing here is, is that LLMs are really amazing at code, and the amount of economic value that can be created from that dwarfs everything else, right? I've seen some of the column with Ben Thompson even articulate the view that, I think it was Ben at AM, that to some extent it may have been a distraction for OpenAI that they were so successful in consumer, right? And because whether the value's all clearly been created is not just within enterprise, but within enterprise for coding. And I'm with you, Jason. I- if this was a mercy killing, Apple may have done them a favor. You know, move on. Put, slow it down.

   5. JLJason Lemkin9:47

      [laughs]

   6. RORory O’Driscoll9:48

      Stop doing this shit, and-

   7. HSHarry Stebbings9:50

      Or a year, Rory, when you, when you do this-

   8. JLJason Lemkin9:50

      Well, it just, and just to your point, if you think about when, y- a year ago, when OpenAI was a consumer company, I know you thought it didn't make sense, but step back. It actually all makes sense if you're a consumer company. Should we go into hardware? At some point you do. You think about it. Should we go into media as a consumer company? Yeah. I mean, we could buy the, a top podcast with a mil- for, for 100 and something million. Like, worst case, it doesn't work. Like, if you're a pure consumer play, this is how you keep building. You add to this, you add to the layers of the concentric circle, right? As a enterprise death, death march LLM, uh, it is, it makes no sense. It's baffling, right? Let someone else-

   9. HSHarry Stebbings10:28

      Yeah

   10. JLJason Lemkin10:28

       ... build the pi- the pin that clips to your shirt.

   11. HSHarry Stebbings10:32

       You mentioned Zuck-

   12. JLJason Lemkin10:34

       Let Zuck do that one. [laughs]

   13. HSHarry Stebbings10:34

       You mentioned Zuck. Zuck returns to X, and he returns to X for Muse Spark 1.1, and the first time ever that Meta start charging developers to use their own models. Um, it was a very meaningful release, some people think. Uh, Alexander Wang called the pricing of it, in particular, very aggressive versus O- OpenAI and Anthropic. Um, as I said, Zuck broke a three-year silence on X to launch

4. 11:03 – 16:57

   Zuckerberg Returns to X to Take on OpenAI

   1. HSHarry Stebbings11:03

      it. How do we think about the release of Spark, and was it a meaningful progression for Meta in the fight against OpenAI and Anthropic?

   2. RORory O’Driscoll11:12

      Yes, and I'd like to come back to the how, uh, it's actually, let's do it on a tangent first. I wonder what the internal Zuck algorithm was, it, which is, how good does something have to be before I, spitting and cursing, put something on the competitor social media product? I mean, you know, maybe the comms person goes in and says, "I think the new glass release is awesome. Should we use X?" And he's like, "Fuck no," right?

   3. HSHarry Stebbings11:35

      [laughs]

   4. RORory O’Driscoll11:35

      And then finally he's like, "All the developers are on X. If we're gonna launch Spark, we just look like idiots." And then he's like, "Okay, I'll type something on the clown car company," right? Anyway, that's fun. But I think-

   5. HSHarry Stebbings11:47

      No, uh, uh, b- before you move off that, Alexander Wang has done 27 posts on X to three posts on Threads, and it actually got people quite pissed off online, and I think internally in Meta.

   6. JLJason Lemkin11:58

      He probably forgot they had Threads, as I, as did I for, until the other day.

   7. RORory O’Driscoll12:01

      Yeah, yeah. Forgot all about it.

   8. HSHarry Stebbings12:01

      Do you think it got, it got 400 million users apparently.

   9. JLJason Lemkin12:04

      Sort of.

   10. RORory O’Driscoll12:05

       Yeah, no, again, it's classic funding.

   11. JLJason Lemkin12:06

       Yeah, because it's in- integrated into Instagram, you can't help but see it. It doesn't mean there's any real engagement, right?

   12. RORory O’Driscoll12:11

       Ac- activity is the word, Harry, engagement. Let's be honest. As three inveterate, inveterate- Twitter junkies here, guys. We know where the action is, and it ain't on Threads, okay? [laughs] Let's be honest, people. If there was action on Threads, Ja- uh, Harry, you'd be there.

   13. JLJason Lemkin12:27

       I would.

   14. RORory O’Driscoll12:28

       If there was action on Mars, Harry, you'd be there.

   15. JLJason Lemkin12:30

       [laughs]

   16. RORory O’Driscoll12:30

       So let's focus on the, let's focus on the real point. I thought, I thought there's a ton of, like... I mean, and the stock jumped nicely 'cause a ton of things happened here, right? You're right. They, they shipped Spark 1.1. They move away from here, it's free. K- as I always remind myself when I forget, it wasn't Llama, it wasn't open source, it was open weight. But they've moved away from that to charging on an API bas- in other words, they've embraced the same business model as the other frontier labs, right? It's a decent product. I've used it as an end consumer. It actually, you know, I c- compared and contrasted to Claude and some answers. It was pretty good. But of course, the real test isn't with the end user. The real test is coding. And, you know, they, they reported good benchmarks, but in the past, their benchmarks haven't been as good. And we'll talk in a second about benchmarks. But fundamentally, the big-picture point is in the game, using the same business model as everyone else, entering the marketplace with the low-price product, big co- hit to competition. I mean, it's, you know, going toe-to-toe with the balance sheet to afford it, right? Will it be ROI positive over five or 10 years to be the fourth player on the market selling at that price? I don't know. But, you know, if you're OpenAI and Anthropic, you'd have preferred this not to happen.

   17. JLJason Lemkin13:43

       It seems to me, like, for-- look, it's, it-- Tweet's fun. Clearly, they wanna win the eval game and the eval tweet game that's out there. It gets atten- like, it clearly gets attention, right? Where you are on, on the evals gets attention. It's very valuable. It's worth going on Twitter for Zuck. Um, my view is that it's c- my Captain Obvious view is everyone's gonna be token maxing if they aren't already. Everyone's gonna hit the limits. I finally hit my Claude limits yesterday for the first time, um, on my Max plan, and I had to decide what to do, right? So everyone, every-- and as every organization goes from tr- burn all the tokens you want, baby, to budgets, however you do it, whether it's automated, whether it's manual, whether it's picking a dropdown, everyone's gonna have to have a cheaper model. It may be in your product for cheaper, uh, workflows.

   18. RORory O’Driscoll14:32

       Yeah.

   19. JLJason Lemkin14:32

       It may be for coding.

   20. RORory O’Driscoll14:33

       Yeah.

   21. JLJason Lemkin14:33

       So everyone-- So, so at the moment, this seems like a battle for, for, for the cheap seats, and it's a big battle for the cheap seats. And, um, we'll see what happens. Um, we don't talk about it, but I think Haiku from Anthropic's a pretty damn good product, and in one day they could make it better just by s- by adjusting the slider of how much Opus, uh, you get in Haiku. I literally use a massive amount of Haiku, and for, like, cheap, simple stuff, it's really good, and it's a tenth of a cent, right? And so there's a battle for this second bucket. How much of the margin is there? How much of the revenue? Who wants to win in it? I don't know. So I think it's interesting, but, but it, it, it appears to be a battle t- in the frontier bucket, but I think it's a battle to-- in the B-tier bucket where there's still a lot of volume, but how much margin and revenue is TBD.

   22. RORory O’Driscoll15:23

       I think that's correct. Uh, not quite. But on the other, uh, first, I, I agree with you, and I, I, I think the Databricks paper and a couple other papers that we'll talk about have talked about this concept of buckets and tiers of model, and I like what you're saying, Jason. You're exactly right. Uh, when the pressure on spend is out there, every- I w- the sentence you said that really resonate with me is every company is gonna have an internal tiering. They might all buy it from OpenAI or Anthropic, but every company with a CIO who's half awake is gonna have a cheap token model to hand to stop this madness, and to some extent, that means there's a slot for that. A fun, interesting one would be, you guys know that obviously Meta did that contract. You know, they're, they're starting to offer their capacity now, just like SpaceX, on a, you know, you know, short-term basis. It'll be fun to figure out at what price... You know, it's not clear to me that they would make more money selling at these token prices. They might actually make more money renting their capacity out. So it'll be interesting to think about compute to the highest user. Um, you know, we'll actually have that discussion again when we come to Groq/SpaceX. But, you know, this is an aggressively priced product, and, you know, good on 'em. You're right, Jason. It's pushing at the low end. What we're speaking of-

   23. JLJason Lemkin16:37

       Yeah, they'll probably play it by ear. I mean, if this is more successful, then they get more capacity. If it's less, then they give it to their competitors. [laughs] I mean, they'll, they'll, they'll probably play it by ear. We mentioned the Databricks paper. It, it got a l- lot of attention. Um, can we, can we actually stay on that? Can you summarize what happened and why it's important?

5. 16:57 – 19:17

   The AI Pricing War Is Just Beginning

   1. RORory O’Driscoll16:57

      Some of the stuff is obvious. I'm t- I read it all. I'm trying to... The big picture at the start was the basic point is, you know, you know, cost per token is really not a useful metric. It's kinda cost per completed task was the first thing. How much does it cost to get things done, right? And because one of the ahas is some of these things that have low cost per tokens, their reasoning tokens are more expensive than their co- basic tokens, and then you don't know how many they're gonna use. So there's, there's a whole bunch of things. So the, the b- the first picture point was cost per completed task is really the thing you have to assess. Then the second point they made, which is interesting, is you end up with a Pareto curve for different kinds of task, which is the best model for this guy. And this is Jason's point. There will be a big brainiac frontier set of tasks for which you use them. Once you quantify the cost per task, then the second thing you're gonna have is different tasks. Different models are more cost effective at different tasks, and a quote cheap model that just requires infinite reasoning mightn't be as good as paying up for the more expensive model. So you can imagine this Pareto curve of value. And then the third point, broadly speaking, was the harness you use, in other words, your infrastructure around that massively impacts kind of how efficient that all happens. So it's quite a lot to just really-

   2. JLJason Lemkin18:14

      So use Databricks

   3. RORory O’Driscoll18:16

      ... Databricks. Yeah, they did. Exactly.

   4. JLJason Lemkin18:17

      [laughs]

   5. RORory O’Driscoll18:17

      Yeah, I mean, I'm shocked. Exactly. I'm shocked to discover that company that effectively helps you manage models says that managing models is important, but to be fair, they produce the goods, Jason, in terms of, you know, facts to back it up, and it makes sense. And I, I think moving away from... Because every time someone announces the, um, new model, they, they kind of give you the cost per input, million input and output tokens. I think the emphasis on cost per completed task, it's just... I, I can totally see that making sense if I'm the CIO. And again, so it's in just in tune with what Jason was talking about.

   6. HSHarry Stebbings18:51

      I, I liked the post this morning from Aaron Katz at ClickHouse, who said that their AI spend is up 60X since February. Um-

   7. RORory O’Driscoll18:59

      Ooh.

   8. HSHarry Stebbings19:00

      Oh, yeah. Did you see this? It's up 60-

   9. RORory O’Driscoll19:01

      I did. I saw the post, yeah

   10. HSHarry Stebbings19:03

       ... uh, and then he said, "AI is fundamentally changing what is expected from a data platform, and we can't build the best data platform for AI if we don't deeply understand it. We're investing in building a team that's truly leading in understanding and innovating with AI."

6. 19:17 – 23:49

   AI Is Burning Through Token Budgets

   1. HSHarry Stebbings19:17

      60X. [sighs]

   2. RORory O’Driscoll19:20

      It's not-

   3. JLJason Lemkin19:20

      He's token maxing

   4. RORory O’Driscoll19:24

      ... it's really easy.

   5. HSHarry Stebbings19:24

      Jason, go.

   6. JLJason Lemkin19:26

      Well, I mean, I, I mean, I, it, it... Once you do anything complicated, it's easy to go up 60X, right? In- instead of doing one design for a one-pager website, have Claude design, redesign your entire website in the background. That, that'll blow your token budget in five minutes. For the whole month, it'll be gone. These, these really complex workflows consume a lot of tokens. And, and even as they get cheaper, the workflows, the, the outputs are getting m- richer and richer and more and more complicated. So I, I th- listen, I mean, I don't know how much time you want to spend on this. I, I think not only has token maxing, you know, gone from niche to interesting, right? Um, uh, uh, every developer can consume more tokens. The mediocre developers can do it to be performative and pretend they're working even though none of their PRs are ac- accepted, and the great ones literally can run 10 or 20 agents 24/7. I mean, if you talk to the best developers now that are AI pilled, and I hate that term, okay? They are coding 24 hours a day now. Okay? They are... Because... And it's addictive. It's like video games, okay? 'Cause now I can build 10 features, 100 features. Now I can do things I couldn't... I can do so quickly, so I'm... It's 10 o'clock at night. I'm checking... Instead of, instead of doom scrolling, I'm, I'm dooms coding, right? And I'm going all night, and I wake up in the morning and I want to check in on that workflow. And instead of checking in on one feature, what if, what if it could've built all my features, right? And so I don't know any... And again, I hate the term. I don't know any AI pilled developer that couldn't consume even more frontier level tokens. We would just want more, right? If you can do... If nothing else, you can do more prime versions of whatever you're working on. You can just do more versions. It saves you time, and it's much better. Why do I have to choose A, B, or C? Just build them all, and I'll look, right? And then build A prime, B prime, and C prime, right? And then let's actually go further. Let's put them all up on, on production, on staging or the dev server. Let's see how they all work. You know what? Let's go further. Let's run a million test cases against it, right? Oh, well, that will cost $20,000 in tokens. Okay, well, I won't. I'll narrow down the te- what if it, what if I could? It would be better coverage, right? You can consume... Any top-tier developer can consume an order of magnitude more tokens than they are now. They, they, the, the ideas are limitless.

   7. RORory O’Driscoll21:35

      Agreed, and I, I think I want to stay on this one for a while 'cause I think what's interesting about that, Jason, there's never been a pro- and this is why this is a management challenge. There's never been this product before which on a totally on-demand basis can allow, w- for, and for an individual worker with no cost to them, can basically do their work for them and make them look amazing, right? Yeah, the company's earning 100... If you think about it, if you're a developer and you're sitting there going, "I could crank this thing for the next two weeks myself, or I can press the magic button, and somewhere out there a whole bunch of expense will accrue to my company, but it's not being taxed on me, and it can get me a long way down," I'm gonna do that. If I'm an intern, I mean, you know, summarizing references in our shop this morning, I'm gonna get the, uh, the magic Claude summary, right? And why not, right? And to be clear, sometimes that's going to be wildly value accretive to the company because you saved an hour of someone's time that you're paying, you know, 500 bucks to, and you paid 20 bucks. You're ecstatic they did that. But as Jason points out, if there's no governor on that, eventually you're gonna hit the moment where you spend 600 bucks to save 500 bucks, and it... And, and what's going on right now is how do people get to grips with that?

   8. JLJason Lemkin22:45

      Yeah. Yeah, let me just... I, I sort of hit, but let me just give you a simple, even if it's very base. I know some folks will make fun of me that watch this, right, or listen to it, but it took me a while. Now I'm all in on Claude Design. It got really good, okay? It took me for a while when it launched. I, I wasn't sure if it was a play feature. I love it now. I think it's gotten better, but as folks said, and it took me a while to get it, it consumes more tokens than anything else I do. It is massive, okay? And so yesterday for my first message, I'm do- I'm like five minutes in. It's like, "You gotta wait till 3:00 PM, Jason." [laughs] "You gotta wait till 3:00 PM to use your credits." And that's to do one, basically redesign one page, in essence, because it uses so many. What I would love to do instead, imagine this. Here's my entire website for any product, okay? It's 100 pages, whatever it is. Every night, come up with better versions. Every night. So I'll wake up in the morning and I'll, and I'll, and I'll doom click through your ideas for my website, and I'll pick the two or three of the 100 that are better. Instead of burning... Like, think about it. I burned through my tokens in 20 minutes building one page. How many tokens would it create for every night to redo 100,

7. 23:49 – 30:50

   Will AI Replace Designers and Figma?

   1. JLJason Lemkin23:49

      right? Help me with the math, Rory. It's a lot of... It's, it's orders of magnitude more tokens, right? So I think literally every, every, every product person, every designer could do that and consume 100, 100X tokens they do now, easily, without even blinking.

   2. RORory O’Driscoll24:04

      Does it change your Figma usage?

   3. JLJason Lemkin24:07

      I'm not s- what, what... Listen, clear- I don't, I don't think so, but what I thi- Not to go down a rabbit hole. What I, what I, what I do think Claude Design, if they keep investing in it like they have, and we can figure out the, the consumpt- the massive token consumption, is that like a lot of... Like, you can get further without a designer, or you can get further with half a designer or, uh, an outsourced designer or something because you can build your whole design schema and build... People are-- You're gonna make fun of it. You can still smell a desi- a Claude Design app. You can see the elements. But you can get pretty damn far. It's pretty smart on the product side of how to do it. And so it doesn't mean you don't need a designer, but it, it may mean that we, we don't need that crappy designer anymore to get us to a V1, right? There's just, there's just no need to have a... So does that harm Figma? No. But I think, I think in the age of AI, every time you start losing the bottom of your market, as a CEO, I'd be nervous. It won't show up in that quarter's numbers because it's the bottom of the market. It's the ankle biters. Like, you've already gone up market. Figma's tracking million-dollar deals, right? Who the hell cares to the low-end, one-seat deal, you know, it lost to, to Claude Design. But over time, those ankle biters move up the leg. You know, they're the piranhas. Then they take over the knees and the thighs and pretty soon, [chuckles] pretty soon you, you, like, you, you retain the big customers, but you've lost a portion of, of your funnel, right, if you lose the bottom. You lost a portion of your funnel. They don't all wait and say, "You know what? I-I'll graduate to Figma when I'm bigger," or... And this is where Salesforce is at risk. People... Like, I love Salesforce-run and headless, but the next generation of folks may not graduate to Salesforce because they never started there. They started agentically. They may never graduate there. If I'm a CEO, I'm, I'm at risk that folks won't graduate into anymore. Workflow tools are at risk that even if just 10%, 20% less folks graduate into, it leads to a death spiral of slow growth. That's why, you know, for public companies, the only thing that really matters to me is are they growing, um, net new logos 15% or more a year. If they are, they'll figure it out, right, if you're growing your net new customers 15%, even 20% a year. But as soon as it falls, man, you could... I mean, you can raise price every year, but it only takes you so far. So rambling answer is it does worry me, but it's not a threat to, to this sort of enterprise Figma play at all. But I that- that's... If I were building a startup today, that's where I'd start.

   4. HSHarry Stebbings26:32

      Rory, what point did you think was more interesting that I didn't mention or glossed over? You said-

   5. RORory O’Driscoll26:36

      No, it wasn't a point they made. I-it just... Yeah, I, I'm kinda th-things you find yourself puzzling on as you think about the mark. I'm just looking at the level of traction on these companies right now, which has just been astonishing, right? I mean, the Anthropic explosion to what now might be 50 billion from 9 billion at the start of the year, right? And you know, I, you know, I, I saw the semi-analysis breakdown and, yeah, two or three billion of that is quote unquote Claude code. But the real truth is I think a huge portion of the API part is code as well, right? And I, you know, I've just been wondering, you know, when something's growing that quickly, momentum, you know, lo- I think I'll say it, what could cause it to change? And I think that, you know, there's really only two things, is that one is mass competition, which we've been talking about. In other words, if everybody dive-bombed the price and it went down by a factor of two or three, yeah, it's 70%, the kinda the, the, the, the, the, the low-end token max, the pricing we're seeing here, i-is that likely? And I, I don't know. I don't know if that's gonna happen. So then, you know, if the momentum continues, what's the constraint? And one of the things you figure out in all these, the, on, on kind of, at l- very late-stage growth investing is, in the end, the time is the, is, is, is the criterion. One of things I've just been... You start to look at the dollars being spent here relative to the size of software engineering, and it's pretty huge. Remember we talked about is it gonna be 20% of software engineering, right? And kinda to Jason's thing, right? Everyone goes, "Oh, three, 30 million developers, it's all fine." If you go to the BLS, which I did last weekend, and say there were only 1.8 million developers in the United States, of which only 200,000 of them work in software companies. Another 600,000 work in tech companies, you know, HP, IBM, and a million of them work in literally JPMorgan, B of A, right? And you know, th-that's a total spend, m-median wage is a hun- about 140K for that role. It's a total spend of around $250 billion, right? And if most of this OpenAI and Anthropic enterprise, if a large percentage of that is software, they really are close to 20% already.

   6. JLJason Lemkin28:43

      They already in it.

   7. RORory O’Driscoll28:44

      Part of me says, "Oh, my God, what's happening?" Because there hasn't been 20% layouts of these companies. It's just, it's a huge... My point is this: it's a huge number relative to the s- total software coding spend in the US, and I freely admit I don't have a conclusion from that. I'm looking at it going, "Hmm," right? Is it ex-US revenue? I, I read the semi-analysis stuff. I don't think it is. I think a lot of it is in the US. Now, there's some purchasing in the US for use in overseas, but it's, it's just a hu- it's an astonishingly high number relative even to the biggest number you can think of, which is the wages being spent on software engineering. And, uh, it'll be interesting to see how that shapes out in the next 12, 20, 12 months. And then-

   8. JLJason Lemkin29:26

      It is a great analysis because it sort of... It, you know, it is a, it is definitely a bear case that no matter how great these tools are, we, we may e- we may soon hit the ceiling in terms of how much companies, just on an absolute sense, are willing to spend here. There is a ce... You can't spend more revenue than you take in. That's, and that's if you have 100% gross margins, right? There is, there are just physical limits. Even if you reallocate budget to IT, there are just limits.

   9. RORory O’Driscoll29:49

      You, you're right, Jason. And you know, and I, I almost don't like to posit it, 'cause one of my rules of thumb is this. I always joke, s-simplistically put, Newton's laws of motion are true. Things in motion stay in motion. Things growing at 10X year on year might decline to 8X or 6X or 4X, but they don't come to a grinding stop, right? And the amazing thing is when you're growing at 10X, even 6X next year and 4X the year after that is a huge number. I mean, if you're at 50, 60 build this year in GAAP revenue and you 6X next year, that's 300 million, billion. Right? That's more than the total wage spent on software development, right? So you look at it and go, one of two things is gonna happen in the next year. Either this thing decelerates faster than anything you've ever seen decelerate, and, and I don't think that's option A. Uh, option B, to Jason's point, a whole bunch of CFOs are literally going, "We used to spend 4 million on tech, all of it in salaries, and now we spend 8 million on tech, 4 million on salaries. WTF, we gotta do something."

8. 30:50 – 36:35

   The Hidden Cost of AI for Every Business

   1. RORory O’Driscoll30:50

      Right? So it's just, as I said, no conclusion, I'm just... things I'm thinking about in July 15th. It'll be interesting to see. And you're right, Jason, there, there are, there are fin- I mean, it may well be that the prize for becoming the fastest-growing company in human history is you may hit TAM faster [laughs] than any other company in human recorded history, and even... It'll be interesting to see. You may have hit the limits of how much money there is in the till.

   2. JLJason Lemkin31:15

      You know, there's just one other vector, just to add it up for fun, and, and again, I don't... Mock me if folks want to. So there, there, there's how much can we spend on engineering, right? And then there's another math you can do. Okay, every piece of software is ag- becoming agentic very, very rapidly.

   3. RORory O’Driscoll31:28

      Yeah.

   4. JLJason Lemkin31:29

      Okay? So what's software spend? A trillion and a half? You are better at the numbers.

   5. RORory O’Driscoll31:33

      A trillion, plus or minus, yeah.

   6. JLJason Lemkin31:34

      A trillion. So we can't... I think we're coming to the rough conclusion that folks may tolerate, say, a 10% gross margin spend on AI. Let's just assume that for a minute, right? That's another 140 billion that can go to Anthropic and friends, right? So that's significantly more than the math you just did, but it, it, it itself has a ceiling, right? It can't be all of the 1.4 trillion. Uh, 10% feels about right today. There's 140%. All the software spend is gonna put 10% of their top line into tokens.

   7. RORory O’Driscoll32:04

      Agreed. I, first of all, I totally agree, 'cause, I mean, you asked that question a while back, and I got the answer wrong, um, 'cause I was an idiot, and then I processed, right, which is, how much does it cost to run my little sales and marketing agent? And it was way less than you thought, right? And the reason this is relevant here is this: it turns out that outside of coding, most of the co- the, the, the token costs for agentic software outside of coding are manageable, to your point. They're 10%, they're not 50, right? So you're right, Jason, is, is that if the software industry is doing a billion in other kind of non-coding stuff, a tri- sorry, a trillion, y- that's another 100 billion right there. You're right. Like, Salesforce could comfortably pay 10% of its revenue for, uh, tokens from someone. They're not gonna pay 40, because they only have 22% operating margin.

   8. JLJason Lemkin32:51

      Yeah, but that's 100 billion-

   9. RORory O’Driscoll32:53

      It's 100 billion bucks. It's good money

   10. JLJason Lemkin32:54

       ... of revenue that's almost accessible now, and then it's, I mean, it's all going agentic, right? So that, that we, we... I need someone smarter than me, but that could be a hu- I don't know what percent of Anthropic's fuel is, but it's a lot, that 100 billion.

   11. RORory O’Driscoll33:05

       No, you're right.

   12. JLJason Lemkin33:05

       Right?

   13. RORory O’Driscoll33:05

       It's, it's, there's really, there's really three buckets. There's the coding bucket, you're right. Then there's the agentic 10% software tax. Just like Amazon took a tax on software 10 years ago, everyone's gonna run on Amazon, give me some percent. Now, you're right, everyone's gonna run using LLMs, give me 10%. That's 100 billion more. And then the last thing you start talking is does Cowork replace the, you know, the knowledge worker at 20 bucks like Microsoft Office? But you're right, I mean, the big pic- And I'm still wrestling through and trying to look at those numbers, and I'll report back. But you're definitely at the stage where you're talking big ass numbers relative to everyone else's numbers.

   14. HSHarry Stebbings33:40

       Is their movement into legal, biosciences not just an appreciation of the fact that they are potentially hitting TAM ceiling limits in where they are already?

   15. RORory O’Driscoll33:48

       Well, again, potent- Remember, I want to say something, potential. There's no evidence that they are, even though logically, again, I want... 'Cause I don't want someone to say, "Hey, Rory said they're hitting TAM." All the traction momentum seems to say they're not. I just look at the actual market and I go, "Huh." Right? I, I genu- I, I personally think the, on the, on the medical side, I think, oddly enough, I don't know if that's as much as... I think the founders of Anthropic, just like the founder of DeepMind, is very much motivated on the medical side by, you know, the desire to... Everyone always references the world where cancer is cured when they're talking about their LLM. So I think, actually, people's interest in doing life science is one-third TAM expansion and two-thirds, "Shit, I'm putting everyone out of job. The least I can do is keep them alive. I want to do good."

   16. HSHarry Stebbings34:35

       [laughs]

   17. RORory O’Driscoll34:35

       "'Cause I want to have meaning." It's the search for meaning, and, you know, starting with DeepMind and going from there.

   18. HSHarry Stebbings34:43

       Uh-

   19. RORory O’Driscoll34:43

       I mean, if you, if you don't think the other founders wish they had a Nobel Prize like, like DeepMind, like Demis, uh, you're crazy. That must be good. That must feel good.

   20. HSHarry Stebbings34:52

       Everyone... Well, well, Jason's gonna get a Nobel Peace Prize for his work.

   21. RORory O’Driscoll34:55

       Everyone's not gonna get a Nobel Prize. Many people-

   22. HSHarry Stebbings34:57

       For his work with his companies, okay?

   23. RORory O’Driscoll34:59

       But Jason should.

   24. HSHarry Stebbings35:00

       Yeah, exactly. Impact portfolio.

   25. JLJason Lemkin35:02

       Well, I'm waiting, I'm waiting just to get an offer, a decent offer from, any offer from Anthropic. I haven't gotten a single one. No one's [laughs] offered to bring me in as a chief anything.

   26. HSHarry Stebbings35:10

       It's a joke. [laughs] What would your price be, Jason?

   27. JLJason Lemkin35:15

       200.

   28. HSHarry Stebbings35:17

       Wow.

   29. JLJason Lemkin35:18

       A- after tax, it's not worth it otherwise. Plus, I don't really want to work for the man. So that'd be the... And I, if I really wanted to do it-

   30. RORory O’Driscoll35:25

       For, for, for the record-
9. 36:35 – 41:22

   The $26.5 Billion AI Chip IPO Explained

   1. RORory O’Driscoll36:35

      I, great. I mean-

   2. HSHarry Stebbings36:37

      Yeah? [laughs]

   3. RORory O’Driscoll36:38

      Lord. [laughs] No, I'm being quite-

   4. HSHarry Stebbings36:40

      The listing, great. [laughs]

   5. RORory O’Driscoll36:42

      No, I am.

   6. HSHarry Stebbings36:42

      I never get to suggest a topic these days, Jason, 'cause he just scowls and I'm like, "Oh, fuck." [laughs]

   7. RORory O’Driscoll36:47

      No, no, no. I thought that, look-

   8. HSHarry Stebbings36:48

      It's a winner

   9. RORory O’Driscoll36:49

      ... I mean, you know, look, obviously the, the stuff everyone knows, there are three memory companies. They have been a huge beneficiary of the AI CapEx boom in the last year. Those stock, um, SK Hynix is up 6X, right? Two of the three are based in Korea, Samsung and SK Hynix. Micron is based in Idaho, go America. And the truth is it's an oligopoly, they've made out like bandits, and it's actually very hard to buy stocks in Korea, which is why even today, interestingly enough, after the ADR is traded in the US stock exchange, it's still trading at a 20% premium to the same stock in Korea. 'Cause it's just hard for an American to open a brokerage account in Korea, buy the Swedish, buy the Korean thing. So I, I think it's just good that these guys are accessing the capital markets.

   10. HSHarry Stebbings37:38

       Hynix NASDAQ listing, largest ever by a foreign company, uh, had a great reaction, pops 13% at close of day.

   11. RORory O’Driscoll37:47

       And then back down, and then, I mean, look, had a very difficult day, I think yesterday and last couple of days, right? And, yeah, it would be tempting to go to some kind of, oh, my God, the AI CapEx bubble is bursting, and at some point it will, but I actually think a lot of that, there's a lot of weird technical stuff going on there because the two, no surprise, the two memory companies dominate the Korean stock market. They are s- the two companies, Samsung and Hynix, are 60% of the stock market and roughly 120% of the, of the GDP in terms of market cap. They're just huge, right? They're highly volatile. They're very, there's lots of retail action in Korea. So there's just a lot of intraday volatility in the Korean stock exchange. It's got kind of crazy casino-level wealth there, right? So even though the stock's moved down in the last couple days, it, uh, it's not as clear is it fundamentally, oh, DRAM's connect- correction, or is it just weird kind of trading shit? But I think on the DRAM thing, I mean, the fun, the fun bet there is I don't have an opinion on it, but those three companies are all trading at, you know, five to eight PEs. In other words, dirt cheap and one cent in any kind of screen, and that's the bull case, uh, and this is gonna last. And the bear case is these have traditionally been capital cyclical businesses, and the minute more capacity comes online, prices have gone up 6X in the last year, which is why operating margins have gone from negative in '23 to, like, 70%, the most profitable companies on the planet. Samsung is the most profitable company on the planet right now, and they're gonna go back down. So that's the kind of pro and con. I think it'll last a little longer than the typical cycle, but in the end it'll, I mean, at some point it does correct. You're not gonna have the memory makers earning 70%, not pro- net margins, not gross margins, net margins forever.

   12. HSHarry Stebbings39:37

       Yeah.

   13. RORory O’Driscoll39:38

       It's... So it's good to be, you're not gonna be right on the next-

   14. JLJason Lemkin39:39

       You know, one thing and maybe, maybe, Rory, you'll challenge, you'll challenge the connection. I thought it was interesting that, uh, you know, IBM this week, pretty, pretty old tech company, right? I think founded in the 1800s or something like that. Um, I mean, they had a huge miss, stock crashed 20%, and some of it, listen, is probably an excuse. We have to make up excuses as CEOs when we have a huge miss, but they blamed memory. They said, "Memory is taking so much of the CEO's budget. There is such a scramble to buy memory before it goes over up. They weren't buying our mainframes or our servers or our anything from us." Like, CEOs went into a panic to buy memory before it would get even more expensive. And I'm sure it's an excuse, but I, I'm sure there's a germ of truth that, that, that, that money's gotta come from somewhere, right? And it, IBM said it, "It came out of us." [laughs]

   15. RORory O’Driscoll40:25

       Yeah. I think you're right, Jason. I actually don't, I think there's more than a germ. Look, uh, money has to come from somewhere, right? And if you're spending a lot on LLMs, and then if you're spending, and you're having to spend even more on your memory needs because the LLMs themselves are bidding up the price of memory, you don't wanna be the last item on the purchase order list on the last day of the quarter. 'Cause I'm sure there's a CFO sitting there going, "You know, what can we cut?" 'Cause we only have a finite CapEx budget this quarter. And it's what you said also about what's gonna happen to the module SaaS vendor. It's not that they're gonna vibe code away. It's as much as, "You know, guys, we have a tech budget of 10 million, and last year we spent 100 grand in AI. This year we're spending 3 million, so we need 2.9 million in savings."

   16. JLJason Lemkin41:08

       Yeah.

   17. RORory O’Driscoll41:08

       "And it turns out we don't need five productivity apps. You'll love Teams when you get to know it." [laughs]

   18. JLJason Lemkin41:13

       "And maybe we'll stick with what we have too-"

   19. RORory O’Driscoll41:15

       Yeah

   20. JLJason Lemkin41:15

       "... rather than buy that module from you."

   21. RORory O’Driscoll41:17

       Yeah. So yeah, I mean, and IBM did tumble pretty drastically today.

10. 41:22 – 47:50

    Has Venture Capital Changed Forever?

    1. HSHarry Stebbings41:22

       I'm gonna go off on a bit of a tangent, Rory, 'cause you said, "Oh, there's a world outside of this, like AI." Me and Jason were messaging, uh, the, earlier this week about Jason Calacanis's syndicate or investing activity where he basically said, "Hey, due to popular demand, I'm moving where we'll be investing from very early to later stage growth opportunities in some of the big names." Is this symbolic of where the venture market is at today and a sign of the times? Jason, given it was us talking about it, why don't we start with you, so Rory can have some time.

    2. JLJason Lemkin41:58

       I just thought it was interesting for him to say that because actually, you know, uh, we all, we... Jason's got some pretty good investments. He does a lot of investments, right? So he's got some pretty good ones. You know, I, I thought the message would be we're, we're adding an annex fund, right? Or we're gonna do a little bit more here. But to say that he who has put so much energy over decades, right, into creating an alternative path to do massive number of syndicated investments, to apparently tilting all into growth, you know, is, it is the... In a, in a niche, it's a huge sign of the times, right? It's a huge sign of the times. Rather than, than easing into it, um, but completely switching when you've got multiple billion-dollar winners- Uh, that you have material ownership in is, is, to me, it's a big deal, right? Um, I mean, seeds for suckers, as we've known for 60-something weeks. This is the, this is the... Other than YC dumping early stage, that would be a real sign, right? YC issuing a, uh, uh, going on threads and telling everybody, "We're only doing growth rounds," that, that would, that would [laughs] rock the world. But it, I, I thought it was a bit more, uh, uh, I thought it was a, at least a sign of the times. Everything's up. And when everything can exit north of 20 billion, you know, it's, uh, it's, uh... I, even me, like, I have an investment with a $100 million position that took me years and years and years to get to right now, and then just watching a growth round where someone comes in and invests 100 million, like, what, why did I bother? [laughs] All the drama, all the years, all the... Being the only guy at the board meeting when someone just drops a $100 million check. If that c- if that can grow, uh, an order of magnitude, what's, what's the point of being the guy any earlier than there, right? No, no existential point.

    3. RORory O’Driscoll43:38

       Because you love the craft.

    4. JLJason Lemkin43:40

       I don't love the craft. Who the hell loves the craft?

    5. RORory O’Driscoll43:43

       David Frankel. I interviewed him yesterday. I found-

    6. JLJason Lemkin43:45

       He does love... That man loves the craft more than like-

    7. RORory O’Driscoll43:47

       He loves the craft so much

    8. JLJason Lemkin43:49

       ... He... Yeah, yeah. Replace me with him on this pod. That man, that man will be-

    9. RORory O’Driscoll43:54

       I love that guy

    10. JLJason Lemkin43:54

        ... doing deals from the old folks' home, right? Uh, and he'll be getting good ones, and he'll be getting good ones.

    11. RORory O’Driscoll43:59

        Yeah, I'm, I would give up that for money.

    12. JLJason Lemkin44:00

        Good ones. Good ones.

    13. RORory O’Driscoll44:01

        I love David. No-

    14. JLJason Lemkin44:03

        Uh, and so do I. Please, that was me defending his love of the craft.

    15. RORory O’Driscoll44:05

        Yeah, loves the craft.

    16. JLJason Lemkin44:05

        I was looking and I was like, "I know he loves the craft."

    17. RORory O’Driscoll44:08

        It, it, but it... To give it good framing, I, I hear you, but I think there's really kinda... This whole idea of, you know, venture early versus venture late, you know, how... That's a related question. How do you think about that, right? And, you know, the, the trite answer I could give, and you know I always like to leave with the s- lead with the snarky trite answer, is generally when something looks easy in investing is w- precisely the time you shouldn't do it, and late stage looks very easy right now. So that's kind of the natural contrarian in me. But I think really what's going on, Harry, is this, there's almost... There's, there's three different things you have to think about, right? And I put them out here. One is there's, there's this big secular trend in private company financings, which is, as we said, the early stage business hasn't changed all that much in two... hasn't got that much bigger in the last two decades. But on top of that, a 5X bigger late stage business has emerged as companies, A, haven't gone public as much, and B, in the case of something like OpenAI and Anthropic, just became bigger quicker, right? So there's been this new business for late stage on top. And there's no doubt, you know, looking back 15 years, if you said you can enter the one business that's been around for 30 years and has 200 very good competitors, or you could enter this new business which didn't exist before and has relatively few competitors. All other things being equal, the late, that late stage opportunity in 2005 from then on looked, in retrospect, looked like the easiest place to play. So there's definitely this kind of secular trend, right? And you look like... I, I'm not even getting on to two or three, but you're shaking your head already, Harry. No, no, I, I, I totally get it. I, I, I've had a lot of cynical, kind of respectfully older people talk to me about this, and I'm not suggesting that's you, um, by the way. [laughs] Um-

    18. JLJason Lemkin45:53

        I'm cynical and older than you, Harry, so you are, but it's okay. But I actually, I didn't-

    19. RORory O’Driscoll45:57

        Yeah, and, and there was that, "Oh, I'm seeing this every cycle. I see this every cycle."

    20. JLJason Lemkin46:01

        No, no, imagine... Stop. I'm gonna push right back in your face, 'cause I didn't even m- I actually made a secular comment. I'm gonna make a cyclical comment in a second, right? I made a secular comment, which is really precise here. What I s- 'cause I'm actually d- agreeing with you, Harry. I'm saying the secular trend is this category didn't exist and now it will exist across cycles. This new business called... No one in venture when I s- started... No, forget '94. Even in 2004, was writing $100 million late stage checks, and now it's a thing. It is a new class of financial product, private $100 million checks in companies already worth a billion dollars. It's a new thing. So I'm not doing the old guy, "It's just cyclical." I'm actually gonna do that in a second. But right now I'm saying, in retrospect, it actually is a whole new category of venture. It's not replacing baby venture. It's kinda adding a whole new category on top, right? And the world needs that category 'cause these companies aren't public, so, you know, the Altimeters, the Thrives, the Andreessen late stage part of their business, all those guys have replaced what would've been public companies, right? So that's kind of not cynical. Now, the cynical comment I'll make is on top of a secular change, you do also have a cyclical thing, and there's no doubt that the closer you are to the public markets, the more the cyclical thing happens, which is there's times when the business, late stage business looks amazing, and there's times when it looks crap, right? And it's really very much dictated to by change plus the public markets. So I, there, there is... I actually think the secular part is more important than the cyclical part. You just gotta be aware of the cyclical stuff. In 2022, turns out was a great time to write checks. 2020, not so much. I mean, the people who did that kinda cheap round in Ramp in 2022, they're feeling pretty damn smart.

    21. RORory O’Driscoll47:49

        Yeah.

    22. JLJason Lemkin47:49

        Right?

11. 47:50 – 58:09

    Why the AI Secondary Market Is Booming

    1. JLJason Lemkin47:50

       So no, I mean, it's just... But there's no doubt at the height it gets tough.

    2. RORory O’Driscoll47:54

       The, the thing that I, I do see is just I don't think we've ever seen the secondary market be as liquid and mature as it is today in terms of ability to get out of great named high growth companies like we can today. Like, in all of, in all of my top names, I can get out of them today with ease, and every single day I have buyers for them. I've never seen such a liquid secondary market. So the why now is always really important. Outcome scenarios are bigger than ever. The speed of those scenarios happening are faster than ever in, in a lot of cases. Your cursor's 60 billion exits in four years. And then along the way, you have the chance to have secondaries far more liquid than ever. There are meaningful changes to the ecosystem which make now today significantly better than prior cycles. I agree. And it's worth pointing out, just to be precise, that that's not a stay private for longer comment, right? Which sometimes people say-- 'cause in fact, these companies haven't been around a long time. You're right, is that what is-- and it's a different phenomenon, is that you're now having companies go zero to billions of dollars in value creation in five years. So it's not a stay... They, they don't have ti- I mean, people say, "Look, SpaceX stayed private a long time. OpenAI hasn't had time to get its systems together yet," right? They're not public 'cause they're staying private for longer. They're public 'cause, Jesus, five years ago they were doing nothing, right? So I agree with you. There's these new class of businesses, and there's a small number of winners, and if you're not lo- And you know, you-- if there's 4,000 early-stage companies and only 40 of them matter, and you wanna matter, and you miss them at the early stage, there's no doubt that sticking some money in the later stage is one way to play it again.

    3. HSHarry Stebbings49:37

       Yeah. But you can also move more money. Um, so yes, complete- I thought it was entirely logical from Jason. I think it's exactly what he should be doing, to be honest. Um-

    4. RORory O’Driscoll49:46

       Well, and I, I, I think the third comment, though, is remember I said there's three things. There's the structural stuff, there's-- which-- and I would put your comment on new, bigger companies in that structural bucket. There's the cyclical risk, 'cause late-stage business is always about valuation risk, because that's the only risk there is. But I do think you, you called it the craft. And that's why I do think the odd thing about the private markets, unlike the public markets, where hedge funds can, you know, be selling tech stocks today and buying the Indonesian baht tomorrow, right? They're all liquid. The thing with private markets is if your, if, if your comparative advantage, if David Frankel's comparative advantage, which I believe it is, is to be an awesome f- first check-in investor, it's not clear how you monetize that by putting money in companies at 20 billion pre. Right? If you think your advantage is you're a stock picker, then maybe you can do both. But like, for example, it would be insane of Y Combinator to say, "We're giving up early stage and only doing late," because they have a position in that market that's irreplaceable. So the-- I do think there is an institutional factor to this. It's not-- If you've spent a lot of time doing X, it's actually quite hard to say, you know, "Now I'm gonna switch to something totally different." I mean, good luck, Jason, if you can pull it off, but it's not a layup. And there's a lot of people for whom they're good, so good at doing X that trying to do Y would be a mistake, even if Y, on average, is a better return profile.

    5. HSHarry Stebbings51:09

       Agreed.

    6. RORory O’Driscoll51:09

       We'll see.

    7. HSHarry Stebbings51:09

       I, I'll line to that, Paul Graham sparked some fire on Twitter last night 'cause he posted about a YC company that apologized for only having 36% month-on-month growth because they were fundraising. And he got lots of plaudits, and I, I thought it was just symbolic of the it really depends who says it. Because when I say shit like that, I get in so much trouble for saying it. And then Paul Graham and YC, it was like, yeah, marvelous. YC companies can-

    8. JLJason Lemkin51:33

       Well, no one's scared of you, Harry. That's the difference.

    9. HSHarry Stebbings51:36

       Oh.

    10. JLJason Lemkin51:36

        You can't say anything about PG, right? Uh, the cost is too high.

    11. HSHarry Stebbings51:41

        That's it. Yeah.

    12. JLJason Lemkin51:43

        You can't. And, and listen, I mean, I mean, one of the most successful investors of all time, right? Wildly successful beyond what anybody realizes. Directionally correct earlier than everybody else, and his portfolio is unmatched. So he has earned the right for everyone to follow what he says. He's earned it, right? He, he might be the GOAT, right? Uh, even though he's not described as the GOAT, he probably is the GOAT. Right? I mean, who, who, who picks up more nine-figure and 10-figure checks off the floor than Paul Graham? Nobody, right? He, he deserves it, right? Um, but, but you have to be careful if you disagree. [laughs] You do have to be a little careful.

    13. RORory O’Driscoll52:20

        Well, first of all, I, I want two comments. One is on the tweet. I saw that, too. I thought it was kind of more tongue in cheek comment. I, I, I think people-

    14. JLJason Lemkin52:27

        Yeah, probably. Right

    15. RORory O’Driscoll52:27

        ... I think people over-fucking, over-- they're over sen- they're overthinking it. I, I, I saw the tweet and I thought it was a kind of a cute tweet. "Hey, my company apologized 'cause they're only growing 36%, um, because they were fundraising." So it was a little bit of a humblebrag. It was kind of funny, but it w- it's like boasting about your kids, not boasting about yourself. It was not worth any emotional energy whatsoever. So the fact that all these people are commenting on it, they just need to get a life, right? I think to Jason, to your point, I, I, I... And this actually gets back to the structural comment. I think Paul Graham and Y Combinator is the GOAT, but it's less because... It's actually, it's better than being a good investor, right? He's actually put himself in a position where he doesn't have to be an amazing investor. He has a machine and a business that makes him win, right? I mean, he's d- I mean, look, factual comment. He's been able to delegate the ta- the entire task of picking to others. He doesn't pick them. He doesn't sit through 5,000 pitches to hear from, right? He actually had an idea, which is help make more companies possible, and he manifested that in a business that works. He owns a business, not an investing thing, and that's-- it would be better to own a business than be a great stock picker. It's the, it's the best business ever. 'Cause you can, you know, drive around England, going to bookshops in small country towns, sending fun tweets, while at the same time, as you say, setting yourself up to pick $100 million checks off the floor 10 years later when your startups that other people have picked on your behalf go public, 'cause you have a lock on that market. Work of genius. It's an N of 1 business.

    16. JLJason Lemkin54:01

        Well, y- every five or seven years, you do have to recruit a Sam Altman or Gary Tan to run it. Other than that, yeah, you know.

    17. RORory O’Driscoll54:06

        Yeah. You have seven to 10 people at general partner level picking deals, and then you pick the best one. It's, it's, again, it's a work of genius.

    18. HSHarry Stebbings54:13

        By the way, the carry premiums that they charge are incredible, too. People don't know or discuss them enough.

    19. JLJason Lemkin54:19

        Unprecedented.

    20. HSHarry Stebbings54:20

        Unprecedented. 40, 50% in cases.

    21. JLJason Lemkin54:21

        Yeah.

    22. HSHarry Stebbings54:21

        40, 50%. Get my LPs would kill me.

    23. JLJason Lemkin54:23

        Take it or leave it. You want access? It's that. It's 50%.

    24. RORory O’Driscoll54:26

        Best business ever.

    25. HSHarry Stebbings54:26

        Congratulations.

    26. JLJason Lemkin54:27

        Take it or leave it.

    27. RORory O’Driscoll54:27

        And what I like about it is, to be clear, I mean, the original idea was to help startups. So I know it's kind of one of those things that I believe to be true, which is, oddly enough, as a person who's very much invest in mind, some of the hugest fortunes are made by people whose motivations aren't, "Oh, I'm going to be a great investor." It's someone who's just, "I wanna do this thing 'cause the world needs this thing, and it'll be fun, and I obviously wanna make some money."

    28. JLJason Lemkin54:50

        This is a g- an idea, and it turns out to be a great idea. Turns out nine people in the first class was only the beginning

    29. HSHarry Stebbings54:56

        Rory, it's just like me. It was never about money. It was about the craft of the podcast. Yeah?

    30. JLJason Lemkin55:02

        Yes, Harry. You s-
12. 58:09 – 1:05:41

    Why AI Startups Are Worth Billions So Quickly

    1. JLJason Lemkin58:09

       you can't be that good with data if you're getting it the legitimate way, okay? And every startup is, "And no, it wasn't me, I used it through an API," right? Um, but if you're doing something where LinkedIn's gonna sue you when you get big or others, it's not cool. But every startup's doing it. Is it okay, guys, if it, like we're, we're cutting corners, but when we're bigger, we'll cut back? What if everybody's doing it? What if everybody's doing affiliate marketing? What if everybody's using sketchy, uh, data sources? Um, you know, in B2B it's, you know, I've always said no to those, but, um, sometimes they get big. But I do think in the era of greed, when the, when the outcomes are so big, it's hard to tell a founder to do no when it's, when it's standard in the industry. When, when you look at, you know, there's just so many examples, even, and I know it's extreme, but even when you look at Polymarket et al., like you, that was some sketchy stuff and, like, pretty good returns on paper, right? And to Harry's point, I probably could sell my Polymarket stock if I had any, right? Or Calci stock. I probably could have sold it even if some [laughs] ... I mean, if everybody's doing it [laughs]

    2. HSHarry Stebbings59:08

       You know, I will confess, when you started, I w- this conversation, I was like, "No, you shouldn't do it," because, you know, I can make the distinction. I understand between, just again, for context, folks, uh, there are... It's illegal to scrape LinkedIn, and most people don't do it, but there are companies that aggregate information from a number of sources, including LinkedIn, and many reputable companies buy from those companies. So it's like, I don't do bad things, but I know a person who's done bad things, and I give them money. So that's the example you're using. So Jason, so yeah, I, I, I... So part of me wanted to say, "No, you're wrong," 'cause I think the cookie stuffing that Fear is alleged to have done is more intentful and more y- within your own volition than buying from someone who themselves have done something wrong, so you have a little bit of distance. So I could argue the toss with you. But when you started talking, I realized so many breakthroughs rely on a little bit of pushing the boundaries. I mean, Uber did with taxi regulation, Airbnb did with regulation. You're right, Polymarket did in terms of how they're regulated. So I'm, I'm actually gonna get off my high horse and say you actually won that round.

    3. JLJason Lemkin1:00:09

       [laughs]

    4. HSHarry Stebbings1:00:09

       Is that... I mean, the interesting thing is, and actually, as another reminder, both Anthropic and OpenAI did in terms of how they trained information. And generally my observation is all those chickens come home to roost, and you end up paying the tax. You know, you end up getting caught with it. But if you succeed, it's all okay. I, I, I'm, I'm gonna do my trip down history. There's the Elizabethan quote, "Treason does not succeed, but what's the reason? If it does succeed, no one calls it treason." When you succeed as Uber, you just get what you did legalized. When you succeed as Airbnb, you get what you did legalized. So yes, I, there are examples of that. I still think cookie stuffing is a little bit unlikely to get over that line, Jason, but fair point. There's a fair amount of ethical gray areas. But going back to where we started with Apple-

    5. RORory O’Driscoll1:00:58

       There are gray areas, and then there are areas that you step over at your peril, and I think that, that maybe would be my nuanced comment.

    6. HSHarry Stebbings1:01:06

       Rory, do you just have, like, a, a bunch of these quotes percolating in your head?

    7. RORory O’Driscoll1:01:10

       I got so much noise in my head, Harry, it's terrifying, but that's between me and my-

    8. HSHarry Stebbings1:01:14

       It's a bit like, you know, like a quote on treason being normalized. Like...

    9. RORory O’Driscoll1:01:18

       We call this reading.

    10. HSHarry Stebbings1:01:18

        Okay.

    11. RORory O’Driscoll1:01:18

        But your generation's given up. Um, I think we should-

    12. HSHarry Stebbings1:01:21

        I do. I don't read anything longer than a tweet. [laughs]

    13. RORory O’Driscoll1:01:23

        I know. Sign's on it. I think we should do the stuff at the end, the Carter stuff, the Constellation and ZoomInfo stuff. I think there's some interesting stuff there.

    14. HSHarry Stebbings1:01:31

        Okay, let's totally do it. Let's start with the Carter stuff. The top 5% of seed rounds hit $200 million valuation. Rory, why don't you take us away there?

    15. RORory O’Driscoll1:01:41

        Look, I thought it was... Carter's super interesting and, and, you know, they made a comment is that, you know, you look at the seed disper- all seed pricing has gone up, but there's a small percentage that are 200 million pre. And, you know, what's going on? And I think really when you break it down, and I think Ben Breovman had a good tweet on this, is that there's a couple of, there's a couple of consensus bet areas where people are willing and to some extent have to bet aggressively in terms of dollar size out of the gate, and that's why the prices are high. I mean, all these Neo labs, you know, if it's gonna take you 300 million to get something done, there's no point raising 20 at 20 pre. You're just not gonna get there. So there's a bunch of those deals where it's 200 million on 200 million, so the dilution, um, maybe it's even more than that, the dilution might be 20% or more, but the check size is 200 million plus, right? And the pre-money is a million. So that's one category, the Neo lab. And then the other category is the kinda agentic inference, known big market, maybe a little bit capital intensive, not quite like building a Neo lab, but, you know, building out the AI infrastructure where, again, there's a belief that there's a wall of money around the spend there that you can access, and so people are just willing to write bigger checks. So yeah, it, it, it totally makes sense. And it's five... I mean, the point he was making, the Carter tweet, was it's not the norm. You know, ordinary pricing has gone up 10, 20%, but top decile pricing has gone up 6X or something like that, and that's really just a function of there are a class of bet that frankly didn't exist five years ago. There weren't... I mean, DD has that great list of 60 plus Neo labs. I mean, six years ago there were none except OpenAI, right? That bet didn't exist. And the inference bet are some of the other kinda heavy dollar bets. You know, five years ago, people weren't doing those. So look, I know-

    16. JLJason Lemkin1:03:37

        Look, I, I honest, for what it's worth, that, that's a... I have a slightly different and maybe less interesting take on it. There's one thing that's new here, but there's one thing that's old, like, in this Carter thing. The, the large funds, the largest funds, um, and this was, like, the one and only board I was ever on with John Doerr. When they s- when they wanna really get ownership, if they have the money, they're not... They're, they'll do it. They'll do... And in the old days, it was, "We'll do the seed and the A at the same time. That's how we'll get our 20%," right? And so it's the same today. If you... It's not like you can raise a $100 million seed if you have nothing. You may not need revenue, but if you see an S-tier team and it's in the right space and you wanna hit your number, your 20% ownership, and your fund is in billions, the math just makes sense. It's a bet. It's just a bet. And, uh, this has been true, like, since I started investing. Off that... Even that happens, like, ev- all the top YC companies, like, okay, sell, only sell 6%, only sell 8%. But if someone wants to come in and do two and a half rounds, then, you know, then you can sell it to, to, to Mark and friends, right? That's how you get the big ownership out of YC is you do two rounds, right? And it's not new, it's just the out- like the, the outcomes have changed it. But I don't know that it's capital needs is the main driver. I think it's part of it. But we don't, we don't raise it... We don't give startups mass evaluations just because they need the capital, although sometimes you have to to solve it, right? I did this in my first startup. I needed 10 million to start, and I got to do it at three pre. It was great. It was great. It was great. Thank you very... I hated VCs for so many years after when I gave them a 5.5X return in 12 months and no one showed up to the closing dinner and they, they bought 80% of my seed, thank you very much. But I, I think it's just to, to, to hit my target when the outcomes can be huge. I don't think it's more complicated. And if you have a three, four multi-billion dollar fund, the math pencils out.

    17. HSHarry Stebbings1:05:24

        I think it's smart, though, to say, like, it's kind of the combining multiple rounds into one, and I think the other way to look at that is the rise of tranche rounds, where you see, you know, four have often been cited as doing one at 50 and then the majority come in at 500, and it's just another way-

    18. JLJason Lemkin1:05:38

        But even that isn't new. It's just exacerbated by AI.

13. 1:05:41 – 1:26:01

    Can Big Tech Keep Spending at This Pace?

    1. JLJason Lemkin1:05:41

       It's not brand new. Like, these things are not brand new, right? They've just become normal is what's changed. Instead of... For, for, for potential outliers, this behavior has become normal, for potential outliers, and there's just more potential outliers. [laughs]

    2. RORory O’Driscoll1:05:52

       Yeah, 'cause just keying off a comment you made is that you don't have to give them a high price just 'cause it needs a lot of capital, and that was actually very wise. I was reflecting on that, 'cause, you know, we used to do two decades ago a fair amount of biotech where, you know, y- you knew going in it would take 100 million, but you're exactly right. What would happen is the price would still be low, which is tough on the entrepreneur, 'cause the investors would frequently commit up front and then tranche it. So they're signing up for the 100. The price is low, maybe stepped up for the later one, because they were saying, "I'm taking the risk, so I have to get the ownership." You know, what's happening in some of these Neo labs cases, it's a combination of the capital need is there, but because the demand from the big funds is greater than the supply of entrepreneurs, and because the perception, rightly or not, is that the outcomes are so huge, the supply-demand equation allows the entrepreneur to just get a valuation that, you know, 10 years ago if you were funding a biotech or a semiconductor company where the capital need was 100 million, y- you're right, you would be getting a 20 on 20 and a tranched agreement for 80 million more, and you'd be down to 7, 10% ownership by the time you did your big round. So I, I, I think you're right. It's that at, at least a good portion of this technology is now doing capital-intensive deals again. And they're doing it on terms that are way more favorable to the entrepreneur than you would see it in the past. And they're doing that for one reason, they have the money, and there's a perception that the existing stuff has worked well enough to be worth the risk. I mean, we'll see.

    3. HSHarry Stebbings1:07:18

       I'm not sure if you saw, but a very hot round got announced today, which was Chai Discovery, $400 million at a $3.8 billion valuation led by Index, Kleiner, Sequoia, Dimension. Um, I mean, listen, in, in terms of dilution, good round for founders there.

    4. RORory O’Driscoll1:07:36

       Great round for founders.

    5. HSHarry Stebbings1:07:37

       Yeah.

    6. JLJason Lemkin1:07:37

       Not too late for 10 from 20VC. There's al- you can always squeeze that one in on top.

    7. HSHarry Stebbings1:07:43

       No comment. [laughs]

    8. JLJason Lemkin1:07:45

       Not too late.

    9. RORory O’Driscoll1:07:46

       No, no, no comment.

    10. JLJason Lemkin1:07:48

        Not too late.

    11. RORory O’Driscoll1:07:49

        No comment.

    12. JLJason Lemkin1:07:49

        Not too late.

    13. RORory O’Driscoll1:07:49

        I mean, genuine comment here. Th- th- th- that category, and avoid the specifics, it's just... I don't want... It's super interesting, but it will be interesting to see how much those companies end up being like an LLM and a language model, and how much they end up being like a biotech company, which is a very different trajectory. We can revisit that another day, but-

    14. HSHarry Stebbings1:08:10

        Do you know what's really int- do you know what I think is actually really interesting is, like, blast radius for amounts. And what I mean by that is Isomorphic was incredibly oversubscribed to the tune of 8 to 10X. The majority of people did not get anything at all when they wanted huge amounts. That then causes a blast radius where, I'm not saying it's second-best by any means, but there's a lot of interest in Chai, and then it means there's a lot of interest in another company, Latent Labs, in London. And it, it is a blast radius from a very hot deal, which was originally Isomorphic.

    15. JLJason Lemkin1:08:44

        It's one reason, honestly, sometimes to not announce a deal at all. I, I, I've seen this a lot. I mean, uh, just, just don't do it. I think there's a lot of reasons. The most in my career today, there are the most reasons to not announce, if you can get away with it, to not announce a hot round, right? If you've already got enough, if you've already got enough going on to attract talent, right, for recruiting, um, especially if you're not selling directly to tech buyers, right, to the X folks, I say don't announce it, man.

    16. RORory O’Driscoll1:09:11

        Yeah. It will be really inter-

    17. JLJason Lemkin1:09:12

        Just brings out the daggers, funds your competitors, creates issues. You just, you just become a target, right? And so that press release better be worth it, 'cause it's like a Dorito or a Pringle. It's gone the next day, right? Better be worth it. If no one's heard of you, do it.

    18. HSHarry Stebbings1:09:28

        It's also interesting, Thrive and Chai. I'm like, wait a minute, I thought you just led Isomorphic.

    19. JLJason Lemkin1:09:34

        Different partners, Harry. Different partners. And we've got paper walls, right, right between them. They're, they're thin. We can hear the other side, but, but, but they are... [laughs] it is, it is, it is a wall.

    20. RORory O’Driscoll1:09:45

        I think the overlap in terms of competitive risk is fairly low, especially if you're not on the board. So I... So actually, that's one argument for I think it's totally fine to invest in both. And let me make another, which goes back to Harry's late-stage thing. One of the bigger hahs I've had is this. In the early stage when you're on the board, you can't invest in two competitors. In the late stage, structurally, you have to. And I want to tell you why that. Not, not have to, but you, you should be able to. Because the, if you believe that the late stage is the replacement for what was the public market for kinda high-growth companies, Fidelity Growth would've invested in OpenAI and Anthropic. They're not on the board of either. They wanna make the secular bet. So I think the companies that are replacing them in the late-stage private markets are gonna do roughly the same thing. Thrive is a master of late... Now, ironically, you're right. They said that they wouldn't invest in Anthropic when they invested in OpenAI, so it is odd. But generally thinking, I think it actually is not a problem if you have limited information rights to be invested as a pure late-stage investor, non-board member, in multiple companies in the same broad thematic area. It's not our business, but especially in something like-

    21. JLJason Lemkin1:10:47

        I will say one thing that's changed over the years, too, um, more recently is, um-

    22. RORory O’Driscoll1:10:51

        Monogamous

    23. JLJason Lemkin1:10:52

        ... I'm sure, and Harry, Harry has even more data. He can challenge me on it. But in my, my experience, for these smaller late-stage investors, they get nothing from the company.

    24. HSHarry Stebbings1:11:01

        100%.

    25. JLJason Lemkin1:11:02

        Nothing.

    26. HSHarry Stebbings1:11:02

        100%.

    27. JLJason Lemkin1:11:04

        Nothing. So let's say I'm a founder. You could ask me, like, let's, let's say, let's say whoever, whatever fund invested in my competitor, but they're only 80% competitor to Harry's, to Rory's partner, 20 or 40, right? Uh, uh, this might really bother me at the seed stage. If I like their brand and I'm gonna give them nothing, they're gonna learn n- literally less than a, the, less, less than a Google search, let alone a, an, an Anthropic deep dive. Maybe I just literally don't care, and maybe I even like to usurp that investor from my competitor, right? Um, so in the old days, y- you ask, and I still think you ask the founder. I hope you ask the founder. But you can position in the way they're getting nothing, right? The founder might like it. I mean, uh, you never know. You just, uh... Maybe the, maybe the latter part I got a little bit backwards, but my point is there's just, like, no effing disclosure now. It's like doing an angellist investment from the old days. Like, you don't hear for... You might not hear anybody from five years. "Congratulations, Harry. Here's your two and a half X check. Uh, the, the, the round on TechCrunch looked like a massive exit. It's two and a half X, but here's your money. Thanks for being a part of it. Thanks for the mention on 20VC, by the way. Very helpful a year ago."

    28. HSHarry Stebbings1:12:10

        Dude, I'd love that. Normally it's nor- normally it's more 0.2X, but yeah. Thanks. [laughs]

    29. JLJason Lemkin1:12:14

        Yeah. [laughs]

    30. RORory O’Driscoll1:12:14

        I, I think the point-

Episode duration: 1:26:11