20VC: Anthropic Files to Go Public | Token Budgeting Panic Hits Corporate America | Cognition Raises $1BN at $26BN Valuation | Apollo Warns PE Software Returns Will be Disastrous | The 9-9-6 Work Ethic: Performative Theatre or Startup Reality?

Private Markets Are "F***ing Done" & The Shift to Heavy CapEx I think there's a tangible feeling of grab it now. Speaker 2 Fuck yeah, I'm not interested if it can't be a billion dollar position anymore. Speaker 1 Losing money is like sex. You can talk about it all you like, but until you feel it, you don't know what it's like. We are done with the oh I don't want to do the public market. Staying private is cool. We are fucking done with that. All these businesses have gone from CapEx light cash flow machines to CapEx heavy cash consumptive machines. Speaker 2 And what's these damn tokens, Rory and Harry, I would quit. As a developer, if you told me I could not use the model of my choice, I would quit. I really do think by the end of the year we're going to choose tokens over humans. Speaker 3 This is 20 VC with me, Harry Stabbings, and it's my favorite show of the week. Rory O'Driscoll, Jason Lemkin discussing the biggest news that's happened in tech this week. Starting off, we have Anthropic raising $65 billion and then filing to go public. Anthropic Files to Go Public In the same week we have Cognition raising a billion dollars at a $26 billion valuation. We have public markets coming back to life. Is the SAS apocalypse over? Best earnings week in two years? And then finally, Uber and Microsoft now pessimistic on the productivity gains from AI. Is there a question mark coming? And what does that do to token maxing and token spending? All of this and more in this week's show. But before we dive into the show. Speaker 1 You have now arrived at your destination. Speaker 5 Boys, it is so good to be back. Speaker 4 And this is my favorite time of the. Speaker 5 Week and we were just talking beforehand about how in the 58th week of this week in Anthropic, we say anything different and provide different commentary. The question that I'm going to start on, Jason is one that you just highlighted brilliantly, I think, which is Anthropic files to go public. Is Anthropic filing to go public and going public good for the ecosystem or not? Speaker 2 Listen, we don't need to talk about how the AR increased 28% since the last show. I mean, it's pretty good, OK? It's it's the fastest growing enterprise software startup of all time of all universe throughout past Alpha Centauri. But now it's also going to be the probably the fast, certainly the fastest to IPO to anything near its scale, right? This door of SpaceX is going to IPO in five years, five years to a trillion, OK Cursor acquired for 60 billion in four years, assuming the deal closes. OK, Why would you bother with most of the companies in our portfolio? Will the Anthropic IPO Break the Startup Ecosystem? Why would you bother to even meet the founders? Why would you do anything as a VC other than spend the next 24 months hunting these And as an employee? Here's the really tough question. Why would you work for any of these companies like we have the CEO of Ironclad is now the head of legal at Anthropic, right or open AI. So I got backwards Jason Boeing or is that he he he he he leaves. Why would you do anything when you can build a trillion when there is not impossible to build a trillion dollar startup in five years. Why would you do rationally do anything else? Why would you even try to have a $400 million exit, $2 billion exit isn't just a waste of our time. I know, I know Rory will pick at this, Don't get me wrong, but I think it will seep into our society. I think we will all start to feel this way when the bar not just for evaluations but for time is reset. I'm going to quit and spend a year at whatever the It's always made sense to join the hottest startups, but I think this is going to just make get an order of magnitude at least emotionally feel the people like they should just quit tomorrow and work for the hottest startups because it's orders of Mac two to three orders of magnitude larger outcomes. Speaker 1 And yeah, you, I am going to pick on it because in one sense, what you're saying is true. Look, we're in the business of investing in the best startups. The best startup is now worth a trillion dollars and you didn't invest on it. What do you do with that information? It is the best startup in the last decade. You can fool yourself into thinking there's going to be another one just like it next year. That's one option, right? I think it's stupid because it is by definition A1 in 10. Don't make your business plan on finding another trillion dollar in five year outcomes in the next 5 years. The "Billion-Dollar Position" Era: VCs Reset Their Expectations I think that's just foolish for reasons we can talk about if anyone wants to argue it. The second thing you can do is say I'm psychologically so damaged by missing this that I need to go home and I can't play, which is credible. There's going to be a lot of people who do that. Or the third is you can grow up and be a fucking adult and say, I wish I'd done that deal. I'd give my left arm to have done that deal, but I didn't. Now I got to go on and do perfectly good deals that would have great outcomes because that's what normal balance people with kind of psychosis that aren't damaged do. As I say, in almost every human endeavor like this, there's one person who gets the big prize. And as humans you have to adapt and say even if you didn't get the big prize, it kind of sucks and I mourn it, but you didn't go on and live your life. Only one person gets to be president. Not everyone gets out of politics. Only one person gets to be the richest person in the world. Not everyone else can still kind of play in business. So. And in fact, I would argue one of the reasons business is more psychologically healthy than, for example, politics. I remember a dear friend of mine many years ago explaining where he's interested in board careers from. Is this in politics? The 700 most successful politician in Britain isn't even a backbench MP. 700 most successful politician in the US isn't even a congressman. The 700 most successful business person is probably worth plus or minus a billion dollars. It's an OK consolation prize. What you're saying resonates. Look, I'll admit there were nights when I lie awake and say, what was I doing in early February, March of 2023 when the series see it on topic went down. You know, I bid some of the early stuff if I'd seen the thing. I can tell you what I'm doing every day on the calendar because sadly I've looked and I'll tell you what I wasn't doing. Meeting went on Tropic. You can mourn that information, but you can only mourn for so long. And then you get on with the rest of your life. And I also think say something else, it would be fucking great when it goes public because then we can just move on. It goes from being the singularity to a magnificent outcome forever and money flows back to the system. Sucks if you want to buy a house in San Francisco, but it's great. The mystery goes out of it. It's just that it's the 10th or 12th or maybe 7th or 8th depending on how it prices. Largest public market cap company. And we can all just get our lives. I'm good with that. Speaker 2 I think you're right, you can't necessarily kill yourself for not being in the series B of Anthropic. Speaker 1 I think I said I should Point B was the the Sam Bankman freed round. Actually, you get to kill, you know, that's that's a that's a poison chalice on every dimension. The Series C where Spark brilliantly led the round and Mendel did it. Yeah, that's the round where you kind of go as a VC. That was the round you missed. Speaker 2 My version of it thinking as a seed investor and I don't mean this facetiously, I'm not exaggerating. And this is different than the employ, the employee issues and the ecosystem issues. I'm not interested if it can't be a billion dollar position anymore. That's how it changed my mind. Speaker 1 Position or company? Speaker 2 No position. I literally had this review with my fund management company today talking. They're asking me. I was doing things. I'm like, listen, I will make small investments with friends for sure. I will do things to be parts of journeys, but I'm going to pass on anything where I can't have A at this point in my career. I'm not saying I would have done this in my first check to Pipedrive, which had a billion dollar exit. I just don't want, it's not worth the 20 years that hopefully it'll be five years, but I need a billion dollar position to get excited today. I need a billion dollar position. So if it's going to be worth a trillion, I can do a pretty low ownership right. But you got to be worth north of 10 billion for it to even make sense to me given dilution. Speaker 5 Right before you try, I actually totally agree with you, Jason, But I've also interviewed 1000 of the the best GPS over the last decade who've all said that their biggest winners, they underestimated the market size and the outcome and the opportunity. And so you're assuming that you're able to know Twilio's a $25 billion company, which you probably wouldn't have said it was at the time. That is a billion dollar position to you as a seed or a Series A investor. How do you think about accurately identifying given we continuously accept we can't anticipate outcome size? Speaker 2 Listen, I, I think it's a good question and and I've made many, many, many, many mistakes. I will. But I do think the inverse is if you see tangible reasons it can't create a billion dollar position, for example, the founders are very, very good, but not great. For example, the CTO, he's pretty good, but not like jaw-dropping CTO. OK, not going to launch 17 simultaneous products. If you see that, fine. The Tam is small, but there just isn't a sense of how to grow it. OK, there isn't that drive if we're 771, if there's complaints, if there's complaints, I just haven't seen a lot of great outcomes from complainers from a minus CTO's. It's OK to start with the smallest Tam, but I want to see that at least you're thinking, even if it's insane about the large Tam. So it's more just to me, it's more just drawing a black marker through things where I might have taken a little bit of risk before. I'm just out because it's not that I can say for sure how big it will be, but I these are blockers to a billion dollar position, not a billion dollar outcome, a billion dollar position. I think you can have a billion dollar outcome if things are lucky and you can have some, you can have that pretty good CTO, the mid sized Tam as long as you get some some tailwinds and and a few things break your way. Still think you can be lucky enough to have a billion dollar outcome but not a position? Speaker 5 Rory, is that not the same for you? Your fund is a billion. I mean, it's just asking for a fund returner. Speaker 1 My fund is actually not. Our fund is $900 million building, just to be precise. And look, obviously you'd love to make a billion dollars, but you also look, I think you have to ask yourself how many of those as a base case, how many of those realistically exist? You see, as is often the case with Jason, I actually agree with him on kind of what I'd call the just start the kind of things he's talking about in a founder, You know, you do want the drive things, but I will, you know. So yes, I think ambitious driven founders upside, no complaining in practical terms, I agree with him. I don't think if I looked at the same deals he was looking at with excitement, I'd say I think that these are going to be a billion dollar fund individual position, implicitly a $10 billion total fund outcome because I'm just too aware of the base rates. I mean, when we looked at so that, you know, 5-6 years ago, it was like my mental model, which isn't the case anymore in enterprise software, it was roughly, you know, you probably had 10 to 20 billions plus outcomes a year, best case. You probably had two to three $10 billion plus outcomes a year, best case. And then every decade, you know, you had one to 300 to now I'll have to say a trillion dollar outcomes. Now you scale that up probably by 1020%. But really there's not going to be more in a normal year. There's not going to be more than four or five, five $10 billion plus outcomes a year. So I just don't know if that's credible or reasonable. I think in that one to $5 billion range, if you want 10%, you're very happy you did it. You made $500 million, you're very happy. It's half of a fund and you're very glad, especially if you put 20 or 30 million bucks in and it's a strong capital returner. I think if you go later and you, as we've discussed as you go later, it's much more about concentrated positions, but I don't think you can make 20 to 30 investments in a Series A fund or a seed fund. Incredibly really believe that each of them will be a billion dollar outcome to you personally or $10 billion outcome. Totally. Therefore, I think I tend to meant to have this following model. I want to underwrite a realistic base case return. But I do agree, never do a deal with just capped return if you can't articulate the way we say it is. You want to have your base case, but you want to articulate a credible upside story that can have that, you know, magic outcome. And that's how, as I say, I end up in the same place with Jason, even though we don't agree on the map. You do want to have uncapped upside, but I don't think you go in saying I'll only do it if. Speaker 5 I think the big statement you said there is will be rather than can be. I'm so much more willing now to go up the risk curve on doing things that I would never normally have done because if they do work, they're going to be so mega versus the will be that as like as like V1 SAS companies, whereas I can see it much more realistically, but it's not that needle moving to have it succeed. Speaker 1 Everyone's always grave at the tail end of a 14 year equity boom. Again, my biggest disadvantage as an investor was I was investing in 2001 and I watched announced that go down 90% and most of our investments go bankrupt and half, you know, less than 40% of them survive. So yes, everyone's always, I want more risk because the upside is there when the risk hasn't come home and the upside is still there. So yes, I do think you at least have to be cognizant of the fact, you know, it's the old cliche. I've said it before in the show, so I'll apologize for repeating myself, but you know, losing money is like sex. You can talk about it all you like, but until you feel it, you don't know what it's like. Speaker 2 For what it's worth, it's not that I'm not challenging your math. It's more that I think for founders, for a lot of founders in May, after this IPO, after the centropic IPO, it may get even harder to get meetings. That's my point. I won't, there are meetings. Listen, I'm not so great. I'm, I'm, I'm not no market Andreessen with all the ES and s s. But there's meetings I won't take now that I would have taken in 20/24/2023. I just won't take them. And it's not because they're not great human beings or building real companies. I'm just not seeing that the bar has gone up so much. I just won't take the meeting and I'm not sure all founders get this. Speaker 1 I do think that is real, you know, and I do get this question from founders, you know, and they're implicitly saying where should I be in the grandiosity versus boring stakes? If I'm too grandiose, I might lose them, but if I'm too boring, I might also lose them because I'm not aspirational enough. And I do agree, what you are saying is correct is the base rate for aspirational has gone up. In other words, there's a level below which the level below which you're perceived as quote UN quote boring probably has increased significantly because people have seen what quantifiably amazing looks like 10X growth for three years. You're right. There's no doubt it has an anchoring effect and will do for some time. So again, I think you're probably right on how you think about deals and you just go that that's. Speaker 2 Why? I'm not sure the Anthropic IPO is all net positive. I think it will make things harder. Now it's not just housing that's already happening, right? I think it will make everything harder when there is a general sense of not being good enough that is reinforced across the ecosystem. Speaker 1 Yeah, I understand what you're saying. But I think we all have plenty of insecurity already based on the private. I actually think to some extent, again, I'm not going to continue the prior analogy, though it is tempting, but we are a PG program not actuated. So I do think that the mystery when the financials are revealed are stripped naked. Some of the mystery tends to go out of the deal. So I'm actually just looking for, I mean, it was that SpaceX, it was we can talk about what's going on in the white one. It was just great to see the numbers deal with the facts and go, got it. That's why I thought it was. I can differ on how they're valuing it, but that all makes sense now. There wasn't any magic Pixie dust. It was got it. It was an amazing technical launch business, a wildly exciting styling business, and oh wow, it'll be the same thing when Anthropic. Oh, those are the numbers. Good to see that makes sense. And you'll just get the mystery out. Speaker 5 Anthropic goes out before open AI now. Speaker 1 Well, it's not clear consuming. I mean, and public said they filed and they they they made an announcement in the last day or two. So June 1st, I think open AI had made a statement that they were filing about May 22nd. And I meant to go back and look at the statement and Jason is better at me at looking things in real time. Did they say they were filing or had filed? I think it might have been filed, in which case they're roughly on the same track. And I think I was saying to you, Harry, before the meeting started, the most noticeable thing here is, is that, and I've accorded the the quote from I think in the show and reminiscence of a stock operator, that book from the 20s. I often cite what you're seeing now is everyone gradually jumping forward their cash raise in the public markets. Instead, we are done with the oh, I don't want to do the public market. Staying private is cool. We are fucking done with that. You know, Elon had 20 years of private. Now it's go, go, go 1.7 now opening Island Tropic. The Trillion-Dollar Cash Grab: Google, SpaceX, and OpenAI Rush the Queue And if you look at their statements over the last 12 months, it was we may go public next year or two. We may go public in 27. Oh, we're going public now. Everyone's coming in to grab the capital. The other thing, just a chart right today, as there was a time announced today, Google announced the $80 billion capital equity rates. So the most profitable company on the planet with the exception of NVIDIA said I'm going to need more capital, better go get it. So I think what you're seeing here is even though Entropic just pulled off a widely oversubscribed private raise, I think smart people on those boards are all recognizing the scale of the capital required means we should all jostle to the front of the queue. It's a little like one of those airline flights in countries where they just don't queue, you know, when they open the door and it's just a mad rush to get on the plane, right? It feels like that here. It's like, you know, SpaceX was going first, Google just got ahead of it. Google just grabbed the 1st 80 billion. That's a, you know, some of it's done now, not all of it 40 billion. If it's over time, SpaceX is formalized its price at 1.75 trillion for early June. Tropic and Open AI both said we're probably going to do roughly the same in October. So you're probably looking at across those three name 4 names including Google, 3 to $400 billion of equity issuance, all of which is really AI related given the SpaceX S 1. So grabbing big pies of cash while they can. Speaker 5 Google haven't done a race like this in in a significant amount of time. I'm forgetting the exact year number. Is this merely them being forced to in the CapEx race that we are in amongst the competitive set that they are in now in the AI race? Speaker 1 Forced to, I mean, you know, in theory they could have borrowed more the lots of things that I think they're smart. I think stocks high, think equity is cheap. There's not a ton of downside to take in a wee bit of dilution at an all time premium. Getting the world's best investor. Well, you could argue Berkshire without Warren is really, but you're getting a reputable investor on your cap table and you're getting another $80 billion, which maybe you can level up with that. It's stepping up, but it's really indicative of is all these business have gone. From CapEx light cash flow machines to CapEx heavy cash consumptive machines, generally that's never good for stock prices over the medium term. Just all across history, things that have high cash flow spinning out are really good investments. And things that eat money tend to be bad investments. And Google is right, riding a tail. Yeah, on a trailing edge basis, it looks amazing. I think it's damn smart to issue money to raise equity. Speaker 2 Isn't it though? Listen, I don't claim to be. I've only been in the conversations a few times, claim to be an expert. Of course it's smart. The dilution is as viewed from like a venture perspective or star perspective is unknowable. I mean, it's tieable, it's tie, it's unseeable. But if they really thought that payback was so quickly, wouldn't you issue debt and have no dilution because 80 billion is still 80 billion of dilution, right? To to be, to be neutral, they're going to ultimately have to repurchase 80 billion of cash to get those shares back, right? So wouldn't you do debt if you thought you could get pay it back in any reasonable amount of time? Speaker 1 Well, first of all, it may be that they don't want to spend 80 billion, they might want to spend 200 billion, and they might leverage us saying they might say 80 billion of debt, another 80 billion of equity, which will say, and you'll take on 120 billion of debt without engendering a credit rating. So first of all, they could do both, right? It's one comment, right? Yeah. And then, you know, it's not clear the payback. I mean, again, to give it is not clear. We can talk at some point about it. Is the payback there in the end at all? But even when it is, the payback on these AI data centers is normally two to three years. Now Elon has massively outperformed that with his storage deal with Anthropic where he's getting all this money, money back if the deal lasts a year and a bit. But normally the payback is not, it's not nothing. And three or four years is a fair amount of time. So Google is the second most popular cap company on the planet. They could borrow all they wanted to within reason. I mean, they have some that I think about 70 billion of debt. So they could have borrowed all they want. I just think it's just think it's smart to have a strong balance sheet if you find that you might want to spend 300 billion a year for the next 4 years before it comes back. Speaker 2 Well, certainly it insulates you from any any colds or flus you get in the debt market on any given week or month. At least you don't have to worry about the vagaries of the debt markets, which do have micro panics. They do have micro panics. Speaker 5 I think we deserve a milestone slash award for the shortest time given to an anthropic section in a trio show, which which is impressive for us. I'm jumping around so forgive me for it, but we've talked a lot about public companies and often it's been a tough conversation with SAS not being appreciated by public companies. We saw Snowflake, we saw a Mongo DB, we saw Salesforce best earnings in a significant amount of time. All did very well. Speaker 4 And we saw stock surges across the board. Speaker 5 Is this the end of the SAS pocalypse? How did you guys analyze this? Speaker 1 Let's does the company specific stuff where I think the kind of Jason rules apply, which is either you re accelerate or you attach to AI spend and the guys who exploded the boat and the guys like Z scalar who had a messy story went down right. So individual deals. If you look overall, what's happened here is you've had it's interesting. It's been a massive round trip, right. I look at just World Cloud, which is the ETF that is the SAS industry, the cloud industry versus you know, the QQQ or SPY. Is the SaaS Apocalypse Over? Bouncing Off the Bottom What you basically have is 30% down kind of a month ago. And then we talked about this and remember we talked about you will give me shit, we have to buy some stock. So I bought World Cloud. I couldn't figure out which ones. I hadn't have time to think. So I bought World Cloud and it's up 2530%. But we're just back flat on the year. That's the fun fact as of yesterday night for the last I think just over a month, SAS had out form semis. Fun fact. But for the year, semis have murdered SAS to the upside because SAS has just gotten back to flat. And now anxiously, even today, you've seen a significant bounce down to me. What? As I say, I'll defer to Jason on the individual ones, but overall what it says is the narrative got way overdone and then people looked up and said these things aren't going to 0 if you're not going to 0 or they have cash flow value. So they probably work more than that. It doesn't mean that they have kind of long term momentum. I'm not looking at World Cloud and saying I made 30% this year, this month. I'm going to make another 30% next year. I'm probably thank you very much, that was great. And then on the individual, I'd kind of chase nobody. You get your thoughts on some of the individual companies. Speaker 2 You know, the media, I mean, if you just feed in the last 30 days, it's great depending on what basket you use. I have a slightly more optimistic basket, but my basket of cloud stocks, software stocks is up 5% this year after today when we record this, another great day, right in this run. But Nasdaq's up 21% and I think semis are in the triple digits are close. So great that the overcorrection is over. But the fundamental concerns are all there, right? I think our only learning is that there was a there was a some I never understood the total panic of the spats apocalypse couldn't all be vibe coding, right? Notwithstanding Harry show where they all want a vibe code. They're all serum it. It didn't make sense. But the meta issues of seat contractions of the fact that AI software spend, according to Gartner will be up 60% this year. So that means it's got to be cut somewhere else. Those issues haven't changed. And I would say we're no longer what's great is we're not in freefall because freefall leads to panic everything, panic panic buying, panic everything. But even with the reacceleration, you know, at last seen still at 4X AR, you know, HubSpot 3.8 X Salesforce 4X. So I know Rory really disagrees with me here, but I just don't think investing really works without 10X or higher outcomes. And I know they're public and I know they're mature, but I think the SAS POC, the panic part of the Saspocalypse is over. The Death of Human Per-Seat Licenses as Multiples Shift Like we overcorrected as we always do. And we may be over indexing ON Semiconductor stocks today that are will be seasonal as well. But the issues haven't gone away. It's just we over panicked on the timing of them. Speaker 1 Actually, we are in agreement. I think we're saying the same thing. I'm this was a rare occasion where Lily, an entire sector was discounted to the point where it made no sense. A month ago, I was able to identify a bunch of stocks where I could say, hey, they're so cheap that it's silly. Now you actually have to say which of these stocks, given that we've repriced to know which of these stocks has a genuine reacceleration or AI cat story. That's a harder message. I mean, I think some of the ones who killed it do, but overall it's still pretty tough. So I think we're In Sync, Jason. Speaker 2 I think the interesting thing because there was, look, there was a modest reacceleration of multiples for almost everybody, right? Even the hardest hit Mondays and Atlassians, their multiples all bounced off the hard deck and and just went back to crappy from worthless. But the real the only real learning of this of the year to date is that it's been long enough now that the public companies, let's just call them mature, the mature public companies that are benefiting from AI are seeing the boost. So yes, semiconductors are up. But you know, when Jeff Lawson was on the show, he said, I haven't run Twilly in a while, but I'm pretty sure we're going to benefit from AI because agents and AI just need to use more of our voice and other agents. And it took a quarter or two, but he's right, stocks up 57% this year. It's gone from I think 4 or 5% growth to 20 Octa, you know, which was which was your daddy's enterprise system up 57% this year, 56%, right. Datadog, which everyone uses, right, Every AI leader uses up 100% this year. So our mistake and the Captain obvious learning is, hey, look, we gave it six months and every software leader that we're a gentech products and agents need more of it is up. Winners vs. Losers: How Agentic Focused Products Captured the Market And no matter what they say at X, the ones that only humans use is kind of down. Even if they bounced off the hard deck, right? There's just not an appetite for more human per seat licenses and even Salesforce force, which reaccelerated growth. It was all through hard work, it was through Asian force, it was through inorganic purchases. And Mark and the team came on the call and they said and they split the business up into two verticals. For the first time, I think a gent, I forgot what they're called a gentigger agent force and the others. And they said the software business will be perpetually in single digit growth. Like that's as good as it going to get here. But we're double digits in the rest and that's growing 12 or 13%. So let's not we bifurcated. We saw what made sense, which is AI fueled agentic focused products. But the classic human per seat software really is dying. It's not dead, but no one wants to buy this crap. In fact, they're cutting it because they got to come up with money for all these goddamn tokens. Everyone wants these damn tokens. Rory and Harry. We're just we just don't need another human seat for folks that that don't do any work on a project management software. It's just that has to be the math, right? You can't grow 60% AI software without cutting some material amount of the rest. So we we are seeing it, but we should have known this. We should have all forget about the the way I've made my bets. Just who fell the least? That was at the Nader, right? I bet on who fell the least. We should have all made the bet, the Jeff Lawson bet, which is OK, Who's going to honestly benefit from agents and a gentek? And it's not that complicated, right? Of course it's going to be Twilio data dog. I never would have thought, but I, I, if I, if I'd been a little smarter with Claude, we would have figured it out because it's, it is an obvious one. If, if, if everyone doing off that's a private company's blowing up, they should blow up too, right? Speaker 1 I think the real challenge is more question of what does critical mass look like to go public. To Jason's point, what does liquidity look like? All that. I mean, you know, you guys often talk about Replit. There's an example of a company that was pre AI that brilliantly attached to the trend and just got a ton of lift. There's stuff you can do to get lift and there's only one test. Are you going quicker? If you're going quicker, you've gotten lift. If you've gotten lift, you're fine and you can imagine and lots of parts of the new, you know, LLM first AI harness software stack like isn't it super bases the post quest database that's just brilliantly Co attached to everything. It's grown quickly too. So there will be incidents of that, but it requires deft product management and making sure you're attached to the future. If not, you're not going away quickly, but you just have a question of how do you create value and how do you realize value, which will segue to a few other discussions. Speaker 5 We we said about kind of explosive growth and then software creation Cognition raised a billion dollars at a $26 billion valuation. Devon, my core product hit 492,000,000 an hour, incredible growth with some mega customers, some of the largest enterprises in the world. Jason, I thought your statement here was a good one. Was cursor at 3 billion hour or cheap then if that was priced at 60? And how do you reflect on the growth this Cognition round? I love your thoughts. Speaker 2 I wish I was more of an expert on cognition today. When we started this pod, I did say that probably the two absolute highest IQ CTO's in My Portfolio were using Devon in the early days that when things were still pretty crappy before for anything. Cognition Raises $1 Billion at a $26 Billion Valuation And the idea I think is still super compelling. Now we have some metrics. The idea at least is, hey, it's great that your, your engineers are 10 or 100 or 1.001 X more productive. What's far more interesting is if you can have an autonomous AI engineer, that's much more interesting. And I remember that probably the smartest CTO, My Portfolio just in the early days ran Devin and Slack and he would just tell, tell Devin to go do these things and come back and make the commit on their own. And I'm sure it was pretty mediocre in like, you know, a year ago or something like that, just because of the nature of the underlying models. But the vision to me is actually more compelling than all this cloud code crap. It's much more compelling to just tell the agent what to build or not tell the agent have these autonomous engineers that do it right. On the other hand, you know, there's just maybe it's not that impressive because there's just so much money in the space. Maybe if it works reasonably well, all right, And it's just a way to repackage the models for one workflow that's more interesting. Maybe it's not as impressive as it looks, but the vision I think is the most interesting vision in the space. Why do we want to empower mediocre sales reps? No, we want to we want to automate them with AI. Same with mediocre engineers. Let's get rid of them, man. Let's let's have the best ones, but all the rest let's have Devin. Devin doesn't argue. Devin doesn't only want to work on interesting problems like most of your best engineers. It's not interesting. I'm not going to do it. I was talking to someone that turned down an off right Anthropic just said it wasn't interesting enough, but they wanted to work them on You just didn't want to work on like little edges of basic application. It was boring right? So well, let's have Devin do it, man. So so I hope it's the biggest winner of all. Speaker 1 This is very much a market where leads change hands at a furious pace. So every one of the companies that's worth a trillion bucks on Google, probably as every one of the companies worth a trillion bucks is going to want to eat your lunch. So it's a high risk, huge market return and good luck to them. I love it. Speaker 5 I was speaking to one of the best CTO's this morning and he said we've just the analogy is we've just given a company credit card to every employee and said there's no limits spend away and that's the token spend budgeting today. And my question to you is, if there is rigor and budget instilled, are we dramatically overestimating market size? Speaker 1 I don't think we're overestimating market size so but but let's pray. It's funny, we talked about this last week and I was going to tweet this because literally on Tuesday when we record, I was like, it may seem heretical to say that maybe this stuff isn't got an ROI. By the time the thing came out on Thursday had been explosion of these Oh my God, our articles. So it was right on the cusp of the side guests where people finally woke up. And I was thinking about it last night. It don't make sense. Sometime in November, December, Claude produced the magical version of the model of Claude Cole that just works. In early 2026, they kind of changed the pricing model so you have to pay as you go. Token Budgeting Panic Hits Corporate America And it's like literally everyone cranked in Q1. And I can almost imagine in every CFO's office in the land, someone was doing accrual accounting. And like about by mid-May, they suddenly realized, Oh my God, you know, we used to estimate our bill based on this and suddenly we're 10X wrong. And our accrual and literally the penny drop simultaneously across the entire corporate US. We told these guys to crank in Q1 and fuck me, they cracked. And it looks like we spent our entire budget and literally it was, it was universal and it's happened. So it all makes sense. This is about the time I've discovered that. Now, to your point, I was raising the issue when people weren't, but now I'm going to take the positive side. Provided the code that's generated is good, right and useful, right? I can imagine a scenario where people put a pause on and I just saw, I think Uber announced today they're just going to give every 1500 bucks a month, which is about the right amount on what we're saying in terms of averages. I once had a right amount. That's a normative statement. It's about a little above what we saw the average spend was. So they're basically going to cap everyone and try and get control of the spend that way. The thing you have in your favor over the medium term is the Frontier models aren't getting cheaper. I want to be clear on that. They're getting actually slightly more expensive, but the model that is Frontier today will in a year be 5 to 10 X cheaper because it won't be the Frontier model anymore. So if you're getting value from this egregious spend today, you might slow down for the next 12 months. But as as long as you stay on that pricing curve, the what will then be not a frontier model, but an older model will be available at a cheaper price and you will be able to continue to get value from it. That's a long winded way of saying I don't think you wake up and go, Oh my God, we're not going to spend any money on this. I think the pace of adoption might slow markedly as people realize quite how much they've spent. Speaker 2 You know, I had two of my fastest growing portfolio companies saying saying they they already blew through their budget this year. So it's not just the big guys, right? 2/2 of my fastest growing companies, none of my slowest growing companies have said that. Not, not not a single of my slowest growing portfolio companies have said, guys, we burnt, we burnt through all the tokens. May, I don't know if it's causation or correlation, but it was interesting the two of them said that. I, I think that at a practical level, of course there has to be cost containment, right? We're not all startups that just raised 50 million with six people where it doesn't matter, right? There has to be cost containment and folks are massively wasting tokens. They're massively wasting them. So it has to come that people have to be more, more thoughtful with what they build. The vast majority of tokens that are used in coding are in QA anyway. It's not in production. We may have to be more thoughtful about how we do that or not, but I think it's OK if we have to. We don't shoot from the hip as often. I think it's OK if we slow down the number of features that we build. I don't think it's the end of the world, right? Having said all that, more and more folks are using multiple models at the same time. Multi-Model Workflows and the Future of Cost Containment For example, not to talk about replit too much, Replit it does it automatically now. Replit if you have a complex feature reppa builds it in Claude sonnet not open it builds it in sonnet to save money and then it has codex come in and check the work. It has both of them and you don't even know this if you don't even check it because it's mostly for non-technical users. One interesting learning if you want to learn about cost sensitivity actually study repple and lovable because they're under huge pressures right now from their customers massive pressures. So if you want to see the future, we can, we can look at what the Uber dude said in one of my portfolios, But it's much more interesting to watch how to me how rapid and lovable are evolving their platforms radically because a couple extra dollars there leads to churn at the bottom of their customer base. So they're radically focused on cost containment and yet they still run, I don't know about level Rep, but still runs two models, not for everything you do, but for anything complicated. The architect agent now is codecs that it brings in to check sonnet and it works really well. Like it's incredibly powerful to check your work in sonnet and probably Opus with codecs. It's incredibly useful. It's every single time it finds issues, every single time it finds issues, it's so powerful. So that's going the other way, right? Is that as we go more, more multi agent and we asked them to do more, of course we're going to want to. So, so we have to have budgets, but the tension is only going to grow. And I don't think we've yet to Rory's point, you just asked my opinion, right? I think in the course of this show, what we've learned and it has changed since the beginning of the show is it really doesn't matter. And this could change in 90 days, but so far, it really doesn't matter if older platforms are cheaper and overall models are cheaper because we don't want them. There are use cases where we want them. But overall as as an ecosystem, we are all in on the best. We are all in on Opus. That's that's what we want. So we're not benefiting as much from the deflationary benefits of AI and we're paying into the inflationary side. Speaker 1 And again, I don't want to sound the negative because I'm actually a net positive. So I want to come back to that. But first of all, I think the zoom out comment is this at some enormously high level point is this is validating the good news for the model providers. What's happened is somewhere around three, 5% of tech spend, everyone noticed, Oh my God, we're spending this and no one said we're going to cut back to zero. What this means is you've just established a category that probably has a market size of half a trillion to a trillion dollars. And everyone is now going through the corporate process of saying how do I find that money? Where do I find it elsewhere? How do I manage it? How do I cap it? But what they're not saying is stop it. So you've built a category that's huge. So if I'm in Tropic, if I'm, it's obvious to us because we're in the valley. But the Dumors who say it's all just going to go away because it's silly. No corporate America has said we're spending this kind of money shit, we don't like it, we're spending too much, but we're going to have to have a plan to spend it. It's enormously validating. It would be interesting to see Jason as part of managing that spend. Will it still be true that we all want the most expensive model for everything? I know I see some of my app companies to find a way to use multiple models. Use open source for the cheaper stuff. Speaker 2 For their application but for their development. Speaker 1 Is it a question that there are things where you want one but not 2 foundation models, but there are other things that you offload? Because I don't think, again, going back to what I said, the, the cost of off Frontier models keep going down, but the cost of Frontier models keep going up. And I just made a positive statement. I don't think corporate America is saying, yay, the cost of the Frontier model is going to keep going up. And we're good with that. So I think we've now been found by finance. They're looking to the CEO and saying, dude, on January 1st, he said, use all you like, it's going to be amazing. And now it's May 15th and we got a problem. Let's figure it out. I don't think they're going to say keep using the Frontier models for everything. We're not on a price per token basis, but on a price per pass, on a price per run basis it's been going up. I think we've now going to have to discover costing and marginal costing. Speaker 5 Jason, do you not think that open source will have a meaningful impact specifically on development budgets? You you clearly identified different. Speaker 2 Maybe I just think, I just think we're confusing the these narratives of two things and I wish I had the exact number, but we're confusing the models used for by applications versus models used for software development and for applications. Anyone, every, every. I mean this is open router blowing up. This is everything everyone's optimizing. Even if you're not optimizing, you're optimizing, right? You know, everything high end you do in Opus is like a buck. OK, it could be more, it could be dollars and at the low end it's $0.50. You can't do $0.50 for a chat for every single chatter a dollar. So this could change and there are certainly workflows where you need massive amounts of inference and thought. But I think we're confused into developers are under pressure. These poor guys, as Harry has on the show, they got to work 996. These poor guys, they're not going to use a crappy model on Saturday like. I quit. I can't, no, literally I would quit as a developer, if you told me I could not use the model of my choice, I would quit. It's not worth my time. Like you're literally telling me I've got to use. So I just, I'm not saying it won't happen in some use cases, but I would quit. So the more interesting thing to me from all this, here's the thing that's interesting to me to tie it all together, then maybe we can go on. I think now that we're hitting budget discussions, just discussions, right? And now that CIO's are more involved and now it's, I think it's not just Uber, even though I think the Uber story was a little blown up and a little apocryphal, but it's going to happen everywhere over the course of this year, right? The budget has to come from somewhere. I really do think by the end of the year, we're going to choose tokens over humans for engineering and product. We're at the margin. You're going to go in and you're going to say, because this is certainly the way it worked for me in the old days when I was at a big tech company, Your budget this year was 50 million instead of your budget being for 100 heads guys, or 200 heads. Your budget this year is 100 million or 200 million or 400 million for EPD, engineering product development. And it's, and when I was worked at Adobe, it was, that was all humans. Like we ignored all the other costs because they didn't matter. Choosing Tokens Over Humans: The 2027 Engineering Reality Check EPD, your budget was just head count, right? Everyone costs the same $300,000 a year, didn't matter if they were an office manager or your top because just to keep it simple, OK, now we're going to have much more sophisticated budget discussions going into 2027, which is your budget is this much you decide where you want to spend it leaders. And I'm going to be sitting around, I'm going to say, do I want to have another 20 mediocre engineers on my team or do I want to give my best guys unlimited tokens? And that may fuel the real whether they're AI layoffs or just AI backfills, it may fuel another wave of this, which is very distinct from the click up whatever excuse for getting fit. This may be a rational choice. At the end of the year. There is only so much money and I'll take tokens. I'll take tokens over AB. We've already made that choice at Saster. We get rid of all our BS. We much rather have tokens. Speaker 1 So therefore, the next question is you have to come to some kind of opinion what the percentage mix is. People are going to be pushed into some kind of hard choices and then it will force a belief. Do you really believe that they give you a 20% lift in which case assuming no net change in, you know, demand, you know you have 25% lift, you have 80 spend $80 on people and 20 and 20 bucks on tokens. Do you feel it gives you 100% left at 5050? I mean it will force quantification once you have a dollar budget and a set of deliverables, which I think is the next shoe to drop. Speaker 2 Will, But even more than that, at more competitive companies, the best people won't tolerate not getting what they want. So you're going to so you're going to look. And so what's going to, I think what will happen going into 2027 is in engineering, QA departments will get destroyed because you'll be like, I got 6 QA engineers, I got 10 and, and they're great. But do I really like, I'd rather, I'd rather go to two with tokens and, and whatever's left in like my customer success department that I didn't put into FDS, I'm just going to get rid of them for tokens to manage customer onboard and customer support. I'm going to get rid of all the marginal roles that the ones at the bottom of that of that list, I'm going to sacrifice for tokens. It's so easy. You don't it's, it's really simple. The ones on the bubble that weren't already cut in the first way will be cut for tokens. Speaker 1 It would be interesting to see if you're right. Are you going to wave testing? Are you going to wave code with? You know, like you have to think. Speaker 2 You'll shrink it to whatever the minimum you can do and have and have the models do the rest. You will just inherently make that choice rather than someone that's just OK. And I will tell you, we had this FDCCCOCS summit at our sastre, a annual event. It was a couple 100 liters. Almost everyone was talking about how they're getting rid of Gainsight and all the rest and all their teams. That was the topic this year. We're getting rid of all the people and all the software because it's more efficient to just handle this at the agentic level. This was This was everyone, old and new. Speaker 1 I'm sorry, that's in customer support. Speaker 2 Customer success, yeah, I'm just saying these are all roles on different lines that will get just get cut at the end of the year. Whatever's left in these departments. I'm not going to cut my best engineers. I'm not going to cut my actually smaller sales team than it used to be, right. I'm not going to cut my best folks, but I'd rather have tokens do the inbound call. I'd rather have tokens handle the 3K deals. I'd rather tokens do QA or CS right. Speaker 1 Jason, with all due respect, right, I think I liked what you said earlier, which is a nice way of saying I don't, I disagree with this at the app level, like for like customer support, I think, I think you're at the cost of tokens is so low relative to the total cost. It's, it's in the noise. I mean, I think, I don't think token intensity for something like customer support will be a significant factor. You won't look back and say that's a huge 1 of tokens. I'm just trying to understand the end to end product and development life cycle across initial engineering code review. You test all that. What do you think the split will be between dollars paid to engineers in total and dollars paid to tokens just in that area leaving out? Speaker 2 I don't know for sure. I'm just saying, listen, I don't let me go back in time. Let's imagine I was back at Adobe. I had 400 people in my my little BU OK. And at the end of the year I had it was a fixed budget and and I we got around the room and we decided we wanted to go into next year with 300 people and the equivalent of 100 humans of tokens. OK, another 100 of tokens. I wanted it right. This is very this is what I would do today if if I was fixed. OK, so now I would go now I'm going to get rid of 100 people. So I'm immediately whoever is left in support that isn't great gone. OK, whoever, I would get rid of my entire CS team except my head to CS would get rid of this most of the all of my functional QA team and I would just leave the smartest guys. Like I would just get rid of all of those people because I need the tokens, man. I think it will happen at the end of the year because people will make that choice. Speaker 1 What you're saying it, but it did the math to that 400. What you're basically saying is the remaining 300 people you you took 100 heads and replaced them with tokens, which implies roughly a 33%. Every engineer has who's getting 200 grand or 300 grand has roughly 100 grand in tokens. That's what the math would be. Speaker 2 Sure, but salespeople will have. Sales applications that aren't cheap, though, everyone will have. Speaker 1 Agents why I that's why I don't want I mean, I would, but you keep refusing to I'd like to just keep keep it to engineer because I think that the math will be different in sales and customers work because I think there'll be more app with less token intensity, but maybe third party apps. I think engineering is worth more interesting. I can't remember what's it do, but someone announced today they're going to keep it to, as I say, 1500 per engineer per month, which is 1218 thousand a year called it roughly 10% right. And that's probably a first pass. Why that says and A2 $200,000 engineer, they're getting 10% token budget. You're implying on a $200,000 engineer you're getting 33% token budget, which would be what's that 66,000? Speaker 2 Yeah. And I don't think Uber is like one of the greatest software shops in out there. Can Large Companies Survive Slashing One-Third of Their Engineering Talent? I think it has two products. Speaker 1 And it might even, Uber said. My point is this, this is the question that's going to get litigated this year. And the amazing thing is you can get to the entropic and open AI trajectory and even 10%. This is why I think. Speaker 2 It's yeah, I think you're we're having two different discussions. You're absolutely right. I don't think it's it will necessarily. Yeah, it only even even just 10% is enough to fuel their growth, right? Yeah, I think it'll be maybe higher than 10%. It may be. Speaker 1 High and if it's 33% then two things are true. A buy at any price in the IPO, just any price and then B, it's going to be pretty tough because one in, you know you're going to see one in three, one and four and and per your construct, it wasn't just engineering across the entire engineering part of development stack get replaced plus or minus any growth that comes from that. So yeah, I mean, I'm not convinced it is as high as that just to be clear, I always from my conversations, but I also admit I'm not an expert and I, I don't know what absolute state-of-the-art token efficiency in engineering looks like, but I do know one thing this is the number that I most want to understand over there and it's the first question I usually ask on my VPS of engineering. How are you thinking about it? What's working, what's not? Because this is the number that will determine is $1 trillion a fully priced company that could slow down a little bit for a year while digest? Or is it, Oh my God, no one's even going to pause for breath. We're just going to keep rolling the shit out. It's going to eat 1/3 of engineering salaries and that's going to get you to 4 trillion by two years from now. Speaker 2 It might. I just think that this idea of capping tokens like this Uber thing, I just think it's a transitory thing. It's not a utility. It's not just electricity or, or, or our density for desks in our office. I think that's a great thing to do. Now by the end for 20272028, you should give department leaders a choice and they're going to choose tokens in good companies. They're going to choose tokens over the. Speaker 1 People and I think what's going to happen, you're going to give them a choice. But then practically, I mean, the thing that is so insidiously clever about the AI products that the CFOs are going to be tearing their hair out. It's a product that allows you as an individual worker to be and look wily, more efficient and have it take away a whole bunch of your grant work and you know, the cost isn't borne by you. Which would you prefer? Crank for the next two hours on a PowerPoint. You have to get it just right or type it into, you know, Claude, and say, make me a PowerPoint that does this, this and this. Yeah. And especially if there's no trade off cost. So no one's going to want the restrictions, but every CFO is going to want the restrictions. And the dynamic around that is going to be huge. I mean, you know, I think Benedict Evans does the example of, you know, does it end up like cell phone minutes where you give people big buckets? I don't know, because the problem here is you can only talk for so long on the cell phone. I think the analogy doesn't work because here, as you say, as an engineer, you can spin up ages agent after agent, but I don't think you can have at the level of the VP of engineering, you can have a budget and a trade off at the level of the individual engineer. You're going to have to figure out how to empower your best engineers without letting them bankrupt the company. And it's going to involve something and it's going to be a moving dialogue. If I were building a horn, I mean, I don't like to call the cognitions the curses of this or the harness company, but having something that was great for the engineers but give peace, some kind of Peace of Mind on the budget side would be interesting. Imagine there'll be some movement to that. Speaker 2 Look all I can say on this if I go back if if I if I put my back self back in time when I was AVP at Adobe. If you came in to me and I said I I could have a choice. I keep 400 people or I go to 300 and my EPD team would would commit to tripling our productivity this year was buying every day. Not only that I can instantly think of the people I get rid of it. It takes me like but pre AI would have kept them because I needed I needed someone to pick up the phone Harry. I needed someone to go to meta and keep the customer. But right now, if you see, if my team made this commit to quadrupling output, I can instantly think of 20 to 40 people just goodbye, like goodbye. And it wouldn't even take me an hour. It would take me about 10 minutes to get rid of because if I had to make the choice, I know which gone. Speaker 1 I feel the need to say that I have this feeling about you that you all always instantly know the people you want to get rid of. And it kind of chose me a little. Which of us is going when when it comes but? Speaker 2 In reality, I've never let anyone go that that that almost ever because you always needed people. I've always been lean. I was profitable like 6 million in revenue in AB2B company, OK. Speaker 1 We competed with you. I was impressed with that. Speaker 2 And I enjoy it but but at at the Adobe scale I would know how to get rid of like 50 or 60 of them. It would take 5 minutes right there and a lot of them I inherited. Speaker 1 And let me ask a question then. But you're the VP of Engineering. Let's just play that out, right? Let's make it real. You're the VP of Engineering. You had 400 people in your engineering department and you said, I'll tell you what guys, I'm going to, I'm going to drop down to 300. I'm going to take 100 salaries tournament to tokens. And I promised to deliver not even 3X but 1 1/2 tons what I've delivered before. Do you know VPS of engineering who will say hand on heart today, they know they can do that end to end, Not just lines of code, not just pull request, but shipped product with the features, the restaurant one with that level of cut. Speaker 2 Yes, Yeah, OK. The the faster the the startup is growing, the more it's true, the slower it's growing, the more they tell you it can't be done. Great. Speaker 1 I think you're totally, it's totally true for startups. I mean, I have them come and say, Oh my God, I can't believe we can do this with five people. It will be interesting to see at fill in the blank large company. Can they do that? Because remember, from a budget perspective, that's where the money is. I agree. Our our smart startups with 1020, yeah, 25 year olds are cranking and doing more than you could do with 40 people. The interesting thing is can Uber take 1/3? Can Microsoft take 1/3 of their engineer and do that? This is you right? We'll see. It will be fun. There will be engineer VPS of engineering on both sides of that trade who lose their. Speaker 2 Job, it's just the emails are going to go out there. I'm sorry you've been laid off for tokens. This is the next you think of This is the next all the stuff we've talked about the last X months. It's not even very it's not even interesting. It's it's theater. It's theater to get a fish in. It's theater to free up racks at the December 2030 first people are going to get these cruel emails. It's not you, but we needed the tokens. Speaker 1 I do agree with that. If and and it's and. The question will be for those VP of Engineering. Are you getting the value from those tokens? Speaker 2 We all know in our portfolio there are plenty of old school folks who don't still don't think this stuff works, They don't think it's worth it. There's plenty of folks. It's not all age because there's there's there's young curmudgeons and there's old curmudgeons. And some of the earliest adopters are the most experienced engineers because they're kids in a candy store. They love it the most, right? But there are resistors to this day. And these are the products that like Marketo that haven't added a feature in 11 years. Like good. Good luck to them. Speaker 5 I just released a show with Brandon from McCall and he said they now spend more on tokens than they do engineering salaries. Speaker 2 How many people in engineering does he have? Speaker 5 That's a very good. Speaker 2 Question 3940. Speaker 5 I think I think more like 80, but yeah. Speaker 2 But that's the conceit in those stories, right? Hooray. How many you have 1200 for No 80. OK, well then you know what BFT. Speaker 1 But give, no, I'm sorry, she's now on the give him credit. That's the future that you're envisaging, right? I'm, I'm sitting, I'm just not trying to be scared. I'm just trying to understand where does it come in? There's no doubt if the new companies starting with a clean slate really can do 50% plus tokens, 50% people and they are successful and they are able to ship, then that is the future. And everyone else is just a question of how long it takes till you get to that the future. And if that is the case, we are underestimating the size of these markets even now. Reminder, I also the EDA software market which is the most automated market today in terms of tools relative to engineering spend is roughly 13%. So for every engineer you hire, you allocate 13% for EDA, I'm saying 10% you're saying could be 100%. You notice for every engineer dollar for dollar token, that number is the most important number. It's the implicit number in every one of these models is my point. And I freely admit I so it's the old Einstein quote. If I had an hour to to solve a problem, I'd, you know, spend the 1st 50 minutes thinking about the question. I've thought about the question. This is the question. I don't know the freaking answer yet, but this is the question. On time it goes. Speaker 5 Back to what we said about banning off, but you know spending 3.8% of developer salaries with the 300 million that he spends in Anthropic and whether that 3.8 goes to 20 because that's very different time ultimately for the model providers. Speaker 2 There's another like as we think into 20272028. There's another trend the other way though, which is a big deal. And This is why I think organizations will re bloat up to a point, because as we're able to launch far more products more early, far more quickly, it's not just features, it's products. No matter how good your agents are, you need humans to manage the products. We still, I wish we didn't need PM's and all that, but we do. And so I've got one company crossing 100 million that literally has was going to end this year with three times more products than it did last year. And the EPD team is going to grow larger than I'd like because this just needs they're, they're not related. You just need humans to talk to the even if you need fewer humans per product, which is even if you need half the humans for product, if we have 10 times more products. Help me with the math, Rory. It's hard to get super lean. And so our startups that we're excited about, I think ultimately they will achieve the same historic level of bloat, maybe half the size, but they will get as bloated as they can because they will have much larger, broader product lines. Everyone will be rippling with 22 products the first year and you got to have 22 PMS to make that work. Speaker 1 Agreed. And just to spell it out, I think this again gets to the number I talked to AVP of engineering over the weekend who said exactly that. He said, look, we're speeding up, we're using the tools, but the problem then quickly shifts. The problem isn't our ability to ship stuff in engineering. The problem is the ability of the organization to turn that stuff into money, which means productization, product, marketing, sales enablement, blah, blah, blah. I totally agree. I think there's an interesting academic paper that was cited I think just today on the impact of AI on GDP productivity. And you know, you have the two schools of thought the it'll be amazing. It would go at 10% or where I stand, the average over the last 200 years has been 2%. It'll stay at 2%. And then they say, why is it going to stay at 2% if this shit's so amazing? And it's exactly what you said, Jason. They said even when one part of the org speeds up, it doesn't matter if you can make gazillion pieces of software. If you can't package it, price it, sell it, train it, it makes this reference to weak links. The weakest link in the chain is what determines the speed of the convoy, the wagon train, or in this case, the company. So again, it gets back to the IT may well be not the amazing productivity lift and therefore maybe the budget won't be as much because you have to spend more on people than you would have guessed. Yeah, I think this is a real factor here. Speaker 5 I do want to move on to the next kind of segment or function to be heavily impacted, one would say, which is legal. We've spoken at length about Harvey and Nagoura. There are two elements specifically that I want to touch on here. Number one is Kirkland spending $500 million on building their own. Harvey and Nagoura feeling they have proprietary data, proprietary workflows and they should build their own 100,000,000 / 5 years. This is a big commitment from one of the world's largest law firms and a big slight on two of the biggest players that are told we don't need you. The other point I'm going to make is Jason from Ironclad last night announcing that he is joining Open AI and the impending or coming threat from Open AI and Anthropic Interlegal, which we will see in the next two to 8 weeks. Big Law Flex: Kirkland & Ellis Pledges $500 Million to Build In-House AI For what it's sure, I don't think this like a lot of these things on XI, don't think the Kirkland story is that is is interesting as it looks for what it's worth. OK, so you've got a yeah, it's a law firm, but it's a law firm that does 11 billion in revenue growing 20%. It is committing 100 million a year of IT. That's probably coming out of their Windows NT box or some other crappy budget that they don't need. And this doesn't mean that they won't put 20 million into third party software as well. It doesn't mean they won't dump it if it doesn't work. And it doesn't even mean, I don't know, they could be a Harvey or Lagora or whatever customer too. I just think it's this is a reallocation of less than 1% of revenue into AI to maybe build some proprietary stuff. They should do this work in a law firm. I think is one of the most soul crushing businesses there is. But it's very profitable if you do it right. Segments of it are high margin and 100 million is nothing to win the deal. How much would it that be like to Andreessen to win a deal? It'd be like nothing. It'd be like setting up a media company to win a deal, a 24/7 media company. It's like nothing. So it sounds like if Hurricane Ellis was doing 200 million in revenue or something, it would be a big deal. But they won't even notice it, right? They won't even notice it. It'll come out of the, the bleeding edge of their, their Lexus Thompson budget for some, for some old terminals that get the dust in the corner or something. I don't think it's a threat. And if it is, it'll make them better. If Kirkland can build a competitive product, then the single source vendor should should, then that will force them to be even better and say, listen, this is like anything in AI. You can do a lot on your own. So the vendors have to do more. That's just that's a good thing. It's not 2023. It's, it's great for everybody that we're under AI pressure. It's great for everybody. Everyone should spool up and try and build their own CRM and see if it's worth it. More power to you. If you want to get rid of Salesforce or HubSpot, go for it. Like they should do this. It'll keep everybody on their toes. Speaker 1 I mean, I think some agreement with me, I think 1 is Kirkton and Ellis have already won because they said it first. So they got all the publicity and the clients are aware of it. They look great, they look AI forward and they didn't even do something. They said they might in the future spend 1% of revenue a year for five years, right? So good, good move if that's all they do, they win. And generally, if folks in there, if you're in a transaction business, you know, Kirkland and Ellison definitely come on the hard headed mean as shit side of things. And this is just, you know, continuing on a lifelong trend. So tough, canny call to announce it. And a second company is maybe Jason's one. Have a go knock yourself out. You can do a lot in AII think it is hard, you know, in a part any partnership structure to build that kind of technology. It's traditionally not been possible. So we'll see. But I I I think the other thing is, you know, and again, I don't know, was it Harvard Lagor themselves or people talking about them? The whole forget even the models just for a second as you think about companies trying to become quote UN quote. About full stack law firms, and I'm not saying Harvey Nagora wants to do that. And though you you saw some third party Twitter comments to that end, it would be crazy to think about that because nothing could piss your clients off more. I mean, if I was Harvey Lagor, I'd be like, no, we will never do this because you simply what you cannot be is an AI provider to a vertical industry, a vertical knowledge industry with even the slightest hint or intent that you intend to compete against them directly by going for their by being a full stack provider yourself. This is a stepping, but this is always the rule on when does a big company buy from a third party provider versus bill something themselves. You buy from a third party provider, whereas A horizontal product where there's no unique differentiation, you're not giving up your secret sauce. You're not going to be able to monetize it differently by virtue of having that product. So law firms buy their case management software, their document storage software, the deposition software, even Reuters and Westlow, everyone has the same shit. Giving Away the Crown Jewels: Will Firms Trust Claude? It doesn't matter. That's not how they compete. And Fast forward five years. If AI is just like that where it's, yeah, it's a great look up tool, It's kind of modern West law, modern case management, modern drafting, and it's all virtually the same. Then they should continue to buy it from an outsource provider and then compete as they do on the basis of the rootlessness, relentlessness of their senior counsel and the willingness to flog their associates almost to an inch of their lives to work right, which is how law firms compete. If on the other hand, this AI can become some level of encapsulation of your secret sauce, which is a little bit of the magic that people are saying, then I can see why people pause before they give that away. Because no matter how much, if you really think it's giving away your secret K&E sauce or your cootie sauce or your Gunderson sauce, do you really want to let Harvey train on that? Even if they say they're not training on that, you know, this is the, are you giving away the crown jewels argument? My gut is I don't think you are, but I can totally see why the managing committee at $11 billion firm said, hold on here guys, if we pay Harvey 10 million for their software, but in return for that they know the K&E way, maybe not. So I should have some dynamic there, especially if they're also saying and maybe there'll be a law firm soon. So I think it's really fun and interesting to watch this. And then we didn't even talk about then on top of that, if you thought Harvey and Lagora were fast and loose with your IP, Mr. K&E, wait till you see what Claude does with your IP. Which is why I don't think, I don't think big ass law firms are going to be willing, if you're not willing to outsource it to Javier Lagora, who at least are focused solely on your thing. I don't see for large law saying I'm totally fine with doing this unclawed, so long winded answers. There's such a lot of dynamics here, but everyone's looking at everyone else's lunch and saying, I want that too. And this is what typically happens when a new technology comes on. I do remember I'm doing it now. I'm doing my old I remember thing. I remember in the mid 90's, the story was Microsoft would be a bank, Microsoft would take over into it and then they take over your money. Yes, they were going to be a fintech of us. This is what happens when lines blur and then over time it comes obvious what goes where and I think the same thing will happen here. Fast forward five years, to be clear, I think there will be AI focused service providers to law firms. They'll buy the product and the drama will be out of the deal. Could be wrong. Speaker 5 How meaningful an entrance do you think the AI services legal entrance will be? Speaker 1 My gut again and I'm this is by the way, none of this was on the agenda folks. None of us had time to prepare, but thanks Howie, I think the answer is this. I think it can be market expansionary in the sense of if I couldn't access a lawyer today for I'm you know and the individual level, I think this is really great. I'm getting sued or I got screwed by some big company. I can't afford to get a lawyer now I get an AI lawyer. I love it. You know, cheap divorce, cheap wills, explain the facts, explain the circumstances. I did. There's a ton of additional demand for legal services that can't be met by ordinary people that will be met by AI. And that's freaking great. Same thing for small business, right? I think I'm a ten person contractor. I, I get a document, I can get decent legal advice for 100 bucks. I can't go to a lawyer for less than two grand. I don't think the full stack law firms will replace K&E, right? An AI law firm, because what you're getting from K&E are even the nicer ones, the Wilsons, the Cooley's, the Gunners and the guys out in the West Coast. You, you're not just getting the knowledge of getting the whole experience, which I don't think you can encapsulate in. So I think, I don't think full stock goes all the way. I think you still need the Hume. Let me tell you this. When you're doing a $20 billion transaction, at some level you want a human to think as a CEO and the CFO to hold your hand and tell you, these are the last ten of these. I did and they're going to work. And This is why this is legal. So yeah, I think K&E will be just fine. Speaker 2 You'll always pay the premium for that, for that high level judgement on mission critical things, which is why these jobs are terrible. This is why they're critical because you just want if you're the young associate, you just want a 40 hour a week job at everything you work on is God damn mission critical to the client. That $60 billion cursor acquisition that the SpaceX IPO that the whatever the bankruptcy, the stress. And so that's why these lawyers can charge up to $10,000 an hour now because of the the commodity services we do in Claude, but $10,000 is nothing on on a massive 10 twenty $100 billion transaction. It's nothing. You need the guy I want Rory on this deal. I mean, that's who you want, right? You want Rory? Speaker 1 I totally agree with your comment and it reminded me way before Jen AI when we looked at some of the AI startups in the mid 2000 and tens 10/18/2000 and 19, you know, national language startups. And we were evaluating a really interesting one. And we had this young graduate from Stanford who was an associate at big law. We just said, hey, I'll pay you a bunch of money over the weekend to crank and use this for five different things. And she came back, she's really smart and she came by and said, look, I said this is 98% accurate. This is really impressive. She said I wouldn't touch you with a 10 foot pole. My boss will sack me if I'm not 100% accurate. I have no interest. Like it was exactly what you said, Jason. I'm getting paid to get something right. That's a hundred $500 million transaction. I have no interest in this. So at the high end, I, I totally agree. I think you're going to have that human in the loop. And besides, it's going to say something that's given K&E's reputation. I doubt the entropic safety committee will allow them build a model quite as mean as you average K&E bankruptcy attorney. I literally think it will fail the safety test, right. The ethics in the face, just to me, we can't wait that. Speaker 5 And there we go. That's the partnership gone. The K&E now no longer partnering with 20 VC. Speaker 1 They they'll forgive you. That was a as far as they were concerned, they're going to put that into advertising material. That's the product they're selling. Speaker 5 Do they? They announced earlier this year they paid every partner an $11 million bonus. Speaker 1 And they didn't do that by being Patsy's when it came. I mean, they, they, I mean, famously aggressive and bankruptcy to the point where they actually have to step back and some stuff. Speaker 5 Also we all like to talk about 996 and work ethic. Oh my God, these guys work like, like we, we don't see. I mean, maybe you do it Corgi. Speaker 2 It's a terrible, it's the worst job there is relative to the edge of the balance to get. I don't know whether it's a two by two or three by three. The worst job it is for the most money. Speaker 1 Which is at least better than the worst job it is for the least money. Speaker 2 Yeah, there's plenty of those. This is the worst job there is for the most. Speaker 1 Bottom left it's it's top left high money low the happiness top. Speaker 2 Left the two by two. Speaker 1 It's top left, it's OK. Speaker 5 Guys, I want to open up. Are there any that you think are really important that we head on? Personally, I think Apollo and P software returns as being disastrous is quite a statement, but I don't want to guide all. If there's one, you can. Speaker 1 Do whatever you want to. Speaker 5 Jason. Speaker 2 I do think listen to maybe out of all of our collective skill sets if, but, but it isn't my interest area. I, I do think Robin Hood letting AI agents invest for you if it really goes to the NTH level. I, I do think it's pretty interesting. I think everybody should be, I mean, it's good that they are exploring the limits of what agents can do because everybody should be doing this. What can your agents do right? Speaker 5 And just so I understand, do we not just see the commoditization then of trading because if everyone wants to make campus and all the agents are going to trade in the same way, how, how do we think about? Speaker 2 No, I think, I think there's a version of this and I'm being optimistic. I think Rory will be with me on the CMI. There's a version of this where it's like, well, Wealthfront, but what we really want, which is you talk with your agent, you say this is exactly what I want. I want this REST profile of this amount of time. I'm this old. I have this, these, these expenses coming up. I want to buy a house in three years. OK, I'm willing to lose up to 18% of what I have, but more than that is stressful. Robinhood's AI Move: Automating Financial Planning vs. Beating the Market I make this much from my job. There may be ways that an agent like I think wealth management is, it's like it's the worst, the lowest quality of any professional I've ever worked with are humans and wealth management. They're, they're terrible. They all put you in the same crappy models and come up with the same 11 proprietary products they want you to sell. And I think Rob, this agent has a potential to leverage the best of AI to really do this dream of giving you the right 'cause no one, no one understands finance well enough to answer these questions. I don't I need a product. I have a certain amount of cash. It's it's in my bank. I have a certain amount of public docs done pretty well this year. I have Kerry coming. I have homes. What the I'm no matter who I talk to, I'm fucking guessing what to do with this crap. I want an answer from AI and I asked Claude, but I would love Robin and I'm just I'm probably not the right fit for Robin. I would love the right answer for every single individual. So many folks will not get ripped off if we can get nailed this for everybody. Fidelity doesn't do it. Vanguard doesn't do it. None of them do this. Speaker 1 We actually made an investment in a company range that does this for kind of the low end of the high network. Speaker 2 Yeah, we talked about that. Yeah. Yeah, I like. Speaker 1 Talk about that so and I remember giving me shit for it but I I think. Speaker 2 Harry did, I said. I liked it, The interesting challenge. Speaker 1 About this business, I would argue is, you know, because that's why the Robin Hood thing's interesting, because I do disagree. One part of the thing you said, right, you made a comment, no one knows how to give that financial advice. The truth is this, it's pretty widely understood what the correct financial advice is and what the correct portfolio allocation is. A lot of this is, is actually just getting the information from the client, understanding the specific circumstances. And actually as what man's will tell you, a good portion of it is getting information from the client and then helping the client to stay on that straight and narrow and literally not let him do you know, crazy stuff. I actually think knowing what to do in financial management at a macro level is pretty well understood. You know, risk allocation well to the network relative to goals, which is different than actually managing money and picking individual stocks. And I would actually separate those two. The big picture asset allocation, financial planning decisions can be automated, should be automated and unknowable. And I think LLMS have really meaningful role there. And I think for sensible people who think in terms of asset allocation, it will be great. That's why we made that investment. I'm sure Robin Hood could do a similar version of the same thing. The thing the LLMS have been somewhat unproven as of yet is the ability to actually trade stocks. You basically be a a pod manager in a hedge fund world and outperform humans. The record on that isn't there yet. So, and to me that's a less interesting problem, even though it's where all the drama is associated, right? I think Citadel are going to use LLMS, but I don't think going to replace people with LLMS just yet. The fun thing is I just didn't think of the Robin Hood demographic as the people focused on, you know, kind of long term planning for retirement. So it'd be interesting to see how that meshes with the trading. Is entertainment part of the Robin Hood product? So maybe that as those folks grow up, they kind of grow up with them. I watch my son trade his Robin Hood account. I don't think he's focused on where he'll be at 65. I don't think he's even focused on where he'll be with closer market for fuck's sake. Speaker 2 This is what I like about it though, and this is where and Andrew Bileck, UC of Clavio, he came to Saster AI Annual this year and he talked about what they're doing in AI. And the first one is how they're building software and their harnesses. But the second thing you said in a quick, it went over my head because I didn't know it was on the agenda, but he's like, basically we have these AI agents. We have them for marketing and support and all the things they do at 1.4 billion in revenue. But the most important agents we have is so that every single person using Clavio now is a true expert as a true expert in marketing. OK, which was impossible for AI. So the idea that I can go into any account, whether it's Robin Hood or Morgan Stan and be an expert and whatever, I can't tell you. And I actually think that the we the YouTube agent is really good. It tells you everything about how your YouTube video performs better than any human could be, right? Try it if you haven't used it. It's amazing right And it has access to data you can't see and isn't expressed right. And so all applications should make you an expert in their domain and their product an expert. And literally, I mean, I have so much, I have money in different places every quarter. Morgan Stanley tells me I need more private equity exposure. That's their insight. Speaker 5 Does that align though to what Robin Hood is doing, which is basically allowing you to not be an axe, but it's allowing you to say what you want and it does the expert work for you? Speaker 2 I think they're related, right? Whether whether it educates me or whether because I'm not educatable, it executes for me. I just think it's a line of autonomy and agents, which is a big discussion. How much is it education versus autonomy? But I think the aspiration so that your product makes all of your 10,000 customers, million users, 100 million users, truly experts in your domain. I think this is something as executives and founders, we should, we should aspire to that you log in and the first day I'm a fucking expert in sales, marketing, CS, engineering, product, whatever. That day I should be an expert. Speaker 1 Be clear though, an expert advising Jason would be someone who looks at the totality of his holdings and says, Jason, you do not need more private equity. You got a ton of risk here. You need, you know, you need whatever and to me that is expertise that's available and should be available to ever. And that's the kind of idea that these things will be doing. And again, I'm saying it again for completeness, if you then tell the agent, I want you to outperform the SP by 200 basis points by trading stocks aggressively, figure it out, that agent cannot do that because that task cannot be accomplished by that agent. I just want to be clear So what it can do. Again, financial planning can be done much better with AI and with agents. I think actual trading to reckon on being about performing is not there yet. I know. Look, to state the obvious, given it's pretty, I mean, I've talked to some folks who've been trying to do it, Is that given the power of LLMS, given its potential, given the way people like James St. use this stuff, if there was an edge, they'd be doing it. So some on the millisecond trading stuff, yes. But is AI going to give you a meaningful opinion on should you hold Microsoft or Apple for the next 5 years? It might make you more informed than if you didn't ask us, which is why, to your point, Jason, you'd love to have everyone as they're going to trade. If that information is served up to you, that's great. It's not clear yet, based on actual trading performance, whether or not that answer will be better than the random number generated. That's the rest of us. Because if it was, someone would fund one of those companies and wouldn't tell anyone. Would do what? Speaker 2 Yeah, I don't think you can create alpha that didn't magically exist for every Robin Hood customer for sure, right. And maybe I'm, maybe I'm indexing on something that's less important than it is to Robin Hood. But like, listen, maybe we're all just going to trade GameStop and SpaceX up to 5 trillion. But at least the agent can make me crystal clear, understand what I'm I'm doing. OK, here's the risk. Here's why it doesn't work. Here's here's the historical dispersion of similar things over the last one year, five years, 10 years. If you want to do it, that's great. But let me tell you about a few things you haven't thought about Jason, right? That, that would be epic. Speaker 1 I agree and it would help things. Speaker 2 We can do it today. I might have to get rid of 100 employees on my team to get the tokens there, but we can do it. Speaker 5 Final one before a rage bait, but real 2 for me and so we can choose which one you think is more. I do think Apollo says peace off our returns will be disastrous is very impactful given the percentages of the portfolios of some of the largest allocators in the world. And then tied to that Harvard saying that now 41% of that book is now privates. It's a very high number. Speaker 1 And taking the Meech in turn, I mean, yeah, Apollo as always talking their non book, but they're probably correct. I mean, if private credit, which is the senior lender to a whole bunch of PE based deals is struggling because they're, you know, they're half the consideration and they were, you know, at 5X EBITDA leverage. They're worried then the PE guys who are from 5 to 10. In other words, the equities below the debt in the stock. If the debts in trouble, the equity is debt because these are all this the SAS companies that we've been talking about for a lot. And you know, we all agreed that they're not dying, that they bounced 30% in the last month. But as Jason points out, they're still trading 3456 X. Apollo Warns PE Software Returns Are About to Be Disastrous And if you bought the thing at 10 X 3 years ago and now it's grown a little bit, but you've had to pay some that and now you're at 6X, it's just very hard to get out from under that. How would it shape out? Maybe it won't be a total train wreck, but maybe they'll have to own them for 10 years, do a whole bunch of bolt on acquisitions to grind out a miserable 1.21 point 3X. It's hard because in companies growing at 100%, you can overpay and get saved. In companies that are growing at 20% and then suddenly slow down to 8 or 9% growth rate. If you've overpaid, it's kind of like overpaying for a real estate transaction. There's nothing you can do, There's no accelerant, there's no magic that's going to happen. You just don't want to mature SAS company. I mean, if you step back, if you bought Salesforce at 14 times revenue in 2021, congratulations, you won't sell force. You paid for half with equity, half with debt. So now you have 7 times on the debt and seven times on the equity. You now own Salesforce. The public market thinks it's worth roughly 5 or 6 times revenue. You've got some growth, to be fair, but your equity is challenged. That's all he's saying. The math is pretty pretty harsh. Speaker 2 I mean, the LP's are going to be so excited to get their anthropic distributions that they have to give you a pass on all these. To Rory's point, the point Apollo is look at the debt struggling. The equity has got to be worse. You just not seeing it. That has to be true. But we got to move on and not care anymore. We just got to move on and, and fight the next battle. And you know, I do think these these distributions will facilitate us somewhat ignoring maybe some bad funds. Just just move on. It's life, right? Speaker 1 You have to move on, Yes, I think, I think if you're the LP and you have a diversified portfolio, you have to move on. But if you're, you're one of these PE shops the whole way it should work and it should work is you don't get to just quote move on. You have to, as part of your management fee, spend the next 5 or 7 years because there's a big difference between giving up and getting a point 5X now and grinding it out and. Speaker 2 Going to walk, you got to find an exit somehow. They get you to this, to this, not you got to somehow do it. Speaker 1 And that's why I think I always say to LP's, I think capital commitment really matters because if you guys don't have skin in the game and especially they want to raise again, they're like, oh, not me. Whereas if they've put in, as Peter Thiel put in and very different funds, they passed the fund, but hundreds of millions of dollars and they're going to sit and make it happen. So it will be interesting to see how the PE firms deal with that because you know or even the venture firms, if we all have one difficult fund, how do you respond to that will be a function of are you playing a multi period game? Yeah. Does the next thing look good and what are your economic incentives on that fund? Do you have capital risk? Speaker 5 You mentioned distributions from Anthropic. I think one thing that will be interesting is just how several firms deal with just massive distributions in terms of team retention. Manlo will make $10 billion in carry. The spot will too. Plus Founders fund will make more than that from SpaceX. When you have such huge amounts of cash coming to a team, humans are humans. They often do their own things. It does change structures of firms. Speaker 2 But but So what I mean, I guess, I guess it's interesting, right? I mean, you had and of our of the last generation, you've got open view that after their data dog and other money called it quits, they just didn't want to do the AI thing. $10 Billion Carry Pools: Will VC Winners Quit the Game? They're all sent to millionaires, right? Especially the guy that founded it, right. You even have our friends at emergence. Most of them called it a day after becoming almost billionaires, right? Not all of them, but everyone but Gordon retired or did their own thing. So it's so I don't think every VC firm has to last into the 23rd century. I think it's OK if some of them, these glorified institutions and if some folks at Menlo want to quit, more power to them. What does it matter? I think some of these folks really are in it for the love of the game, right? I mean, what's Peter Thiel's point otherwise, right? I mean, he's too rich, right? And if you're not, then retire. If you're, if you don't love the game, retire when you have, when you make 8 figures, just leave when you have 8 figures. That. That's the simple math, isn't it? Speaker 1 Broadly agreed, Yeah. I mean, when people make money, the thing it does, it allows them to be what they want to be. And some people are like, I want to go back to work next day and do another deal. And some people are like. I want to teach high school go team. And that's that's it's wonderful. Everyone has that chance to do that. So it just reveals preference. And I think, yes, a few firms are going to make an awful lot of money and more power to them. That's the way the system's meant to work. Some people who make a lot of money inside, I'm done. But yeah, there's a lot of people who keep going and enjoy it. So I don't think it will be as quote UN quote impactful in the way you said it. I also like what Jason said is that you're right. If everyone decides they don't want to do it, then don't do it. Speaker 5 Rory, if I gave you a $10 billion carry pool, would you come in and tomorrow? Speaker 1 Absolutely, I like the job because the real truth is the terrifying fact, less so at my age, but especially a younger age, there's nothing more terrifying than getting that kind of sum and then not having anything to do with your life. I, I always tell people to be very careful of, you know, large amounts of money and large amounts of free time tends to be pretty destructive, especially thirties, 40s and 50s. You know, it's, it's hard to fill your day with and there's been so many things to do on. So yeah, I'd, I'd like to keyboard, but again, someone else might decide, no, they really want to save the whales. I'll save the planners or one for governor of California. You know, I mean all these things are possible, right? I'm even one thing I've ever come if I'm fail and just spend a lot of money trying, I mean political consultants. Thank you. It's a trickle down theory in action. Speaker 2 I just think like going back, it doesn't even matter. But when open view, I think just like the Kirkland hills think people got the open view story wrong too. This was a rational look that the guys we've made more money than we will ever spend in our lives and going forward and venture. We're not we're not excited about what this takes. And so they they live in their best life, right? That is a rational decision for most human beings. They returned a lot of their fund right. This was not this was not struggling for 10 years to raise $100 million fund 3. This is guys we all made nine figures. Maybe one made 10 and it's time to it's enough already of this venture stuff like I'm enough of these unappreciative kids or wherever it came from. It was clearly an intentional choice not for the not for the next generation, right who kind of got kicked to the curb, but for the for the founding managing partners. It was a very intentional choice. The real problem if you have very large distribution at a venture fund is that for most people, even if you want to keep going, you might be worried that the next distribution just can't be as large. Is it worth it? Like when I went into venture, it kind of pissed the folks off I worked with. And I said I'm only willing to do this if I can make 10 times as much as I made as a founder. And I said I don't care about, I really don't care about money, right? I already made enough. I have my houses and cars and whatever, but I don't see why I want to do this for the next 20 years. If I'm going to make .4 of what I made as a founder. It's got this is just my simple math. It's got to be 10X to be worth it intellectually. And I don't even care about money. And so if I made a couple billion and carry, which I haven't done yet and I'm looking at my next fund and I'm like God, for 20 years, I might make 20 million from that. I would quit. I don't more power to the young kids. I would give them the keys, the code to the office and I would tell them to keep all the fees and have fun. But I ain't going to do it for a fraction of what I made on the big win, right? Speaker 1 But just as a reminder, I can give you the quickest way to make five times more than you made, which is be the LP as well. Speaker 5 I thought it was non Anthropic SPV but OK. Speaker 1 My point is, yeah, you can just invest more of your capital. So there is a solution to your problem, Jason. Speaker 2 Well, that's what Peter Thiel did, right? He's a third of the Founders Fund, right? Speaker 1 As always, when Peter Thiel does something, you should assume it's the entirely rational, cold blooded correct solution. If I have so much money that the margin utility of the next deal is so low, if I'm only getting maybe 1/4 of maybe 1/2 of the carry, then the only way to solve that is I get 1/2 of the carry and 50% of the LP. Now it's suddenly much more interesting. So if you like the business, you can put more money into it, and if you don't like the business, you can go buy a football team or whatever it is you do or playing or whatever the other things people do. Speaker 5 We get final one, rage bait, but real. You can kill me for this one guys. But we went and did a show with Nico from Corgi. They were seven days a week. They have a 24 hour Cafe and it is a very intense work culture unlike any I have seen before. To be fair, the company scales to 2 1/2 billion dollar valuation and very quickly has been very successful. I'm not going to pick on Corgi, I don't want to, but I'm just asking in your best performing companies, are you seeing a different level of intensity and work ethic than you've seen in prior cycles or it's just kind of rage bait? Speaker 2 Can I simplify it my my learnings? The 9-9-6 Work Ethic: Performative Theatre or Startup Reality? I wrote this on Twitter. But so my very first startup job, I told the startup my very first startup job, I'd never worked at a startup before. And I roll in on Saturday to the office at 9:00 AM and it's me and the Co founder. And I'm like, well, I've never worked in tech before, but in all of my services jobs, I work 6 1/2 days a week. I worked 9. I didn't, we just didn't call it 996. I just had to work 6 1/2 days a week before I worked at a startup. And he's like, it's so great to have you here. I haven't seen anybody in the office on a Saturday morning in a long time. So he was there, right? Founder was there. As a founder, I worked seven days a week. I think the only thing with 996, I think we're getting confused. There was a while in late 2020-2021 when no one really worked. But in generally, it's just how deep does it go in the organization? How deep does working Saturday and Sunday go? I just think while many folks think it's toxic if you're trying to build. I remember what the cognition guy said. What's the C OS name? The cognition guy, Scott. Yeah. When they acquired Windsurf, he said we're we're letting a lot of the folks go and it's because we work seven days a week and that he didn't say it douchey. He didn't say anything. I thought that was very thoughtful. But if they're worth 26 billion where we started the show and so they're all going to make forty $50 million. I think for the first fifty, the first hundred, it may be OK today to have certain expectations if you but you got you better deliver them back at Cognition in cognition like you better, you better not $150 million exit. Don't justify that, right? So there has to be a quid pro quo. But I do think it's just a question of how deep in the organization and and for how long. So I don't think it's as toxic as or or frankly as new as the world makes it out to be. I don't think it's as new. I think, I think there's a performative element even with the Cognition making it sound so new. I mean, just do it, man. Just just hire those people, right? Pay up, give them four times the equity. Make them all have 20 Co founders. You know, they're not really Co founders, but give them the equity and tell them this is what we want. And if you don't like it, go work somewhere else. It's cool. There's a lot of companies. Speaker 1 Totally agree that it's not new. I mean, look, the truth is this, there are different jobs, pay differently, have different levels of responsibility, risk and intensity, right? And you can pick where and that thing you want to be. I'm not making a judgement on you, right? Different folks, yeah, are moved by different things. The prior conversation, right? Startups consistently have an intensity significantly higher than most companies. I was reading the Apple in China book and then the 50 year history of Apple. This is not new. It was brutal there. I mean, they talk about heart attacks, they talk about the pressure, right? Unfortunately, sometimes to do really hard things, you need small numbers of people to concentrate 24/7 and pull their resources, pull their minds and just will it true. It's not sustainable for 50 years of your life, right? It's just not a way to live. So I, I do agree, Jason, I think it's always been an I mean, we're joking about big law. I mean, everyone at K&E and all these pieces, they build 2102 thousand 200 hours a year. That's exactly that math. So, you know, some people choose to make that trade in return for the success again, So I agree, don't be so performative about it. Don't be toxic about it and be realistic about your expectations. Most founders will do that and most founders don't even regard it as a punishment. Most founders regard it as the thing they most want to do. And I love work. They're like, no, I don't want to go to the ball game. I just want to work right? And that's why, you know, it's their passion. And the 1st 50 people that are doing it all in will do it that way. When you get to 2000 people and you have a large organization and you got to hire folks with lies and additional interest, you're probably not going to have that same level of intensity across the board. But I, I'm with you, you know, it's like it's nothing new. It's not, it's normal and it's on normalness. In other words, in every generation, there are places like that. It's a small percentage of the total workforce, you know, because most folks are doing different jobs at different intensities. But yeah, go do it. But you are. I like what you said, Jason, you better deliver. There's nothing more sucky. I mean, I had my own start of it didn't work out. I look back and I worked, you know, 7 by 24 for three years and made no money. That sucked. As a reminder, that's the modal experience in the correct sense of statistics. That's the most single most likely outcome. Speaker 2 If you're implicitly promising 8 figures to these early employees, then sorry, you, you have to think. It's not even the 996, it's you have to think about this every minute. No one that's wildly successful, no matter what they say, they're thinking about their company every minute. They have distractions. Maybe they own a sports team or two, but you got to be thinking about this every spare. It's all your energy has to go into it. And, and, and, and so you can expect that of more people, but you better give them 8 figure. You better give them a shot at 8 figures, right? You better give them a shot at 8 figures. Speaker 1 I do think you think you have to watch is that you know, you don't over devolve into weirdness and you know, you know, bad thinking and, you know, losing a judge. I find when you're working really intensely and you're stressed and you're kind of caught up in something, the good news is you put an extra 10 hours of effort. The bad news is you lost your judgement in doing it. And especially if part of your job is a judgement job, you need to step back and, you know, go out, touch grass, take a walk and just make sure that you're not, you know, instead of rage baiting, rage working, you're just performatively working and not achieving. I think that is something, you know, it sounds weird. I'm not hippy dippy, but making sure your psychological health and judgment is good. Speaker 2 No, for sure. Listen, it's a marathon, not a Sprint. Unfortunately, we've replaced you with tokens, but it is a marathon and not a Sprint. Both, both are true. Unfortunately. There's good news, there's bad news. We agree. Culturally, it's a marathon, not a Sprint. But we need the token budget. For the folks on the Office 996, we just need your tokens. Speaker 1 By the way, to the appoint you, it is bizarre and we've grown to accept that that we're all here in the valley with a plan to automate white collar work such that there's going to be mass unemployment. According to these folks who are totally on, in my opinion, in three years and all the work was done for us by agents as yet you talk to every single person in this valley and they're like, I've never worked as hard. I'm working 24/7. The contradiction at the heart of it is all it's hilarious. Speaker 5 And also my number one problem is hiring and recruiting the best. Speaker 1 Time. Yeah, you can't get people and I have to work 24/7, but by the way, we're going to automate our work and it's all going to be fine. Speaker 2 It's hard to predict. It's just hard to predict. Speaker 1 I think you're actually pretty easy to predict that it won't happen, but not yeah, it won't happen. I think it's yeah, things will be be great, but it's all delusional. Little things will be the same as the last 200 years. I repeat myself. 2% real GDP. The Great Valley Contradiction: Working 24/7 to Automate White-Collar Work We'll see. Listen, we go on forever. I, I, I think you can't predict because I just don't know being objective. What happens with the B's, the A's, everyone can't hire enough and they're worth more. I just, we, we absorb so many B's in tack and then we, and then we got, we got full of them. And I just, I know you think there's going to be plentiful jobs for them. I I'm not convinced. Speaker 1 I don't know I remember many years ago I had a CFO of one of my companies and she was fun. She was hard nosed and if she had a quirks right. But then she point to another ex member of the staff had gone on to something else and she said I look at him, she said and he's got a job and as long as there's people willing to hire idiots like him, I'll be OK. No stuck with me. I mean the truth is this people will get jobs. They might get the high step. I mean it sucks. Maybe you won't get another job that pays 400 grand and allows you to work from home years a week. I think you will get a job. I am not in the Yeah, the bees will be doing. The bees might just have to recognize that there was a moment in time when they got wildly overpaid. Life will go on, and maybe the you'd be happy doing other things. I'm benignly happy.