Speaker 1It will be super interesting to see where that anthropic Q3 number comes out.
Speaker 2I've never seen a CRO flip from one competitor to another. But I just think in the AI age, the definition of loyalty has changed.
Speaker 3I think the reputational damage that you can do, you know, long term is going to come back and bite you. Basically handed every other firm a weapon when they're competing on a deal saying, is this the partner you want when things go bad?
Speaker 2When agents pick you, it's a force of nature right now.
Speaker 1There's a lot that's got to happen between now and the anthropic IPO in the middle of November.
Speaker 4This is 20VC with me, Harry Stebbings, Jason Lemkin, Rory O'Driscoll, the biggest news in tech. And we have a special guest joining us this week, Dave, the returned CEO of MongoDB. And today we discuss OpenAI. They are closing the gap on anthropic, nearing a $70 billion run rate. Then we have the factory and the cognition debacle. Salesforce then buys Listen Labs for $2 billion. Reflection, could they be the US? Best hope for an open source model that can compete with China? This and so much more in today's show. But before we dive into the show today, Base44 is one of those products I used and I just thought straight away, man, I wish I'd had this when I started 20VC with $50 and no contacts in venture. I wanted to see what it could do. So I built a guest research hub for the show. Upcoming guests, company notes, previous interviews, sponsor contacts, follow ups, all in one amazing location. I described it in plain English. A few minutes later, I had the product open in front of me. Database, login, backend and hosting already handled and just all in one. It made it so easy. And that's what I loved. I didn't write a long spec. I didn't stitch five different tools together. I built the thing and I started using it. For any founder listening, that's the point. The faster you turn an idea into something real, the faster you launch. Apps, dashboards, internal systems, AI agents, whatever you need to build, Base44 gets you there. Go to base44.com forward slash 20VC. That's base44.com slash 20VC. While Base44 helps you build, AlphaSense helps you find answers really, really fast. We used AlphaSense on an investment that helped us close an $8 million deal. $8 million, baby, that's a lot of money. That's why I'm genuinely excited to have them as a partner on 20VC. AlphaSense combines AI with one of the world's deepest libraries of market intelligence, including expert interviews, broker research, earnings calls, company filings, and real time news. Every answer is grounded in this incredibly trusted evidence and fully traceable to the original source, which is so important. So you can make really high conviction decisions with confidence. But the best part, they're building super analyst and always on AI analyst. So instead of starting your day with another search, you'll start with work you already done, your coverage monitored, the important developments surfaced, and your investment brief already waiting for you. See for yourself. Head to AlphaSense.com slash 20VC. That's Alpha-Sense.com slash 20VC. While AlphaSense finds insights, Intercom helps you serve customers. As AI agents become more common in customer experience, teams often end up juggling multiple siloed tools for every job. Well, Finn was built to change that. It's a single unified agent that works across your entire customer experience from service to sales to success and beyond. Finn is the agent making perfect customer experiences possible for thousands of customers. It's powered by custom models, trained on years of real customer interactions, so it understands the nuance and complexity of customer service better than any other agent. That means faster resolutions, more consistent support, and just better experiences for every customer. It's also designed to be fully self-manageable, so you can easily improve and adapt it as your business evolves. No third parties required. Leading companies like Gamma, Asana, DoorDash, and Crypto.com already use and love Finn to deliver better customers. So for a limited time, you can get $500 a month in Finn credits. For your first three months, learn more at finn.ai forward slash 20VC. You have now arrived at your destination. Boys, it is so good to be back, and we have a phenomenal guest joining us today. Dave, thank you so much for joining us, dude. Thank you, Harry. Thanks for inviting me and being part of this amazing group. You know what, actually, I don't know if you guys know, but Dave gave me feedback that we needed to move on faster. From just OpenAI and Anthropic. I love it. And we really took it to heart. And so taking it to heart, I thought we'd start on OpenAI. Well done. OpenAI nears a $70 billion run rate and goes for $30 billion at $1.4 trillion. But the IPO is going to wait until 2027, despite Anthropic going out in the next few weeks, it would seem. What do we think, boys?
Speaker 2The crazy thing to me when I think about the story is, I mean, OpenAI is back, right? $70 billion in revenue. But more importantly, if you look at it now, it's $70 billion in revenue. If you look at your portfolio companies and others, Astra, Sol, Luna are everywhere, right? Everyone's using them. Everyone is using them. And when you think where we started this year, a lot of things in B2B only worked like at the end of last year. And like only Anthropic could get this stuff to work. And even coding at the start of this year only worked on Anthropic. And then we went into the summer and it kind of seemed like, you know, OpenAI in some ways was on the rope because consumer was the wrong path and they couldn't get back. It's only October something-eth. I mean, the rate of change here. And the rate at which the OpenAI team got back in the game and made something that is truly epically competitive to the point where people are switching out their models for real because it's better and cheaper. It's crazy that pace at that scale. And it's $70 billion. It says it all, right? So, I mean, you counted them out three or four months ago, not literally, but figuratively. And now if they launch a truly competitive set of model LLMs, it's like instantly massively competitive. It's crazy. Massive kudos, I think.
Speaker 4What happens if Anthropic's numbers for Q3 aren't blowout? Like every team that I speak to has at least deviated some meaningful portion from Anthropic to Codex and everyone says how amazing it is. What happens if they're not blowout numbers like the world really just assumes Anthropic always has now? The interesting thing
Speaker 3that we should also learn from this and having sold to developers the last 12 plus years is that there's not a lot of loyalty. Developers are very quick to use, to switch out. From one tool to another, or frankly, use multiple tools. And I think what we're seeing is that developers are quick to find the shiny new toy. The question is, you know, what will Claude or Anthropic come out with next and what are the other alternatives? The other thing that's, I think, interesting also is that what OpenAI has done is shown that when you have essentially a billion people using ChatGPT a week, that's a great distribution channel, but the potentially where the moat is where the enterprise business is. You have to sign contracts, you have to train thousands of employees, you have to build workflows, and it may be harder to switch the DP again to the enterprise. That's kind of a little bit of a reaction I had.
Speaker 2Yeah, I guess in that sense, OpenAI's run rate's even more impressive, right? I mean, maybe they're already embedded, maybe they're already through procurement, but that's pretty fast change in the enterprise too. Yes. Can I ask you a follow-up question? From your seat, do you think that is a blocker for more progress in OpenWeight's models in the enterprise, just the literally ability to get through procurement, get approval? I mean, obviously the explosion this year is crazy, but it is a hurdle to get over. What are you seeing from the Mongo and Sequoia side?
Speaker 3Well, actually, from a Mongo side, I was just talking to our CIO, and we're talking about token costs and token budgets, right? So cost is a big factor that I think every enterprise has to consider. No one has unlimited budgets. The second thing is IP rights, how we train these models, who gets the data, how proprietary is the data. And I think those two things are also. Pretty important points when it comes to what models you choose and who you work with.
Speaker 1As you often do, Harry, you put a lot out there. And I think you're right. Forget the valuation stuff, which we haven't even discussed yet. Just the raw number, the 70% Q on Q for OpenAI and Q3. And I tweeted at the end of Q2 when the OpenAI numbers came out for Q1 and Q2, and the gap revenue growth from Q1 to Q2 was 18% quarter on quarter. And you did that math, and that implied just under 100% year on year. Growth rate, which was massive deceleration at a time when Anthropic was still going 10x. So like at the end of Q2, that was the state of the race. And I don't like to make this a horse race, because you need to zoom out, but there's a part of it that's a horse race. And if you noticed really early on in Q3, all the OpenAI teams started really tweeting, we're having a killer July. Do you remember Sarah Fryer coming on that? We're having a killer August. It was clearly that they internalized that Q2 was the first time Anthropic and gap revenue was larger than them. And it did. It just felt like they were pulling away. You know, 11 billion versus 6.8 billion, growing 10x versus growing 2x. Suddenly, a 70% number, no matter what, we'll talk about Anthropic in a second, but no matter what Anthropic does, at least changes that narrative back. If it really is correct, and we don't know, but if gap revenue grows 70% Q1, Q2, or even 60% up from 18% Q1 to Q2, that's a massive reacceleration. And, you know, just starting with a huge win and the big freaking sire. It's a relief because, you know, given the OpenAI forward purchases of just about everything from compute to data centers to land in Virginia, if they didn't grow at a hyper speed, a lot of things come unstuck. So that's the first thing, which is, if true, amazing for OpenAI. And then you write the second thing is, did that come, and this is where the dev comment on developer loyalty is important, is that, did it all come at the expense of Anthropic? In other words, you're asking the question, is this a rotating share? game, they accelerated 70% and then Antoine dropping slowdown markedly, or did they both grow pretty well, in which case, you can lean into the TAM. And you're right. If the OpenAI growth rate was the key missing card, the missing data point, now that you've allegedly seen that card-- and again, we're assuming the 70% is correct-- you're exactly right. The next shoe to drop is, OK, OpenAI, you paid your 70% card. Now we're going to play our still-it's-10x growth card? Or is it going to be the 5x growth? Or is it going to be, hey, we've slowed down a lot? And I won't say it's no accident, but it's worth noting that the timing of the IPO now is such that that number will be in the prospectus. But it will be known at the time they go public.
Speaker 4If we disentangle the revenue from the price in the round, then Rory, as you quite rightly illustrated I should have done, poor Harry, $1.4 trillion, the largest private round, $30 billion more. I mean, I thought we had dried up all private cards. We had a lot of private capital. Clearly, there's more. How do we think about this, Rory?
Speaker 1This would be the first ever venture round above a trillion dollars. That's pleasing. The first ever private trillion-dollar-- I remember in the mid-'90s, I remember the first above-a-billion-dollar round, and we were like, whoa, that's kind of crazy, moving right along with three orders of magnitude.
Speaker 4Rory, congratulations for becoming the new head of CalPERS Pension Fund. And you are now in charge of directs. And you have the chance to open AI at once. It's $1.4 trillion or anthropic as they go public at $2 trillion. What would you like to do?
Speaker 1Oh, I think you lean to liquidity. It's a lot better to have liquidity than not have liquidity. You separately have to value the two companies, which has worked more. But then separate from that, you really ask the question, liquidity versus illiquidity. I would much prefer to be in the liquid stock when the amount of information is as unknown as it is. You either want the liquid stock or you accept that you're holding for three or four years, because that's what the risk of being private is. Yeah, you think it can go public next year, and it should be. Damn it. It's not big enough. But you never know with the world. So I probably would lean to liquidity at the margin. Sorry, boring answer.
Speaker 4We can go to Anthropix IPO, or we can go to the slightly salacious one, which is Factory and Cognition. I think we should go there. I'm going to just throw my hat in the ring there. So I'm going to provide some context. Chris Degnan, sales leader, legendary from Snowflake for many years. Was a board observer at Factory, spoke to Matan every day, according to the founder, very close to him, and whilst he was very close to him, was interviewing for a role at Cognition, according to the founder, Matan, this is, and then took the role at Cognition as CRO. And that is when Matan came out and said, you're barred, this is wrong, and how bad of you. Let's start on that before we discuss Vinod. How did we analyze this?
Speaker 3Yeah. So I just want to be clear. I know Matan personally, I'm an angel investor, Sequoia's investor in Factory as well. And MongoDB is a partner with Cognition. But the fact that an advisor has access to a founder's confidential plans, there should be clarity on, you know, with the founder that they're thinking about going in a different direction, especially if that's a potentially competitive situation. But if I was the CEO, I'd be pretty annoyed to see someone who had access to my plans go to a competitor. Again, I don't know if that had happened. That would be quite upsetting to me if it did.
Speaker 2On the other side, like as a CEO, it's going to be profoundly frustrating, right? Your advisor. He goes off and joins a competitor, right? It's happened to us all at some level. I would think 95% of the CROs we would talk to would say, this is fine, man. This is the way it works. Like, CRO is a risky job. There's a lot of turnover. Jobs come in fast. And a lot of CROs, if it's a hot job, they move very quickly. And so I just think that a lot of CEOs would be frustrated. I think 95% of CROs would say, this is how I found my last job.
Speaker 3Jason, I'm going to respectfully disagree because remember that CROs also hired other people to work for them. Selling them on the company. Selling them on the vision. Selling them on how they're going to make money and how it's going to be transformative for their family. If that person were to leave, they basically burned their reputation with everyone they recruited as well. So I've never seen a CRO flip from one competitor to another. I've seen a CRO go from one company to another company in a different space because they think that's a better opportunity. But I've never seen a CRO, at least that I can remember, that's ever flipped from one company to a direct competitor of another.
Speaker 2No, I just don't think most CROs, if they were just an advisor, he's not a full-time employee. He's an advisor. He's not even on the board. A board observer, and that's important, right? But there is a distinction between a board observer for a little while and a board member. A CRO, not a CTO, not a founder, not a CEO, gets maybe somewhat retired, as far as I understand it. Made a lot of money at Snowflake. And that's fine. Nothing wrong for many for retiring. Gets what seems to be the greatest job offer. It's going to happen. And then says to the other CEO, I got this offer. I'm going to take it. It'd be nice if there was a little more temporal separation, but I just think most CROs that find the job of a lifetime that are just an advisor to another, they wouldn't even see a conflict. The way we think about conflicts as founders, I think a lot of CROs think of it as a game. Competitors are often really friends with each other, CROs. They see it all, my job's to beat Mongo. My job at Mongo is to beat whomever, right? And so anyhow, I just thought founder is shocking, but I don't know if the CRO as an advisor, this is seen as crossing some sort of line.
Speaker 3So again, not knowing all the facts, what I will tell you is that different advisors have different roles. So you can call an advisor for a particular part of the business or particular function and say, Hey, I want your advice on, Hey, I'm looking to hire someone in Europe. Can you vet this person or give me some ideas of who I should talk to? That's very different than someone who's inside the tent, looking at your product plans, your board plans, your financial plans, and has real visibility in terms of where you're taking the business. I think it was the former, then yes, there's no issue. Hey, this person was talking to you, it was kind of a light relationship and they decided to move on. Okay. It happens. You're not thrilled about it, but it happens. But if someone had real insight into the business, real insight in terms of what the product roadmap was like, real insight on how they're competing and winning and losing against their competition. And then they suddenly jumped to a competitor that would be very, very different to me.
Speaker 1The interesting thing is if you think about the employee relationship first, and then the advisor relationship at the employee level, you know, if I'm, if I have a CRO working for me, right. At any point in time, it's entirely possible that he could be a CRO. He can, he or she can get a compelling offer from a direct competitor and go over there and literally know, know everything about what I was doing up until the minute he gave his notice. And WI, you might think, Ooh, that sucks. That was a pretty shitty thing to do because you were all in for team A and now you didn't go to another sport. You went to team B in the, in the same damn league. It's really G, but it happens. And the, the factory CEO would, you know, voiced anger, but it's worth pointing out if I was a full-time employee, there's no way for me to tell CEO A, Hey, I'm thinking of leaving. Until I got the job. And then I have to get my notice. There's no halfway measure. So to some extent, this is going to happen. If you have employees, they're going to know a lot about what you're doing. And at any point in time, they can go and do the same thing for a competitor. And at that point in time, it's going to suck. And right up until the minute before they signed that offer from your competitor, they had know all your plans. So in other words, something shit like this can happen.
Speaker 4And if, or you could forward communicate, you could say, Matan, I've been approached by Scott and I would like to actually pursue it. And so I wanted to let you know, and be upfront about that because I'm aware I have a position of sensitivity. Okay.
Speaker 1First of all, I'm dividing a full-time employee and then we'll talk about advisor because I think one thing that was corrected, there was an implicit, this is where you get explicit and implicit understanding. There was a, there was probably some implicit understanding about the advisor that wasn't fully fleshed out on either side. And that's where I think Deb is actually correct, but going back to the full-time employer, I don't think you can, how, if you're a number two said to you, come in and said, Hey, I got an offer from Excel. I'm thinking about it. I may go. I may not. If I, if not, I still want you to love me as if I'd never kind of thought about leaving, but I may go. And I've done that, but it's generally in an operating role. It can, it can at least be difficult at least half the time, but that's
Speaker 4not the case here. You're doing matter hypothetical.
Speaker 1I know what my point is merely people are saying, Hey, you had a part-time advisor who left and brought all this information. My point is you can lose a full-time direct report. Employee who brings exactly the same information and even more. So it can happen. It happens quite a lot in business. It's not like it's unusual. The thing that's unfortunate here is if the person's just doing kind of part-time advising, you kind of ended up in a non situation where you're disclosing everything that person's not on the board. So has no fiduciary obligations is not employed by the company. They're probably to Deb's point with some implied statement that said, Hey, you shouldn't do this, but it was never made concrete. How are you shaking your head?
Speaker 4I think you're absolutely wrong. I think. If you're an employee, you have very siloed information and you don't have a lot of privileges that a board member would do with the oversight on strategic discussion across the whole company, across all the different functions. So it's completely different. How would you say, okay, CFO, COO. If you're the CFO who moves on, you have no real insight into the maybe product roadmap and function. So do you think
Speaker 2that an advise, okay, so you would say, okay, but listen, I mean, how is it so different? Half of the, uh, of the, uh, the frontier labs folks are rotating back and forth, right? They go in and out. They're taking tons of intellectual property and knowledge from each other. Dev can challenge me here. And I wish this were not true, but I just think in the AI age, the definition of loyalty has changed. I think it's changed permanently. I think culturally it's changed. I see it with some of the top executives I've learned with just one prong. I mean, people move more quickly. The compensation is very different. And I think you just have to expect people will move from competitors. They will go from a open AI to anthropic to wherever it's just that we've changed culture. and it can bother you, but would the world change? We got it. We got to accept it.
Speaker 3Yeah. So so what I would say is the following. Like, it's very rare for me to see people go to a direct competitor. It has happened. And Jason, you're right. In this age, there seems to be more of that happening than not. But it's still quite rare. And I think you also have to understand that these people have reputations. And if they're in a leadership position, they've recruited people who work for them, who believe in them, who believe the story. And then for this to get up and leave. And obviously, I dealt with this last week. It kind of leaves a bad taste in people's mouth in terms of how really committed were you to this? And did you sell me a bill of goods in the situation where a CRO or senior executive is leaving? The question I'd ask is like, OK, I understand there's lots of opportunities out there, but do you have to go to a direct competitor? There's no other company who wanted you. There's no other company that values your skills as much as this company. I think the reputational damage that you can do in the long term is going to come back and bite you. Do we even remember next week anymore in the age of AI? I think you do. Actually, Jason, I would say the more things change, in many ways, a lot of it stays the same around people, around relationships, how you work with them. People too often use the AI era as like, oh, everything's changed. I disagree. I think how you manage people, how you recruit them, how you develop them, how you hold them accountable. In fact, a lot of these young founders struggle with this all the time because some of them have never hired a go-to-market person. They've never had a finance person. And so they're always asking for. They're always asking for advice on what do I look for and how do I evaluate someone with skills very different than mine? And they're all the same issues I had when I started my first company in 1998. Like, it's the same thing all over again. It's just obviously happening more visibly than it ever happened before.
Speaker 2Until recently, my experience was there was always, when you went somewhere else to another company, there was always the rule of two. Kind of like the Sith, but different, right? Wasn't the Sith like the rule of two? I don't know. You could take two people with you. So when you left Mongo to go to your own company, you could bring one and Dev would get kind of pissed. OK, and you talk about it and then you'd ask permission for the second and there'd be a lot of friction. But if you cross to the relationship was broken right now, I'm seeing folks take like eight or 10 with them the first week. And like, it's not a cultural issue anymore through people that I respect and think are high ethics. Right. And some of that, I think, is the pressure to move so quickly in the age of ad. But I do think it's I think it's related to this. I think it's a symptom of change that the rule of two seems to have died. Was that your rule with your team over the years? Did you did you informally enforce the rule of two?
Speaker 3Oh, I've had people who left. And then carpet bombed the rest of the organization, try and follow them. And obviously, that wasn't a great feeling. And, you know, and stern words. Let me ask an interesting question.
Speaker 1Would you prefer someone to a senior executive to leave and go to a direct competitor, but recruit no one or someone to leave and go to a totally different business, broadly in Dev developer tools, but say and recruit four or five of your top of his top execs? Which would you prefer to defend, the talent or the knowledge?
Speaker 3It's a tough one. I think it depends on who that competitor was. And it was like my mortal enemy. I'd be more upset about the former. If it was another company and a four or five people left, it is what it is.
Speaker 4And I move on. I would just love to maybe slightly move the conversation along because we mentioned the word loyalty. And, you know, when we hear the word loyalty, I just think of Vinod Khosla, who led Factory Series C, led their most recent round and then goes on Twitter. The wording was like struggling second tier competitor. Absolute demolition job of Mattan. I don't know what to say. Was he asleep in the partnership decision? Was he aware that he led the last round? I'm genuinely not saying that stupidly. I don't know if he was. Candidly, I was shocked when I saw that.
Speaker 3I was just totally flummoxed by that tweet because it basically handed a weapon to every other firm competing with Khosla Ventures. And Khosla got a great team with Keith and a bunch of other people there. And basically. He handed every other firm a weapon when they're competing on a deal saying, is this the partner you want when things go bad? I was just totally flummoxed on why he would do that publicly.
Speaker 1Yeah. Some days you just make a mistake. It was a mistake. He will probably look back and say, gosh, I wish I hadn't done that. It's a weapon in the hands of everyone who competes with them. Wish it hadn't happened. A lot of what's going on here is what are the legal obligations versus what are the implied rules and what are the consequences of breaking the implied rules? And what are the non-legal but nonetheless implied rules? It is really hard. It is really hard for venture firms when they do two directly competitive deals. And the only way you get around it is you make all this argument about you love your children equally. You don't say anything in public about one about the other. And then you have something like this that crashes through every wall. And, you know, it just shows that those situations of two directly competitive investments are very fraught, especially if you're actively involved in the companies. It was very unhelpful. It's very unhelpful for Khosla. Very unhelpful for both companies. It's like, ick. It was not Ventures' finest hour. Let's move on.
Speaker 2You know? Maybe being the Pollyanna, he meant it positively as tough love. You know, there's a theory, like, be harsh on the most struggling founders. He thought struggling second-tier competitor would be motivating.
Speaker 1I yield, obviously, to Dev and the CEO as man-manager side here. But I do vaguely remember something about praise in public and chastise in private. Yeah, it seems backwards. That was the mission here. You never know.
Speaker 2It seems baffling.
Speaker 4We've been talking a lot about open models. I've lost you. We saw Reflection ship Beam. I thought that was a really interesting story. We also discussed, Rory, one of yours before Intercom, obviously, selling to Salesforce. We had Salesforce buying Listen Labs, too, for $2 billion.
Speaker 1Of those two, where would you rather go? I think both are worth some time. I mean, I'd love to hear your thoughts on Reflection because, look, they've been, frankly, talking about shipping for a long time. And from what we said earlier, it seems to me that being an open-weight, U.S.-sourced model is a. super interesting strategic position right now. So if someone can ship something that's near-frontier quality, even if it's six, 12 months off, just from the dynamics of the market, that's a nice place. So what are you guys' thoughts, David? Yeah, I actually tweeted it out this morning.
Speaker 3I actually thought that enterprises kind of can have their cake and eat it, too. One, you get a U.S. open-source model that's near-frontier intelligence. That's three to four times more cost-effective, i.e., cheaper. And that's music to the ears of any enterprise. Because there's obviously going to be some hesitation by using Chinese open-source models, especially if you're in a regulated industry or an industry that deals with a lot of sensitive information. To me, this was a very noteworthy announcement. Again, I do want to disclose a Sequoia's investor in Reflection, but I think it's great for the enterprise.
Speaker 2I was at Dreamforce this year, right, and got to actually have a surprisingly large number of conversations with the execs. Notwithstanding, you know, the incredible force of nature of Chinese-based open-weight models, nobody I talked to really wanted to use. So, you know, this is a very Chinese-source model. Right or wrong, fair or not, everybody that was, they felt like it was under duress for cost, but no one really wanted to use one. Again, right or wrong. So, you know, if they nail this right, it could be a torrent of demand.
Speaker 3I agree, and I think that this also reinforces the point that you don't need, you know, the frontier-level intelligence for every workload. If it's close to the frontier, as Rory said, you know, within six months of the latest models and addresses 90% of your use cases, like especially around, you know, reasoning use cases like coding. And I think that's a very important point. I think that's a very important point. I don't see why enterprises would not kind of want to talk to them immediately.
Speaker 1Ties back to the first topic at one level. So far, the evidence has been that there hasn't been a massive push because people are lazy and the bills haven't been astronomical. And therefore, they've just kind of used the frontier model and maybe, you know, downgraded to the entropic or open AI, less expensive model levels. But I agree. I think the interesting thing now is because the numbers are getting so huge. I mean, if Open Anthropic are each making $70 billion. And ARR, that's $140 billion. That's more than Microsoft taxed for the longest time across both Windows and Office. That's a chunk of U.S. corporate profits, right? And at that point in time, if you're a CFO, you probably come into your CIO and say, I don't care that it's easier to choose the Entropic dude. We need to shave $3 million off this token bill. So start using Jev for your 20% of your decisions and start using reflection or something for ending this not frontier and figure out a way how to use Entropic for the hardship. I'd imagine, Dev, you guys will start to have those conversations and all your customers will. That's why, again, these growth rates are so interesting right now for Entropic. Can they still maintain that unparalleled growth rate in the context of this kind of chipping away? It's like, remember the old man in the sea, the guy's bringing back the fish and then the other fish are no one at bits of the body. You know, they're just taking away slugs of revenue from them.
Speaker 4Well, and then you've got Jev and you've got a load of the other Jev competitors also in a different way attacking them.
Speaker 1Yeah. And again, the forward momentum. The momentum has been such that all this is like, yeah, thanks, Rory. That's super interesting. But did I mention we 10x last year and the year before?
Speaker 3The other thing I think is important to understand, and Jason, I'm curious what you saw at Dreamforce, but I think there's a big gap between where the capabilities are and where actual usage is in the enterprise. I think there's a paucity of real experience skill sets inside the enterprise. And so I think we're going to see Jevon's paradox kind of come into play where basically as these costs come down, people get more and more comfortable. Deploying it for more and more use cases across the enterprise. As you get more conversant and skilled around these technologies, they'll start deploying it for more use cases. I see this even at MongoDB. And so I think you're going to see that, frankly, this is a massive market. And I think everyone can be successful. I mean, I won't comment on the growth rates of the Frontier Labs versus the open source model, but I don't see this as being a zero-sum game.
Speaker 2To answer this, the captain obvious answer to what I learned at Dreamforce, everyone I talked to, everyone was just overloaded. with the amount of internal demand there is for tokens And whatever it is, it's more than they can imagine. Whether it's being used properly, whether it's being burned for nothing, whatever the cap is, the demand is probably an order of magnitude more than they've figured out how to surface, right? That may lead to using suboptimal models. It may lead to a lot of waste in some ways, but everyone's got to manage it, which just that and the fear of using China-based models, again, right or wrong, is just a huge opening if you can nail it. I'm just, the only thing I will just add, just for fun, we can move on, is, man, just personally, I'm getting more and more skeptical of published evals. Like, of course you can make an eval look great. How fast was it? What were really the outputs? How well did it perform on a real workflow? How well did it perform on a mission-critical workflow versus telling you an item was in stock when it wasn't, which is still kind of mission-critical workflow. I found that every single eval needs like three asterisks and four daggers next to it today, so I'm skeptical. Beam is as great as they say it is, but I just asked while we're on if I could get on OpenRouter and check before we end the podcast, but it's not there yet, but I would try. But it's not that I don't think these are all great. I just think all the evals are so biased and focused on chess championships that I'm
Speaker 4slightly skeptical. We have Nematron. We have Thinking Machines. We have Reflection. In 12 months' time, what percentage of token in open source flow will go through US versus
Speaker 2Chinese? Well, look, just two things. As Dev made the point in the beginning, developers will change, and especially here. This is a lot easier than swapping out your database, right? That could be done, but having recently done it, it's some work, man. I got to tell you. It's not even with an LLM. I mean, listen, this is still work. You have to qualify your prompt. You have to redo your workflows. It's not nothing like the internet says, but I could see it being half in 12 months. 12 months is a lot of time, and I think sovereignty plus US-based is really important. I'm not saying it will happen because I don't know that, again, I'm skeptical the parity is really there versus pretend there, but if you're even X minus three months to Dev's point, it could be half in a year. A year is a long time.
Speaker 4But that gives me a lot of confidence. I'm an investor in fireworks, as is Sequoia, and I think the biggest concern I would have as a fireworks or a base 10 or a modal investor would do is that actually big enterprises are concerned about Chinese models, and that would prevent them from engaging with partners like fireworks or modal, and they then go to frontier. And so the fact that you say 50% shows me that the levels or quality you think is sufficient enough that it would be that rate. That makes me excited.
Speaker 3I think the other thing that enterprises are going to care a lot about, above and beyond cost, is safety, being able to trust these systems. And I think we're just getting focused on this. Obviously, there's a big conference last week in Washington. It's clear that there's going to be some self-regulating approach to figuring out how to address safety. The challenge is how do you define safety, right? Because if someone knows how to define it, well, I'm really curious, but it's beauty is in the eye of the beholder. But we need some way or some mechanism for people to be able to determine, much like a benchmark, and yes, people can do that, but we need to have a game of benchmark is like, how safe are these models? The more safe these models are with whatever mechanisms are in place to prevent people from doing bad things, the more widely usable they'll become.
Speaker 1Agreed. And I wouldn't guess, by the way, 50%, Harry, but I think even 10 or 20% would be extremely significant in terms of tokens. Because if you think about it, the foundation models on Open Router, I think, get 20, 30% of tokens and get 90% of the dollars. If the U.S. Openweight models are even 50, 60% of that in terms of tokens, that's a lot of traction because it'll be, by definition, the more enterprise-centric, safety-conscious customers doing it. I think that would be, frankly, a huge triumph for Reflection and, as you point out, a real de-risking for all the inference guys.
Speaker 4Ding, ding, ding. We got investment committee. Dave, welcome to the committee, by the way. We're thrilled to have you as part of the investment team. You are surreptitiously on the new firm that is O'Driscoll Lemkin Stebbings. Jason, we have Eleven Labs, who doubled their valuation to $22 billion. Would we do $22 billion?
Speaker 2I think at $22 billion, we should consider doing up to 10% of the fund. Time is short. We're at an 18-month deployment cycle. One of our most esteemed partners is going back to run a public company, so we're losing some of the folks on the team. The way I see it, Eleven Labs has done something quite different with actually a fair amount of intense competition. Its lead keeps widening. It is one of the. One of the 10 most important underpinnings of agentic applications is the voice applications, where they're going, the rate of growth, and surprisingly, the margins are very impressive. This is a company that, by the time we close the friend and families round, which we're hoping to do at $50 billion, this one could be approaching $1 billion in revenue, and that's the sort of growth rate that I think it's the deal we've got to do, and it's highly differentiated. I won't say they have the highest mode out there in the world, but this isn't Jev-level risk. Eleven Labs has built an incredible team. They have sub-millisecond response rates for voice, which has become a key modal, and it's tough to find a better asset today. Do I wish it was at 21 or 18? For sure, but I say we go all in.
Speaker 4Can I ask you, Mr. Lampkin, you previously said on the show that this would be the year of substitution for voice models and that cost would drive that decision. Have you changed your mind?
Speaker 2No, because I think Eleven Labs is, for the most part, it's always a risk. For the most part, it has multiple models. It has covered the low end and the high end, and quality here is. It is in many ways more important than it is in your classic open weights model. We can tolerate a little bit of laxness in the reasoning for non-critical workflows, but when that flower dealer is picking up the phone, it has to work. It has to answer that phone in seconds, and it has to be the right flowers. If it fails, if it misunderstands it, if we can't populate, this product isn't worth it. So there's a limit to price, but I'm shocked at the deal size of Eleven Labs. I'm shocked at the number of folks that are relatively modest companies paying hundreds and hundreds of thousands of dollars a year happily, and our reference checks said they love it. They feel like they're getting a good deal. So I don't think all models are fungible. Despite some of the other discussions we've had at the fund, the fact that I did recommend putting maybe $500 million into Reflection and others, this is not a fungible use case today. 12 months, it's hard to predict, but I'm impressed with the team, and I don't think anybody's going to catch them here today. It matters. This is where the LLM matters. 10% of the fund goes to Eleven Labs? Well, I just don't want to do it over two rounds, you know? I don't need to see it. I don't need to see it 50 or 100. Dev knows what I mean, okay? I don't need to see it a second time. I just want to put all the chips in now, get the ownership I can, and move on, right? And I've got a friend of mine that's a CRO I want to put on as a board advisor. I think he'll be able to help out and give him some insight.
Speaker 4Okay, moving from one score company to another score company. Sorry, Dave. It's not intentional. Rory once said a quote, which is like, what was the quote? Like, whatever game you're playing, just be Sequoia. Remember the one I'm talking about?
Speaker 1There's so many quotes. I mean, you know, look, I've been doing this 30 years, and when I came in, Sequoia were top and gave them huge credit. 30 years later, they're still there, you know? So, yes, I give the Gary Lineker football quote, if you recollect.
Speaker 4So, with great surprise, Sequoia made hundreds and hundreds of million dollars with Salesforce buying Liss and Lapps for $2 billion. Now, apparently, they had offers at $1.5 billion, a major win for Brian Schreier at Sequoia, about $850 million back to investors on 96 Invested. Sequoia did the best. They led the seed. They led the A, making about a 25x. Ribbit led the B, which 4x in eight months. So, well done, Mickey. What did we think of this, guys?
Speaker 1I think it was a great outcome for a very clear category, in the sense of it's pretty obvious that, stepping back, listen up, market research is a very large, fragmented, almost pre-technical industry. There's a bunch of consulting-type companies, and then there's three last-generation companies, Qualtrics, Medallia, and what was SurveyMonkey, all that got to kind of high, single-digit, low-double-digit, billions of dollars in terms of market cap outcome. So, it's a really good category. It's an existing category with a big-ass spend, and LLMs just do it so much better, because what are you doing in market research? You're kind of asking questions of people and aggregating and assimilating the answers. And the two things LLMs do well, we just talked about voice. Voice as a modality is a solved LLM problem. And then asking questions and knowing how to end, not just kind of these canned, stupid, last-generation, surveys, where no matter what you say, the survey just asks the next dumb question. You know, it's like, did you like your stay? No, I didn't even check in. And then the next question is, was the bed comfy? That's the last generation. Whereas now, with LLMs, you can adjust the questions based on what the respondent is saying. All that means market research can be done so much better with LLMs. And I think Listen Labs was one of the early contenders that did it well and executed brilliantly and got to real revenue. Great outcome. It's kind of one of those, the list of use cases for AI and LLMs at the app layer, that comes out like a top five, top 10 use case, and there it is.
Speaker 2But you know what? I would love to get Dev's thoughts on this. I'm pretty much a fan of a lot of Salesforce's acquisitions, and I've been champions of many of them. This one, I don't really get. It's not that I think it's a bad idea, but I mean, Salesforce is coming up on $60 billion. Their target's $60 billion. You know, they're almost at $50. I just don't, I don't know how $20 million of revenue of next-generation AI survey moves the needle. And I'm not saying it doesn't. I mean, Mongo scale, you got to move, either it has to tuck in or move the needle, right? Maybe you think about it differently, but to move the needle, it's got to be big. And Salesforce even, so this is the one where I'm, I get the theoretical appeal, but I wonder if this one will just be kind of forgotten in a couple of years.
Speaker 3What I will say is that I think we're going to probably see more of these deals, right? Because I think there's starting to be a difference between, are you building a feature that's masking as a company or a franchise, right? And I think a lot of AI. application companies will sell because a clever product on top of someone else's platform is frankly a feature. And if they can use the distribution of that larger company, they have the cash and distribution, they're going to take advantage of it. I think the companies that are more durable are the ones that, you know, essentially are creating a data loop where, you know, the usage creates data that no one else has, the data makes the product better, the product attracts more usage, and you kind of create that virtuous cycle. And so if someone tries to copy you, they can copy the features, but they don't have all the interactions that you have. And so I think the difference here is when you look at these kind of standalone AI app companies is are they really feature masking as a company or are they really building a franchise? And I think the founders of ListenLab decided that this was an offer that made sense for them.
Speaker 4I mean, you'd be pretty pissed off if you're Intercom, wouldn't you? Sorry. You're just like, you've gone through like 15 years of shit and struggle and building this business. And then, you know, ABBA's answer to Justin Bieber comes along. And three years later sells for a comparable number. And you're like, fuck. Sorry. So I know they all made money, but you're just like, oh, bugger.
Speaker 2That was an easier route, wasn't that? Of course you think that as a founder. I mean, I don't mean there's always someone that had the easier route and you do think about it. Of course you think, even at Mongo, I bet Dev thinks about once in a while, God, those, I mean, we've done great at Mongo, but those guys, they had an easier way with it.
Speaker 3The lesson I tell my boys is comparison. The thief of joy. You start comparing everyone else and you're going to be very miserable for the rest of your life. Yeah. Rory. Yeah.
Speaker 1Hey, I didn't do it. How are you? You know, yeah.
Speaker 4Comparison is the thief of joy. Okay. Good to know
Speaker 1how, but that's why you were wrong to mention that because in the end, I think both companies made money. And to that point, you'll step back and say, both of them will go. Yeah, I feel good about what I did. Now you're right. It's a lot easier to do it in three years than 10 or 15. Duh, we get that, but life ain't fair. And venture outcomes are very random. And more than anything, what it says is timing and the cycle is just so interesting because look, you know, we put some money in Intercom recently. Intercom achieved that valuation. It could have happened for Intercom had they sold in 2018, 19 in the SaaS boom. And to Dev's point, maybe we will look back in five years from now, maybe 10% of these apps companies will have sold early. They'll have got their 30X revenue and the rest of them will be grinding it out for six times revenue at 300 million with 3,000 days on the head exploding, right? But you just, to some extent, you can't control the outcomes. You just got to like the process, right? And if you end up doing well, then, you know, both of them have done just fine.
Speaker 2I will say one thing from the, how old was Listen Labs? When was it founded? Three years old. I will say as a founder, having been through the different lengths of journeys, the earliest days are always the hardest, right? They're sort of fun because, you know, it's just you and you're, it's very creative, like in the way, but it's, you know, unless you're the lucky kids these days, you almost always run out of money. You don't have enough customers. It's like, if you can exit for a good price in three to four years, I'm not saying you should financially, but man, it's easier. It's so much easier to exit no matter what struggles you go through as a team though, because it's, I find it's five-year chunks and they take it out of you, right? I'm not saying it's a reason to sell, man, but if you can sell for $2 billion in the first five years, I have my, I'll tell them to take it because it's not that we don't all want to build a Mongo. We do intellectually, but man, it's just do it in the first, in the first wave. So much easier.
Speaker 1I don't think anyone is sitting on the call screaming. I can't believe you sold dammit guys. Why would you only take $2 billion? No, no, that's not true.
Speaker 2We've all, we've all had VC meetings where a company is like this and, and no one around the table says you should sell on a deal like this, right? I had one this year at about this price and every single VC said, don't sell right in that first wave. And it's because there's a lot of momentum in the business, dah, dah, dah, but man getting out for that first, I know you can call it the first exit, but you really can do another. You know, the, the thing is you have to decide if it's generational, are you building a Mongo or better? Then of course you say no, right? You can get out for 2 billion in the first five years and you're not building Mongo or better. I don't know, man, I would take it and enjoy my life at
Speaker 1Salesforce. It's such an old story now, but for some reason it surfaced on Twitter, the whole Zuckerberg turning down a billion from, was it Yahoo or Google? I can't remember right early on without even thinking about it twice, but it is. I think the real point, Jason, comes to your thing is that you have to be kind of cold-blooded. What's the likely trajectory from here? And then how do you feel about running the tape and how likely are you to get not just three times this amount, but 10X this amount and more? And how do you assess that? Plus the personal side.
Speaker 2I think you have to be honest if you're trying to build a generational company. I don't think that's a catchphrase. I think it's really important because otherwise you have a terminal value, a terminal state. And if the offer is reasonable, you'll never beat the net present value of these deals. This generational stuff isn't easy. I mean, Dev's back in the seat again. This stuff ain't easy,
Speaker 3generational companies. So, and I will tell you the best companies always got offers to sell, right? So I'll use my example. And I wouldn't say like PlayLogic was a massive outlier, but like every stage of our growth, we had people who wanted to buy us. I remember sitting, I guess I can share this now. I was in John Chambers' office. We were literally sitting face to face where he wanted to buy the company. And then for some reason it just didn't work out. Then they came back again. I had EMC at the table and you just go and go. And ultimately you sold a year after we went public. To Jason's point, ultimately the founder has to decide, do I feel good about continuing to build or should I just hit the exit button? And I felt good about our decision to sell to BMC, but we came really close a number of times to sell the business earlier. And looking back, it was the right decision. How much did you sell for to BMC? We sold for about 900 million, which at that time was the highest acquisition paid in 2008.
Speaker 1It was a killer deal. I had a small company that competed with him. He claimed our clock. BladeLogic was the winner in that category. And the number two was a ref who is now at Bain Capital. He was running Centerview, Centerpoint. You walked all over us, Damian.
Speaker 3What revenue were you doing when you sold? We were doing about 100, 9x. Which by the way, was right on the heels of the GFC. So the market was getting quite skittish in
Speaker 42008. One that I am interested by is actually one that Jason suggested, which is Vercel at 600 million in ARR. With agents being 50% of the new business, up from 3% at the start of the year. Jason, I always find you quite mind expanding for me when you talk about these topics. How do you think about this? How much budget we should give to agents for 2027? What's the takeaway for us from Vercel now getting 50% of new business from agents up from 3%?
Speaker 2Well, look, I would say maybe two different things. One, I think that there's a bunch of companies like Vercel that had the right infrastructure, the right product before AI and agents, right? So Vercel founded in 2020, right? I mean, Guillermo didn't not know that in 2026, the majority of his business would be from agents, right? Spinning up applications on their own, right? Nobody saw that. Some of the most amazing stories, even Eleven Labs is a little bit of that. Certainly Replit founded in 2016 is like a big case study where you latch on to that and it just works. And they do have the tiger by the tail. There's a lot of competitors, a lot of really strong competitors. But agents, they don't have that. They don't have that. So agents pick Vercel. It's very strong. And it was interesting. I think, what did they say? They're growing 170% at 600 million from 20% increase in customers or something. I mean, the expansion revenue is astronomical. And it's just, the thing is when agents pick you, and I'm sure Dev's thinking a lot about this, right? On the database side, when agents pick you, it's a force of nature right now. And agents, what I've learned from, well, you have 21 agents. We're building all day. Between me and Emil, I'm literally building eight to 10 hours a day. And man, my agents have opinions. And they're really, really strong. And they're really, really hard to argue with. And if they want to use a vendor, it's a lot of energy. I know I'm anthropomorphizing it, but it's powerful when an agent decides something. And Vercel is a major beneficiary of this. Even last year, it looked great, but it never seemed it would be as important as it is today. Oh, that's just where I'm going to stick my code, right? Important, but back office infrastructure. But man, this is where so many agents and apps are running. And I would take this one to the IC too.
Speaker 3I think this is really interesting about the point that Jason made is that agents are making decisions, right? For the last 25 years, every marketing person, every company has optimized how you show up on page one of Google, right? You educate human buyers. Now you have to make sure that agents can find you, understand what you sell, have current accurate information about you across the sources they read. And if you're missing from an AI generated answer, it's like being invisible on Google. You know, full disclosure, Sequoia is a company called Profound that helps companies with those helping them. But I will tell you, this is a massive problem. And it's not just in tech. If you're an e-commerce site or you're a retail company trying to sell through e-commerce and agents are now making the buying decisions, you got to figure out how to educate those agents. Otherwise your business is going to zero.
Speaker 4You know, when I look at this market, we too have a company, Dave Peak, and everyone's like, well, this is just like a next generation of SEMrush. Is it just a next generation of kind of SEO analytics providers with your Profounds and your Peaks? Or is this actually a much larger category? I think the opportunity
Speaker 3is more than just analytics, but telling you where you're missing and all that. I think the opportunity for these companies is not just telling you what you're missing, but to help shape the content and create the content to help you solve that problem. If they can close the loop, that becomes a very compelling solution versus just telling you you're here, you're not here. This is what the other guys are doing.
Speaker 2I'm just looking today, for example, it's smaller, but look at Resend. So for example, the first agentic purchase we made was Resend for email. Okay. When I was trying to set up Resend for email, I was like, I'm trying to set up a bunch of agents last year. I kept getting recommended SendGrid, but because they need the CEO to go, the founders to go back, I just couldn't get the send grid thing to work they kind of deprecated free i couldn't figure out the key it kept breaking it was and so i asked my agent what i should use it said use resend resend april 106 000 mcp calls to september three three million that's agent saying to use products and i'm not saying profound isn't doing that they may well be my limited experience is this is different i want to kind
Speaker 1of disaggregate how did your agent decide because i assume some part of it is the general how i show up initially in the ants in the answer engines you know how i show up on open ai and then what else does the what else does your agent look at is it just the
Speaker 2it looks at your infrastructure it looks at the application you're building it looks what's trusted it looks what it thinks the right match is and once in a while it'll make wacky choices that are very specific to your use case but you got to be that one you got it it's not a chat gpt is going to give you a generic answer based on a number of facts i'm not saying they're using the same llms right so some of that is being into it but an agent knows your whole stack it knows every it knows your application it knows what you've built on top of on top of the system so it will make a very specific recommendation what to use and this
Speaker 3problem is even more profound no pun intended for early stage companies because there's so much corpus of data for your incumbent who's been around for 10 15 years and if you're trying to disrupt some incumbent the agent's going to see all this data about the incumbent and very little about you so when it makes a decision it can very easy just basically pick the incumbent solution so it's actually incumbent upon the startup to figure out how they basically educate agents on what they do the documentation the apis and all the infrastructure and the wrapper so that they can then show that they are truly a first-class experience for an agent to make a decision on for what
Speaker 2it's worth here's what i tell my portfolio companies i've invested in work with i say find 10 folks you know that have agents in production doing different things 10 folks you trust and ask them every two weeks what would you recommend in this category what would you recommend and see what the agents recommend this product doesn't exist today i think the four of us should fund it it's not the same as profound which is guessing what lms do these are live agents in the field in different applications asking the agent what should be used right and just let me understand
Speaker 1where is that agent who will answer the question i mean that agent presumably is doing some other job and you'll
Speaker 2just go on and say agent could be at any any tech company any startup is going to have agents running today that's that's worth their
Speaker 1salt yes and you will allow your agents spew out what they're using
Speaker 2internally yeah like for example i literally i'm on the phone right now i'm asking one of my an app i'm building sasser connect its agent what should do i use for hosting it said first use render actually honestly i barely know render okay it says use render my pick the agent said my pick number two railway we know railway they're doing pretty well number three fly io number four ados number five vercell not suitable for this oh interesting i would have picked vercell you know for this i don't even you guys may know render i never heard of it and you know what probably i would probably use render and it literally says my pick so render just got a lead it just got a pretty good lead from this agent you got to win that war can we get into the last round and render can we get the sequoia price at render what was the sequoia price i did but i
Speaker 4don't know i don't think it's actually the same market as profound and peak
Speaker 1i i actually do i think it is because i i think both profound i know both companies actually wrote a term sheet on the profound a which we got it and i think naturally both those companies when they're finished figuring out how you show up on the on chat gpt for humans are going to quickly evolve to how do i if if agents are who i need to show up for then by god i need to tell my customers how to show up for agents so i think it's a natural next product extension don't get kind of caught up in the minutiae of oh we only do it for humans zooming out as jason has convinced us everyone humans and agents will make purchasing decisions using llms and using information they get online and you're going to have to make sure as a vendor that you show up correctly and whatever that takes the opportunity there is to sell a solution to the marketing person who's got to solve that problem in any company there's some dude at mongodb who is going to be figuring out this afternoon check how we show up on agents to make sure when jason needs to get a database we show up first and if that person needs to have some way of surveying what other people are saying about them what other agents are saying about them that's a product that mongodb is going to buy and i think that's the profound opportunity it's the peak opportunity it's a bunch of other companies in the space i think it's a good space i think for some reason i think it's a good space i think it's going to have more depth than the semrush space which ended up commodified and boring for a whole bunch of reasons i agree i mean reminder we did the series i think see at hubspot and i say this over here it was an seo company to start out but they just did a brilliant job of adding a whole bunch of other stuff on top you solve the customer's immediate pain point especially these marketing platforms you solve the customer's immediate pain point and then they have an adjacent pain point and you solve that and then you solve the one after that and i think every marketing person has a three-year list of pain that they have to solve in terms of how they show up in the new world of llms and they want all the help they can get for that if you make solutions you can make money here so i think it's i think it's a super good
Speaker 4market what topic have i missed boys from the list that i have to discuss okay there was one
Speaker 2i liked but i i liked the one because it could change a lot of tech stuff uh the engineers suing um which one was it uh which which of the license sales i didn't think about that but now it seems like an obvious claim that like i lost the benefit of my consideration by doing this i don't know where the lawyers come out on this one but yeah give us the background
Speaker 4on this one grox engineers sue over nvidia's 17 billion dollar license and hire deal two former engineers sued in delaware alleged grox board effectively sold its core technology and top 200 staff to nvidia through an 11 billion license plus about 3 billion in stock leaving common holders with a hollowed out company the news
Speaker 1is that they perceive that there might be a course of action because zooming out a million miles corporate law tries to say everybody gets treated the same and there's 200 years of precedent and you know exactly how it happens all common shoulders get treated the same board members have a duty of care a fiduciary duty to all shareholders your case law up the wazoo has to happen and this stuff tears up all the case law and it effectively allows the buyer to reallocate consideration in the company hey you guys are coming across and you get a lot of money you guys are getting stayed behind and you get a little money and crucially these two employees had already left the company and i don't know this for sure but my guess is when the acquirer is allocating capital they don't say oh i also want to take care of the ex-employees because they're like why would i bother but delaware law says everyone who owns a common sharehold is exactly the same and it's one of the non-negotiable principles of this stuff that you treat everyone in the same security in the same way so when i read that i'm taught that's interesting that's a clever little case and it'll run a little i wouldn't be surprised to see it settled because there's probably only a small number of people in the class because my guess is everyone who came across was happy my guess is everyone who stayed and got stock is happy so it could be a relatively small number of people who'd left already but it's going to be an interesting case where they probably have some legal argument to make yeah i'll connect
Speaker 3dots right remember we started this discussion about people leaving and you know very very quickly and here's the parallel i draw is like investors long ago and actually even more recently have been able to protect themselves in situations they negotiate these kind of issues up front what happens any kind of exit including a weird one employees never thought to ask about this so if you're a founder you're going to have employees saying hold on what happens to my equity if the company's tech and some members of the team get bought but the company doesn't and i think founders need to be able to answer that question because that's a question if you know as people learn about this is going to be coming up more and more often especially if people you know switch between companies very often so i think that's a great question and i think that's a great question
Speaker 1and the idea of kind of corporate law delaware or even if you go to a place like texas you shouldn't have to think about as an employee because it's like dude there's common law and you'll all be taking care of the same but once that gets eroded as you say that once that you know it's up for grabs then it's quite insidious and you're right everyone has to think when i join a company i don't just have to think what my one percent is worth i have to think well what could happen to my one percent if you sell the ip what could happen to my one percent if you sell the ip and half the time it makes everything harder to pull off so it'd be interesting to see if this leads to some kind of pushback away from those kind of structures i mean they're not ideal and the only the only reason people are doing them is because of the ftc and we don't ever say this because they can't but it's because of the ftc and the fact that you can't get m&a through in any appreciable time whereas you can get these deals done literally overnight and the employees start next days it's a workaround a regulatory problem that is no surprise creating a bunch of second order issues and unfairness i just
Speaker 2think it's interesting because listen this structure is fading away a little bit in the politics aside in the current administration it sure seems easier to get a quick deal done a fin or a listens lab pretty quickly right so some of these issues some of them are are fading at the margin but man i don't know some of these deals sure feel like mergers and substance to me so i think i think if one of these lawsuits wins which even if one fails another may well win right i think this is a mergers and substance i think these deals will die because they already have double taxation they're already horrific from a double taxation perspective then add a whole set of risk and carve back for the employees we're leaving behind with the keys at windsurf who will end up being the big winners and cognition right but it looked like they got left with the keys and a year of cash to work it out i think it'll end these deals if there's significant legal risk here and and and it it also feels to me a little like a safe note you know safe say i know this sounds niche safe say they qualify for a qualified small business stock because they're stocked but they're not they're clearly not stock and they're not going to be able to do that they're going to have to do it again and again and all these non-merger documents say they're not mergers, there's licensing, and I'm sure They say the more deals go by, the more clauses say it's not an acquisition. But just because you say it's not a duck, it don't mean it's not a duck. I think some of these are ducks.
Speaker 1Exactly. And that's exactly the case to lay it out, which is it was a de facto an acquisition and there's a whole bunch of things you have to do in an acquisition. So yeah, you're right.
Speaker 2It's interesting in hindsight that we didn't think about this because they may end up being like, how the hell did we think we could do these deals and just completely work around the, not just part of the cap table, but the whole cap table.
Speaker 1But it's forgiveness, permission. I don't, we talked about it at the time. We don't like it. It feels unfair. But I think the pragmatic answer that I'm willing to bet, Grok was NVIDIA, wasn't it? Right. I'm willing to bet, let's say they have to settle and they have to chuck in an extra 200 million bucks. The real answer is my lawyers, my very smart lawyers came to me and said, I found a way that we can buy this company on a Sunday night and all the employees start on Monday morning and we have the IP versus this other way where we put in an application to the US government and close in nine months. And Jensen said, is there some risk? And they said, yeah. He said, I can live with it. Done. We did the deal. And then two years later, you go, yeah, it was a little bit of risk. It turns out it's 1% extra on the price. Here's 200 million bucks.
Speaker 4I think an additional that just isn't discussed enough is Muse was a phenomenal launch and has been a phenomenal reception. And I respectfully think DOS has been very unimpressive. I thought that demo was incredibly poor, very tech centric. How do I do flights for enterprise usage for an open AI? I thought it was out of touch and I thought it was very underwhelming.
Speaker 1Thoughts? Obviously, you've used Muse for a while and you're right, they've killed it. And as someone who taught and that acquisition isn't working, it seems as a whole bunch of gear grinding, I just got to give the executors credit, whatever he did, whatever between Zuckerberg and Alex Wang, they put their heads down and they ship product. And as the CEO on this call, both CEOs on this call know better than me, that cures everything. They launched a killer product. They launched it full on. They resourced it with compute. They kicked ass. And it's good. I mean, I'm going to New York this week. It's real fun. You do instinct and you muse and you kind of check on them and see who's winning. It's kind of a bit of a geeky joy. But there you are. They're absolute, let's use the word, frontier, state of the art. This is as compelling as any fricking startup. You guys have muse nailed it. Anyway, conversely, I was trying to figure out DOS today. I wasn't quite sure what it is even at the end of it. I went and looked in anticipation of the program. Here, I went and looked at the whole demo day thing, and I'm not quite sure I got it yet. I see where Spaces is going, but yeah, it's not nearly as cool.
Speaker 4And so you are a 30-year venture investor, Rory. How do we feel about America adopting this?
Speaker 1I don't know. I'm not going to be as opinionated as that. I'm not a product guru. I'd like to hear from these guys. But my point is, I wanted to celebrate the good, because in the past, I'd been a little cynical of the meta thing. They nailed it. I want to celebrate the good stuff. All I can say on the OpenAI DOS stuff is, I'm still trying to figure it out. So Jason, did you turn it on? Did you try it out?
Speaker 2Listen, I don't disagree with Harry's point that the consumer PR element was definitely underwhelming considering the muse buzz, which I modestly contributed to. But I think it's because the initial point of DOS is that it integrates with Codex and can work as a 24-hour coding agent. And one of the annoying things, and one of the things that it's under-discussed that actually a rep or a lovable did well in the early days, is they could be online. They could be on all the time, at least sort of. But it's pretty annoying. You can't really keep Cloud Code or Codex going 24 hours. That's why OpenCloud took off and others. I'm simplifying a lot of stuff. Now everyone has a 24-hour persistent agent that can work with Codex, if nothing else. So I want to give it 30 days and see what developers do for real with the persistent agent optimized around Codex before giving up on the fact that maybe they weren't as excited about booking my business class tickets to Palm Beach over the holidays. It could end up being the bigger win and almost in a sense, it's almost guaranteed to win in that sense, right? If it's sort of the persistent extension of Codex and building on the OpenAI stack, it almost can't lose unless they stop developing on it. But maybe it's never that consumer-y. Maybe it's just a nerdy product and like Mongo, it's okay. You can make money in these nerdy products, can't you, Dev? There's money to be made. Let's view it from the developer lens and give it 90 days and see what cool stuff gets built. It points to the thing we've said before, right?
Speaker 1Yeah. The thing we've said before, it's just super hard to be developer forward, enterprise forward and consumer forward at the same time, you know. Interestingly, it ties back to the Mongo comment and where your former colleague went to run the enterprise side of Meta. I think that doing one thing well is hard. Doing two things well at the same time is super hard. And I think OpenAI struggles with that all the time, even on the kind of the product surface area. There's just a lot going on.
Speaker 4Do you remember last week when you mocked me? I was in the middle of a show, 26% up in a single week, Rory. What did you buy again? I bought NewBank and I have to admit, I didn't quite know the Brazilian elections were coming and they would go in my favor. I didn't know that the Monzo deal would not happen, which would also go in NewBank's favor. But 26% in a week, I got a lot of thank yous from people who made thousands and thousands
Speaker 1of dollars. So let me get this straight, you bought a stock and two things that you didn't expect, happened, and your stock went up and you're feeling good. That's the takeaway here, right? Well, I feel more, I feel more, you know, charitable. And we made money. I just want to answer that. No, but it is interesting that as a Brazilian based company says, stock goes up when they realize they're not investing in the third world country like the UK.
Speaker 2Stock pops. Sorry. Just being mean, Harry. Harry, can I do one before we lose Dev that I just would love to get his thoughts on? Yeah. I added to this because I don't think we touched enough on it. I loved on the Aura IPO. I thought this was terrible. Terrible news for venture. Terrible news for venture because you could argue this one is overpriced, I guess, right? I mean, that's an analysis. Rory had a point that Forerunner was selling, you know, I think them selling their whole stake was a large part of the IPO, which adds some element to pricing. But I just think it's a huge bummer that a company growing 1.2 billion, growing 74% with pretty attractive recurring revenue portion of it, the IPO got pulled. Like we talk about liquidity is easy and M&A is everywhere. And the 1000th Frontier Labs can be bought for 7 billion. But this one kind of honestly, it bummed me out that this deal didn't happen. I felt it was under-discussed as something that didn't happen. I don't know what you thought, Dev, on this one.
Speaker 3I think, Jason, I, you know, it's like the old saying, Occam's razor. I think we've got to figure out what the simplest answer is. And to me, I think it was probably price. I think, again, I have no inside information, so, but I think they probably, the bankers probably told management and the board that they could get this deal down at a certain price. They quickly had an oh shit moment and rather than go through a protracted problem, and I don't think the optics of someone selling their entire position is great for whatever that's worth. I think it came down to they couldn't get the price they wanted, and they pulled the filing. That's purely speculative on my part. I have no inside information.
Speaker 2But you really think they, I mean, for sure, but I mean, the markets are pretty good overall, and it's hard to grow much faster than 74% at this scale if you're not an LLM. It's a function of what your multiple you think you have.
Speaker 1I totally agree. And again, disclosure, just as you know, we have a small passive piece there to M&A situation, so I was bummed too. But to your point, I think the super interest, and there was a good piece in the Wall Street Journal on it, right? And one, just to put out, it is possible that they pulled it because there's an M&A pending or something like that, but let's assume that's not the case. I just put it out there to outline the range of options. I think Dev raised an interesting point. It's more interesting than just over because it gets to banker dynamics, right? We've all seen it. Bankers are pitching a deal. They want to tell you. They want to tell you as optimistic a story as possible. This could be one of those cases where if you convince the board that you're going to get 50 bucks a share when you're trying to get the business, and then when you go out to talk to the investors, you only offer you 40 bucks a share, this is the kind of dynamic that happens. And you see that happen in IPOs, right? And it feels a very subpar outcome. And you're right, Dev, I do wonder, I'd love to see what the banker books were when they pitched the IPO and what they said the price per share would be. And this is the problem. It's always a weird dynamic when bankers are pitching an IPO because to some extent, there's always the feeling, will you just go for the person who says you're going to get the highest price? But if he's whispering bullshit in your ear and it turns out not to be true, then you end up in this far worse situation where you think you're going to get something done, you telegraph it, and then it doesn't happen.
Speaker 4I would have hit the bid on price here, boys. Come on. You look at the consumer hardware companies that have gone before, from your Jawbones to your Pelotons. I mean, yeah. Hit the bid at 30 bucks. Hit the bid at 13 and take it out.
Speaker 1Yeah, I agree. What you're saying is, the boy should have said, these guys told us 30 bucks a share, whatever it is. They didn't believe it, but we didn't believe them, so our lives cancel each other out. We got offered 20 bucks a share. That's a good price. Hit the bid. And yeah, they obviously chose not to, and they had their reasons. But yes, I think it's very hard to go this far down. I mean, I can't remember, Dev, did you guys at BladeLogic, did you hit it the first time after you filed? Did you have an extended filing or something weird like that, or did you just clean straight
Speaker 3out? Yeah, I cleaned straight out. The market was a little wobbly at the time, because that's when the signs of that the debt markets were maybe not as solid as people thought. We went out in July of 2007, and then the market progressively got worse going into 2008. But we got out.
Speaker 1Got it. So you probably would be one of the last out of that class. I remember we had Omniture in, I think, '06 or early '07. But yeah, you had that Vonage company and a couple of others, and then it got thrashed, and then it was done. But yeah, Harry, to your point, I mean, playing that back, listen to what he said. The debt markets were getting a little shaky. Take a look at The Wall Street Journal now. Sometimes you're right, Harry. You should hit the bit and get it done when you get that far down. because there's a lot that's got to happen between now and the the anthropic ipo in the middle of
Speaker 3november i don't mean to be rude but i gotta go sell some software so you gotta sell some software
Speaker 1baby thank you for the time thank you for joining that was awesome we're done
Speaker 4but before we leave you today base 44 is one of those products i used and i just thought straight away man i wish i'd had this when i started 20 vc with 50 and no contacts in venture i wanted to see what it could do so i built a guest research hub for the show upcoming guests company notes previous interviews sponsor contacts follow-ups all in one amazing location i described it in plain english a few minutes later i had the product open in front of me database login backend and hosting already handled and just all in one it made it so easy and that's what i loved i didn't write a long spec i didn't stitch five different tools together i built the thing and i started using it for any founder listening that's the point if you want to turn an idea into something real the faster you launch apps dashboards internal systems ai agents whatever you need to build base 44 gets you there go to base44.com forward slash 20 vc that's base44.com slash 20 vc while base 44 helps you build alpha sense helps you find answers really really fast we used alpha sense on an investment that helped us close an eight million dollar deal eight million dollars baby that's a lot of money that's why i'm genuinely excited about this product because it's so easy to build and it's so easy to build and it's so decided to have them as a partner on 20VC. AlphaSense combines AI with one of the world's deepest libraries of market intelligence, including expert interviews, broker research, earnings calls, company filings, and real-time news. So you can make really high conviction decisions with confidence, but the best part, they're building super analysts and always on AI analyst. So instead of starting your day with another search, you'll start with work you've already done, your coverage monitored, the important developments surfaced, and your investment brief already waiting for you. See for yourself, head to alphasense.com slash 20VC. That's alpha hyphen sense.com slash 20VC. It's a single unified agent that works across your entire customer experience, from service to sales to success and beyond. Leading companies like Gamma, Asana, DoorDash, and Crypto.com already use and love Finn to deliver better customer experiences. So for a limited time, you can get $500 a month in Finn credits for your first three months. Learn more at finn.ai forward slash 20VC.
PodcastTranscript AI