Speaker 1I taught you tiptoe in and I got to hand it to you. No, when we're embracing this thing, we're fucking embracing it. It's 10 billion pre, pre-revenue, big ass check. No mincey little steps here. It's all in on day one. So congratulations. It's like coming off the dry and embasing the booze.
Speaker 2We're definitely not investing at the right speed. We are either investing way too fast or way too slow. Returns are going to be highly skewed. Variance is going to go up with AI and many of you will fail. There are like 10 companies that can do $10 billion acquisitions and want to.
Speaker 1Money is a signal. Price is a signal. And price is sending a signal. Everybody go right here. It's a talent war in
Speaker 3the most insane way right now. I think open source has reached its maximum as a market share. I think it's going to keep going down. No one wants to run on open source models there. At least Chinese, China-based. Nobody. It's kind of all just going to come down to like who's got the compute. Even a billion starts to sound small for seed funds if you believe 30 million is a seed. If we're willing to fucking
Speaker 1trust them not to blow up the world, and they've already said they might and it's only a 10% chance, I think we can trust them to with the votes.
Speaker 4This is 20VC with me, Harry Stebbings. It's my favorite show of the week. Rory O'Driscoll, Jason Lemkin, and a special guest in Jack Altman from Benchmark joins us in the hot seat. So what do we have on the cards today? Well, Anthropix Draft S1 leaks. We break that down. AMD, baby, they are in the market to buy. Fei Fei Li's World Lab sells to AMD for $8.2 billion in stock. And then. Ka-ching, Mr. Mark Zuckerberg decides to whack out the checkbook to hire MongoDB's CEO and pinch him for Muse Enterprise. This and so much more in a blistering episode out today. But before we dive into the show today, when you're building a company, you learn that trust is what closes deals. You may have the best product, but no buyers will sign these days without proof of your security. Here's what happens if you're not prepared. A prospect asks for proof of compliance. The deal stools when you scramble. Your engineer gets pulled off. You have the roadmap to audit prep. Every enterprise conversation turns into this horrible fire drill. That's where Vanta comes in. Vanta is the leading agentic trust platform that not only gets you compliant fast with frameworks like SOC 2, ISO 27001, HIPAA and GDPR, but keeps you compliant by continuously monitoring your controls. So your deals keep moving and your engineers really keep building. Now, access the Vanta agent everywhere you work, even if your team lives in Claude or Cursor. And that's why Vanta is trusted with more than 16,000 companies like Ramp, Harvey and Writer. So prove you're ready for business and get $1,000 off Vanta. When you go to Vanta.com/20VC, that's Vanta.com/20VC. While Vanta keeps compliance covered, deal helps you hire globally. We get it. Global IT can be a headache. New hire in Tokyo, but the laptop, well, it's stuck in London. Someone left the company last week. Wait, is that access already revoked? Deal IT handles hardware, software and access to across 130 countries from one system. You have the right to be impressed. Brands like Eleven Labs are already managing their global IT at scale with Deal. It's one system, one source of truth with zero vendor gaps or manual workarounds. So build your global team with Deal. Visit DEEL.com/20VC and start expanding your business today. While Deal builds the team, Frameur builds the site. If you want AI that builds your real website, not just a throwaway first draft, that's Frameur. Frameur is the AI website builder that helps creators, teams and businesses ship production ready sites faster than ever while getting every detail right. Prompt, inspect, edit and publish in one place at a whole new pace. Agents and humans work in tandem. Agents bring speed and scale. You bring taste, judgment and control. The work lands on the canvas and stays editable. Build custom code components, manage CMS content, optimize SEO and audit for issues all in one place. Enterprise grade hosting, security and 99.99% uptime SLA's trusted by leading brands like Perplexity and Miro. Learn how you can get more out of your site from a Frameur specialist or get started building for free today at Frameur.com/20VC for 30% off a Frameur Pro annual plan. That's Frameur.com/20VC rules and restrictions may apply. You have now arrived at your destination. Boys, I am so excited for the show today. A, we have a surprise guest in Mr. Jack Altman. So, Jack, thank you for joining us.
Speaker 2So happy to be here.
Speaker 4Yay. Long time listener. That's very sweet, Jack. Thank you. You know, don't worry. Rory will ruthlessly give truth to me today while we go through the news. But we have a lot of news to get through. Now, number one, Anthropix Draft S1 leaks. I think every every venture nerd was so excited for this moment. Four point six billion of twenty twenty five revenue. Eight billion operating loss. Five hundred and eighteen billion
Speaker 1of compute commitments. Genuine comment. Not a single piece of information in that leak. Not a single piece of useful act other than one minor comment, which I'll come back to, like the 2025 numbers long since spent. I mean, lots of shitty bad takes the whole. Oh, my God, the losing 40 million billion when thirty four billion was not an accounting loss, an accounting loss. The rest of it was exactly what you thought. Four and a half billion in revenues in compute expense, five and other expenses. The only interesting factoid in that was that two customers did twenty five percent of the revenue, which means someone spent half a billion dollars on Anthropix last year, which is pretty impressive. But the only thing that counts is not even Q1 and Q2 of this year, because I think everyone knows Q1 and Q2 as Anthropix killed it. The Q3 numbers, which haven't been finalized yet, are the model load. And the only thing you need to care about, because obviously the story now is opening up, killing it, really exploding in growth. And, you know, there's very nascent data from, I think, what a ticker trends or something that Anthropix kind of flattened out. The Q3 revenue number is 90 percent of the data required to make a decision on pricing on Anthropix and everything prior to that, in particular, 2025 is so leaked at this point that there was no data in the Reuters thing. It was fun, but no data.
Speaker 2Go people. This is going to be one of one of the nice things about these companies going public is that I actually think the public market investors will be a little bit more long term oriented than the private investors. I think like we are all hand wringing month to month about what these companies are doing and in a weird way, I think the public market investors will think a little bit more long term, a little bit more structurally. You think about both, you know, Anthropix and OpenAI and it's like each month it's like the narrative is just all over the place. And it's so easy to to flip like that, I think, at least in my conversations with public market investors, they're going to be thinking a little bit more at least quarters, maybe even years. And so I agree with all of that. But I think people are going to mostly be oriented towards like what is the market structure of these things? And hopefully it'll it will be a little bit calmer.
Speaker 3My only thought and this could be completely wrong when I read all the press. Right. Yeah. Like to Rory's point, we learned nothing. And to Jack's point, just getting the public investors excited to hold an epic asset long, but man, it really reads negative. You know, not just the risk factor that there's existential risk to humanity. I mean, that one is a little jarring to see, but it may be like the Facebook IPO in that at least on the retail side, the negatives come to the top, you know, and we're all investors. Right. So we're all playing for the upside, aren't we? You know, why is Instinct worth 10 billion? Well, it's the upside, the jaw dropping losses that frankly, I don't think the four of us care about. Right. And maybe a lot of long public markets don't care. I just think the retail market, everyone that is anti-AI may see these negatives as a reason to sour, and I don't know if that can really drive the stock down. But I worry that the IPO will be a minor worry, but I worry the IPO will be successful. They'll hit their number, whatever they ask for. It'll be more than oversubscribed than Aura, you know, 10x. But then a month or two in with no real change, we may see a drift below the IPO price just because of the negativity, the massive spend, the CDSs at Oracle, some default on data centers, and all of a sudden the negatives overwhelm the life changing positives. That was my only thought is we're going to see a lot of stuff like this right after the IPO, much more than we have
Speaker 1before. I almost think the people who are going to be big buyers of the stock are not an overlapping circle with the people who are dealing with all the kind of fallout from the noise and the negativity. And let me say it even more directly, right? 70% of Americans might think data centers suck, but they're not running Fidelity Growth. A small number of highly compensated managers are the buyers of their stock. And retail people excited for the thing. Where I do think you're right, Jason, is it's not so much directly the dislike of AI kind of impacts the stock directly, but the indirect comment is I do think there is a non-trivial political backlash brewing. I think it was super interesting to see the guy in Florida file basically a suit to stop opening Iron Tropic from middling models. There's going to be a whole lot of you told me in a legal document that this thing was not safe, therefore I'm entitled to believe you. And if it's not safe, you should stop. So I do think indirectly you're right is that because they have to spew out all these negatives just to cover their ass, though I'm not sure who's going to sue you if the end of the world actually happens. You're probably pretty good on the litigation side. But because they have to skew out all this negativity, people are going to be reading that and saying, huh, this is the first S1 I've ever seen that poses existential risk and where the product lies to me. Maybe I should, as the attorney general for the great state of fill in the blank, sue these guys and say, stop. And I think we're starting to see that. So it will be way more of a public participatory moment. Everyone's going to have a goddamn opinion on this, perhaps in a way that everyone doesn't have an opinion on, you know, when a semiconductor stock goes public, 95% of the people can barely describe what it does. Everyone's going to have an opinion here.
Speaker 4topics that everyone has an opinion of. I think everyone seems to have an opinion on Instinct right now and Instinct versus Muse and the future of agents and personal AI assistance. Instinct closes a billion dollar series C at 10 billion. Noah Shin, 23 year old founder, amazing generational talent, raises a billion at 10 billion, takes on Muse and Alex Wang and Zark. What do we think? Jack, I think you've got to check from Benchmark.
Speaker 2Yeah, we did. My partner's Peter and Ev, led it and we were all extremely excited about it. And I mean, first of all, goes without saying on the point of Muse and Meta and them waking up, they've done a phenomenal job and it's a great product. They've sort of reinvigorated the organization. I've got a lot of friends there like that. That is an awesome company and they've done they've done a great job. But I think in a lot of ways, to me, at least when I see that, it kind of reminds me of what happened with coding and with cursor and cognition in the face of the labs. And our view was kind of this is such an important new paradigm. Where you've got, you know, these consumer agents that are, I think, Ben Thompson described it as like the aggregator of aggregators. But, you know, basically, it's like these agents that can interact with the entire third party Internet. That's like a pretty important new paradigm shift. And the implications are big. It means that you can have it do things for you. It's not just talking to it anymore. I think like a lot of the younger generation was already using AI in this kind of way. And I think this kind of brought it to the masses where it's like this is something that primarily does things for you. And so I think that it's. A big new paradigm. What we've seen in general, whether it was with coding or a bunch of the application areas, was just when something is that important, a lot of things can win. And so my view is basically something like there can be an amazing independent player like Instinct. You're also going to see, you know, the labs have some sorts of offerings around this. But if this is the main way that, you know, broad consumer bases use the product, I think it's going to be really important. So, you know, we'll see how it plays out. But, you know, our view is that this is like a really big new paradigm shift. I've heard I'm kind of on the level of chat and coding and these other things. And I think I think a lot of players will win.
Speaker 3This is my meat and potatoes view of the big winners today is the ones that are winning today. And this is and I'm a Muse fan. I haven't used Instinct. I'm hoping to get an invite, but I use I have 22 agents. I'm all in on the agents. Right. But the ones that win, this is an open question, are the ones we use all effing day long. So if you look at coding, even me, I'm running my coding agents 10 hours a day now. Right. I run and legal. I got wrong in a sense. Because folks are running. Harvey and Legora, like Harry's partner, you're like this. She gets home. She's on the sofa running it all effing day long. And there's lots of wins as VCs we're going to make for sporadic use. And this is just a question. I don't know. It's not even a criticism. Will we run Instinct Muse eight hours a day? If we do, I guarantee it wins. Right. But I think this is the second generation. Generation one was open claw. No one knew how to run it. Right. Other than destroying, you know, all your security and credit card. This is generation two. And then Gen three, I think we'll figure out. But I don't know. We're going to do the use. This may change in two weeks, but I don't know if we have an eight hours a day app yet here.
Speaker 2I don't know. I think you described it exactly right, which is it is super early in its cycle. If you think about like when chat first launched, like how much did we use it then versus how much do we all use it now? You know, Legora and Harvey, you know, which are, you know, when they started, if you did the reference calls on their customers, when they were at a million of error, the customers were like, the thing barely works. We don't use it that much. And now you talk to them and they're like, I run my whole life out of it. And these businesses are at hundreds of millions of error. They are growing really fast and all of that. I think same with coding. Like at first it could do a little bit. Now it kind of does everything in the future. It's going to be like, you know, times a hundred. So it's an open question on the, on this stuff. And I think you're exactly right. The question will be, does it make it from where we are right now to you can autonomously trust these things to run your life. And if it can, it's big. And if it can't, it's not.
Speaker 4Does it not massively cannibalize the chat usage? I'm so sorry for any awkwardness, Jack. I used to be a massive open AI. It's kind of like you win both sides. So forgive me for this. I used to be a massive open AI user and chat GPT. And now I just live my life through instinct. And you see a lot of people cannibalize that chat usage.
Speaker 2No, I think it does to some extent. I mean, I think they're like on some level, we're each only awake for so many hours a day and like, we're all on our screens so much at this point that like, there are not, you can't really get us out of the like perks where we're playing soccer too much anymore. Like it is all coming from other time that we were spending on the internet. So yes, it does to some extent, Jack, you put the qualifier and what did you say? Right at the end there, I was going to say the form factor cannibalizes. That doesn't mean that. These products cannibalize the other companies, but it does mean that the form factor takes some amount of the space, whether the labs do it themselves or not.
Speaker 4Can I be a Dick? Isn't this what open core was meant to be? And the founder of Pete's type eat and like, no, but like, dude, they've been watching from the sidelines for six months.
Speaker 3Yeah. But open AI didn't give everyone an entire virtual CPU in the cloud, right. And storage and everything. It, this is just, these guys looked at, they were all inspired by open claw. We all were, they just instinct did it. Jack can have the story and, and the whole music. Team said they're inspired the next hour to build muse. Muse was built since open claw. It's just open cloud. Didn't make sense for any of us. But I think to be clear,
Speaker 1Harry, what you're saying is not open claw standalone. What you're basically saying is when open claw got subsumed and open AI, shouldn't they have done this?
Speaker 4Yeah, a hundred percent. You were best place to do this. That was the most strategic thing with the person who did open core.
Speaker 2I actually don't have the sort of full inside scoop here, but opening eyes dev day is, you know, today. And so we'll see, you know, what, you know, their sort of reactions, all these things are, but, you know, also. So back to Jason's point, it's like there's generations of these things and they keep moving and everybody learns from each other. And it happens in like two seconds. You know, when cursor came out, they had like a long window before the labs caught up. Now, you know, you look at the instinct to muse window. It's short at these, these cycles are only getting shorter.
Speaker 1First of all, I just got to say in passing, Jack, I got to hand it to you guys. You know, I've, I've known Ben truck since 95 when they started. Right. And when you guys said after 30 years, you're going to embrace growth. I taught you tiptoe in and I got to hand it to, you know, when we're embracing this thing, we're fucking embracing it. It's 10 billion pre pre-revenue, big ass check, no mincy little, little steps here. So congratulations. It's like coming off this, coming off the dry and then basing the booze, you know, big party night, first night.
Speaker 2Yeah. And what's funny about it. So, yeah. And we, you know, we, we invested, you know, first at two and a half and 10. And what's funny is in our minds, it was actually kind of an early stage investment. And I know that sounds psychotic, but it, yeah, but that's kind of how we saw it.
Speaker 1Genuine comment here. It actually, one of the things that's been funny is in this cycle, we've had investments with early stage. Of course, risk requires super late stage capital, which is just definitionally a strange time to be playing. But yes, I think you thought you were raising a growth fund. In fact, you're just expanding the early stage fund because it just takes bigger checks now and good on you guys for doing it. Because I thought your logic at the end is basically some version of if this matters, it'll matter a lot. And if it doesn't matter, it won't matter at all. And there you go. I'm just pushing. I was, I was literally, I listened to the Noah interview. And I'm going to make the boring point, and then I'm going to kind of backtrack it from the boring, when you listen to the interview and you talk about monetization and travel and all that, and then you go away and you do the data on, you know, the number of Americans who fly more than one or two times a year, which is pretty small, the fees available from that, the number of Americans who book not just dining, but fine dining. It's, you know, it's like 10% or less of total dining experiences are fine dining. You don't need a reservation for McDonald's or Applebee's. So if you start thinking, and he mentioned, if you think of it as travel. If you think of it as travel monetization, you could get pretty angsty about market size here. I mean, you guys were smart enough to do open table 20 years ago, 26 years ago now, Jesus, you know, it's just, it's a billion dollar business today. You'll be pretty bummed if you're only doing a billion dollars in restaurant bookings on instinct. So there's implicitly some level of, yeah, we'll get all this travel revenue, but there's something more here because you guys run the same numbers and you know what, right? Is there a part of the monetization that's just finger in the air and says, if this matters? Good shit will happen.
Speaker 2So, I mean, back to the point before, which is slightly tongue in cheek, but slightly totally true, which is like, do you think of, is this a, is this a growth investment because it was billions of dollars of valuation? Or is this an early stage investment because it's like nine days old? And both are kind of true. And if you think of it as a growth investment, you say, okay, how do I underwrite this? You know, relative to, you know, public companies that have two and a half billion of ARR and they're worth 10 billion. And so, you know, you kind of logic that out. If you're thinking of as an early stage investment, you say, gosh, this paradigm. We just have no idea. And so I think in our heads, it was close. Yeah, it was closer to that where you say, we are so early innings here where there was open claw. There's the like, you know, but between now and Christmas, there's going to be like three more evolutions of the whole thing. It's like, you don't even try to guess all of that.
Speaker 4How do you think about sizing it then when you're writing growth checks at early stage risk material?
Speaker 2You still, to the extent that you can, I'm a believer that this is sort of like something I've kind of picked up from the. True that you still, you still need enough investments, no matter how accurately you think you can pick at the early stage. Let's define this, forget the price. But, you know, early on in a company's life, you just need enough shots on goal to get something that's going to really matter. And so on some level, I would say the sizing is constrained by wanting the fund to have enough chances to get something great. And so that's the constraint. And then like the upper bound is, you know, these rounds are big. You need to matter in the context of the round and if the valuation is already high, you've got to put more dollars. Then to sort of get some ownership. And so those are kind of the boundaries. It was a very good, articulate,
Speaker 1not quite answer, but but exactly the right questions. Absolutely. No, I think you're exactly right. It's that you do some kind of Kelly bedding and then you kind of, you know, how certain what's the upside and how certain are you it's going to happen edge over odds. And then you do I have the stones to do full Kelly or do I back off?
Speaker 2Yeah. And I think like sophisticated public markets, investors probably spend as much time thinking about their sizing as their actual positions. We obviously don't. but we try to at least give ourselves some boundaries, that we're going to size incorrectly almost every time.
Speaker 1And it's probably actually the hardest one to size because you're right, you have high upside, which leans in, super high variance, which leans out, but still a requirement for meaningful dollars. You're right, the sizing discussion must have been almost everything. Have you disclosed the dollars, total dollars in the deal?
Speaker 2I don't think we did. I'll find out if we did and if we did, we can like stitch it back in here with some AI, but I don't think we did disclose it.
Speaker 1Got it, yeah. Think it aloud in real time to make it something we all could talk about. Rather than the guys with the big checks, is that how would you think about that bet as a percentage of your fund? If you're typically doing 20 deals, which means 5% on average, you know, you look at the capital needs, you say, hey, maybe I need to do 10% of the fund in this. You look at the risk and you say, maybe I need to do two and a half. Harry, you always jump on me with these kinds of real-time questions. What percentage of your fund would you put in instinct at 10 billion pre as a percentage of the fund? Because that's the way Kelly better thinks.
Speaker 4Super easy, I'd do 5%. If it's meaningful, enough that it returns the fund with the upside, it's got to be. 5% obviously is, I think if you can project out where it is. But then on top of that, I think you have real downside protection here. It's only raised like a billion and a half. It's clearly a really phenomenal team. The bet that Microsoft or any of the large providers would buy it, I think is very clear. So you've basically got a 50X upside on it, being the WeChat of the West that we've all hoped for for many years. And downside protection on a 1X plus, I think.
Speaker 1By the way, just as I know I'm being a jerk, but you do it to me all the time. If you really believe in that risk profile, 50X upside, 1X downside, the Kelly bet answer was probably 30% of the fund, just to be clear.
Speaker 4But this is what I think founders don't understand, which is like, it's nuanced. Like for me at my stage of career, if I did a 30% of the fund bet, my LPs would shit the bed. You, Rory, respectfully, because of the incredible tenure that you have and the many, many years, you know, as you said, you've known Benchmark since 1995, a year before I was born. You have slightly longer relationships. So maybe it does,
Speaker 1if I wouldn't have the guts to do that at all. So I wouldn't want to let it ride. No, I think, look, I can see. I would come out. I mean, 5%, Tiffany, 20 deals in the fund. 5% is a full whack deal.
Speaker 2I think the other thing that I was going to say, you know, that sort of like in support of kind of Harry's view on this, is we're in a moment in time where a lot of investments are shaped like this, where like relative to other times, I think it is much more dispersion on these investments. And things are both really expensive. And then the upside's like, apparently look very high. And so one of the things that we, you know, think about, and I scratch my head about a lot, is we're in a moment in time where valuations are extraordinarily high. And then traction and, you know, outcomes and all of these other things are extraordinarily high. And so, you know, people are like, do you think we're, are we investing, you know, the right speed? And I'm like, we're definitely not investing at the right speed. But when both sides of the equation are this out of whack, the odds of having it right are zero.
Speaker 4I'm really sorry. Every venture investor is in a WhatsApp group right now saying the market is totally fucked, just to be super clear.
Speaker 1Yeah, but those would be the same, to Jack's point, and to schizophrenia, those would be the same investors who get out of the WhatsApp group and then wire another check for 50 million bucks to a nail lab, right? So yeah, look at what you do, not at what you say, as Harry Haldeman said about Watergate. But to your point, Jack, it's funny, we actually just did an annual meeting and we had Tyler Cowen, the economist, speak and he was great, just great. But one of my partners who was doing the meeting asked him, a tangential question on venture, what's going to happen in venture? And he just quietly said, as economists do, you know, returns are going to be highly skewed, variance is going to go up with AI and many of you will fail. And then just moved on to the next question. Some of you will get rich and many of you will fail. Well, thank you for clarifying that, Tyler. Jack, you're right. It's like the highest variance time, which speaks to, even when you're doing these bets with the upside, having enough to do 20 is key, which is why I don't get the, we've talked about this before, it's why you write about instinct being an early stage bet despite the price. It's not yet at the stage where you can have the concentration discussion. You know, the folks having the concentration discussion are really talking about opening AI and Tropic at the last two pre-IPO rounds. But you're right. Even at 10 billion pre, if it's where it is today, you don't want to put 30%.
Speaker 4I also think like, this is not the round that worries me. If you would look at the instinct cohorts, which I haven't seen, but I imagine the usage is incredible. I imagine the depth of usage is like we've never seen before. What worries me is when you have three rounds in three weeks with no material movement in between and no data suggests there's been anything different. That's what worries me. People who say, oh, 10 billion, 14 people. It's just like people who said, you know, a billion for what, for Instagram was stupid. It's like, yeah, you don't know that smart today. 16 billion for WhatsApp. Exactly. But you know what I love? I love the fact that I actually had your partner, Ev Randall on the show. And he said, oh, we're going to look back at Andreessen and General Catalyst and Lightspeed. And he retweeted it, which is so humble and like non-VIP. And VC like, well, he was like, maybe I was wrong to say that Andreessen won't do a 5X in this vintage because Mr. Martin Casado is making us look bad because the man has had OpenRooter. Obviously last night had Feifei with WorldLabs and then he had Cursor. So for the new story of the day, AMD buys Feifei Li's WorldLabs for 8.2 billion in stock. That first big Neo Lab exit, two and a half years into the company's journey.
Speaker 1Let's focus on the entrepreneur first. I think it's great for Feifei. I mean, I've only met her once. I thought she was awesome, very humble. I love her book. If you read it, very moving book about being an immigrant to the US. I was myself, so I know it and kind of came up from nothing. As someone pointed out, it's not an overnight success. Cranked through ImageNet, kicked off the whole damn thing because the entire AI resurgence was really kicked off when that ImageNet project that she built, when the winner of that was Ilya and two or three other people. I think in 2012, where their model using neural nets just kicked ass and blew past everyone else. And it was the first hint that this technology, this deep learning technology was going to blow everyone away. And she kind of set that up, didn't monetize that, has worked at Stanford, worked at Google. And then, you know, midlife quit, did this two and a half years ago and nailed it. So I think it's just an awesome story. Just a reminder, yet another wildly successful immigrant story coming to the US, making a ton of money. So I'm stoked for her. We can come to the venture money later, but it's just a great story. And it would be pretty criminal if we had the biggest boom in AI history and Fei-Fei Li didn't get a big ass check. So I think comic justice has been restored and it's good. All right, cash the check.
Speaker 3Well, just one thing, you know, AMD was like one of your grandpa's investments, right? You know, he and his buddies from Fairchild or I don't know what the exact, but this is an oldie moldie. It's up 279% this year to 1 trillion. So I don't even know whether they're going to continue the 3D world models or they're just going to be their counterpart to NVIDIA's model team. But whatever it is for 8% of that market, 8%, yeah, getting a world-class team to make sure that 279% run continues, like it's cheap if it's the right team, right? It's a moment in time to Jack's point, right? If AMD was up 3% this year, they ain't going to be spending 8 billion. But this is a run that you've, you know, it's epic, but you got to maintain it, right? They've got to be number two to NVIDIA or whatever the goal is. And it's a habit trail that keeps going faster. So I'd certainly, I'd certainly invest 8% of my market cap to keep the good times going.
Speaker 1And I think it's the first of a few. We've talked about this a couple of times. You look at these investors, and candidly, I don't think the World Lab companies, not the World Lab in particular, but they're kind of, those World Lab type companies would on a standalone basis have anything like the trajectory of entropic and open AI, where there was a very quick path from here's an amazing AI technology to here's chat and that can monetize. And then, oh my God, here's coding and that can monetize like a mother, right? I don't think the path would have been as clear, which is why I've been a bit nervous about those deals over the last couple of years. But in retrospect, the thing I think that's now become obvious is, I think all the big foundation model companies are probably in the market to acquire some kind of robotic foundation model story. I think that, as you say, AMD just wants to be relevant to NVIDIA. So I think that wouldn't surprise me if there was a ton of acquisition interest. I mean, there's still a hundred NEO labs, so you gotta be in the 10 that win, but I think there will be a bunch of these big ass fast acquisitions over the next six, 12 months, if the market continues to hold. -
Speaker 4Do you? 'Cause I invest with a brilliant French partner, Paul, who is incredibly cynical just by nature of being French. And he wrote this report on 102 NEO labs, $70 billion plus raised. And my question is just like, just how many of them can get acquired? When they were 10 to 12, yeah, it'll be okay. 102, we all gonna have downside protection? -
Speaker 2It was very easy when all the sort of NEO labs got started and the trend took off to just say, this is total insanity. And to your point, Harry, we don't yet know what the like net balance sheet of the whole thing will be, but we are definitely starting to see data points like world labs and many others where like there is real interest. And I think part of what's so different now than certainly any time I've ever seen, maybe there've been other points in history like this, but there are just a lot of acquirers. There are like 10 companies that can do $10 billion acquisitions and want to, and that's just so different. And it's much easier than going public and it's quicker. And you don't have all of these long cycles and the hand-wringing and that has really changed things. And obviously, you know, like extremely impressive run by Martine. And it's just shown that like, you know, in these infrastructure lab type companies, there's a lot of room to run. So I don't know how it will go obviously any better than anybody else, but I'm definitely, I'm hesitant to be too skeptical at this point, given what's happening. -
Speaker 1I agree with that. And I think when you deal with the hundred, and yes, there might not be 10 or 20 acquisitions, but it's the, this is where, where people, they use the word consent is in a negative sense. But there is no doubt that credentialism matters. You've got Fei-Fei Li. I could write that press release. Originator of the whole AI thing is a little like the quality folks at OpenAI and Atropic. So I think the other part of this is, and in Leo Labs, making sure you have the pristine tech asset versus the gritty team. A lot of the stuff I do in the apps level, I love my gritty teams. I think for something like building a world model, you need to have proven technical success because that's both what it needs to deliver and frankly, what it needs to navigate and be the desired acquisition candidate. I'm not sure that's not true overall, but it's just something I've observed.
Speaker 4I was talking to one of the best CIOs in the world last night, and he just said to me, the honest takeaway, dude, you really think you can play in venture with less than a billion dollar fund now? And I candidly, when I look at many of these companies, the first round for this and Fei-Fei was like 65. I had my team say to me the other day, we can't find anything under a hundred million. I said, wow, seed prices are expensive. They said, no, no, a hundred billion round size.
Speaker 1Pushing back a little, I think the weird thing about this tech is, because I've been thinking about this a lot too, as a $900 million fund size, you've got two kinds of businesses. You've got businesses where you can ship a product on less than four or $500 million, like huge Neo Lab raises, but you've also got to admit the following, which is also true. You've got companies that use that Neo Lab and that OpenAI and Tropic technology that are shipping products on relatively little capital. You guys are in Higgs field. You run into a bunch of these guys who are like, well, we took $10 million, but we shipped the product for 3 million bucks, and then the customers took off and shit, we still got 5 million bucks in the bank, but we're going to raise 50 anyway, because we can. It's not like everything is $100 million just to spin up some GPUs. There's a whole bunch of 10 million bucks got us a long way, and then maybe we're raising 100, but for different reasons, because we can. It's not consistent. It's almost two different worlds. It makes sense. The big technology lift upfront from the guys raising 10 billion is what's setting everyone else up to do amazing shit on relatively little.
Speaker 4Yes, I would say that just bunny talent costs are so much higher than they've ever been because of a lot of the alternative options for the talent that you can't do a $2 to $3 million round anymore.
Speaker 3You know what the challenge to that though, Harry? I agree with the math, and Rory made the point last week, and I want to hear Jack's thoughts, that I think nominal inflation is like two and a half X in venture since 2010. Sometimes I get my nominal and non-nominal confused. All true, but it's not true. Rory: It's all true, but if you look at the undiscovered gems, I think seed rounds, and maybe they're called pre-seed or pre-pre-seed or post-inception, but whatever we call it, there's still, what does it take three to four folks to get 18 months down the road? It's the same thing. If you're coming out and you're lucky enough to get a million dollars of free tokens from whatever, a half million from Open Air Anthropic to start your company, you get all these other things, you can still get pretty far for a couple million bucks, especially if you're willing to. I'll share an $8,000 a month. Rory: $8,000 a month apartment in San Francisco. It's not that I disagree with the math, but the truth is you could do as much, I think, for two to three million bucks as you could 10 years ago, and if you don't have folks dying to give you capital outside of Demo Day, that may still be the natural atomic amount of capital for what, I get the terms wrong today, but a seed round. It still should be two to three million bucks.
Speaker 1Jack: Yes. In certain markets, I mean, just at the risk of being a patent, yes, in certain markets where you can ship a product leveraging everything else, but it's a couple of hundred million minimum to enter the Neoland space and it's 500 million to enter the semiconductor space. I'm just making a point is that the weird thing to Jack's point, there's such a range of different financing things you got to get your head around. You want to put a hundred million in a semiconductor company to still pre-tape out at two billion. Let me think about that. Then tomorrow, let me look at $5 million for a seed round for a software company where maybe they can get a product out the door and consumer revenue on nothing more.
Speaker 2The characterization that Harry opened up with, I mostly agree with, which is basically that the initial rounds have gotten so extreme and there's two reasons. One is that there's, you all are saying there's these labs where you can't do anything for less than 200 million and so that's the first round. The other reason is there is a set of founders that are very in the Silicon Valley network that don't necessarily need to raise a $50 million seed, but they can. They skip the first round, they skip the six at 40 or whatever that round used to be, and they just don't raise it. Or maybe they raise $300,000 just to like get a month in and then they raise the money. And so in many lanes, I think that round has kind of evaporated. And so I think there is a cohort of the market where traditional seed investing, where you're going to write three to $6 million checks by eight to 15%, where I just think that is fully broken/just isn't there anymore. All of that said, there is another part of the market, which Jason, I remember reading your blogs way back when I was starting Lattice, 12 years ago, 10 years ago, whatever. And you know, a lot of it was just like, you know, trying to get my head around what the venture math was. And it's, you know, you have a small fund, you buy 10% of a company, you hope it's worth a billion or two, you get 100 to 200 million, you do that a couple times, you know, out of the basket. I actually think that that might still exist. But the way that it exists is not in the things that we're reading about on Twitter and in headlines. It is these rounds where at the moment they, for one reason or another, can't go do that round. They're either not in the right markets or the shape of the company isn't quite right. And then, you know, they somehow pivot or they get more traction than you thought. And it just kind of gets bigger, but it happens the slow way. Like we have now gotten accustomed to all of these stories playing out in a year or three years. Like, you know, we're talking about instinct. It's like, you know, these stories play out so quickly, they get big. But even if you take a company, you know, like Lagora, which, you know, obviously I know Harry knows well. And, you know, these stories still play out in a, you know, these stories still play out in a short number of years. And we've all gotten used to that. But, you know, there is another part of venture that takes place over 10 to 20 years where a software company just kind of compounds slowly. And so do I think that there's a three or 30 round happening today where in 2041 that company is just going to have quietly compounded in the market of police or fire departments or libraries? Like, yeah, I probably do. So it's just it's just a different it's just a different part of the market. And it has really had a big dispersion.
Speaker 4I just don't think that's an industry. I just think that's an anomaly. And we're in an industry. And I don't want to bet on a potential pivot three years down the road that might lead to a misshapen company that then becomes shapen again. I can't bet on slack
Speaker 1pivots. Jack, every time I try and pitch the story to Harry, he clubs me just like that. Bullshit. You know, and I want to believe in it because we've made some magnificent bets on companies like that. But I do agree that the table at the moment is 80% the fast action table. And 20% the slow action, which makes sense because in 2022, there was a discontinuity and everything before that became obsolete. So by definition, anything at this stage four years in is fast action by definition, because it started in '22.
Speaker 4Also, if you want to go for that model, your numbers will be crap for quite a long time. And we always forget that we're in an opportunity cost game where people can put money into your saragos and your benchmarks of the world. And while you guys post numbers that are just never before seen, I was messaging Chathan last night, Jack, being like, oh, God, just stop. The latest fund is just ridiculous. We're in an opportunity cost. You can be in those, well, you can't be in those funds, but you can try and be in those funds. And so trying to be smart where no one else is.
Speaker 1That's a lot agreed. It's about, yeah, the giant sucking sand. Basically, money is a signal, price is a signal, and price is sending a signal, everybody go right here. And everyone will go right here, because that's the job of price. Mr. Hayek would be happy.
Speaker 3The problem with the quiet compounder, to Jack's point, in my view, as someone who's pitched quiet compounding since 2012, is they're just not stable. You have to build so much more software, so much more quickly. Jack and I are both on the board of Owner, which is a rocket ship north of 100 million in revenue. But look how much effing software they have to build this year. How many folks can pull that off? How many folks can raise the capital? And even if you have 10 times more competitors. I have another company at 100 million. They put up a competitor slide last board meeting. I never heard of eight or nine of the ones. I thought we had one competitor. Turns out we have nine, right, at 100 million. So it's not that I don't want to believe. Forget about the fact that it's harder to raise LP capital, which is Harry's point. This instability is something that I think people under-reflect on, right? That's the problem. It's so unstable. It's so undurable. Put it another way, yeah.
Speaker 1If you're making a compounding player, the quid pro quo should be low risk. And if the world is such that the tech environment is changing so much that you get the compounding, not the hypergrowth, but you get the same level of risk, that by definition is a suboptimal gain.
Speaker 2Yes. And sort of to me, one of the most dominant reasons why I do agree with Harry here is it's just like, it's a talent war in the most insane way right now. And it's just these opportunities are just too enticing for great
Speaker 4people. Which is a perfect segue. Perfect segue, Howie. Come on, figure it out. Are you suggesting that Jack teed me up there, Rory, for a slam dunk and I didn't take it?
Speaker 2I am. You were missing it. Harry, I didn't see it either. And I also try to be a podcaster, so that was a hard one.
Speaker 4I think we're just a bit slower than Rory, okay? Professor O'Driscoll, he's very sharp.
Speaker 1Stop, stop, stop, stop. Stop the bullshit. For the viewers, our listeners, we should just say, look, what happened here is the CEO, the chief executive officer of a standalone independent public company, MongoDB, a very successful $20 billion market cap public company, who just took the job less than nine months ago, got an offer from Muse, hit the bid, moved over to Facebook/Meta to run their enterprise division, and Mongo stopped, dropped 20% in one day, and then Dev stepped back in, who'd been not the founder, but the CEO for a long last time, and is now back running it. But the point, Jack's point was, the money can exert such a powerful influence. It was powerful enough to persuade this guy to quit the top job, go work at Facebook, because I assumed the offer was just earth shatteringly compelling right and that's your point jack is that when you have the hot stock when you have the momentum you can make people offers that just allow you to take whatever talent you want and this is an example of that
Speaker 4do you think it is money when you're earning 52 maybe i don't earn 52 million bucks a year but i imagine if you're earning 52 million bucks a year earning 120 million bucks a year that's nice but i think for him when he looks at this he's like holy shit i have the chance to impact far greater nah i think it
Speaker 3was a 52 million dollar package and he was offered a 500 million dollar package by zuck to run enterprise 10x is easy what does it take 520 million then done right no one wants to step down from co to be a chief executive enterprise products and tokens officer you think he's paid 500 million bucks a year it's
Speaker 410x it's 10x i'm
Speaker 1hitting the bed hit the bed i'm just going agreeing with jason because you were going to go down some kind of man was not exciting and meta enterprise would be exciting i think that's true but conversely no one who's been a ceo goes back to not being a ceo it's just it's just so damn hard right so the answer is it must have been just a compelling
Speaker 4offer i mean dude we saw we saw nick clegg who was deputy prime minister go and work as mark zuckerberg's i mean i mean yes so like you know yes i'm trying yes yeah be careful what you say
Speaker 1i'm just trying to not be mean about nick clegg or england or david cameron or mark zuckerberg and it's just too hard so i'm just going to let it slide what what should we take from this though that
Speaker 4actually even the role of ceo is one where departure is normal now in face of money you should take
Speaker 1what jack said it gets back to the conversation you were making because he segued it off your comment on opportunity cost the market is sending a signal that the only place to be is in these extraordinarily hot ai companies and it's sending that signal via price and people are responding to
Speaker 2price yeah i mean to me i think it is it is the money that's going to be used to make the money that's going to be used to make the money and it's also the it's the attention and it's where the zeitgeist and it's like the white hot center and i think that is so alluring to people there's an entirely separate thing here you know with kind of the way that this all went down that i'm not close enough to at all to know the details of and i think that's kind of its own unique beast but in general i just think that it is so alluring and the money is part of it but it's it's not just the money it's also it's the thing in all of the headlines it's the products that we're all using it's the thing that all of our families are talking about and i think that it's the thing that we're all using it's just so concentrating there's all of these short-term things that are negative about it one of the things that i will say just kind of this is zoomed out brought a positive is that the much higher transition rate of talent that i think we've ever probably seen one of the benefits of it is that talent feels very unstuck right now you have all of these times in history where great talent gets very very stuck in places that you might not want it to be and we are probably in one of the higher liquidity moments in the market where great people are in fact going to the most important opportunities which i think is probably on some societal level very positive even if in these like short-term situations you scratch your head and you're like
Speaker 1what's going on here you're right i tend to focus on the money but you're right it's not just that it is the zeitgeist i'll give you and harry that point yeah it's what's good about here even versus the east you know i can't remember was it someone on garden leave either in the east coast or the uk the great thing about california you got none of that it's just like i go across the street and next day i start in the new company what do you think about that i think it's a great thing
Speaker 4it's time for the investment committee you already you already did one you did a great one for instinct at the top of the hour oh no no that wasn't an investment committee no no the the investment committee this week is jeff jeff is in the market to raise at a 10 billion dollar price jace welcome to the room can you please present whether we should be doing this deal or not at 10 billion dollars a week after the seed at about 200
Speaker 3million dollars well of course we should do it what's the price 10 billion at first thought we should do five percent of the fund but after the last 20 vc i've decided to recommend up to 30 of the fund you know jeff's already 7 17 of the traffic on open router it's 20 of the traffic through vercelles router many people will of course copy it just like many will copy instinct and others but we are reaching the point where as exciting as the neo labs are as exciting as anthropics pending ipo and open ar these ai costs are unsustainable it doesn't matter if sonnet 5.5 and the latest opus is cheaper it is unsustainable to spend these costs 10 12 hours a day and it's not sustainable it's not worth spending 10 hours a day and the competitive bar just goes up jeff is a 70th of the price and 100 times faster and listen as my good friend jack altman says the pace of change is so fast or exploding so fast maybe jeff isn't the winner next year but this is exactly the kind of bet we have to do we have 100 downside protection someone's going to scoop up this team out of x open ai no matter what 17 market share on open router i mean as much as i advocated instinct last week this week this is my deal i'm all in on jeff 30 of the fund i know it's risky but i want to get the ownership and i'm going to do it i'm going to do it i'm going to do it i'm going to do it and i do believe there's a 50x upside to 500 billion so i i defer into rory i say we do well 20 to 30 percent of the fund jack i should warn
Speaker 1you for some reason how he likes this kind of soundbite and it plays well on the pod so jack you
Speaker 4know me so well at the end of the day i'm a clip clip monkey i will
Speaker 1say but going back and the funny thing is in this case you can do some basic math and it's not crazy i mean we talked about this last week spend right now today is 100 billion dollars and you do the analysis and 20 of that is relevant to jeff so 20 that's 20 billion dollars of accessible revenue say they compress it five to one that gets you a four billion bucks of accessible revenue and what we've seen it's been amazing is the developer adoption's been lightning fast i mean rumor has it they're at numbers all over the place 100 billion dollar run rate and given that the tokens are half nothing that's a shit ton of usage right you know you can credibly get to a billion dollar revenue line well quickly here by literally taking money that's already being spent and saving 80 cents on the dollar so jason's comments aren't wrong at all i mean he has to learn that if you spend 30 of the fund every week in three weeks you're out of action but other than
Speaker 3that we're benchmark we just go back to the lps with one email we have a new fund yeah i was gonna
Speaker 2say jason we'll just recycle something and it'll all work yeah we'll recycle something can you flip
Speaker 3it in three we also recruited martin to the team he's gonna help we'll just
Speaker 4recycle enstein can you please email lp's new fund please that's 150 of the fund another big round is modal triples to 15 billion dollars and base 10 talks at 26 billion dollars yeah i mean
Speaker 2it has turned out that there was a period where you look back and maybe we're still in that period there's certainly a period where you look back and the right answer with investing was just put it all in the labs just buy the labs and every round people are like it's expensive but the correct answer was just keep buying the labs it has now turned out in the last 18 months or whatever the correct answer was just keep buying inference you have modal base 10 fireworks foul together it's just all worked you know my partner eric vishria had this line that i've been kind of quipping a lot lately because it's true which is that like it's all gonna work it was like is it this or that and eric's like dude it's all of it and it doesn't mean that every company is gonna work not every sector is gonna work but in general a crazy number of things are working inference has been a really great way to get it to work and it's been a really great way index bet on everything outside the labs jason just made the point which is a big part of why these inference companies are doing so well which is that the costs are just not sustainable so you have that on one side which is it's too expensive and on the other side you have this dynamic which i think is we have now crossed sort of the threshold in a lot of areas and more and more happening where you get sort of like intelligent saturation where it is now good enough to do the thing you know to take a simple example your tax return is filed correctly or it's not filed correctly once you have filed it correctly throwing more intelligence at that problem doesn't do you any good if your job is to hit a nail in with a hammer your hammer is good enough making it a gold encrusted hammer that costs thirty thousand dollars your whole job was just to get the nail in and so we have more tasks like that and as a result you're going to see more open source and as a result you're going to see these inference companies and you know there's obviously been you know i can't remember who just mentioned it but open source is doing tremendously well by the way this whole cost dynamic does not mean that open source just runs away with it the labs are obviously not going to be able to do that because they're not going to be able to do that obviously also going to offer much cheaper versions of their own models and i think people forget how cost advantaged they are in a lot of ways their access to compute is structurally very strong their access to users is very strong they have a lot of different ways to make money and therefore can subsidize certain costs in certain situations as it makes sense so it doesn't mean that open source will dominate but it does mean that open source is going to be a big part of the market and that means you're going to have great inference companies so i'm long in for
Speaker 3inference i think open source has reached its maximum as a market share i think it's going to keep going down but even
Speaker 2if it does even even if it goes down by 50 percent and total consumption goes up by 10x yeah there's still good investments
Speaker 3i'm not saying that there's not there's not an almost infinite amount of inference but i think we've reached peak open weights what would jason why sorry two reasons jack hit one of them and there's a second one they're crystal clear one is at the end of the day anthropic and open ar just deciding what they want to price their non-max frontier models and they have many ways to price their non-max frontier models and they have many ways to price their non-max frontier models and they have many ways to price their non-max frontier models and they have many ways to compete directly there's no reason they can't be as cost competitive as they want to be now they're you know anthropic's got its numbers if you exclude 7 000 things that has 80 gross margins okay we can make fun of that stuff but they have the ability to be as competitive as they want to be right it is and jack's right there's for sure there's a certain point where all that matters is resolving a task but even that i don't think is that is quite that simple but they can price sonnet plus five five which just came out i just tested it it's it's only like 20 cheaper but that's 20 cheaper in one week they can do 30 they can do 40 if they want that's reason number one reason number two is boy people really don't want anthropic and open AI training on their own first party data, but they also, I mean, I just got back from Dreamforce and I got to tell you, I know there were a lot of blazers there and ill-fitting suits and stuff. At least Chinese, China-based, nobody, not a single person is comfortable with it that I talked to. Okay. Founders aside, but no customers. So I think just those two trends mean we've hit the peak, right? To Jack's point, it's not that open. No, I mean, it's ridiculous to say it. No one at OpenAI and Anthropic stupid, they can twist the knobs and dials and do what they want and be as cost competitive and just, you know, there are arguments for open, but I just, this anxiety at the C-level is only going to increase. It's only going to increase and it's only going to increase as security becomes a bigger issue. And it's only going to increase as Astra 5.1 was pulled back for security concerns and no one, listen, I know it's fuddy-duddies, but it is the real world and enterprise. I asked him, no one wants to use an open weight model on the floor that I talked to, nobody. So I just think the market share has peaked. I'm not saying it's not material. Did you ask open weight or did
Speaker 1you say Chinese open? Because I think there's a bunch of things going on.
Speaker 3I get your point. I'm simplifying that the vast majority of these models that we're consuming today are China origin models, right?
Speaker 1Where some of those guys are also moving towards not being open weight themselves. But yes, I do think that's why the whole poolside Nvidia thing is interesting. It would be interesting to have a low cost US-based alternative. And going back to Jeff, it's not open weight, but it is US and it's not an LLM, but for a certain class of use case, it is a direct competitor, right?
Speaker 3I'm not saying that they're destroyed to Jack's point. I just think they've peaked. They've peaked in market share. I think it will come down and I do not, I don't even think it's going to maim modal or base 10 or others, but I think these market share charts that have seemed crazy this year, there's been a lot of sources, but I think there's a lot of structural benefits that open and anthropic have here. And they're going to take advantage of it in the coming months, right? And open AI just hit 70 billion, they said in enterprise. It's a lot of traction there. Pushing on that.
Speaker 1And again, I don't know the answer to that. Provided you have opportunity at the frontier, you won't waste time with the second. To some extent, you're probably more likely to spend time on, as you say, doing the tax return if you feel you're asymptotic on some of the frontier stuff, because the thing that you're allocating at the margin is your compute. And if you're opening AI on tropic, I'd love to know what the math is like on, do you take this next chunk of GPU and build a model for biology that can cure cancer? Or do you take it and do Jack's tax return, which is a pretty finite, probably not a pretty finite task, actually. It's a pretty infinite task. But in the context of AI, it's pretty finite. And super interesting set of tradeoffs there.
Speaker 2Yeah, I mean, I think a couple other reactions are, one is that to the point of, you know, non-American models, I do think that there's a lot of anxiety there. I also think we are starting to see and will continue to see a lot of enterprises post-train their own models and draft off of open weights and use inference, you know, companies to make their own models and then run them. And so I think, I don't know how that will factor in, but I do think we will start to see more of that in the US. And I think that will have, you know, some amount of impact. The other thing is you can kind of, you know, I often try to just kind of like step back, blur my eyes and like, what's like the one thing here. And I think one of the things you could look at here in general, it's kind of all just going to come down to like, who's got the compute. You know, if you look across all of the inference clouds, I think it's, you know, on the order of like a gig a lot or something like that. And I think open AI and anthropic, you know, high single digits, each. And so, you know, you could say maybe one's a little bit more efficient than the other. Maybe one's got better token efficiency, one price is a little bit differently, but on some level, this will also just come down to like all of the compute is firing all the time. And like who owns it, I think is going to turn out to just be a dominantly important part of the equation.
Speaker 1Yes. Compute share, probably proxies to your token share, probably toxies with a little adjustment to your revenue share. At least within 2x or something like that. Yeah. Got it. That does make sense.
Speaker 4Speaking of tweaking the levers, open AI reopens this $200 plan that it paused because it ran out of compute for the latest Asher model, but halves what $200 buys.
Speaker 2So Harry, you're right. So this is getting at the same topic, which I think is like kind of on some level, the fundamental equation of all of this. I think it's extremely important. The other parts of it that we just don't know that are also updating variables continually are how many tokens do you need per task? And so it's like, as the models get better, they get much smarter at consuming a token. And then the other is like, what is the utility per token? So like, it is true that there are more tokens being consumed, they cost less dollars. And what we just don't know on the other side of it is like, how many do you need to like file the tax return, for example? And that's just like an open, it's an open question to all of it. So can you get more intelligence out of a gigawatt?
Speaker 1Yeah. And when you try and get to grips with that, you realize how hard it is. Because, you know, I'm a geek. I went away and tried to figure out, you know, your token cost going down, number of tokens. Going up, token efficiency. And the truth is, you're multiplying three numbers, each of which has an error bar that's pretty damn large. And if you have any intellectual honesty at the end, you kind of go, I just don't really know. The only thing you can observe that's actually actionable is the buying decisions of people who are allocating their money. Because I can't figure out, you know, multiplying three big numbers together what it means. But some buyers spent half a billion dollars last year on Tropic. You've got to assume they ran the numbers and are getting value from it. Which is why, in the end, I go back to what I said. The proxy for all this, and Jack, you're right, where the rubber hits the road is people allocating budget, saying, at the margin, automating this tax makes sense. And it's worth spending, you know, half a billion dollars, half a million dollars, whatever it is to do. Because other than that, it's just super hard to really convince yourself you've done the math well enough to understand it, or more importantly, to predict it 12 months out. And that's why, if I could know one thing, and go back to my comment over and over again, I would know the Q3 numbers. Because for those two companies, and long-term, it doesn't matter. But short-term, it matters a shit ton, is my opinion, just from a momentum perspective, and, you know, how those budgets are continuing to expand.
Speaker 3You know what? Just for fun, there's an app I'm trying to finish called Saster Connect. And I just ran an eval of my own. I don't know if you can call them evals, but I ran it on Sonnet 5.5, which just came out, right? Input tokens, 42% higher than before. Output tokens, 44% higher. So who knows if Jack's tax return is getting all that cheaper. Now, there's benefits from it, right? It passed more of the blind test, right? Quality went up, which is what you'd expect. Cost went down about 10%, not 30%, because more Jews. But plus 40% more tokens. I just think this stuff's hard to predict, man. 42% is a lot to go from 5.5, right?
Speaker 1And that's at the level of granularity of Jason doing Jason's task. And it's 10x, 100x harder to say tasks in general from people I don't know, where I don't see their tokens spent, which is why you just got to look at what the Jersons are doing.
Speaker 4Today, we have news on the flip side of life. We have the incredible multi-trillion dollar IPOs. We have Aura pulling their IPO, which was planned for a $16 billion. Jack, I have to, whenever I basically say a new topic, I read Rory's face. And it's always miserable, but it's just the extent of misery that I have to judge.
Speaker 1I'll own it. I'll own it. You're right. We actually have.
Speaker 4Oh, no, you've got some of Aura, don't you? Sorry. Yeah, yeah. Oh, I'm so sorry. We'll set up a GoFundMe page just for you, Rory, just so you can get some shackles in your pot to make up for it.
Speaker 1You're all sweet, Harry. I know you care so deeply. But no, just comment. Yes, I'm in the position of having an ownership interest, but not in any way being actively involved. So not having any insider information. But I will admit, this surprised me. I mean, it super surprised me. Aura had planned to do an IPO. They were a long way down, meant to price this week, Wednesday, right? They went into it feeling very strong. In fact, for the record, they have Morgan Stanley, Goldman Sachs, and JP Morgan. I mean, all the people. There was no people left that you couldn't have. So it's not that they had the dummies here, people. And then the second thing is, it's a profitable, it's a big company. Consumers know it. It's the kind of thing that should be very doable. And the third interesting thing is, when they first filed, one of the largest investors, Forerunner, whom I think are super smart, said they're going to sell all their position, which I've been doing a long time. I'd never seen someone in an IPO being able to sell all their position. So I was like, hmm, ballsy call and give you credit, because consumer electronics is hard. But the fact that, a priori, they'd said, we're going to do this, to me, you wouldn't say that unless you were highly confident the deal's getting done. Because look, it's always harder to get a deal done when there's secondary action. And when the more secondary action there is, the harder it is to get a deal done. Do you understand me? So having leaned in upfront to say, effectively, we're doing this with a primary and a bunch of secondary, right? And we think we're going to get a lot of secondary off the table, to have to walk it back to, we're going to downsize the deal, and now we don't like the price. Do you think it's the right decision, Rory? Well, in one sense. Because there was a huge secondary component, the secondary buyers who are venture people on the board, it really matters to them the price they sell at, because they're actually crystallizing it. Versus if the company is taking 10% dilution, and it leaves a little money on the table, then with all due respect to Bill, who has been proselytizing on this, I'm going to say something awful. No one really cares. The stock pops 20%. Everyone moves on. And the stock is trading nicely. And it's set up nicely for secondaries down the line. That's the normal move. If you're actually selling your entire position at the IPO, and you think you're going to get $22 a share, and suddenly you're getting $18, that's going to reduce your entire venture return by 20%. So you become very price sensitive. So maybe they felt they could get the deal done any time, and they only wanted to do it at a high price. That's the positive version of the argument, that the investors liked the deal, but just wouldn't pay up. And they decided, hey, at that price, we prefer not to transact. It's a totally rational outcome,
Speaker 3but it's kind of a weird one. You really think Tom Hale decided not to do the IPO because Forerunner couldn't get the price they wanted? I don't buy it. I don't know. I don't know. It's like, I'm trying to piece it through because. It's possible. Don't get me wrong. He's not a founder, but I find that all the effort that went in, he wants his liquidity.
Speaker 1if i'm the company i'm bummed because i always think doing an ipo i've been an ipo that nearly pulled on the last day before you know it's like those bobsled races my opinion i always tell people just the minute you unveil the s1 the minute it goes public you're jumping in that bobsled and you're sliding to the bottom and there's very few easy way out before you unveil you can do what you want but once you unveil well this is the hardest thing to do which is to pull a night or two before the thing if it was an enterprise company it would be even harder because then you get all these second order questions are they at risk are the dynamics but because it's consumer consumers don't care that much because it's already profitable they're not at risk so it's not fatal but it kind of i'm with you it's like a whole bunch of hard work to get it this far and then a bummer at the last minute it sucks i'm like i don't know why that happened i'm a bit bemused to be
Speaker 3honest it does soften it slightly the employees had 534 million in tender offer just a couple months ago it does soften the blow but it's definitely a bummer like the whole if you've been on the other side of it go in public there's just so much emotion right it's a bummer if the stock price is lower you thought it's a bummer if the pop is less than you thought what i thought when i read it i was like man there's just it's there seems to be so much liquidity that we talk about all the m&a deals when we started it but man you can't get a damn ipo done and that's what i
Speaker 1mean dan primick made that point he said don't like it because of market conditions we are 1.4 percent of the s&p all-time high the schiller pe is at an all-time i mean how much better does it have to be big guy because i agree it was like huh and it would be interesting to see any of these other non-entropic ipos i'm not sure what's up next i know what's it new is it new that new scale it's and scale and scale yeah yeah that's another highly aggressive compute dependent one to jack's point be interested to see when that one goes what'll be interesting
Speaker 2too is we haven't really seen any of the like ai native companies go out yet my guess is a lot of them would trade very well because public markets don't have enough exposure to them but i think it's scary to be the first one it's scary to do it before the labs have gone out and everybody can see how the markets react all of those things so i think there's a lot of companies waiting in the wings and i think if the market holds on i would i would expect that in 2027 there will be quite a few of these we just it's interesting that we haven't seen one yet which will be the first jack if i knew that i'd be really good at my job i'd be able to pick them all i don't know there are many that can choose to go out tomorrow if they wanted to but it'll just be a decision with the market and i think the management teams and the boards to the point of this you know the aura conversation it's it is not a question of can they be public it's just what price do they get and are they happy with it so it's um there's a lot of companies who just you know it's at their option right now
Speaker 4on the other end you've also got monzo the british bank getting acquired for oh why do you not like that one come on give me something no i know no i'm
Speaker 1sorry about my face harry i'm really excited to do monzo i have stunningly opinions on this
Speaker 4for everyone rory has an astonishing rbf which face but whatever you say it's continuously just miserable but monzo 8 to kind of 12 billion there's quite a range now on the suspected acquisition price by new bank honestly i was really surprised by this david is very focused on winning the us buying monzo which is bluntly a phenomenal asset in the uk a really strong strong british bank but it's in the uk to buy it off the uk and the us at the same time i thought was respectfully very strange david's brilliant so much better than me so he knows what he's doing but i was shocked to see this news
Speaker 1put it another way it is more surprising to see that new bank wants to buy than it is to see that monzo wants to sell that's effectively what you're saying how and i
Speaker 4agree yeah monzo want to sell for sure they're too they're way too small to be significant in a u.s public market and that the european public market is a shit ass and so you've got you're praying for someone to come and
Speaker 1save you agreed that's funny because that's all you're going to take that's exactly right yeah in fact and the interesting thing is the stock market agree i think the new bank stock went down on this right six billion dollars yeah the part i'm not i'm going to make the argument and then you can tell me why it's dumb because i think it is is that you know you can make the argument that look the problem with the u.s as a neobank market is we're just so damn efficient in terms of our banks that there's not a lot of fat profit to be taken which is why chime which i admire as a company trades well but not amazingly i five six billion dollars whereas revolute which is sticking all the crappy old school banks in europe is making out like a bandit so maybe the argument is if i monzo the reason it did so well in brazil it's another market full of crappy old school banks that overcharge maybe they're just focusing on the less efficient markets than the u.s and that's possibly the argument but you're right even then a you're entering the uk not europe because you guys left europe you silly people and then b you can be a revolute who as you point out every week harry is not exactly a shrinking violet when it comes to competition oh my god terrifying jamie diamond but as a russian you
Speaker 4know what could go wrong new banker down 23 percent over the year market cap is 47 billion over the week they're down 12.6 percent i'm gonna buy this cool real time jack this is how we do business
Speaker 1i love this yeah jack you'll note the complex analysis you did here he looked at the stock chart so it was ready to be filed in
Speaker 3exactly 30 of your public cash
Speaker 1you're putting in 30 i would do a full 30 30
Speaker 3of your liquid assets
Speaker 130 of your liquid assets yeah you've got it all fun now third and instinct a third in jave and a third a new bank man you you you're in you're one third liquid you're golden traded done thank you
Speaker 4very much uh i'm out now thank you so much for coming
Speaker 2jack yeah exactly you know i
Speaker 4don't know
Speaker 3too much honestly i don't know too much about this deal i can't add too much value but the one thing i will say in general is it seems to me you're buying they're buying time right they're buying time to instantly have the british market they're not buying just the revenue right of the customers they're saving themselves time and i think as venture investors those are great for our portfolio companies because sometimes a company you have it's not even growing that that that crazily but it has a position and someone will pay up to save time we need that for venture to work too right it's the only way people are going to buy the a minus b plus assets is to save time so so thank you and i have a few others that can save you time that can save you years years of time i got them and uh here's a deck i also
Speaker 1think one other comment on the manza side is that the whole you know boardroom drama the originally founder tom had retired they put in the ceo then the chairman swapped out the ceo and then the investors were pissed and then they reversed that and then the chairman's retired it's going to sound really it's that uk chairman plus ceo role i've seen which makes intuitive sense for well-governed public boring companies but in my view makes absolutely no sense for venture-backed deals and you can tell what happened here under the surface which is all the vcs were like you did what you know we weren't backing the chairman we were backing the ceo and you changed him so i think there's a lot of board instability and when you have that especially when you've taken out the founder and you have a ton of board instability and then suddenly someone says i'll buy you out you're like hit the bid and the pain well i think
Speaker 4everyone was thrilled bluntly when ts came in just to be super clear with the greatest of respects the company turned around when ts came in and then when ts got taken out that's my point mother of god why the did you take the guy who was competent out of this business no you
Speaker 1exactly right tom had done the founder thing the company was doing 100 million losing 100 million they hired this guy he kills it and then they replaced him in the last few months and it's like huh and i think all the venture investors are going we didn't sign up to have a non-exec chairman replace the guy we backed
Speaker 4totally guys there's two different spectrums here in terms of venture besma razor fresh 5.75 billion dollars to the point of you only need one well they think you need near close to six but a very very moderate number of venture investors who are very modest 1.75 billion seed fund jason so seed isn't for suckers when you're when you're when you're doing about 40 million a year in fees it ain't for suckers baby and then on the flip side you've got nfx now just investing gp capital not taking a new lp capital in new funds so two
Speaker 3different ends of the spectrum there well the best thing is just what jack's talked about at the beginning the learnings of benchmark and going big on growth early i think it's probably the same story i mean bessemer they weren't menlo into anthropic but that was a great one right the growth team accelerated they blew up the whole teams there samir and the whole team it's been a win so of course you put more more money into it right they said that i think they said the seed early was still mostly growth but even there to jack's point it's 2026 imagine a seed around is 30 million how many can you do with reserves in a 1.7 billion fund if you can't count on recycling 30 with with one-to-one reserves you can't even you need even a billion starts to sound small for seed funds if you believe 30 million is a seed and it you know that that barely gets you a tech crunch article so the math sounds right even if the returns may you know maybe some work that's why
Speaker 4rory's a pre-seed investor today was his 900 friends and family round rory's the first shackles in yeah that's me exactly and then and then nfx shutting shop to externals i mean i
Speaker 2i agree on the like both of these moves make sense like you know for bessemer it is the market around you and they've got you know a long history and tons of lp trust and if you want to play a lot of games you can play a lot of games and you can play the game why not just go bigger and play the game and then on the nfx side you know the homebrew guys i think did this before and that works out really wonderfully and i think it it probably changes the texture of how the game feels and i think people also really care about that when you're not managing external capital you get to do things without any explanation to anybody and i think that you know there's probably some ways in which that lets you you know freeze up your activities but i also think some people just get to a place where they prefer it and they want to say you know what this ownership stuff i don't care i want to put you know i don't want to put 100k into, you know, into Jev or something like that and that's hard to define. fend out of a seed fund. But if you're investing your own capital, it lets you do it. So I do also think back to the prior point. I think money's a big driver, but I think there are also non-financial drivers for a lot of these things. So it makes sense.
Speaker 3The only thing I thought about, this has nothing to do with NFX. I mean, I get the appeal of investing your own capital, right? And I think, frankly, I think anyone investing that has some resources has thought about it at least a little bit. If you've got a little bit of money, I'm like, F the LPAC and all this. Well, I'll just invest my own money, especially if I have a hot hand. I'll get into these great deals and I'll get 100% instead of 25% or 20%. Everyone's thought about it. The only thing I always thought about, if it's such a great idea, why didn't Peter Thiel do it?
Speaker 2Well, Peter Thiel did put a huge amount of his money into each founder's fund. But not all of it, right? No, not all of it. It's just an
Speaker 3example, right, of not doing all of it. I think you're right.
Speaker 2I mean, I think what he would say is if you want to build a firm, you need outside capital. You need salary to pay people. You actually need kind of the tension with stakeholders outside your firm to do it. So I think if your aspirations are a firm building, then you would say, I'm going to put in as much of my own money as I can because I believe in the strategy, but as much LP capital as we need. So that would be my guess.
Speaker 3Yeah, it's like 30% of the fund that he funds or something like that. But the NFX thing, I did notice, I think they said goodbye to the team in the note. So to Jack's point, it's easier if you don't want to have a team, right? If you don't want to have a. And they have life goals too. It's not just the money. You can fund the salaries, but they have life goals. They want to be partners.
Speaker 1I totally agree. What you just said, Jack, about people. You're building a firm. You have junior people. They want to have a goal. They want to have a career. You have to take outside money. You got to do all the things, right? I think, by the way, the beauty of putting 30% of your own money in is you can look the LPs in the eye and say, thank you for your opinion. But as the largest LP investor here, I'm very comfortable putting 20% of my fund in SpaceX in 2008. So duly noted that you're concerned, but hold that thought for 18 years and you'll be glad.
Speaker 2Yeah. And by the way, I think a lot of this gets lost. We rarely talk about, you know, LPs and all of those things. But the end result of all of this, you know, venture capital work is, you know, hopefully that you're generating money for, you know, groups that it matters for and all of those things. And if you're, you know, an employee at a firm where it's all the principal's money, you're kind of like a family office where if you do a really good job, you, you know, you enrich that person versus, you know, hospitals and endowments and all that stuff. I do think people care about that too.
Speaker 1Agreed. On both sides, I will say, just as a comment, you care about it a lot because you want to do really well for your LP. And you also feel the burden of it too, right? Is that, you know, you're not just letting yourself down. I mean, you know, I'm always conscious of the charities that many of our LPs embark on. And I have this mental model, if we're doing wrong or doing something that's not working out, I have a couple of charities that are super small where I'm like, I know exactly where this money goes in some homeless programs for teenagers in the Midwest. And I'm like, we're sticking it to them. Okay, people, let's get back to work and make this happen here. But you're right on that.
Speaker 4Jason, would you ever do this move? I think you're probably the closest to us in doing this move with the greatest of resources. I thought about it.
Speaker 3And to Jack's point, the reason is, and you rethink it, right? I'm like, okay, notwithstanding most of this conversation, if I want to be able to write a $5 million check to be relevant, that's too much for my balance sheet. It's too much risk. Okay. So, I mean, Homebrew, first of all, they were phenomenally successful, right? Small LP and some other funds, right? They're comfortable with those diverse size checks, right? I just didn't want to do them. Like, I don't get a lot of joy out of the 100K check that I do in 60 seconds. If I got joy out of it, then maybe I would do it. But I'm like, hey, I got to be able to write a $5 million check, or I don't want to do this game. But if it wasn't for that, I probably would. In fact, the Homebrew guys recommended I do it when I started. They're like, don't do this fun thing. Like, back in the day, you have enough of a brand, you have enough, just do it direct. So, that echoes with me once in a while. But even if benchmarks change, you do have to fund the check size that you're optimal at writing, right? Somehow you got to fund it. What have I missed?
Speaker 4Rory, Jason, Anthropix founders locking up 50.1%.
Speaker 3You know what's weird in that? You know what I didn't get in that story? Maybe you guys have some color. Like, why did they wait so long? Why didn't they lock up the control a little bit earlier? Like, what am I missing in the story, right? Did the guy from Skype not let him do it and Duskin Moskovitz vetoed this? Like, what the hell happened? Why did it take so long to get
Speaker 1voting control? That's because you probably actually have it in the pre-IPO structure, right? I'm willing to bet just based on a bunch of different things. And then it's when you convert everything to common stock that typically voting is not a good thing. It's a good thing. It's a good thing. Voting rights expire on the IPO. So my guess is they had a pre-IPO deal, and now you got to recreate a post-IPO deal because everyone's cap structure changes. So I've been in situations where it's been in existence pre, and then you realize, oh, my gosh, everyone, all these preferred stocks that have minimal voting rights or maybe two out of five board members convert to common. Now it's just based on ownership. Oh, my God, in this case, I own 2% of the company. I think we're going to do it differently. And look- Could be. Yeah, could be. I mean, to me, at this point- Look, if we're willing to fucking trust them not to blow up the world, and they've already said they might, and it's only a 10% chance, I think we can trust them to with the votes. This is so low down the list. I mean, can you, as I sit up and draw the S1, having argued over founder control before, right, and is it a good term for the public markets? And as I've mentioned to you guys, I've changed my mind, and I've come to the conclusion it is because of the activist pressure. In the case of this deal, it's literally item 17 on the agenda, right? First, risk of blowing up the world. Second- Risk of cyber attacks. Third, risk of hostile state actors. Blah, blah, blah, blah. Oh, item 17, oh, by the way, we'd like to control all this. Yeah, right. I mean, everyone else is like, knock yourself out. Sure, you have charge of it. That's where they'll know who to indict. Boys, it's a wrap.
Speaker 4Well done. Thank you so much for joining us, Jack. You've been a star guest. Thank you for having me. It's been so good to have you.
Speaker 1You guys are awesome. Awesome. Thank you, Jack, for joining.
Speaker 4But before we leave you today, when you're building a company, you learn that trust is deals. Your engineer gets pulled off the roadmap to audit prep. Vanta is the leading agentic trust platform that not only gets you compliant fast with frameworks like SOC 2, ISO 27001, HIPAA, and GDPR, but keeps you compliant by continuously monitoring your controls. Now access the Vanta agent everywhere you work, even if your team lives in Claude or Cursor. And that's why Vanta is trusted by more than 16,000 companies like Ramp, Harvey, and Writer. So prove you're ready for business and get $1,000 off Vanta when you go to vanta.com forward slash 20 VC. That's vanta.com slash 20 VC. We get it. Deal IT handles hardware, software, and access to across 130 countries from one system. Visit deel.com slash 20 VC and start expanding your business today. While deal builds the team, Framer builds the site. If you want AI that builds your real website, not just a throwaway first draft, that's Framer. Framer is the AI website builder that helps creators, teams, and businesses ship production-ready sites faster than ever while getting every detail right. Prompt, inspect, edit, and publish in one place at a whole new pace. You bring taste, judgment, and control. Build custom code components, manage CMS content, optimize SEO, and audit for issues all in one place. Enterprise-grade hosting, security, and 99.99% uptime SLAs trusted by leading brands like Perplexity and Miro. Learn how you can get more out of your site from a Framer specialist or get started building for free today at framer.com slash 20 VC for 30% off a Framer Pro annual plan. That's framer.com slash 20 VC. Rules and restrictions may apply.
PodcastTranscript AI