Speaker 1It's the first real ChatGPT competitor. Anthropic never really cared about Claude until recently. Amuse is many things. It's one of the best pieces of software I've used ever. But it's also a Trojan horse to fight ChatGPT because the LM's pretty good. They've trained on all of our data. Every YouTube, every piece of open source, every piece of Claude's source. Of course, they're going to train on your data. Give me a break. There is a zero probability AI will destroy all of humanity. I love the quiet compounders.
Speaker 2There's just no market for them anymore. Coding is the model load.
Speaker 3It's everything. This is 20VC with me, Harry Stebbings. And it's the show that we all freaking wait for, let's be honest. Jason Lemkin, Rory O'Driscoll, the biggest news in tech. What is going down this week? Anthropic, baby. They pushed the IPO a la poubelle. We have to wait longer. Maybe it's November. Then we have Meta. Alex Wang is delivering the goods. Muse holds number one spot on the App Store. They are crushing and handing it to Instinct. Maybe the AI assistant race really is on. Then we have ChatGPT invented. Shipping Jev, one of the most popular tools today, becoming Vercel's fastest ever launch. Then we have Lemkin's deep dive with the IC that is Jason Lemkin. Do we put money into Legora at $11 billion? Do we do Crusoe at a $30 billion price? And then do we do Factory at a $5 billion price? Finally, Airwallex versus Keith Raboy. This show goes on and why Sidney Sweeney should come out as the ambassador for Airwallex. But before we dive into the show today, you have the idea, but with most AI tools, you hit a wall. The setup, the config, the gap between what you pictured and what you actually ship. Well, Base44 is where that wall disappears. You describe it. Yeah, Base44 builds it. Apps, websites, AI agents, real working products built in minutes using nothing but plain language. And it's all batteries included. The backend, the database, the authentication, the hosting, the heavy lifting is handled. So you just really stay in the flow. This doesn't just take the busy work. But it gives you an advantage and pushes you past what you thought you could build alone. So in this market, fast is the baseline. To win, you just have to be first. Base44 is that edge. The move that skips the troubleshooting and gets you straight to the breakthrough. Build your next thing at Base44.com. That's Base44.com. While Base44 turns ideas into apps, Plot turns conversations into insights. Founders and operators spend way too much time every week. Jumping between meetings, investicles, brainstorms, customer conversations, and then trying to piece everything back together afterwards. And that's why I've been using Plot. Plot instantly captures conversations, voice notes, meetings, random ideas with one press, and then turns them into clean summaries, action items, mind maps, and searchable notes that you can actually come back to later. Honestly, it feels less like a recorder and more like an AI powered like brain memory system. And the crazy part is the hardware itself. The Plot Note Pro is literally as small and thick. It's as thin as a credit card. So it's just always with you when something important comes up. There are already more than 2 million founders, operators, investors, consultants, and professionals using Plot to stay organized. So think more clearly and stop losing great ideas and important details. Go to Plot.ai/20VC and use the code 20VC for 10% off. That's P-L-A-U-D.A-I/20VC and use the code 20VC for 10% off. If Plot captures the conversation, Finn helps continue it. As AI agents become more common in customer experience, teams often end up juggling multiple siloed tools for every job. Well, Finn was built to change that. It's a single unified agent that works across your entire customer experience from service to sales to success and beyond. Finn is the agent making perfect customer experiences possible for thousands of customers. It's powered by custom models, trained on years of real customer interactions. It understands the nuance and complexity of customer service better than any other agent. That means faster resolutions, more consistent support, and just better experiences for every customer. It's also designed to be fully self-manageable so you can easily improve and adapt it as your business evolves. No third parties required. Leading companies like Gamma, Asana, DoorDash, and Crypto.com already use and love Finn to deliver better customer experiences. So for a limited time, you can get $500 a month in Finn credits. In just three months, learn more at finn.ai/20VC. You have now arrived at your destination. Boys, another week. And I wanted to start with the news that Anthropic pushes its $2 trillion IPO from October to November. Some people are suggesting that it's the first signs of a cracking in the market. It's following the pacing, the frontier that we discussed last week. To what extent do you agree with that? Or to what extent do you think it really is just them wanting to have a great Q3 prospectus and needing more time for those numbers to show through?
Speaker 2I think that's the answer. I think the whole crack in the market thing, let's leave that to one side for now. We'll talk about it later. Ditto the pacing stuff, which clearly has also been shown to be not really believed, even by the people who said it. It really boils down to what you said. They had an amazing Q2. They finally became bigger than OpenAI. And remember, we talked about this. OpenAI then responded furiously in July, started tweeting all that "My Q3 numbers are amazing" story and really pushing back. And, you know, some of the data supports that. So my guess is the banker said, hey, if you want a really clean story, it would be great to incorporate a quarter that reflects this noise instead of going out in October where you won't be able to share your October numbers. It's kind of that weird thing. Go out in November where it's clean. You print your October numbers, you drop them in and you go. So from a programming kind of timing perspective, it just all made sense. It's a cleaner deal. It's not to be a wise decision or not. We can come back to in a second. But just from that, it's always weird to go out after you have your numbers. But before you can share the numbers. So after the end of your quarter, but before you've kind of finalized and audited them, especially for what looks like quite a pivotal quarter. So it totally made sense. If I'm a banker, I'm thinking if we do this in October, it's going to be a lot of explaining. And if we do this in November, the numbers will talk.
Speaker 1Having said that, that sounds all right to me, right? But it said to me, maybe there's just a hint of worry. They're getting 30 X or 20 X oversubscribed wherever they want it. You know, at the most massive IPO of our lifetimes. Maybe there's just a hint of stress on the pre on the pre conversations. Right. I agree.
Speaker 2And that's why I made a comment earlier about is it a good decision or not? Like, if the world goes to hell in a handbasket in November, you'll look back and go, damn, we should have gone when we had the chance. Because you are a CFO who said, we're just doing it. I don't care about your messy story. We're going to tell a good story if the price ends up between one point point five instead of two, because it's a messy story. I don't care. I'm willing to live with that. And that's the approach you take. If you felt it was hell or high water, I got to get this money. Clearly, the fact that they didn't take that approach means they decided it's not hell or high water. They're confident. Yeah, they're willing to take another month of timing risk, probably for some significant valuation pop, which is what you do when you think you have lots of time and you're in a good commanding position. I mean, if I was in that board, it's 90 percent certain that this is a good decision and a clean story. And Q4 is better than a messy story in October. And there's always that 10 percent chance the world goes crazy and you look back and you go, damn, should have taken the hundred billion.
Speaker 3I was walking with a friend of mine the other day and he said, Harry, and very successful multi-billionaire ambassador, he said, Harry, how the do these frontier model providers go public when no one is willing to provide liability insurance? You have swarms of rogue agents doing whatever you want. How on earth do they go public?
Speaker 2Who's liable? Bullshit comment. I'll tell you why. Once you've said publicly that there's a 10 percent risk that your thing can blow up the world, sweating product liabilities in the noise, right? There's a two trillion dollar market cap company can self-insure. They don't need reinsurance for Munich Re with a market cap of 200 billion to reinsure their two trillion dollar market cap. I don't think you need product liability insurance to get an S1 done. Now, separate comment. The fact that no one will insure them is a data point about the dangers of the product. It's long since been internalized to be very fair to the anthropic management. Anyone who buys that stock and doesn't know that senior management think it's the most dangerous thing since the atomic bomb has rightly around me, by the way, hasn't been reading their tweets. It's a pretty well in the list of risks disclosed. I'm really looking forward to reading the S1 risks, by the way. But in the list of risks disclosed, product dangers have been pretty thoroughly discussed for a decade here. So I don't I don't buy that at all. There's a hundred reasons why you don't worry about valuation and traction and all that. But product liability insurance isn't the noise.
Speaker 1Yeah, they're just going to have a big litigation legal team. It's just they're going to fight this stuff for for infinity, just like tech leaders have always had to fight IP trolls with large teams. They're going to fight liability suits. They're going to have 200 folks in house and all the top law firms fighting this, dragging it out, saying they're not responsible, trying to get legislation passed, but you don't stop the IPO. I can't remember an IPO that this was as so explicitly dangerous to Rory's point and Harry's point. I mean, it is novel. But it's game on, man.
Speaker 2I agree. The most important part of securities laws, security laws, is not that you have sell stock that has no risk, is that you sell stock where you disclose the risk. And provided somewhere in the S-1, they say at least half of our crazy employee base thinks this thing is going to blow up the world. I don't, for what it's worth, says Dario, but my people think that just letting you people know they're out there in S-1 land, provided he discloses that he's covered. And obviously, state the obvious, he's not covered if, in fact, it does end humanity. until he'll die too, but let's just. ignore that for now. And by the way, I want to call out Jensen for his big ass call. I love it for the PZ. His probability of doom is zero. Finally, an unequivocal statement from a no bullshit investor. There is a zero tech leader.
Speaker 1I love it. That's because his LLMs haven't caught up yet. His open source LLMs haven't caught up yet. That's why. That's why he can say not until 2030, because he knows he needs until then to catch up.
Speaker 3Before we move to Meta and Muse, their open AI to burn $278 billion by 2030 out of cash by 2028. Is this just more noise? And of course, that's to be expected. There's rumors of another round at a 1.5 trillion. I bet it's more.
Speaker 1It doesn't have a history of the burn coming in less than planned. They may need 400. We've all had a portfolio company or like that. Top line. Great. Love the team. But burn, no matter what they say, always comes in 30 to 50 percent higher than the model. Doesn't matter who we put it at CFO.
Speaker 2Jason is broadly right. I mean, look, big picture on the forecast. There's actually three numbers that matter, not two. They're forecasting growing from 35 in ARR end of this year to 350, I think, in three or four years. So 10x growth. We're pointing out, by the way, that last year, Anthropic grew 10x in one year. This is a 10x forecast over three or four years. So almost modest. Second thing is the burn. You're right. They're forecasting. A burn, a growth, a net burn of 278 billion. And that's like money out their door. They have 122 billion of cash on hand. So they got time to raise the extra capital. The amazing number is the other one, which is the capex required to do all this, not all of which is on their balance sheet. A lot of it's on other people's balance sheet is around 700 billion. So it's just a reminder that this is unlike software, this is an extraordinarily capital intensive business. And to kind of bring it back to what you said, Harry, if all that burn, all 700 billion of it had to appear on the balance sheet, it would be even, you know, even worse than that. And the only reason they're able to do it, only burning 278 billion, is because other companies like Oracle and like NVIDIA would, you know, kind of rev support and backstop insurance are able to say, we'll do the capex and lease it to you. So this is an extraordinarily capital intensive company. It is going to consume directly $700 billion worth of capex to get there, to get to $350 billion in revenue. Intelligence is not cheap.
Speaker 3I think that was the most efficient covering we've done of OpenAI and Anthropiq. Yeah, we can move on. So we're going to move to a story of the week, which is going to be a new feature of the show. Jason's IC has been a massive popular segment. And we're going to add a story of the week, which for me is Meta's Muse, taking number one spot for days, stock ripping. Alex Wai and team, really crushing with this launch. Thoughts? Bad for OpenAI.
Speaker 1That's a good point. It's the first real chat GPT competitor. Anthropiq never really cared about Claude until recently. A Muse is many things. It's one of the best pieces of software I've ever, I've used ever, but it's also a Trojan horse to fight chat GPT because the LM's pretty good. Every time you're doing an agent, you're also asking questions. You're not just telling it to get your movies. You're saying, hey, what is Plane? How is that latest superhero movie? How was the latest 20VC? It has opinions. It's a darn good. Normal consumer grade LLM, right? I don't think anyone's writing a wet lab biotech software on Muse, but at a lay level, if it's free, it has agents that are truly autonomous, which chat GPT doesn't. And it can do all the other questions you have. And it writes you cute letters when it makes mistakes. If it's free, why would an ordinary person pay? And the tokens are vastly more than you get from chat GPT. I just think in addition to everything else, it's a chat GPT Trojan horse because it does everything. It can do everything. It can do. And it has autonomous agents. It doesn't have to just be agents. It's doing all of it. So it's pretty cool.
Speaker 2Could not agree more. I think it's excellent. It's funny. I think, as I said, two weeks ago, we were saying they got to ship this. And literally between our conversation and release, they shipped it. We've been skeptical and a little harsh about some of the meta slash Facebook investments in AI. It'll determine enterprise model. This is the exact opposite. This is spot average. It's intuitively kind of something that you would take. I mean, to the extent you do trust Facebook with everything else already. Longer discussion. At this point, if you're deep in Insta or Facebook, you're in already. You don't care. And it's a good product. Jason, you're exactly right. It's a good UI. It works. It gives me recommendations. And they just have the distribution. So I agree. I thought it was a wow moment. I thought it was a real win. I'm not sure about the economics and if it's worth 100. But it's worth pointing out what it meant for meta. $100 billion in market cap this week because of that product. And that just shows when you, I mean, it's something I have to remind myself, what's possible. When you're dealing with these huge end markets, you can see the value of a play in that space. That's the argument why OpenAI might look at that and bring it back to venture. They made $100 billion. Should we buy Instinct? Do we have to do
Speaker 1something in this space like now? And it's up 34% this month. Some people are saying that because people in the beta tests were buying, right?
Speaker 2That's interesting. I saw that. Yes, that the beta testers were buying, which I just love. Because yeah, for the longest time, I was like, Facebook, it's a great business that's spending a lot of money in a bottomless pit of enterprise AI. Now it's a great business that could have a next act in AI. That's a big change. No, that's worth the rewriting and give them huge credit. So I think it was a big week for
Speaker 1meta, to state the obvious. The thing is, the reason I say it's Trish Norris, it built me an entire CRM. This isn't just reservations. And it's very good. Now, it's very limited. It's very limited. It's very limited. It's limited two weeks in. It does everything. It built me an entire CRM for every SaaS for sponsor. It tracks every email about them, every item in real time. It updates it. And so it is sort of a CRM of one. Now it's limited because it can't really collaborate. You couldn't use it for a Salesforce, but imagine yourself, it is some of the first compostable software that I've ever, composable, that I've ever actually seen work. This has been a myth since the show started, right? Now I really said, I need a CRM for myself. I need you to track 150 sponsors, daily in real time using AI. And it just built it for what it is. It's very good. And it costs zero. You need all the pieces. You need database. You need LLM. You need intelligence. You need access to email. You need all of this for that to work.
Speaker 2You're obviously not the typical user. And I don't think their economics are structured on everyone building their own CRM, or it's going to eat compute. But yes, you can, through that interface, you have a, you have a sophisticated LLM at the back end. You have your own little sandbox. They have a lot more standalone compute and sandbox for you. Then I think instinct does. So yeah, that makes sense.
Speaker 3Okay. For those that don't know, I haven't used it. A lot of people use it to buy things from different providers. Amazon has in response, blocked it. Shopify has decided to partner with it. How do we think about those two decisions from Amazon and Shopify and who do we ultimately think is right?
Speaker 2I think both could be right for them, for Amazon's perspective, because what they've discovered in the last two years is that, you know, some of the things that they've done in the past is they've done a lot of things in the past. One, you don't get any revenue from your ad business. And Amazon's ad business is now larger than their e-commerce profits. So in other words, it is the entirety of the profit stream for e-commerce, as distinct from their AWS business. And then the second thing which I didn't know is Walmart did something where the basket size gets reduced because you don't get the chance to shop. You know, when you go on Amazon directly, they're like, you know, people also bought. Then you have, oh yeah, I need to order this. And then you have, oh yeah, I need to do that. Whereas if I do this, I just order the thing. So from Amazon's perspective, because they're such a big player, they're like, if I let these people do it, then I don't get my ad revenue. I get a smaller basket. And then this is the next sentence is key. And if I block them, they'll probably come to me anyway, because I'm Amazon. So I have leverage. And this is kind of tech behemoths bumping into each other. Amazon is now saying, screw your muse meta. We're going to have to talk about this before I roll over. And at some point, they probably will be a more aligned exchange of value. Shopify, on the other hand, represents lots of little tail merchants. They are very glad of the extra business. They probably don't see that much compression in order value, because if you go directly, if you're buying some obscure thing on a mid-tier Shopify merchant, you go buy the thing directly or you buy it via Amazon. No matter what, Shopify is broadly happy. They don't have a big ad business. So from Shopify's perspective, it should be have at it. What Shopify likes is they have the common payment ad. So they like to have that go through that. So in each case, capitalism works. These executives are very logical. They're like, it's great that you have this new source of demand. What matters to me? In Amazon's case, I think I have a lot of leverage. In Shopify's case, provided you let me charge for my payments rail, I'm good with this access. So it all made sense. It's the early days. There will be much negotiation. But it's interesting. I mean, the bigger lesson here is, there was a whole bunch of Google, OpenAI, blathering on six months ago about various different agent payment mechanisms. And it was all your smart people getting in a room and thinking things through. And the truth is, in tech, none of that shit ever matters. What really matters is someone aggregates consumer demand, like Instinct and Meta have done. They start pounding on the API. And then now everyone has to focus. I'm willing to bet someone at Resi, even as we speak, and OpenTable is formulating their agent API policy. I'm willing to bet someone at Resi, even as we speak, and OpenTable is the bell at Amazon. They're talking to Meta this week. Demand. creates urgency to sort all this shit out.
Speaker 1They're all going to lose. I think it's the last stand of the unnecessary system of record. Rezzy's going to lose. Amazon is the least losey in the short term because they're at the edge of a monopolist for what they sell as a merchant. But the agents will bypass them ultimately. You're going to have to decide. The agents have very clear positions. And you're right, Rory, this benefits Shopify. Of course, Shopify leans into this, right? Of course, Stripe and PayPal lean into this. It benefits them, right? There's no question. And Amazon, losing ads, losing upsell, losing shopping cart sites, all a negative. But to the extent an agent can route around Amazon, to the extent you can, the agents not only will, they will gleefully do so. They will gleefully do so. Would you like me to call the restaurant directly, Jason? Oh, I found a back-end API where OpenTable still works, even though they're exclusive on Rezzy. Oh, I found another way to do this on DoorDash that's left open. The agents are wonderful at finding, broke APIs that have other surfaces that shouldn't be exposed. This is a, it may be their only choice, but I believe all the systems of record, places of record, they're just battening down the hatches and they're fighting the agents. And net, net, it's not a positive for any of them. It's not a positive for it. This is not a positive for Amazon.
Speaker 2I hear you. The agent, as Jason points out, is tireless. The agent does have the ability to call, to hit all 17 websites. It's only compute. They don't care. So you're right. A lot of these digital owners, only aggregation businesses, I don't think they'll fall as brutally as you say, Jason, but there definitely will be some end-run pressure to go around the kind of demand systems like a Rezzy or something like that. I'm not sure it's as fatal as you think. And then I feel that I think,
Speaker 1well, let me be clear, because I think you'll agree with me. It's not that I think they're going to be killed. I think they're going to be maimed. It doesn't matter. If this means that Rezzy's growth falls this much, if this means it impacts 10% of Amazon's advertising revenue, that's just like Metastock's up 20 some odd percent. If this drives Amazon, stock down 20% because it impacts margins, it's a big deal. I can tell you talking to our agents all day, they don't put up with this bullshit. They don't frigging put up with it, right? Listen, I don't want to name the name or the vendor. Please don't make me, but we got a raise this morning from one of our core vendors, a massive price increase, massive pricing. Immediately our agent said, I want to work around it. Here are my ideas, dump them. And it actually laid out a 12 month plan to migrate off this vendor on its own. They will not tolerate this crap, right? And there are so many products you can only buy in Amazon. There's, it has so many advantages. It has warehouse, it has fulfillment, but some of that stuff can be bought on a Shopify store. It could just be enough. This may mean is a big deal for AI. It's going to maim the existing folks, unless they embrace things they don't want to embrace.
Speaker 2Two comments, one each way. One is yes, I do think Amazon's biggest defense will be its physical infrastructure and ability to deliver, but zooming, but your point is the right one. I remember someone said like 20 years ago when the internet, probably 25 years ago now, internet first came out that the internet abhors inefficiency. In other words, middlemen get pounded down, right? And if you think about things like the travel sites, Expedia, Airbnb, all of that is that, is getting demand and supply closer together. And I think what you're saying, Jason, is correct. AI is the same. It's going to pound down people who are in the middle, who just have information and are using that to make offers. If that's all you're doing, then there will be pressure at the margin. Because if you're reducing search costs, that's valuable to me as a human, but it may be the AI, the agent can just do it itself. So I'll go with the maiming comment. If it's even five or 10% impact, it's meaningful.
Speaker 1That's the thing. And it's easy to shut off perplexity for Amazon. It's just, they're just a gnat. Amazon will have interesting choices when it's everybody. Like you can shut off everybody. It is technically possible, but at some point it's going to be complicated. Are we sure we want to shut off everybody? Moving swiftly on,
Speaker 3anything else that I haven't touched with Muse?
Speaker 2No, 'cause it's not really the story of the week. I mean, it's the story of last week. We're going to do the story of the week, and Jason's going to be ready as a hands-on users to tell us about Jeff, right? That's the story of the week. So here we go.
Speaker 3We can talk about Jeff if you want. It's next one up, and it's the story. It's the next one up, and fine, it's Rory's story of the week. So for those that don't know ChatGPT and Banter Ships, Jeff, it's a model that decides instead of chats, and it becomes Vercel's fastest ever launch. Jason, I'm sure you've played with it. What did you think? Jason's review, new segment.
Speaker 1Well, first of all, listen, I might not be smart enough to get into semantic, because I don't even think it's a model. I think it's a classifier backed by an LLM. I've used it, it's awesome, but I don't know that it'll be as disruptive as everyone on X talking about it that probably never used it said it is, but it is awesome, okay? Jason, what do you use it for? What I use it for is deciding who in the Sasser community should meet each other. It's quite good at that. Should, Rory is the CRO at GCI, Harry is the CRO at Perplexity, should they meet? It's actually not that simple a question. They're at pretty different levels. They're at different stages. They live in different places. Should they meet? I spent all of Saturday, nothing worked on Jev, because I had to redo the way I did prompts, okay? So I thought it was a failure, right? Then what I learned is if you invest the time, it can answer that question in milliseconds for a hundredth the price of Anthropocene, actually even less. It can just answer a question, and it can answer a subset of questions, but I think as we've learned from data labeling and others, there's a lot of classification that needs to be done, a lot of data labeling that needs to be done, but it doesn't output text, it can't do anything particularly complicated or with reasoning. So it's like a big deal, and for this particular use case, I'm talking about who should meet who, it is disruptive, but it's maybe like 20% of all the LLM calls associated with this application, right? So I love it. I think everyone will do some version of this. I think maybe even Exa and Parallel should do some version, maybe OpenAI and Chat, everyone should do a version of this, but it's not gonna take over a hundred percent of your stack, and it's not gonna replace ChatGPT, it just doesn't do those things. But it does remind us that, man, we effin' waste a lot of tokens on simple stuff that Astra shouldn't be doing. -
Speaker 2I pretty much a hundred percent agree with you. I mean, the zoom-out comment is this, it's a new model, it's different than an LLM, an LLM returns text and is very computationally intensive, and in computing terms, fairly slow and expensive. This just returns true or false, or a ranking or a score, right? So there's three answer types, and it's super fast and super cheap, they don't even charge for output tokens 'cause they're so meaninglessly few. So it's just a faster, more precise, that's why it's called, they refer to it on the website as a system one, which is the Daniel Kahneman, thinking fast, thinking slow. And this is the thinking fast part, quick, fast answers. But Jason's math is exactly right. But we're talking about this on Monday, the part I'm meaning is that, there's roughly a hundred billion dollars today being spent on LLM calls between Anthropic OpenAI and the open source models. Maybe that goes, we just agreed that OpenAI is gonna be doing 350, Amazon 250, so it's probably gonna go to half a trillion dollars five years from now. 20%, and Jason, we had exactly the same number, only 20% of them are relevant to this, where it's today you're using a complex, expensive model for something that really needs a much simpler solution. But 20% of a hundred billion dollars is 20 billion. Well, I don't think the dollar's gonna flow that way, I think the token's-- Let me finish, damn you. The next thing, 'cause God, you sound like the cynics in my group on Monday, we had this, I've already had this discussion once, that's why I can carry it off. So that's 20 billion, but you're exactly right, as one of my partners said, but dude, you just said the prices are gonna down by 5X, so that 20 billion is gonna become four billion. You're exactly right. It's just like open source, it's gonna take a slug of the total addressable LLM marketplace, attack it with a better, cheaper product at one fifth the price, net result, that 20 billion becomes four billion, but if you're a Jev, or if you're a type safe, you're saying, hey, that four billion becomes mine. That's the bet. Now, at the same time, going back to your maiming concept, which I love, Jaya from Foundation did a nice post that basically, this is just a slug of the total 100 billion spend that was kind of automatically destined to go to OpenAI and Anthropic, and is now kind of sluicing off into a cheaper, low-cost provider. So that's what's happening here. You're right, it's not the end of Foundation Model. The clever shit is still gonna be done using Foundation Models. It's just a little maiming of 10, 20% of their revenue, not gonna be done by someone else at one fifth the cost. Now, we can talk about competition in a second, 'cause I think that's a real issue, but that's what's going on here. I just think it's a hundredth the cost, but I agree with all of it. You're right, a hundredth,
Speaker 3in which case, yeah. So we're gonna see the unbundling of ChatGPT, and we're gonna have users go, "Oh, well, this one would be good for--"
Speaker 2No, the problem is not ChatGPT, the app, but the OpenAI API and the Anthropic API. You're right, this is a developer product. You as an end user, I as an end user don't use it. You can go on and try and use it, but it's full this month. This morning I tried, but it's really, I mean, if you listen to the launch announcement, it's very focused on developers, and the idea is, and this is an interesting thing, almost comes back to Muse, that I think you might see, I could be wrong on this, that the needs of humans, especially consumers for AI, are gonna continue to diverge from the needs from software developers for AI, and this is a core software developer thing. You'll never need it, Harry, but someone who's building a software app might realize that a significant portion of the core intelligence they want is system one intelligence. Just tell me if this is an A or a B, you know, animal, mineral, or vegetable. Is eggs better than Y? Give me a quick answer. I don't wanna blather and have you tell me, that's a great question, Rory, like a sycophantic LLM. Just give me the damn answer. So it's not for you, the user, but it's unbundling at the developer level, where it's more likely to happen.
Speaker 3You're right, I require far more intellectual answers.
Speaker 2No, you just require a bundled product. Actually, Harry, I think what you really like is a sycophant.
Speaker 1the sycophantic part of the yellow lamb, tell you, you're so smart, Harry. But to answer your question, what I did learn from using Jev all weekend long, failed on Saturday, figured out the prompts and the use case, got it to work on Sunday. So cheap, you don't even measure it. 10 times faster is the use case, but only for these limited use cases. What I did learn, may almost sound tangential, is man, using a harness to pick a model and getting it right is effing exhausting. It's going to get even harder and harder and harder. When should I use Jev? When should I not use it? You have to run so many evals, so many tests, because there's so many things I did with Jev. You know what doesn't work in Jev? Between Harry, between Rory and Jason, who's the better person to join 20VC as a partner? It can't answer. You'll find, it's going to get that wrong. Okay. So between that and should Rory and Jason meet for coffee, it's going to get that one right. It's not going to guess. It's actually going to know, hey, we're both in the Bay Area. We've known each other. We should meet for coffee. You have to QA and test every single use case to get those benefits. It's exhausting. And then I got switched over on Replit to Autorouter, where it switches between Astra, the open source ones and everything. Now I don't even know which one it's using. And then I saw some performance degradation. So then I had to switch it all back to Astra. Do you trust your harness? Can you QA 10,000 uses of Jev? This isn't a bad thing, but this is the renaissance of DevOps or something. Everyone's going to need this massive team to optimize. And the needs are going up with Jev and friends. Your team's going to have to get more. It's not just benchmarks and evals. We're going to be running these 24-7 across countless permutations. And it's good, but for me, it's too much. I can't do it anymore. I can't pick these models anymore. I'm tapping out. These harnesses are only so. Databricks, it's easy to save money with the harness. Hey, we route 80% to open weights models, and now we're doing 10%. It sounds great to the CFO, but I found it doesn't work for me. And a lot of folks were saying they're using Jev as an instant router. It's like, Jev, you make the decision. Here's what we're doing. You pick the model in milliseconds. Great. But Jev is wrong 20% of the time. If you pick the model in milliseconds, you pick the wrong model for me coding a mission-critical feature 20% of the time. I'm going to be trying to build this thing bug-ridden all day long. Listen, people will figure this out. It's just getting more complicated to pick your model, not easier. And it's good for investors, but it makes building more complicated.
Speaker 3If you're Anthropic or OpenAI, what do you think the conversation is internally when they look at Jev?
Speaker 2OpenAI have become ruthlessly commercial. Their take will be like, screw it. If someone's going to do that, we should do that. We can get in a few weeks. Let's compete and have a low-cost offering, too, because they're trying to make a buck. And Anthropic, they're trying to build God. And this isn't God, so why would they even bother? In fact, the launch video for Jev was prod not God, right? So they're deliberately saying not God. And if you talk to Anthropic, the mission is AGI slash God. So they're like, you are just a nothing thing. Why would I even deign to sully my hands on vulgar commerce?
Speaker 1I think that Anthropic and OpenAI have been doing this for a long time. They've been doing this for a long time. They've made a very strategic decision. They will not play in this market for now. OpenAI and Anthropic each have the two worst models that exist. They're called OpenAI Mini and Haiku. They're terrible. They're terrible. Now, if you ask Claude, what should I use for simple workflows? Haiku. And if you ask ChatGPT, it will tell you Mini is great. It's so cheap. And at least my little evals, they fail 100% of the time. Should Rory and Jason have coffee? Yes. Send them to London. Worst answer. I mean, I'm exaggerating. These are the worst models I've ever used, Mini and Haiku. And so they've decided to launch crippled models that they can lightly promote, but they don't want to play in these low margin businesses for now. They could build this, right? They could build, I think they could build a version of Jev in an hour or over the weekend, but they've intentionally decided to cripple the low end of the market. And I think they're puckered about the open weights models that just got a little bit closer earlier than they planned, right? Because that is more of a threat than abandoning the bottom of the market. This is just my view, but I don't think they've ever taken the bottom of the market seriously. They have checked the box offerings that no serious developer uses, I don't think. Go on, Claude, and switch to Haiku if you can and ask it a question. It doesn't remember anything since 2023, and it doesn't know where anything is. And that,
Speaker 2in a nutshell, is the Jev opportunity. It's not quite one for one, but yeah, you're right.
Speaker 3I'm going slightly off on a tangent on this, but people do like it when we talk about venture. It was a $40 million seed round for Jev. And, you know, I just had a conversation with my team right before this, and they're like, did we never see anything less than a million dollar first raise for anything anymore? The seed rounds minimum are like eight to ten with someone spinning out of a good company. Are we seeing the evaporating of traditional seed?
Speaker 1Why do you think Andreessen just did a university? They need to go pre-Inception. You think I'm kidding? No. I mean, finally someone figured out that Peter Thiel got this right 18 years ago at the Thiel Fellowship and the dorm room fund, which sort of did cursor. You got to go pre-Inception if you want to do seed now. Inception is. Inception is too expensive. You got to go pre-Inception. But Andreessen Horowitz did launch Horowitz Andreessen University today with $40 million to do pre-Inception investing, right? To do the Thiel Fellowship on steroids. I think it's a very rational response to your point. But I do think Peter Thiel saw this space before anybody did and executed. The only thing he didn't want to do was scale it up. He didn't want to build a Thiel-Raboy University like Horowitz Andreessen. He just didn't want to scale it up. It could have been. I mean, they have the best. They have the best people in the Thiel Fellowship. They get the best. Today, too, they get the best
Speaker 3people. Do you know what? I don't think they do anymore. I think Z Fellows get the best today, actually. Okay, maybe. Z Fellows gets
Speaker 1unbelievably good people. At the end of the day, same idea, right? The problem with these things is if you don't put enough people into them, they don't scale, right? That's why Z Fellows maybe is more interesting than the Thiel Fellowship and why Horowitz Andreessen is more. If it's the same, it's more interesting because you're just putting more resources and things that. You used to be able to run a fund with a blog. That would give you all the deal flow. In the world, you needed for like five unicorns in a row, but you got to scale this stuff up, you know? Now you're on a podcast with a professor. Yeah, I used to be able to just do it with a podcast and one dude in a closet and do just fine.
Speaker 3We haven't answered my question, though, which is like.
Speaker 2I will go back to your point, Harry, right? You are correct. Once you go beyond individual to even an individual and idea, you're seeing bigger checks. You are seeing 20. Look, I think the TypeScript was. I think it was even bigger. I could be wrong. I thought it was 40, but I could be wrong. But yes, people are writing bigger checks now up and down the stack.
Speaker 1Or if you want to do traditional seed checks, right? You have to tolerate far lower ownership in many cases, not all cases. You can still hunt your own deals, right? And then when you do the math, you got to hunt $25 billion outcomes. If I'm going to do four into Jev or three into Jev, if Jev exits north of $25 billion after dilution, I can still do my 100X, right? That I need to do or my 50X, right? But the low ownership for seed works, but man, you need the big outcomes.
Speaker 2And then the other thing just to take into account that I always feel everyone forgets, right, is it's going to sound really dorky economics comment, but nominal GDP, in other words, not just inflation, but inflation plus growth from 2010 to the day is about two and a half X. So what that means is $100 million in 2010 is $250 million today. Just in terms of your ability to command with money is an ability to command resources. Because obviously, software salaries have at least kept up with nominal GDP growth. So what it means is, if you were writing $3 million checks in 2010, let's do $4 million checks, you should be writing $10 million checks in 2026. That's just math before anything else has changed. Then on top of that, you take into account the fact that in 2010, the world was in the shitter. And in 2026, everything in tech looks amazing. You get to $20 million before you blink.
Speaker 3Would you actually argue then that now is a better time? Because your check size requirements have gone up two and a half to three X, but the outcome size is on the back end. So what do you do? I've gone up significantly more than two and a half to three X when we look at the cursor. No, I wouldn't
Speaker 2make that argument at all. Because what you're confusing, the outcomes today happen from the checks that were smaller. In other words, because what you're saying is, hey, the outcomes today on checks written five years ago are amazing. Therefore, the checks today, which are much bigger, will be amazing too. Implicitly in that you're assuming that the $20 million is going to be $20 million. That's going to be $20 million. That's going to be $25 billion outcome today becomes the $50 billion outcome three years from now. And if that's the case, then you're correct.
Speaker 3I'm assuming the same rate of inflation applies to the exit scenario. But the exits
Speaker 2didn't just go up by nominal GDP. They went by even more than that. In other words, that's why it's always hard to disaggregate things. You have nominal GDP go up, but then the stock market has massively outpaced that. And venture exits have even more massively outpaced that again. So there is a long-term secular trend in the size of exits going up. But there's probably an overlay of a valuation lift right now that might persist. And here I got to give a shout out to Venky from Menlo, who did a really nice piece that went around all the venture community yesterday, just about playing the game at the top of the cycle. And how do you think about it when the music stops? Be sure you have a chair. It's worth reading.
Speaker 3I get you. But with the greatest respect, Menlo have paid the highest price of everyone on most rounds. Yeah, that's why they're
Speaker 2playing the music. That's why. But I think, no, I think that what he would say, is I think he would say that he would say we very wisely. Look, I think it was a really good analysis. I didn't mean to take us off. But he basically said there's two players now. There's players who are playing with the house money. And he put themselves in that category. They've done so well on Tropic, they're probably feeling a little happy. And they're probably going to be aggressive. And then he said there's some players who didn't do that, didn't do those early rounds and are now playing to catch up. And the point he was making, the macro point he was making is between the giddily happy people and the terrifyingly desperate people, there's a lot of people writing checks would fear in their heart of mis- of FOMO. And it gets back to your comment, some part, it's why it's always, some part of the increase in size is justified by math. But let's be honest, I think some part of it is justified by FOMO and the fear of missing the next cursor. And that's fine. But that's the kind of thing that can change on a dime. And that was the insight.
Speaker 3Does that change how you invest when you reflect on that? What should I take from that, Rory? What should LPs listening, GPs listening take from this?
Speaker 2It's a good question. And again, I'm always in the middle. I think you have to say at times leaning in can pay out, but you don't want to find yourself so lent in on so many deals that are so high priced at such a, you know, that if a downturn comes, you get, you know, you just can't survive it. As often as the case, investing is not a rules-based business. Do A and only A. It's typically do some A, but some B and the mix is everything. I think for us, it's a consistent pace, broadly the same stuff and recognize that it's super hard to time that. But be cognizant of the risk you're taking is the bare minimum you have to do.
Speaker 3Is that, I'm not being rude. So I'm going for you here, but fuck it, you go for me. Be cognizant of the risks you're taking. Seriously. I thought that piece was a blowhard piece, if I'm honest. Be careful of the music stopping. Be cognizant. Again, you guys have paid up.
Speaker 1That's what the next one's for. Why do you need to be careful of the music stopping? You raise a fund every 18 months. We all can get a mulligan. Yeah. If I don't make any carry, I don't make any carry. I make it on the next one. It's all right. Doesn't matter. But I just got
Speaker 3to point, I don't think that that's. I'm not saying that is it. But what I'm saying is there's just, there's not that much to take away from that yet. Be cognizant of the music stopping.
Speaker 1Thanks. I'm with you. I'm with you on Harry. It's a little condescending in its own way, right? Oh, thank you. I wasn't, I wasn't aware that the, that, that, that the AI gold rush might, might end someday. It's, it, good point. Good. I was using, I was so lost in Jev all weekend. I missed the point. You're right. I missed the point. From the guys he made out like
Speaker 2bandits, which I'm thrilled of. They're awesome people. They made, okay, watch this. The biggest, they made out by bandits by being aggressive at a time when people were still uncertain, right? And therefore price of those deals, while high in absolute terms, reflected a fair amount of uncertainty relative to traction, right? The same deal today would probably be three or four. X higher. And it's simply a point. I mean, if all you say to yourself is that deal that worked four years ago had that risk return profile and underwriting that same deal today probably means I'm going to get four times less return because of where pricing is. You should at least pause and think rather than blindly saying X worked. Therefore, all the other deals that just look just like X will work also. I know, but that's fucking obvious. Harry, in general, one of my favorite quotes, and I'm going to take it right, you're coming for me, I'll come for you, right? Barney Baruch, I think I quoted this before, right? And I'm sorry if I did, but he was a Wall Street financier in the 20s and 30s. He just said, if every day you look in the mirror and you say to yourself, two and two makes four, you probably could avoid a lot of mistakes, right? Stating the obvious, typically the things that bite you in the ass are things that are actually obvious all along, and he just chose to ignore them. So yeah, it is obvious, but you know, you have to take it into account.
Speaker 1What do you do about that, right? Like, I'll give you an example. In 2021, I made one investment. I did the seed rounded owner, which just closed at 2.3 billion. It's a pretty large position for me, okay? Now, we've had ups and downs, great founder team. One deal in all of 2021, only deal I did. You could do the same thing right now. You could say, for the next four years, I'm going to do like one or two deals. Like, I have to have a little dislocation in the force. It's got to be this, it's got to be that. And that's how you take that the chairs are going to end. Otherwise, you just got to deploy the fund. It's other people's money. You got to put it to work.
Speaker 3Or there could be a really rational assumption that, hey, the music's going to stop pretty soon. And we're going to go through stack rank where we can get liquidity from and really be proactive in selling positions now.
Speaker 1Cool. Well, that's one thing, right? And that's an interesting question. But let's say you wanted to be, let's say you wanted to be conservative. What do you do? Invest in the company at 50 million, growing 60% a year and hope it reaccelerates and is worth three times revenue and sells to Bending Spoons. I mean, what's the plan B? Like Bending Spoons looks at a thousand deals a year and still only does two or four. Tell these more conservative companies that are going to compound at sub AI rates for 40 years. I just don't know who's going to buy them. If there is a market for these assets, so be it.
Speaker 2I'm not sure I agree that there always won't be a market for quiet compounders above a certain scale, to be clear. But I think profit could come back, but right now it feels pretty thin. Yeah. I actually like Goko's tweet that he was like, yeah, I'll happily do three, you know, double, triple, triple, double, double deals. All day long right now, if you're capital efficient, right?
Speaker 1Yeah. If you're burning nothing and the price is right and I can get my 20% ownership, you'll do it.
Speaker 3Why would you, why would you, I'm sorry, let's just push back. Why would you be happy to do that? Because there are other GPs like your Sarah Gwo's of the world who are not doing that and they are putting up some phenomenal numbers. And so you can do those triple, triple, double, doubles, have average IRRs and your LPs will leave in droves.
Speaker 2Sorry. Okay. Okay. Watch. I can, we'll take this. Yeah. Sarah, absolutely. Did the seed round at Inception at 50 million pre, right? In the following four months, it raised money at 50 million pre, 350 million pre from Kleiner, two and a half billion for, I think, index and benchmark from memory and might be raising now at 10. Those are four rounds in the same four month period. And you cannot say the risk in all four of them is the same because one of them is, let me see, 20, yeah, 20 times more expensive. I didn't say it was the same. So, Harry, so the answer is if you do an early deal like that, so, but Harry, you're saying, what can you do with that information? You can bet aggressively on five at 50. Love it. The fact that Sarah's done an amazing job in that fund, right? But betting just as aggressively on 250 at 10 billion, that's intrinsically a riskier deal. And do you want to do that?
Speaker 3No, you're getting this completely wrong. I'm saying Gockels, triple, triple, double, double, I'll take them all day. I'm saying that is a ludicrous statement to make because you are in a competitive capital market where LPs can choose where to put dollars. And if you have managers like Sarah Guo, who can post incredible numbers quickly with high IRRs, they will get the dollars versus your steady compounding growers with bad IRRs and no good up rounds. It will be much harder.
Speaker 1But, you know, Harry, here's, here's the thing. Here's my view. I think you're right. Having said that, I think Gockels model is to do that. And no matter what you call that model, you still have to achieve IRRs. So you have to pick very well and they have to compound properly. Okay. Some of your, like the average LP, average top LP, I remember writing this up in Sastron 21 in 20, in 2021 had 90% IRR, like the top quartile of LPs had 90% IRR. It did not last. 2026 will look like that. I bet the top LPs will have 90% IRR this year. Okay. Some LPs will only invest in those managers and that's great. Others will take the pen longer, but at, and so you can do these other deals or, or to his point, I think you can do both. Like the answer might be to do both. And the real truth is you should do every great deal. You should see if you have enough capital. Okay. Every great deal. Okay. So if he sees five instinct instincts and, uh, and, uh, Harvey's a year and he sees five triple, triple, double doubles that he can own 20% of, and can achieve the requisite IRR, right? This is why I worry about the exits. You should do both, right? It's okay. You'll, you'll blend a 60% IRR, but I do think, I think you're going to lose LPs to your, but I do think many LPs that have been around will still back repeat managers that deliver north of 30% IRR. It's if you look at all the numbers, that's pretty rare, man. It's pretty, it's pretty rare to have 30% IRR, no matter what anybody claims in a given year, 2021, 2026. It's if you can compound, what is compounding 90% IRR over a decade? Rory helped me. It's pretty good. It's mathematically impossible, right? It doesn't happen. Exactly. It can't happen. So third, the low thirties is as good as it gets right in, in the real world, right? It's as good as it gets.
Speaker 3I think Gorkal is a rare exception who will likely be able to pick very well. I think the idea that you can do the triple, triple, double, double to say pick well.
Speaker 2Agreed. Yeah. That's why he said very clear. I mean, it was a very clever statement. I really admire him for saying, he's like, this is what I do if you're a capital efficient. So basically everyone's going to find him. He solved his search problem brilliantly by saying, if you've got these criteria, and then he's going to pick carefully. It turns out no matter what you do, picking matters. Again, going back to the thing, I think what I'm listening to the conversation is, look, you want to do the most exciting deals possible. And those are almost entirely AI forward deals at this point in time. No dispute. I think all the point I'm making, I think the point Venky was making is at some level, and I like what he said, actually, some of them at 10x the price matters. Because what's happened is Andreessen about 10 or 15 years ago had the very simple but profound insight that other people have had, but they claim it. So let's go with it. It really doesn't matter about price. You just got to get the best deals. And it's true. But what Venky said, if you're wrong by 10x, then it's not true. And it may well be we're at that point in the cycle where you are, in fact, wrong. In some deals, you are wrong by so much that, in other words, the momentum trade has worked so well and for so long that you might be at that one point in the cycle where you just overreach your skis and it has to unwind. That's the point you're making, right? And I think, you know, will every one of the 100-odd neolabs become the next entropic? Maybe not. Maybe most, some of them will return capital because they get acquired. But that's the only point, Harry. Can I ask you, we have
Speaker 3a lot of LPs that listen, a huge amount. If you were an that has traditionally allocated to Seed and Series A in venture, like we know many of, what would you advise them today looking at what you see every day in the trenches?
Speaker 2That's easy because you said Seed and Series A, right? And you're not listening, but that's okay. I'll answer the question. I would do managers who are doing the very best Seed and Series A investments in new, massively exciting high growth opportunities, like the genius who did, as I say, gives her credit for doing Instinct. I would do those managers all day, every day, because you're far- Do you mind low ownership? No. I mean, you do mind it. You prefer high ownership. But look, especially in the Seed and A fund where you're relatively small dollars, relative to the kind of dollars we're dealing with later on, you want to be in the best deals, right? So I like, we target 10% ownership at the ARB stage. So at a Seed or A, you'd like 15 to 20. But I don't think you discriminate in or out on that. Because the truth is this, a Seed investor who consistently shows up, as Jason will attest, with smaller ownership, but in the best deals, will get more ownership over time because they'll get more capital and get more opportunities. So I wouldn't solve on that. So to your question, on an LP, for Seed and Series A, you should be looking at people doing the very best deals in the very newest spaces where you really believe they have an edge. My point, and I think Vane's point, is as the rounds get later and larger, the dollars get bigger, and the multiple return gets smaller. So it's in much the same way as growth was an amazing place to play in 23, 24, 25. It might be more like 21 now. That's the only point. So going back to you, what should you do? You should do the Seed and Instinct all day, every day. But you should think long and hard at 10 billion four months later. I don't think that's an unreasonable position. Now, maybe that particular deal will work at 10 billion. Because as we just said, opening, I might buy it at 50. But you have to admit, if you use the Buffett margin of safety comment, your margin of safety at 50 pre is infinite. You've got a world-class exec technologist with a great idea. Your margin of safety at 10 billion, yeah, maybe you get a 1x. But there's risk, is my point, in a downside scenario.
Speaker 1And I completely agree with you and get that, to be clear. I think the tough question we should break, I think the tough LP question, I think it's hard to be an LP, right? Is chasing returns is tough. Because it's very hard, especially at the Seed. Everyone wants to chase returns, right? Everyone wants to be in Sarah's next fund. It's the easiest investment there is, right? I'm sure it will 50x oversubscribe in one email, right? And so do you believe, and most LPs believe, returns decay. Like we peak at some point in our careers as investors and they decay. Maybe you build a team or whatever. So do you chase returns or do you take risks that the returns are coming? It's very hard to invest in Seed management. And a lot of the best ones have weird strategies. It's complicated. So you have to look for, you have to go pre-inception. You have to look for precursors. I think it's actually in some ways harder as an LP today than it is in more normal times. Because you're so tempted to chase returns. And you won't get into the next one. Because you will screen it out, right? You will screen it out.
Speaker 2Agreed. Even though it's, you know, chasing returns, it's funny. Just for the, stating for the record, mutual fund persistence is almost nothing. In other words, good performance. Chasing returns in the public market is a total fool's errand. Because the data says persistence is super low. Oddly enough, which makes sense. In venture, persistence is not infinite, but it's quite high, right? Because you get these increasing returns to success until there's some kind of discontinuity, right? So it's not crazy to partially change return, quote unquote, chase returns in venture, because of the persistence in a private market. In a way, it's utter folly in the public markets, where literally, the dude who bought energy last year might be totally wrong this year, because the trade is to buy semis. Thinking of you there,
Speaker 3Leo. I much prefer the show when we have a little, what is it, contretemps, you know? Yeah. Very good, Harry. For an English person, that's not bad French. Thank you so much. I am slightly cultured. I hide it well. Okay, ding, ding, ding. It's Jason's IC time. We're moving into the world of private markets with Factory. Triple valuation to $5 billion, $200 million round. For those that don't know, Factory is an enterprise coding agent provider that can primarily have a Droid product, which is scaled phenomenally. I don't think I'm allowed to say their revenues, but they're chunky, and they've done an amazing job. Jason, $5 billion valuation. Are we going to be doing this round for Modriskel, Stebbings, Lampkin Ventures?
Speaker 1I think this is a good risk to take. First of all, I will caveat, I'm not as much of a factory expert as you. I know it's your investment, this one, Harry, so you're the deeper expert than I am. But there's certainly one obvious and one mostly obvious trend. The second one you got in one of your 20 VC other podcasts this week. One, obviously, whatever model we have for inference, for coding, otherwise, it's too low. The demand is only going up, whether Muse gets it, or Factory gets it, or Anthropic gets it. And I don't know how each token will be monetized directly, or whether it'll be Fav, but the demand is going to exceed already our most wild models. There's a couple things that make me excited about Factory. Just having gotten back from the Dreamforce, which is one of the largest enterprise software conferences all about AI, two themes really stood out, and Harry had a guest this week on, which was one of the reasons I recommend the stock. Sovereignty, I want to be able to trust where my data is, right? And I want choice of model. These things really matter. And the one theme I got talking to C-level executives at Dreamforce is they don't trust Anthropic and OpenAI with their data. They don't trust it. This is not something manufactured on X or Twitter. They genuinely believe, and honestly, for what it's worth to the IC, I believe this as well. If I upload my confidential data, I'm not sure it's not going to my competitors through an LLM. In fact, I'm pretty sure it is on some level. I don't think these are malevolent companies. This is the way LLMs work. And so I think these are a lot of things that go into Factory. This is a crack team. The time is right. You know, Brad Gerstner, that guy's always right from AI to the calcium CT scans. I would always back him. I think we do this round. We pair it with Instinct at $10 billion. We roll the dice. It's good times. And this may be one we regret with the musical chairs, guys, but the trends are right here, and we need to bet into these trends. Sovereignty, trusting my data, trusting my data, not having it pooled by the big guys. I think in a year, no one is going to trust in the enterprise, Anthropic, and AI with their data. They're solving this, too, but this is something we need to bet on. So I approve the investment.
Speaker 2And I'm going to chime in here, having been a little bit more Debbie Downer earlier, and I actually agree with Jason, right? I think genuinely, look, one of this, I mean, you made a comment here earlier about some things are obvious, and I actually really believe sometimes stating the obvious is the highest value thing you can do. And one of the statements that we've been saying internally for the last couple of years is coding is the mother of coding. It's everything, right? It's 10x everything else in terms of value being created from AI today, right? So I would argue you just can't have too many bets on coding. Up and down the stack, it can be coding, it can be QA, it can be test, it can be review. All across the board, this is where it's going to happen the first and the mostest. In fact, this is a really nice position. I mean, there are three standard, because I think Jason's totally right. You're harnessing also people from someone who's not also selling you the model, because you no longer believe open AI and Tropic are benign if you're corporate America. So I think Jason nailed that one, right? You worry about the data, even if you don't think they're going to blow up the damn world. You worry about their data retention policies. Talk about going from the sublime to the ridiculous, right? From the big to the little, right? You're like, OK, they mightn't kill every human on the planet like they said they would, but they might steal all my shit. I want to have something different, right? And, you know, Cursor has been swooped off the table. It was standalone, more individual project. You really only have these guys and cognition at this point who are basically going to the enterprise and saying what enterprises love, especially big enterprises. I'm coming to you, Mr. Corporate Customer, and I will make this go away. You got your board on your ass saying you need to be doing way more coding. You know you don't have quite the people to do it. You need help to get along on that. We need to make this happen. We're here to help you do it. It's good branding, a software factory. So yes, I think this is a market where there is a bump in the world in the next 12, 24 months. And I think there could be. Going back to how is the fear actionable? I think one of the things you can do when you're leaning in is leaning into trends that you think will kind of keep on compounding, even if there's a slowdown in overall AI adoption. And this is one. I, too, would pile in with Mr. Lemkin and think this is coding is the mother load. It's that simple.
Speaker 3Coding is the mother load. I'm thrilled. I agree.
Speaker 1I generally don't know how much of factory is sort of air-gapped versus sort of on-prem versus private cloud coding. I don't know. But I seriously believe what I said. I think people in the next 12 months are going to be like, whether it's my data for my drug or just my code, I don't want my code, my core code polluted in Anthropic and OpenAI where they're going to train on it. Right. And I really think the only reason people have tolerated this is because of just insane demand from developers. Like, it's so great. These products have become so great this year that we are. I mean, it was a while ago when I was an SAB at Adobe, this was the one code read was any pollution of the source code. It was the crown jewel. And my God, and we were the first group ever to use GitHub. And I can't tell you the hoops we had to jump through to get GitHub brought in. But my team revolted. My engineering team said that we will quit if we can operate and get it. It just took endless arguments and even air-gapping that. And it couldn't touch. I don't know how much of factories, I mean, it's part of their marketing pitch, right? But man, it's compelling. to think you get all the benefits of the big guys, but all the protection of having my code walled off, air gap, on-prem, whatever, semi-prem. They've trained on all of our data, every YouTube, every piece of open source, every piece of closed source. Give me a break. And if they don't, the agents are going to escape and train on it without telling us. They're going to swarm out of it and they're going to train on my data.
Speaker 3You said coding was the mother load. The next potential mother load that people think, we've talked about a lot before, but Legora announced they've hit 200 million in ARR today. Lemkin Ventures, would you lead their next round proactively? Their next round is at $11 billion.
Speaker 1Well, I'm a fan of both them and Harvey. I underestimated this. We talked about this, right? As maybe the number three use case. The information did say Harvey's margins were now minus 50% because they had to move back. I don't know if that's true. It could be one week. It could be like CMRR. It could be an hour. They had minus 50% margins. I'm not beating up on Harvey or Legora. I would say, if the margins were minus 50% and going down, I might be slightly nervous. They're not going to have a cursor-like turnaround. I might be a little nervous. Just enough to not lead the next round. I'm not saying not to have been thrilled to have led an earlier round, but if the margins are spiraling down rather than V-shaped, that would make me a hint nervous. Minus 50, you got to raise a lot of money, right? If it's really true. But that was an information report, right? But I find they're usually pretty accurate, right? So we got a. For what's the round at? 11. If the margins, if, if, if, super fan, both great companies. If the margins are minus 50%, I will still recommend we do factory and back Harry's investment here. And I'm going to, I'm going to, unfortunately, I love Rory, but if I have a vote, I'm going to vote against his proposal to Legora. I understood the margins were closer to zero and improving due to their, their, their own, their post-training on their own version of open weights model, but minus 50. Rory should have told us about that before the IC. I felt that was a Monday shocker. And I'm a little, I'm a little uncomfortable with the kid on the team for not disclose socializing that ahead of time.
Speaker 2Funnily enough, look, I'm not going to be leading around the Harvey or Legora. We're investors in GCAI on the in-house GC space, but actually in defense of Harvey for a long time, the rap was, oh my God, people don't use the product enough. So I would argue if I was Harvey, if they could truly say the gross margins are negative 50, the correct spin on that is my God, lawyers are pounding on our shit. And as soon as we get our own internal models, they're never going back. Maybe stepping back. What do I think about this category? I think it's an amazing category. It's not as it's what I said two weeks ago, nothing's changed because I try not to change in five year and 10 year investments. It's really bad if everything changes every week, but yeah, it's a really good category. It's not going to be as big a spend per head count as software engineers, because I think a lot of the laws, the lawyers work will remain to be done, but I think it's a good category. I think it's all about valuation at this point. And, you know, I think it's all about valuation at this point. I think it's a good category. And so the kind of second order tactical questions here around time and thing would kind of decide, make a decision for you where I don't have the facts in front of me on that. So don't have a profound opinion on it, except to say, I am interested in the negative gross margin comment as a positive spin. My word. That
Speaker 3was a very long way to say very little. Yeah. Thank you. Thank you for your concision in turning the corner. That was super helpful.
Speaker 2I agree. It was not concise, Harry. That's OK. But you're right. That's fair. It was not one of my more concise ones. But if you prefer a sharp no, I'll give you no, I won't do it at 10 billion. Because I think when you count the legal heads, you don't get to 10 billion law lawyers.
Speaker 3We can do one more ding, ding, ding. Do we invest in this? We got Crusoe $3.9 billion series app at $30.9 billion. For those that don't know, Crusoe's in the data center, build out a business. They build data centers, they provide GPUs, and they also do managed inference, full stack. They have a huge order book, about $140 billion of total contracted value. For those that don't know, business is flying in a hot market. Jason, $3.9 billion at $30.9 billion. Are we riding our biggest check from this fund?
Speaker 1I mean, to be honest, as you know, the fund doesn't believe there's anything really defensible in these data center models other than backlog and access to infrastructure. But we believe Crusoe is at the top of the second tier there, right? They have some interesting things, right? They're able to build their own modular data centers, right? They own the chain from power to tokens. There's a lot of appealing things in this. I think our approach at the fund needs to be a portfolio approach. We should invest in all the data centers that rise above a certain level of projected DCF, projected growth, projected margins, and most importantly, guaranteed circular financing. And this is all, as much as I love the way it is at Crusoe, this is all a spreadsheet investment. I've done the math and I believe it's just below the fold. It's just a hint too expensive to hit our margin despite the growth. But I think we should do all of these deals that have the requisite level of circular financing and the ability to access infrastructure. So I give them that. I'm just a little bit worried about the valuation here. So reluctantly, reluctantly, I'm going to have to pass on Crusoe. $10 billion, though, would have been great, boys. You guys, bonus this year will not be what you'd hoped. They will be epic bonuses this year. I make them all the decisions as the managing general partner, but I think you'll each take a couple million dollar hit by missing the last round. Telegraphing that in September.
Speaker 2Pushing back and taking that and going back to my earlier comment, how is something, when I said about worrying about a slowdown, how is it actionable? This is an example of where it is actionable, right? Because something like a coding agent, something like a AI app like Harvey Lagore or whatever, there's a long trajectory. They're probably going to survive a one-year bump. Conversely, the data center trade is very levered, so very exposed, not just to AI usage, but to growth in AI usage. You're really leaning in on the upside, which means there are amazing investments to the up, and there probably will be tough investments to the down. You wouldn't want to be out of that sector. But again, going back to how do you make these concerns actionable? Right now, I'd be saying to myself, if I had a portfolio across the whole kind of AI spectrum, I wouldn't want it all to be in that AI CapEx trade where any kind of slowdown, when you've got like four or five to one leverage, can be pretty brutal. So I would be a little bit afraid. The specifics on Crusoe, Jason, you're right, it is a spreadsheet exercise, and I haven't run the spreadsheet, so I don't know. But I would be thinking in macro, how much of that bet would I want? I'd want some, because it's been an amazingly good bet. I mean, look at Corweave. But you also look at the market cap. I want to think Corweave's at 60, and Nevis is at 40. I could be wrong. It could be the other way around. And so Crusoe at 30, I think it's smaller than Corweave, growing much more quickly. So again, it's, and they all have, you know, pretty substantial negative free cash flow. So a lot of your success is betting on future CapEx. And maybe the other statement, Harry, to further prove that you're wrong, and that you can, in fact, take into account some of those listings, my appetite for a deal like this would go up directly proportional to how much, as Jason said, A, long-term commitments you have from a Microsoft versus a second tier, and then B, how much visibility you have from your debt runway for the next three years. I would prefer a slightly lower price, slightly more dilution, and a longer runway, such that if there's a data center bump in the next 12 months, you're protected. I got to finish by saying, a really fun day in the Wall Street Journal yesterday. I don't know if you saw it, but I read the journal in the morning, I check it in the evening. It was so funny yesterday, because the headline in the morning was, deals pull as Wall Street worries about data center trade. It was, you know, SB Energy, and there was two others. So that was the headline, top of the page, first thing in the morning. We then had the best single day in the NASDAQ since the dawn of time. It was an amazing day. And the headline at the end of the day was, NASDAQ explodes as AI CapEx fears recede. So literally, what you saw in that, literally, in the space of eight hours and one trading day, people went from, oh, my God, CapEx is scary, to the Wall Street Journal is like, it's all going to be great. And it was just, it was fun to watch that kind of oscillating, you know, terror, greed moment in real time, literally in the same eight hour period. Boys, what have I missed? Clearly the last Crusoe round.
Speaker 3But I missed it too, dude. Or is there any other that you think I've missed? It is a slight recycle, but I do just think it's worth saying, I'm sure you guys saw the Twitter sphere, Keith Raboy, Joe Lonsdale going for air wallets, unbelievably again.
Speaker 1I don't get this one. I really don't get, let's put aside the issue. Let's put aside the issues for a minute. Okay. Let's, my gut is that there's a little bit of racism here. There's a little bit of anti-culturalism, but let's put all that aside. Let's just, a ramp is obviously a big investment, right? For them. So I get supporting the home team, right? And I get pushing the envelope there and it's 2026. This just seems, and maybe if you're Keith, who's very experienced and very smart, maybe it's worth it because he doesn't have any bridges to burn to worry about, but it just seems a lot. I guess if it works, if this destroys air wallets, right? If the X and the house, whatever it is, the house review of it, if it destroys your competitor, Machiavelli and I get it. If it destroys your competitor, right? But I don't know. Maybe it's not too far. It just, it just feels very aggressive, right? You know, it's like, uh, what do we call them back in the day? Dippling and real deal back real but on steroids is dippling and real on steroids. And maybe it makes sense. It just, it just struck me. Maybe I'm too, maybe I just care too much. Uh, but it struck me as just aggressive, just
Speaker 3aggressive, right? I'm always very careful. Cause I, I am an investor in that. I want it to be very clear. I'm also a friend of Keith's and I like Keith a lot and I respect him a lot. lot, but the allegations have consistently changed from you are a CCP agent who is working for China to more than 20% of your cap table is in China and Chinese, which is not true, by the way. They have got more and more diminished over time as the arguments have weakened. When you look at the companies that have employees in China, it's basically every big company today has some form of their employee base in China, from Microsoft to Zoom, you name it. Candidly, it's ridiculous.
Speaker 1Well, you know, I mean, I mean, Finn got rid of all of their open open weights models before they're acquired by Salesforce. I don't know that it's ridiculous. I don't agree with it. Like I would not be making those tweets. This is a big deal. Finn to close its three point whatever bill had to had to rip out all of open weights model out of his company before the deal would close. All gone. People care about this China stuff. We could argue both sides of it. And I don't like that. I don't like the tweets, but I wouldn't say there's nothing to concerns about it. So then we should
Speaker 3put the same scrutiny on Zoom and Microsoft.
Speaker 1I don't want I started this by saying, I don't like it. Right. I'm not on the side of it. But I am saying the Finn thing is it's interesting. It's that it matters to businesses, not just Twitter. Twitter. I don't think that I
Speaker 3respectfully I don't think there's a correlation because if you think then that it is interesting and we should. Well, you said Chinese ownership. And what are you saying? They don't have the Chinese ownership. That's my point.
Speaker 1I know I've got the cap table. I'm not disagreeing with you. I'm saying why there is sensitivity around Chinese ownership. If it's not true, it's not true. I'm arguing the point. I'm making the point that in a more traditional world outside of X, a very large transaction had to rid itself of all Chinese IP to close. I just had another portfolio company last week. We had the same discussion. They had an M&A offer and they were being told they had to rid their company of all Chinese IP as well. Rid all of it before the deal could close. And Airwallex isn't trying to sell itself to Salesforce. And I'll take it on your faith. I trust you implicitly that it's not 20%. I'm just telling you that it is a real world issue, this Chinese ownership, even if I don't care about it or agree with it. It is. It's impeding transactions. It is impeding commerce. And it is a concern.
Speaker 2I think what's the frustrating thing on it, just observing from a distance, is I know no one elected me. I don't think anyone elected Keith. And I don't think anyone elected Harry. This is why you have, everyone should play their position. We should be doing what we do in our little venture business. But the government is the person who has the role to decide what risk we are willing to take in commerce with China, what risk we're not. Because let's get real here. No matter what we exclude, we're still doing a huge amount of commerce with China. They're doing a lot of commerce with us. I think this very weekend, our two beloved leaders are meeting in D.C. to talk about doing more commerce. So there has to be rules. They have to come up by the U.S. government. There has to be some restrictions on what kind of high-tech goods we're willing to trade, not trade, what kind of risk companies can have, especially removing money and things like that. But it feels very much like, come on, government, step up, do your job. So we're not trying to do it here on Twitter, right? Because once there's clear rules, you can say either they abide by the rules or they don't. But it all feels very ad hoc at the moment. Which is at one with the way we're currently making policy. Let's get real across the board. You know, we can sell chips to China. If Jensen checks in, it's all good. So it does feel very ad hoc at the moment. This is just a function of that.
Speaker 1I'll tell you my micro learning here. You could chime in because you would know this better than anybody. I'll tie Jev to Air Wallachs as we end it, OK? So I think Jev was a masterclass in launch PR. It was everywhere. It was on Vercel. It was on OpenR. Everyone was talking about it. Everyone had a Twitter article and a tweet lined up about how great it was, which was probably handed and made to them. I mean, whoever they hired to do this launch, S tier. I think Jack, who I don't know, right, but I followed on social media, he seems like the kind of CEO that I would love. I wish I'd invested in him. I believe in it. I believe in the mission. I trust him implicitly. I might be wrong, but I would, based on what I know, I would invest in it, period, OK? Having said that, he's out there arguing with Keith himself. You need an army of people advocating you to do this kind of stuff, OK? This is the Jev lesson. And there are guys out there, not poor, I mean, he's a billionaire, but he shouldn't be doing this. He should have his Keith and his, sorry, what's the guy from the Palantir? He should have Joe. And you need your own army. I do believe if you're going to run a deck of corn or bigger, you need an army of advocates for you. And I feel like Jack doesn't have enough. And I think it's just, if our jobs aren't hard enough as founders and CEOs, you need to build this bench of advocates out there for you. And you can make fun of them, but they matter. And who the cares? Who the cares? What three effing VCs on a podcast think? But, you know, between all of us, we've got a couple million followers. There could be worse things than us saying how great these companies are. And line up 20 of these guys so that poor Jack doesn't have to be defending himself. Jack should not have to defend himself to Keith and Joe. He should have an army of Jevers, of Jevsons, out there saying, here is a screenshot of the cap table. This is not true. Here is the error. Here are the exact employees in China. Here's why it is less than Microsoft. He should have an army of folks disarming this. And Jack can just sit there and click like or heart. That should be his job. So I give his comms team and I'm going to fire his comms team next week. Okay. I'm not a big fire, but so I'm being conceptual rather than literal. I give them an F minus. Where's your army of influencers and backers? Where are they? I give them an F. Come to the rescue.
Speaker 3I think candidly, you're absolutely right. He needs to build that. I also think it's challenging for him because where ramp have very prominent social media, backers like your Keith's and like your Joe Lonsdale's of the world. He's got DST. Do not do social. He's got Lee Fixell. Do not do social. And you can laugh at that. It doesn't matter. It does matter actually. They just don't have any social presence at all. He has friends like me. So find another way.
Speaker 1Cry me a river. You're right. It's a good analysis, but find your tribe. Find your tribe. It's the job. The job's gone up here. I didn't mean to interrupt. It's a good analysis. He doesn't have that inherently on the cap table. But it's not the only place to find it.
Speaker 2It's always good to remind yourself that DST does not do social despite doing the 10 billion pre-round at Facebook in 2008. That was a genius round. But yeah, you're right.
Speaker 1You can go buy Matthew McConaughey. He's like 14 million bucks a year. The guy will show up to
Speaker 2anything. He's really good. He looks good too.
Speaker 1Jack can afford Matthew McConaughey. How much is it? Seriously. I mean, I'm just making it. You can go buy Matthew. Matthew McConaughey is for sale and he's great. I did not expect this to go here. His AI article, his AI ads for sales, of course, are great. And I don't believe I don't believe he's doing it for free or out of the love of the artificial. What is it now called? General and general artificial intelligence.
Speaker 2Yeah, I think he's saying for hire, not so much for sale because sale implies a permanence. He's just for rent.
Speaker 1Yeah. Let's get Sidney Sweeney for Airwallex. Oh, God. There's nothing to hide. Sidney and Jack. I've got nothing to hide in Airwallex. That is so good. We have nothing to hide. Born in Australia and as American as it gets, right? You can have the Thor guy, the Hemsworth brothers, the Hemsworths were Australia, US and Sidney. I want to record that I left this conversation 20 minutes ago. You think I'm being facetious. I'm not being facetious. I felt bad that he's defending himself. You need Sidney and Thor. That is such a good idea.
Speaker 3On that note, Rory obviously left about half an hour ago. It's just been me, Jason and an AI that sounds like Rory. Guys, we have that product. What an ending. Thank you so much, guys. As always, never a dull hour. But before we leave you today, you have the idea, but with most AI tools, you hit a wall. You describe it. This doesn't just take the busy work off your plate, but it gives you an advantage and pushes you past what you thought you could build alone. Base44 is that edge, the move that skips the troubleshooting and gets you straight to the breakthrough. That's Base44.com. While Base44 turns ideas into apps, PlotTerms.com is a platform that allows you to build your next thing at Base44.com. While Base44 turns conversations into insights. Founders and operators spend way too much time every week jumping between meetings, investicles, brainstorms, customer conversations, and then trying to piece everything back together afterwards. Honestly, it feels less like a recorder and more like an AI powered, brain memory system. The Plot Note Pro is literally as small and thin as a credit card. That's P-L-A-U-D dot A-I-V-C. While Plot captures the conversation, Finn helps continue it. It's a single, unified agent that works across your entire customer experience from service to sales to success and beyond. It's powered by custom models, trained on years of real customer interactions, so it understands the nuance and complexity of customer service better than any other agent. It's also designed to be fully self-manageable, so you can easily improve and adapt it as your business evolves. Leading companies like Gamma, Asana, DoorDash, and Crypto.com already use and love FIN to deliver better customer experiences. So for a limited time, you can get $500 a month in FIN credits for your first three months. Learn more at fin.ai forward slash two zero VC.
PodcastTranscript AI