Speaker 1Agents are an existential risk to DoorDash because their number three competitor is nobody. All these app platforms have a risk of slight disruption from agents.
Speaker 2Calci is a money deal. If you want revenue velocity right now, nothing gives you revenue velocity like inference. Physical intelligence, company with relatively little revenue is worth $20 billion. Dropbox, company with billions of revenue ain't worth a lot. There. It just shows revenue muscles don't get you anywhere.
Speaker 3This is 20VC with me, Harry Stebbings. It's the best show of the week. It's Rory O'Driscoll. It's Jason Lemkin coming together. To discuss the biggest news in tech. Today, we have OpenAI's big fundraise. $1.25 trillion price down from $1.4. Apparently, only $11 billion committed. Sad face. Then we have the AI trade hitting a wall. Alphabet, $500 billion off the market cap overnight. Intel falling 29%. Then we have DoorDash buying Instacart for $17 billion. Base 10's new round. We have physical intelligence's new round. We have. Serval's new round. God, the show just keeps on coming in terms of these venture financings. This and so much more in the show today. But before we dive into the show today, Base 44 is one of those products I used and I just thought straight away, man, I wish I'd had this when I started 20VC with $50 and no contacts in venture. I wanted to see what it could do. So I built a guest research hub for the show. Upcoming guests, company notes, previous interviews, sponsor contacts, follow-ups, all in one amazing location. I described it in plain English. A few minutes later, I had the product open in front of me. Database, login, backend, and hosting already handled and just all in one. It made it so easy. And that's what I loved. I didn't write a long spec. I didn't stitch five different tools together. I built the thing and I started using it. For any founder listening, that's the point. The faster you turn an idea into something real, the faster you launch. Apps, dashboards, internal systems, AI agents, whatever you need to build, Base 44 gets you there. Go to base44.com. Forward slash 20VC. That's base44.com slash 20VC. While Base 44 helps you build, AlphaSense helps you find answers really, really fast. Quick one for anyone doing diligence in venture right now. AlphaSense just launched Super Analyst. And it's one of the more genuinely useful AI products that I've seen come out of this space. It's an always-on agent that works like a power user inside AlphaSense, but on your behalf. So check this out. It pulls from over 500 million premium sources. Covering both public and private companies. That's filings, earning calls, broker research, expert transcripts. And it doesn't stop when you close your laptop. Point it at a sector, a company, a thesis you're tracking. And it keeps working in the background. And here's the part that I really care about. It remembers your process. It learns your templates, your firm's logic. And it applies that to every new task. So it compounds. It gets better the more you use it. Isn't that the value? And every single output links back to its source. So there's no blackout. There's no black box. There's no trust me. And you can see exactly where something came from. So you have complete traceability. Pick the deal memo or the market map you've been putting off. And hand it over to Super Analyst instead. Start your free trial at alpha-sense.com forward slash 20VC. That's alpha-sense.com forward slash 20VC. While AlphaSense finds insights, Intercom helps you serve customers. As AI agents become more common in customer experience, teams often end up juggling. They end up juggling multiple siloed tools for every job. Well, Finn was built to change that. It's a single unified agent that works across your entire customer experience, from service to sales to success and beyond. Finn is the agent making perfect customer experiences possible for thousands of customers. It's powered by custom models, trained on years of real customer interactions. So it understands the nuance and complexity of customer service better than any other agent. That means faster resolutions, more consistent support, and just better experience. It's 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. For your first three months, learn more at finn.ai forward slash 20VC. You have now arrived at your destination. Boys, we are done. We are back. Luckily, there has been a huge amount happening in the last seven days. So let's start with OpenAI. Its valuation got cut from $1.4 trillion to $1.25 trillion, and the round reduced from $30 billion to $20 billion, with only about $11 billion committed. As a result, everyone is going, oh no, this is further examples of the AI wave cracking. How do we think about that?
Speaker 2I would dispense with the whole AI wave cracking narrative. I think people are trying to extrapolate their desires, wishes, whatever, prejudice and biases on the story. It's as simple as the other company is bigger, growing faster, profitable, and about to go public, so you can buy it liquid at $1.5 to $2 trillion. What would you pay for the smaller company growing less quickly, still losing money that's illiquid, and so less than $1.5 trillion? How much less? Well, that's what they're figuring out. So it's utterly not surprising. It is as simple as that. No projection about AI, positively or negatively, just as too secure, which of the two properties are going to be sold in the next two months and which one do you want to buy? But Jason told me last week that it
Speaker 1was the most under-appreciated. I think it is, it just may, maybe it needs to drop a little more. Well, don't forget, listen, there's going to be bumps, right? And, you know, broadly what we call AI stocks fell $5 trillion last week, right? Now, maybe this AI round was the week or two before that. There's obviously a temporal gap, but when we're seeing this level of volatility, and listen, I'm surprised that folks didn't talk more about it. I mean, Anthropic had a down quarter in terms of revenue. It was down in this last quarter in terms of net new bookings over Q2. There should be some nervousness. Maybe it would fill up at a trillion. Maybe I'm glad we didn't put in our bid until the end, Harry. The second tranche will be lower than the first. It makes sense there should be a little bit of wobbling at the moment. The stock market's down. We could argue, maybe Rory will challenge me, we can argue that Anthropic's last quarter wasn't quite as crazy as some folks might thought. There should be wobbliness and maybe it doesn't matter. Matters where it'll be in 12 to 18 months. But it makes sense there's wobbliness. In the debt markets, CoreWeave debt is paying 15%. That's wobbliness. There's Broadcom having, I know Rory kind of took me to task on this last week, but Broadcom having to guarantee Anthropic's debt is a little wobbly. It's just wobbly. And IPOs are always thin and wobbly. No matter how many times we say they get oversubscribed 20x, so many of them are just a little wobbly going into it.
Speaker 2Yeah. Again, I didn't take it to task. I think all those things are true. I think it is. The way I think of it, there's a lot of pushing, shoving, there's a lot of price discovery, discovery going on on the supply side of the AI trade. What price do you need to be paid to lend money to CoreWeave? What price do you need to pay to buy open AI in the private markets when you get in the public markets? I agree. All that stuff is going on. And I think when you go from assumed euphoria, regardless, to tempered euphoria, there's this kind of price discovery process underway. So I think it's fair, Jason. Those things are all true. As I say, my point is merely if the other side of the equation, the demand side, holds up, all these things will be, you know, forgotten in six months. And if there's a problem on the demand side, on the growth side, then all these things will be, you know, straws in the wind of a very significant change. That's my point. So when you zoom out to what matters, if the demand for AI is anything like some of the bulls would say, then let's talk about the CoreWeave bonds because everyone's like, "Oh, my God, the bonds are going to go down." If the demand for AI is as strong as people think, then everyone's going to need every damn computer, GPU, and data center they want. And those bonds will be gone. They're going to be money good because someone will buy the damn company. Right? There's just no risk of that. Right? If the demand is not there, then the first person who's going to suffer when the demand is not there is not going to be Google or Amazon, who have a big ass balance sheet. It's going to be the guys like CoreWeave, and that's where the problem will come, and that's why there's some risk in it. So that's all that's going on.
Speaker 3You mentioned price discovery. It was a tough week for Alphabet, or Google, falling about 12%, the most significant drop in a decade. Google Cloud doubled to an insane number. It doubled to like 100%. $130 billion, growing 103%. But search did slow to 12%. Free cash flow was negative, unusual when looking at Google. Is this just another element of price discovery?
Speaker 2Again, it's on the search side. It's been true for two or three years that there's probably going to be some element of cannibalization of search. And you know, it still grew pretty nicely. I think it grew 12% or so on search. But I think it was a combination of search angst and general angst, right, and capex angst. So nothing more than that. It's been so funny to watch the last two or three years. And you know, we've gone from Google is dumb as rocks and Satya is a genius. Then you fast forward. Oh, my God, Google is the most amazing company ever. Poor dumb Satya. He missed the boat. And now this is a switch back to, oh, maybe, you know, maybe the things that we'll worry about are about Google are still true, which is, you know, search cannibalization and exactly. But you know, to be fair, to your point, their growth, again, going back, the growth is there. These guys are saying they can, they can sell compute as fast as they can make it. And that's the number one thing. And that's where the growth is coming from.
Speaker 1I just think we're in it. Listen, I think we are understandably in just in a nervous period. Yeah. I mean, it's I think it's at a hundred and twenty billion dollar run rate going to 100 percent. Right. That's about as good as it gets for the folks in the cloud. The cloud group should feel pretty proud of themselves. I just think what any metric comes up short, I mean, Shopify just fell 15 percent as we're discussing this. Right. Because they came up a smidge short, even though they raised guidance for the next quarter. Just everyone's just nervous AF. They're just nervous AF. And I think it's appropriate. Yeah. the anthropic IPO is gonna suffer for it. there's evidence of substantial pricing pressure. There's evidence that, you know, as dominant as they are, it might be not quite as dominant as there is. And I just think it's OK. There's going to be these squiggles going here as most things still hopefully go up and to the right until we can distribute out to our LPs.
Speaker 3What do you think Anthropic is going to suffer for? You mean that the consumer excitement won't be there? You think that they won't have the pop that they could have? What does that mean?
Speaker 1I think folks are just going to be nervous about a deceleration in quarter over quarter growth. And I think they're going to be nervous over pricing pressure. Look, it's hard to process everything out of out of the S1A, the quarterly amendment, but it sure appear. I mean, OpenAI is basically running around selling somewhat equivalent products for 30 percent off. We can discuss how much CISOs want China based open weight models there, but they're putting pricing pressure. Jeff is putting pricing pressure and and the latest models are effectively cheaper. It's just it's just it's just you have to have so much momentum to overcome a certain amount of pricing. Pricing pressure and deflation. I just think the numbers suggest some some nervousness in it, that quarter over quarter growth is slowing. And what does that mean? And how much nervousness does it create?
Speaker 2And it's worth pointing out the numbers in very precise terms, because the funny thing is, even after we point them out, people can still disagree what it means. But at least let's get I mean, rough and tough in Q1. And I'm using gap numbers here, not run rate, because gap numbers, as I say, are audited and the CFO will go to prison if they're wrong. So I always assume they're correct. Roughly five billion. In Q1, roughly 11 billion in Q2, roughly 17 billion in Q3. Those are the numbers. Objective fact. What it means from Q1 to Q2, you know, you can look at it as an absolute number. They went up six bill and they went up probably a little under that, but five billion Q2 to Q3. So on an absolute number basis, you know, that's one perspective. Let's look. You can also look at it as a percentage. They were at, you know, what is it, five or six billion in Q1. They went to 11. They went up. They doubled Q1. So their Q and Q growth rate, was, you know, 100%, which is an astronomical year and year growth rate. Then they added exactly the same number in Q3. But by definition, because they're starting at 11, now you're adding the same absolute number of, you know, ARR, but on double the revenue size. So the growth rate naturally, the Q and Q growth rate has quote unquote plummeted to a roughly 50% Q and Q growth rate because you started at 11. You add roughly six. I'm just using rough numbers. It's roughly growing 50% Q and Q, which is still 5x year on year if you compound it. If you buy into percentage based growth, you could say, hey, they grew, I mean, they grew 100% in Q1, Q and Q. They grew 50% Q2, Q2 to Q3, right? If they stick at 50%, that's still 5x year on year growth rate. That's the positive spin. The negative spin is, oh, they were growing at 100% and only a quarter later, they're growing at 50%. Those are equally true statements of the same facts. And as Jason said, another way to think of it is just really at the margin, they added a little high five. Five thirty-six is, I can't remember which, Q1 to Q2. And the absolute number that they added, Q2 to Q3, was slightly less than that on a GAAP basis. So the most negative interpretation is, which I'm not saying I agree with, by the way, to be clear, is that you're adding roughly 20 billion a quarter of revenue, in which case you're slowing out pretty quickly. And as I said, you can throw out those numbers. And I'm sorry that was a wall of numbers. But you can squint one way and say, you know, they're still growing at 50% Q and Q, which is 5x year on year. That's freaking amazing. You can squint another way and say, oh, my God, it's de-accelerating from 100% Q and Q to 50% Q and Q. Does it go to 25 next quarter? And all the money is in that bet. That's the only discussion I've had.
Speaker 1Listen, Anthropic obviously isn't a startup at this point, right? It's not even a scale up. But I, as a startup, saw someone that did, instead of six billion, six million last quarter and only did 5.4 billion this quarter, I would not invest.
Speaker 2But hang on, let's be clear. I understand. I'm just going to put out, I'm going to be very clear. It's not that they did six million in the last quarter, that they added new AOR. I mean. But they're bookings. They made bookings. De-accelerated. Yes. The rate of bookings growth de-accelerated. The absolute number of bookings went up. I mean, they sold more shit in Q3 than Q2 by about 5 billion.
Speaker 3But what's actually interesting, though, is given the bookings de-accelerated, one thing is that, oh, reaching TAM levels in enterprise, they're 0.1% of Fortune 500 spend. And so, actually, there is so much more budget for them to consume and the bookings still
Speaker 1de-accelerated. Yeah. That's why I think the only. Listen, there's not enough data in here, or maybe they're not smart enough to parse it. That's why, to me, the answer is simply pricing pressure. It's that simple. The demand is there. The market, if you look at OpenRouter and others, the demand does not appear to have declined. I don't see any metrics that say penetration of the Fortune 500 has reached 100%, but you've just got a lot of pricing pressure everywhere. So whether it's a combination of folks buying from other vendors because it's cheaper or implicit discounts that they've added in Haiku 5.5 and others, maybe we've reached the point where anthropic ability to command a price premium. Yeah. has hit a local maximum. That's one potential thesis. I'm sure if we saw OpenAI's numbers, they'd look much worse if they're literally offering a 30% discount on Astra with essentially what appears to be a higher cost basis. And they're offering a 30% discount. So, lucky they're going public second, right? But it appears to be working. It appears to be working. 30% off is a big deal. It approaches the 40% that we target for open weight models. And this is my thesis, is that pricing pressure hit them in Q3. It's just. I don't know. I just think that's the only thing I can point to, because everything else is going pretty darn up and to the right.
Speaker 2I mean, probably true. You're right. I mean, it's got to be something like that, Jason. I mean, it is just worth stepping back and reminding ourselves, again, on a GAAP basis, $4.5 billion in GAAP revenue last year, full year, actually going to run right at $9 billion. And they're probably going to do $56 billion in GAAP revenue this year. So, year on year, their growth rate is 12x, right? That's just an objective fact at this point. But then the interesting thing, to your point, is you look at the same kind of growth rates and you come up with really good growth rates. So, you've got roughly $120 billion of GAAP revenue next year. So, they're probably going to go from 12x growth rate to 2x growth rate in a year, right? So, to your point, pretty sustained slowdown to still magnificent numbers. It really is glass half full, glass half empty. You squint one way and you say, "Oh, my God, this is a company doing $56 billion in revenues that can still roughly double next year. That's fricking amazing." And you squint the other way and you go, "Oh, my God, it went from 12x growth to 2x growth. Is it going to go to 50% growth or 10%
Speaker 3growth in the following year?" to at Butterfield and Slack in zero to 10 in 18 months was like the gold standard, like the gold
Speaker 1standard. You know, it's just a little bit interesting. I know it's just an anecdote and people will make fun of me, but I'm trying to launch this app, Saster Connect. Hopefully it goes out in the last next couple of weeks, but I'm working on it for a while, this AI matching recruiting app. And when I switched it myself to Haiku 5.5 and Jev, total costs went down about 70%, 72%. Now there's some costs that are going to keep going up. We're all going to run five agents a day, 10 agents a day. We're going to run them on multiple platforms. I just upgraded to MusePaid yesterday, right? So there are trends going the other way, right? As we see in the quarter. But again, 70% for if a lot of mature applications can see that kind of deflation from improved quality of tokens and pricing pressure, that's a lot. Even though everyone's going to be coding at 72 hours a day with 20 agents, a 72% decrease in effective price is material and it's faster. It's faster. It's 72% cheaper and better. So that hadn't happened yet, at least in my personal agentic experience since the beginning of 2015. On an as-used basis, nothing got cheaper. No matter what anybody said on evals and token price, nothing got cheaper until Haiku 5.5 plus Jev. Then I saw a 72% decline for B2B workflow running constantly. For the same task. Yeah, for the same task and higher quality. So it's just one and people can make fun of me, but it is interesting. For me, it is interesting for that actually, but it's interesting to see that it's not going to happen in the real world for the first time. Agreed. It just makes it hard to predict for me. It just makes it hard to predict how it's all going to. I mean, 12 months ago, none of these models barely worked. Today, they're epic. In Black October, they've become weapons to destroy Binance and everybody else. It's hard to know in 12 months how these submetrics are going to play out.
Speaker 3I think it's almost unpredictable. But I think that exact statement, Jason, is why we have the unpredictability or the binary nature in venture markets. It's why we have the volatility in public markets, which I think is a bit of uncertainty around what the five-year looks like. I think the whole world does not know what five years out looks like in a way that we generally have done for the last 30, 40 years.
Speaker 1I'll tell you, not to share too many other personal stories, but just comparing the show. This morning, I finally churned off Canva after 12 years. Took 12 years. Don't need it. And I just think at the start of this year, Canva was still accelerating. There were some rough reports this week about its current growth, right? They kind of varied. I don't know what's true. One of them said growth was zero. Others said they were preparing layoffs. Who knows? It at least seems to have decelerated 20%. It's just that predictability, right? You just don't need it. The agents don't need it. So it's hard to predict one year out, let alone five. Jason, what happens to Canva? Does it go out? I don't want to be a Debbie Downer, right? The Debbie Downer case is obvious. They missed their window. But then what?
Speaker 3They missed their window and they're just like a private company that grows slower. Is that it?
Speaker 1I don't know. I mean, it seems to be working for automatic outside of a few CEO turnovers and temper tantrums. Let's be clear. Was that humor? I don't think it's humor. What I mean is I think automatic will stay private forever. I don't think it will. It has raised its billion, right, as 40% of the web. I don't think automatic will become an agentic company. And I think Matt is fine with it. And I think it will stay private. I genuinely think it'll stay private forever. I don't know what the VCs do with it, right? But I don't think it'll ever go public. And I don't think it'll ever get acquired automatic.
Speaker 2The only comment I'll make is software companies in particular, they're not moving forward. It's like the shark. You're going down, right? And, I mean, it might take an extended period of time, but, you know, and I remember these three mainframe companies in the 90s and early 2000s that were still, you know, living on the off their 20-year-old contracts, but the asset just becomes very terminal valued. So yes, you can stay private and kind of continually cut costs and live off your install base or, you know, do your own little bending spoons on your own. But it's just, it's a tough place to be and it's hard to get value from it as an investor. It would be interesting to see what many of these companies decide to do. You know, can you clamber aboard, even if it's a little late, the AI train and get enough traction to maybe not be the winner, but grow 5%, 10%, 20%? I don't know. But I think if you don't do that, if you decide to just not play that game, I think over the medium term, you're just heading to quiet obsolescence.
Speaker 3I'm so picking a fight here because Cliff always messages me. Cliff loves the show and he always messages me like, you guys are harsh on me. And I'm like, you know, Rory and Jason, I never say anything.
Speaker 1I'm just. I didn't say anything harsh. You know what the surprising thing from where I've gotten surprised, guys, going to this point? Listen, obviously, if you're doing what we're doing, you have 21 agents running and they're running. They're running agentically and they're using Higgs field and Opus and the other things. It makes sense you'd turn off Canva, right? Because your agents don't log into it, right? And it's really not useful for our agents. The surprising thing from all of this is that the real world isn't buying much of this crap anymore, right? If I would have thought that a Canva, a Squarespace, which just launched 20% layoffs, a Wix, which is going to be bailed out by base 44, others, I would have thought like Shopify, they'd be doing fine because most of the world isn't running 21 agents and Higgs field and Musafine and everything. We're not all. We're not all tech nerds, but it isn't really playing out that way. And obviously, some of this is because ChatGPT is so good for images, right? There are things that are so good. Grok is great for images, but I'm surprised that a lot of these core businesses are being so severely impacted. Maybe it's a limit of my knowledge and it worries me. Instinct's amazing for images. Instinct's great, but in your news, Elon just had to cut back Grokbot use because it's too expensive. He can't afford it. I think I underestimated what the costs of Instinct were because I didn't understand how persistent the VMs can be. I think Instinct could cost as much as 20 bucks a month per user to service Instinct the way it's supposed to work today. Way more. More than 20? Yeah. Then it's a moronic business model at 40 or $50 per user per month. I got it wrong because the lovable Replit thing, which is a highly tuned on-off VM is about four to five bucks a month. They have large teams tuning that so that you can have a little bit of AI, but the VMs spool up and down very carefully. They've gotten it down to four to five bucks a month. So I assume that Mews and friends were like, Mews could even be cheaper, I assumed, right? And Instinct might be twice that because they don't have the resources, but it's much higher. It's much higher to have these persistent agents running. You think it's more than 20 bucks a month? I know you wanted to do it at 30, Harry, but how does this math pencil out at 30 or $40 a month per user? All these tickets we're going to buy?
Speaker 3Well, I admit that that seems relatively paradoxical to believe that it's more than 20 bucks a month and to want to do it. It's a very good argument from you there. But my thing for the power users, it's very significant. And I mean, if you're going to do limited automations, it's very, very cheap. And so I think your blended is probably much cheaper. But for me, I will be terrible as an economic profile for them. I mean, the worst.
Speaker 2Look, I think the real truth is just like every digital product, it always takes off at a point in time when the economics don't quite work. I remember when Facebook was ramping early on and people were like, oh my God, the server bill, it was using scads of servers and it was maybe going to have capex of $100 million. And people were like, that's the end of the world. And I'm like, yeah, that's the end of the world. I mean, that's the end of the world. I mean, digital goods get reduced in price 50, 60% year on year. If people like the shit and they get hooked on it over two or three years, the math gets better. And that's really what's going on
Speaker 1here. YouTube, one of the best businesses in the world. Or maybe we're going to see these waves where for all but a handful of folks, the subsidies just can't last. We've also seen this in AI. The subsidies just can't last. It's too expensive. Right. And I don't know whether instinct is on that side or not. Right. I mean, cursor barely pulled it out. The cursor V2 would have died. Right. Reselling anthropic tokens.
Speaker 2Right. If you're going to regard cursor as a failure, then yeah, you can win the argument. I mean, I'd take the $60 billion and call it a win
Speaker 1myself. I said the V2 version of cursor would have died. Just selling anthropic tokens at a loss perpetually. If that's all they were able to do, they would have died. Great teams figure it out. I get the venture thing. I wouldn't mind being Sarah Guau and investing in instinct at 50 or 100. Like, I wouldn't bother me. I wouldn't be too bent out of shape about the business model if I invested at 50 post. Don't get me wrong. OK. Wouldn't bother me a lick. But I just don't know which side. I mean, Amjad from Replit said yesterday, like the era of these free subsidies for the agents are coming to an end. If Elon can't afford it, Muse can afford it for now. But what's the scale of the Muse subsidy? Right. This is the second fastest growing product that they've ever had. If it's 10 or 15 bucks a month for them, who knows? Maybe Amjad's right. Maybe it will come before they can raise that $6 billion at 30.
Speaker 2Just for context here, if it's 10 bucks a month for Muse and they're subsidizing, call it 100 bucks a year. Right. For every million users, that's 100 million bucks. This is a guy who's spending $70 billion on CapEx. He ain't going to blink because, you know, the compute bill goes up by a couple of billion dollars. Right. And so I can afford it. I want to go back to your comment because it is interesting because it was look, I tend to be the boring guy who says that the numbers have to work in the end. And yeah, gross margin cursor, blah, blah, blah. But when things are moving so quickly, you can't wait until the economics work perfectly to launch a product else armed with venture dollars will launch that product 12 months earlier when the economics don't quite work. Grab all the mindshare and then they'll basically lean into the cost curve and hope that the improvement economics builds them out. And that's the bet you're taking. And to take the cursor example, I mean, they're doing some version of, hey, look, if you don't get a big acquisition for 60 billion, well, if what you said earlier, if I can get my own model and my costs come down, I make out like a bandit. If I'm still stopping on Tropic in 2027, I'll probably get fucked over. But it's still a better bet than waiting until 2027 and saying, oh, now that there are lots of open source alternatives for state-of-the-art coding models, I should launch a coding company because it doesn't matter. It's done, right? The truth is the capital markets and the venture markets are just so aggressive that waiting until everything makes sense is not an option. So what that means is kind of by the reciprocal property, almost everything that's new and digital will look crazy for a while in terms of economics. And the only question is, can the economics get better before the money runs out?
Speaker 1Look, no question. And we can move on. But it's interesting that Elon had to cap it. It is. They have resources. They had a pretty good IPO. He has, he's going long. He has bet his company on AI and subsidizing this thing. He subsidizes everything round trip, right? And even with his personal fortune, he subsidizes everything. This is a man that would not want to cap Grok bot if he did not have to.
Speaker 2He's also the man who's getting so many dollars per unit of compute from Anthropic that he's like, yeah, I could do some free Grok bots and these people could make cute cartoons and send pictures of sexy anime girls to each other. On the other hand, I could get like 50 bucks an hour from Anthropic. Screw it. I'll do
Speaker 1that. Well, they're not doing that. They're building applications. They're building code. Grok bot is fairly technical, unlike the instinct it muses, right?
Speaker 3Okay, boys, we had another pretty big transaction which went down that in a normal world would have dominated news. In today's news, it kind of lasts for a couple of hours. But DoorDash buys Instacart for $17 billion. Under half its 2021 private price. D1 still owns 9.7 percent. Sequoia owns 8.1 percent. Before we talk about agents, which was a disclosure. And the thing of note here, an inevitable ending to a clear second place provider to DoorDash.
Speaker 2I mean, inevitable is a bit strong, but yes, they clearly tried to do it before. It clearly makes sense. There's also probably an element of do it now while you can. If you're DoorDash, all makes sense.
Speaker 1Listen, some of this is not my strength, but the fact that the Postmates acquisition worked was a surprise for me, right? I assume you buy when Uber Eats bought Postmate, I assume you get a little bit of a brand and a list and you shut the thing down and that I didn't really believe these deals would be accretive, right? But they appear to be right. So if Instacart's got 20 percent of the market and DoorDash has 60 of the delivery market and you can get through antitrust, which you probably shouldn't if you think about the numbers that I just said, of course, and you can get to 80 percent market share. This is how you dominate networks, right? You dominate every part of it by having 80 percent market share. And I'm surprised that you can combine these networks and they don't end one plus one doesn't end up equaling one point one. A couple of years later, like that's that's my experience. But it doesn't appear to be true. Does these deals, if well architected, appear to work? And so it should be accretive. It should make sense. And I think also like you noted it's half its 21 private price or whatever, right? I think like the Braze deal at Salesforce, you may say, what's the similarity? A lot of times folks have been circling each other for years. Tony said they've been talking for years, right? So there are deals that don't make sense even if they're cheaper. And then there are deals where like Salesforce was losing to Braze in marketing for years and that when it got super cheap, when it got to 3X AR, now they had to pay a big premium. They just buy the assets they want when they become cheap. And it may be that simple. And so if they're accretive, buy them. But this may be just simple things that the corp dev is supposed to do.
Speaker 3One that I found fascinating was actually relating to a conversation we've had before. And it was agentic usage of these platforms and DoorDash saying that AI agents have sent only several hundred orders against three million deliveries a day. Were you shocked? I was shocked by how surprisingly low that was. Or do you think it's symbolic of the fact that people will always want to choose food and have that discovery process?
Speaker 1I think in a sense it was a dumb comment for what it's worth. It reminds me a little bit when Brian Chesky like a year and a half ago said there's no need for AI for rentals and housing. Or when Parker Conrad, another generational CEO said there's no need for AI in B2B 18 months ago. Yet today, today only several hundred orders. But these platforms, like all these app platforms have a risk slight disruption from agents. They all have a risk of slight disruption. -
Speaker 3Which is why I think it's so sad self-serving, I would be pushing this. Whether you're Uber, and when I had a Mac, the president of Uber on, he very clearly was most worried about agentic usage of these platforms because it would disintermediate Uber. And you could get a free now, you could get a Lyft, you get price optimized, time optimized, and who gives a shit about the platform provider? You have it for Vinted, you have it for Uber, you have it for DoorDash. I think it's very specifically well done because it made headlines and news in a way that actually he wants. No, humans are here and we will continue to be here.
Speaker 2Maybe the better way to say it is, let's assume they're telling the truth. That's the objective fact about what's going on now. And the million dollar question is, do you see that behavior happen more and more? And then how does DoorDash respond to it? You know, they're all doing versions of the same thing, which I mean, I could totally see for some of your standard food orders, just it's not that much easier for the record. I mean, telling your agent to order your dinner, it's just as easy as to just go click on the DoorDash app.
Speaker 1Well, but there's a thing, DoorDash has two big competitors. It has Uber Eats, right? And it has the restaurant. The restaurants don't want to use DoorDash or Uber. So most restaurants have self-pickup, at least they have to-go pickup where they can avoid most of the fees, right? Or self-delivery. An agent can figure that out for you. Hey, Harry, did you know that Lemkin's Curry down the street, actually it will deliver for $2 and you don't need to go through DoorDash or whatever they have in London? I did not know. Thank you, Muse. Thank you, Instinct. That'll save me $14 on my order. What's the pub right behind your office that I really like, Harry? The Grazing Goat. Love that place. Five out of five. Maybe they can just drop it off next time we do the pod for free. I don't have to pay 20% and plus tip, plus this, plus. You think I'm kidding? I think agents are an existential risk to DoorDash because their number three competitor is nobody.
Speaker 3Can I put out a cultural difference between us? You guys pay 15 bucks a burger and it gets delivered at 50. And there's like federal charge, state charge, delivery charge, service charge. It's ridiculous. In London, it's kind of like 15 quid is 15 quid. It's fascinating to see the difference in like what you pay and what you
Speaker 2get. Yes. And that's why these businesses are wildly profitable. They figured out exactly how to extract every dollar of rent from the person who wants to sit on their couch, press a button and get the meal an hour later.
Speaker 1It works. It's been a brutal business since the old Grubhub days. It's just evolved with the internet and agents will evolve it again. It's been brutal. It's been brutal. The idea is take as much margin out of the customers or the restaurants as humanly possible.
Speaker 3I'm with Bill Ackman. I think Uber's a banger of a buy right now, though. I mean, it's so cheap. I broadly agree.
Speaker 2And I haven't spent a lot of time on this, but the two worries you have are way more disruption than a job. And I think Uber's a banger of a buy right now, though. And what you're implicitly saying is border fine.
Speaker 3Yeah. Agentic disruption is bizarre and taxi hailing. You're going to go to your WhatsApp and say, I would like to get an. I agree. I don't think that's. It's a worse user experience. I would like to get an Uber. I am at this position on the map. Yeah. Agreed. And then the other issue is people love food. They love looking at it. They love pictures. They love scrolling. They love discovery. The only thing that makes sense for us is automation and scheduling. Every day, drop it off at Scales office in San Francisco. That's it. Okay, boys, we have two big rounds in Kaoshi and Cohere. Kaoshi, a billion at 40 billion, one of Jason's favorites, a low dilution round there with a two and a half percent dilution, but still raising a billion dollars and a 40 billion price a day after Utah charges founders of Kaoshi. And then we have Cohere. I think it's the largest private raise for a Canadian company at this point with actually the Canadian government, I believe, or Canada itself, investing up to 1.14 billion. Which one's more interesting?
Speaker 2Kaoshi is a money deal. Let's be really clear here. The thing is working. It's growing like a weed. Deep in their heart, everyone knows that we started off thinking we were doing prediction markets, which had some social utility. And we've long since converted into sports gambling markets to feed people's addiction for gambling, right? So we're all over the doing good. We're all over the higher purpose. You know, we're pushing through a whole bunch of local regulation, which is why Utah is suing them because sports betting is regulated on a state by state basis. And these guys are plowing through. National basis. So there's nothing to see in this other than VCs will put a lot of money into shit that's working. That's the takeaway, right? And, you know, if it's at 40 billion, it's had momentum. It raised like three or four months ago at 22 billion. So this is one of those classic momentum plays, right? I mean, contrast that. I mean, it's very different. I mean, it's almost not a momentum play. It's a we need our sovereign AI play in Canada because you are nasty people and you've threatened to invade us multiple times. And we've got this product and it's, you know, one of the original four or five LLMs, to be fair. I mean, in 2023, you had Cohere, obviously OpenAI, Anthropic, and then all the other ones like the one that Microsoft bought, Adept and Amazon bought, all the others folded. So give, I mean, give Cohere a huge credit. They are one of the survivors of that first group of LLMs before Neolabs was even a thing. And now they didn't release revenue numbers, but you can see how you can make a sovereign AI story. It's almost the exact opposite. In the case of Calci, the government is saying, I want to stop you now and put you in prison. In the case of Cohere, the government is saying, I'm going to make this work no matter what, even if the economics don't work. So they're almost like the yin and yang of investments in terms of their relationship with
Speaker 3the government. Does that work? Can the government just do that? Do what? Well, hey, we want to make you work. And so we're going to inject you with 1.164 billion. Isn't that what our governments do all the time? They subsidize everything. Yeah, you can do it once, you can do it twice.
Speaker 1But ultimately, if enterprise adoption isn't there, it doesn't work. Sometimes it's worth just being in the game. It's like putting a few chips into Anthropic in the D round. And sometimes it bounces. Bounces your way. And you've always got the lick prep. Jason, the D round was 16 billion.
Speaker 3So I'd take the D round.
Speaker 1Yeah. In all seriousness, I don't know how Canadian national governments work. When you talk to folks that run at the top companies with large corp dev portfolios, public companies, really, they just want it not to go down in the aggregate. They'd love the gains, right? But you only get so many credits as a public company for the gains from your portfolio. And the losses really suck, right? Because they swing your EPS in really weird ways. And you have to put asterisks and daggers next to it. So as long as they don't lose too much money on the investment, I don't know that they care.
Speaker 2I mean, but I think there's two separate things. You're right. The motivation for anyone doing this isn't purely financial gain if you're the government, right? Agreed. But how we ask the separate question is, can it work? And I think the answer there is you can keep it. Governments can make things happen for a fair while. But what they can't do is make the private sector use the product. So, you know, you'll see it with Mistral, too. To the extent that there's a willingness to spend Canadian government tax dollars on a Canadian government, AI solution, or maybe if Canada goes on with its kind of, you know, affiliating with the EU, these guys in Mistral may be the you're not America LLM options. And there probably is some spend in that. But do you think it'll be a compelling business that will go public at 3x this round? Not as obvious to me at all.
Speaker 1Well, in today's world, today's day and age, coherent, not disclosing revenue is hardly a flex. No, it's a pretty bad sign. I love it. It's like ARR grew more than 165 percent. And you're like, since inception? Yeah, I know. You know, one thing I was thinking on the thing before we leave. So Sequoia led the last round, right? At a billion. They put in a billion right after felony charges were against the founders. Right. And I get that it's just a state. And then we have Binance, right? Six point six billion taken by apparently North Korea in a matter of hours. I had to wonder between Sequoia and Binance if the ball had bounced just a little differently. Would FTX still be around today and would it still be a winner? Same VC, same risks. FTX got. Listen, you obviously can't take it. You can't take it. You can't take it. You can't take it. You can't take money from one sister company and put it in another. But I think Binance barely survived this six point six billion. They don't have a transparent balance sheet. We don't know how much money they had. What if it was 13 billion? Where would they have repaid it? I think they were one step away from an FTX type situation. Luckily, he got pardoned, CZ, right? But I just wondered if it made me think of since you have the same investor and the felony, we've just all changed the way we take risks because it's game on. Right. It just made me made me think about it. It was a shining portfolio company today.
Speaker 3I mean, the fascinating thing is FTX is 500 million dollar position from Anthropic. Well, that we know. Yeah. Would be worth 39 billion at the one and a half trillion. So timing is important is the takeaway, kids. The most compelling
Speaker 2fact about the Binance thing was that they could pony up six billion dollars to replace the money that was taken. What a good business. I mean, assuming that you're not doing an FTX and swiping it from someone else, as I understand it, and I did not spend a lot of time on this one, Binance were able to make good the crypto loss. Which implicitly means Binance makes enough money to be able to make good the crypto loss, which means it's an amazing freaking business.
Speaker 1I think so. I just think and again, I'm not a crypto guy, but when CZ said they could cover it, but it would be tough, suggested to me they didn't have 13 billion. And what I really thought was ridiculous is how many folks said said that their balance sheet was all the crypto they hold for as a trustee, as a custodian. That's not true. That's why Sam's in jail and CZ is out. Right. I don't think they had 13 billion. I think they got it in October.
Speaker 2You can't take my crypto dollars and give them to Harry and say, sorry, your stuff was stolen.
Speaker 1Agreed. Okay. Yeah, their balance sheet. I mean, just think how much still happened in Black October, right? And then we have this, the one that I think is craziest. I don't mean to get off track is this. I know it sounds minor, but it's not this ARDEX thing that breached WorkOS and a bunch of others. This is just since we did the last one. This one is insane, this
Speaker 3ARDEX thing. I saw that Michael Grinick post about this 16 hours ago, but tell everyone what this
Speaker 1is. ARDEX we should be scared about. ARDEX is initially well regarded, but it's a very, very good business. ARDEX is initially well regarded. It's only like a couple months old, a Chinese open source pen test solution to penetrate test applications. We all need pen testing. We always needed it before. We certainly needed it in an agenda area where everyone from Binance to the rest of the world is being breached, right? We're all being breached. All the refrigerators in Europe are going down because they've been breached. Black October was much blacker than we made it look. And so some really smart developers just a couple months ago in China built an open source thing. Great. So it's free and you could hook it up to your deep seek in Europe. other LLMs and it will just try to hack you. And this is what you're supposed to do. You're supposed to hack yourself, but it became very easy to turn it around and just attack other folks with agents it became it was flipped around and it's become one of the the greatest threat and a lot of folks are saying well you could always you could always do this but now you can do it with lms at scale you can just tune it against anybody you
Speaker 2want so so the original bill has defensive and yes everyone said oh my god this is a pen testing tool yeah it makes total sense is that i mean basically yeah it's like the guns don't kill people bad people with guns kill people you built a gun and you hope it was in good people's hands and now it's in bad people's hands and they're killing people it people it worked seemed to work great at first right until you turn the gun around it's probably hard to overstate you know the the cyber dynamics of the next 12 months i mean i you're right it's one of those stories you never cover it on a daily basis but you're at some point something really weird is going to happen you're going to go come on guys we should have seen that you know the entire u.s fed wire goes down for a day and we're like we can't move money
Speaker 3yeah and we joked about the refrigerators in europe which for people that don't know there was a hack which basically meant someone could turn up the temperature on the air and they could turn up the temperature on the air and they could turn up the temperature on refrigerators and they did to 50 degrees now it was luckily rectified and the frozen peas were saved which is of great relief to everyone in europe but you could see this being much more mission critical things like traffic lights or like heating facilities or you name it so it is it is quite alarming ding ding ding mr lemkin we had quite a few rounds and it's your turn to bring something to the ic this week goodness can i take a break
Speaker 1for the rest of the year we've been busy we've deployed so much we've gone back for three five days we've gone back for three five days
Speaker 3funds this year no no no we're andreessen we just raised a big ass fund and so we've got plenty more for you to go through jason we're a deployment machine which company are you going to take to ic this week serval cognition base 10
Speaker 1well listen i mean harry as you know much much as in many ways the windsurf team lamented having to sell out to google for just a few billion the cursor team's gonna lament selling to spacex for only 60 billion right cognition at 80 billion it seems market correct now to get to the end of the year we're going to have to wait and see if we can get to a 10x with dilution a trillion dollar of uh valuation i start to get nervous with the latest latest round from open ai and anthropic i do get worried that fundamentally it only owns so much of its own ip but geez i don't know if you saw the last q3 of anthropic like the one thing that is working that never stops working is coding agents incognition has a bunch of the field open to it they made a lot of their own luck i don't know if the original version of devon when i brought it to committee you know a year and a half ago i i don't know that that product worked they lucked out buying the windsurf team they lucked out buying ip they lucked out from open weights but this is something with the kind of momentum that i think we can't sit out and we have a little bit of money left in the fund a couple billion and we need to deploy the next one i say we close out the last fund with 2 billion in cognition we're already up 5x on paper we can't lose so we might as well put the last 2 billion in cognition and i say if we get a little recycling before the round closes we toss it in too
Speaker 2interesting just for the people listening because it wasn't obvious that was a much better question than you normally ask harry because normally you say here's a deal jason tell me why you should take it to committee and honestly and respectfully i said it's kind of stupid because all you're just saying is give me a soundbite right the reason this was a good question much more interesting was because you have three deals in front of us it's worth pointing out to the listeners what they were three really amazing companies you were basically asking jason to pick between base 10 at 30 billion up to x from june an inference company cognition at 70 to 80 billion up from 48 billion in september and serval at 3 billion up from 1 billion in december three different companies very different businesses one's an inference provider one's a coding agent and one's a very hot next generation ai app in the itsm space right so three different businesses all of whom have had around and are getting a second re-up within this 12-month period so as i say because it forces jason to choose that's a much more interesting question if you know what i mean than just tell me nice things about this company
Speaker 3for editors can we please cut that segment that's the first time that rory's actually congratulated me on the frame it's okay because i think it happened by accident i'm gonna i'm gonna play that to myself later just to give myself more
Speaker 2confidence but actually genuinely it's like there really was a super interesting question and i i kind of so would you like to do an inference provider at 30 billion a coding agent at 80 billion or a it ai app in itsm at 3 billion i mean good question no shit which would you pick i'm serval are you kidding me okay so you do you think you're upside and serval at 3 billion is better than you upside a cognition at
Speaker 370 oh my god the tide is changing service now is an old god bill mcdermott's amazing but he's like slootman he's a sales-led ceo we're in a product-led generation jake and tatiana at serval are incredible the product's amazing the enterprise adoption is better than i've ever seen and the upside just pure multiple on cash now there's an there's an addendum and a star which we can go back to multiple way better here the chance of getting a 10x here i think very likely the chance of getting a 10x for base 10 at 30 billion god you've got a squint the chance to get a 10x at cognition to jason's point gosh we're nearly hitting a trillion there so yeah i think the multiple is clearly much more evident there now the challenge though that we have with serval that we don't have with cognition or base 10 is if we're an aum play just putting cash on the table and then we're going to be able to get out the door they only raised 150 million and if i'm andreessen i want to put 500 million a billion out the door and so doth butter no parsnips as we say in the uk i need to do cognition because i need to move money but for the multiple it's the easiest decision you made interesting you know what the
Speaker 1question about serval i don't know i really don't know what i'll do with the founders don't know it it's just my question to the ic does it expand the tam am i bounded for for real for real right not for hand waving am i in essence bounded to the ic does it expand the tam am i bounded to the ic by a subset of service now's tam today right now every founder will expand the markets and add concentric circles but is this really expanding the tam here i i generally don't know but i personally am not excited about disrupting existing players if you don't expand the tam because i think i think we don't get anywhere at the end of the
Speaker 2day and i think the argument they'd make would be some version of service now just is a list of things that it has to do and you know serval is actually a product that does those things for you so you can demand more value from it and you know the way you'd validate that is looking at their acv on a like with like basis in other words there's a mid-market company that might spend 200 grand on service now would that same company be willing to spend 300 or 400 grand on serval and that's what you'd need to see to get tam expansion because yeah i mean we think i know about one of my colleagues had talked to him in the past there's an amazing company amazing team and and a great market i mean it's always worth remembering until recently service now was i think the second largest market cap in the world and i think it's going to be the second largest market cap in the sas company you had salesforce and then service now itsm is a much bigger market than you think because it kind of becomes the the general corporate to-do list for service functions like legal accounting all the back office folks were using service now to keep track of their tasks so it's been a way bigger business than i would have guessed when we saw it in what was 2010 or so right so yeah replacement for that's a big opportunity but i hear you jason it's it's the can you expand the tam and are you just are you dealing with a 10-year grind service now down deal where you do it forever whereas harry to take the other side of the argument and cognition i mean the beauty of the coding agents is special cognition they're coming into large enterprises and basically saying we will help you effectively rewrite your entire code base enable your team to be a gentic coding and getting huge dollars for that so in terms of money velocity on the table right now cognition has you know just an ability to command may more dollars i think serval probably has the compounding effect of there's probably 10 or 15 years of grinding down service now to a bigger outcome so i don't know it's it's kind of velocity but capped versus long-term great mega trends but is it going to take a while
Speaker 1look at this it may well resolve tickets that service now can only track it may be an epic play i'm not i'm just trying to i think serval aside 2027 will be a year where we find out a lot of vertical ai plays are nifty little startups but didn't in the end expand tam enough they didn't expand they're they're fighting for a slice of service now a just personally i don't want to invest in any of them because i just view it as tears in five years
Speaker 2i i don't think so i don't think that's the case with serval i think they are expanding the time and i don't think i did i'm sure they'd push back very vigorously on the vertical description i mean i think it's very cross-functional and no no i'm just it's an
Speaker 1adjacent point i was trying to make but i'm not arguing i think in vertical we're going to see the biggest tears because a lot of folks are going to make investments assuming that especially for like an smb or an error you can charge three to four times the size and we're going to find out you know what you can charge the size and now there's five or eight times the competitors in the market and the leader isn't dead right the leader isn't there's still a lot they still have a pulse they may not be growing at the rate before and so you're just slicing up the same old f and tam 11 times i just don't want to personally make those bets because it's exhausting right it's it's exhausting and then it's been funny we've
Speaker 2as i said that's why it's such an interesting it's really genuinely interesting question i'm like literally thinking of it as an investor here rather than blathering on is that we've kind of gone between the 80 billion one of cognition and serval and kind of base 10 in the middle i mean if you want revenue velocity right now nothing gives you revenue velocity like inference but from your little face harry are you implying the angst there is just competition there's five or six great companies in that space and that's
Speaker 3a worry i would i would 100 invest in base 10 too by the way but the
Speaker 2whole point is there is no two you got to pick
Speaker 3but yeah but no i would not choose it compared to serval or cognition and i think modals product suite is unbelievably strong like eric is incredible for that and and lynn and the team at fireworks by far i think have the best inference but i think they're going to have the best inference and i think they're going to have product and so I would choose, you modal and fireworks and so it's super clear for me on several okay that was a fun question rory did i change your mind you made
Speaker 2me think no i genuinely genuine comment this is like this made me think right these are three very different interesting dynamic i mean it it makes you think about you know what's your bet is it very horizontal inference but lots of competition risk of commoditization is it the last surviving standalone coding agent that's cracked the enterprise but at a very hefty price or is it an app that i think will be the if there is a next generation service now the probability of it being serval is probably 80 70 plus and those are very different bets and you know i'm actually literally thinking they're all for the record pretty interesting bets the one nagging comment and i don't know if this is correct is the good thing about servers you can say this is your point how is that the old school company is worth i can't remember i used to know the number 40 or 50 as well as 110 billion so you can say there's a thing that exists today that's 30 times the value of this therefore i can have that money whereas for base 10 and for cognition you have to say there's no standalone coding agent worth 80 billion so it's good news it's a new market bad news is what are you mentally taking over you know what i mean and the same is true of inference
Speaker 3no no bad news is that you're fourth in the market you've got codex you've got claw code you've got cursor and then you've got them jeez i don't get me wrong i'm all for independence uh you know i'm an investor in factory as well and i totally buy that but that verse is like serval versus service now bit of an easier one okay so wild rory you'll be surprised here that my girlfriend is still with me i know my mother is shocked too but in the legal world world mega news one of the big law firms the prestigious og brands while shut down very quickly and weirdly because of partner dispute whatever ai law firm crosby who've raised 85 million bucks from sequoia and the like bid to its assets and it's like it's brand anything to say here i thought that was fascinating i mean
Speaker 2there's two separate stories there's the wild godchild crashing which is a you know american law it's not a tech story it's an american law story you lose a couple of key partners these firms are even though they don't have a lot of liabilities other than leases it's just a bunch of connected rainmakers and sometimes the that's a
Speaker 3that's a flim no offense rory that's a very flimsy way of looking at it a couple of partners leave does not mean a 90-year prestigious law firm but
Speaker 1with you it's a small number
Speaker 2of rainmakers absolutely it's not like it's worse than if
Speaker 1you leave if you leave a vc firm the vc firm dies but over 20 years if the top rainmakers leave you know there's no there's nothing to pay out at the end of at the end of the year i mean if you
Speaker 2look through it i mean i've read all the accounts i don't know as well it's as i say it's four or five key lawyers each of whom were in a key part of the business and it just there seems to be a clash on a couple of i think the guy who ran all the pe practice which is probably 20 30 percent of a company like this left takes his book of business and yeah it can go wrong pretty quickly so but it that's just a wow that's interesting and then i did i did admire crosby for just that's just a hey if there's some attention to be paid here why don't i put in a bid for the business that was that was that was a bit of a fuck you but i was i was impressively chutzpah i think is a relevant word there for that that was
Speaker 3chutzpah i loved it ryan just like yeah we'll take it yeah if you
Speaker 2don't want this 100 year old franchise we'll take it here i don't
Speaker 1mean to be too negative on the crosby thing but ultimately if you're providing slightly higher value services it's going to have issues people want to keep all the the partners the rainmakers want to keep all the money now crosby has probably has no rainmakers right and it's doing transactional stuff but i don't know that this idea that lawyers will give up a bunch of the profits they could make for shares in a company that hopefully will ipo i i don't know how sustainable the business model is for the for the
Speaker 2record i i don't know if i fully buy the model but i disagree with you in the sense that i actually think it's actually the same story what wild gotcha says is there are some parts of law where is so important because you value his or her personal advice that when that partner leaves while and goes to someone else you take your business with them and that's like i'm doing a complex pe deal i need this guy i'm paying him five grand an hour some absurd sum but he's my guy and i trust him and i'm you know running kknr and that's the guy i want and then what crosby is saying is there's a whole bunch of other law where you really don't care the name behind the thing because it's pretty standard and transactional and that business can be done across below where i actually think they're actually very nice people and they're very nice people and they're very nice counterpoint if i'm doing an nda or a series b stock purchase agreement i don't need the five grand an hour guy i don't need to know the name of the guy doing it it's just you know do the usual stuff check the usual
Speaker 1thing so i think yes but but even at the low end incompetence hurts you it damages you have you ever done a routine transaction where some idiot lawyer costs you a lot of money i have i've been damaged seven figures by incompetent junior lawyers but i think
Speaker 2i'm sorry i'm just going to push again because i'm grumpy like that's exactly the crosby argument which is it's less likely to have that kind of mistake if it's automated if you've got ai like for the standard
Speaker 1stuff so okay well let me flip it around let's imagine i go to crosby and i make 170 000 a year and i get 0.01 of the company for the ipo that i'm not even sure is going to happen and then i can go to wild prime and make 250 and if i'm actually good i may every great partner now makes 10 million bucks and every good and the entry level ticket at wild was over 200 000 for an associate for a soul-crushing horrific job behind you like i get the i just my only point is and i'm i'm not being critical i haven't talked to them i'm not convinced this is is as stable as a lot of vcs might hope it would be it's too human based i agree there
Speaker 2are issues with the kind of human plus ai delivery model and i have questions on that but i'm just going to push back on your comment on why would i go to cross like that's easy because for every lawyer who wants to be a rainmaker and work 24 7 and make 10 million dollars there's also lots of lawyers it's like i want to do 40 hours of good law i don't want to be a rainmaker i don't like that i'm just a good lawyer and i want to go home maybe i'm you know dealing with kids maybe i'm dealing with parent maybe i just want to take it easy there are lots of people for whom being a lawyer a well-compensated nice upper middle class salary working for someone like crosby doing 40 hours a week with control of your own time is a perfectly good product so i don't have a they'll be able to get lawyers right i just don't know if i can see a 10 billion dollar outcome here different question i'm sorry i don't
Speaker 1think i can take this to ic it's it's a lot that has to happen agreed for the corporate company it's corporate affiliate to be worth 10 billion dollars because it has to suck so many billions of years of profits that the lawyers could otherwise take home as partners that i agree
Speaker 2with i think that there will be a coterie of law firms five years from now that are focused on the crosby kind of work crosby will obviously be one of them they'll do really well we like the space but i agree the question is if you look at the billings of wild gotchell as an example of american law if 70 percent of the dollars come from the high rainmaker irreplaceable by ai stuff and all left is a 30 and then you have to have the value of that to get the business then you're right then you're left with the low margin parts of the business so i do agree that's the question is how big can it be but whether you can build a business there absolutely i think you can you
Speaker 1can build a small business for sure it's just for our ic 10 billion is the is the lowest possible exit where we're allowed to bring it to ic agreed as far as i can see 2026 boys yeah 10 billion i thought is 10 billion the round size look rory and i are a little more conservative we're okay with a 10 billion dollar exit as long as the entry is appropriate we can't make the numbers for the whole fund work but we can make our own little slice of the fund we can we can hit our our individual 6x goals with those
Speaker 3exits guys what have i missed creandum i think probably the most exciting fund that europe's produced in the last three years raises 750 physical intelligence in talks to raise at a 20 billion dollar valuation they've had rumored acquisition talks in the last six months as well that's with avenir and lux dropbox cuts nine percent of staff and cto leaves
Speaker 2well i think first of all i unlike the last group of three these things are like literally a grab bag of shit physical intelligence company with relatively little revenue is worth 20 billion dropbox company with billions of revenue ain't worth a lot there it just shows revenue multiples don't get you anywhere right it's all about the future these are just non-comparable things i mean look on the physical intelligence thing yeah i think robotics is going through an amazing explosion we have a small investment in just like i think these next generation models are amazing when you see the demos i've done a lot in robotics over 10 plus years when you see what the new models can do it is truly amazing you go wow the level of dexterity the old models just don't have that and i think it's just a real breakthrough moment so two other comments though i think deployment of robotics is just way longer than deployment of kind of classic llms and people forget that i saw someone if somebody's coming to start to price now on an hourly api basis which makes sense so you pay you know if you're replacing maybe you pay three bucks an hour for access to the model and then when there's only 300 000 robots in the us so to make the math work at kind of 20 you got to have a ton more robots so the technology is amazing the business model's got a lot of developing to do but i think the last sentence you said is the real one i think all the big foundation models company buy one of these things and i think the reason is i mean either they build one or buy one it's gonna sound i think i've said this before the really simplistic reason they do it is this i'm writing my prospectus there are 81 million knowledge workers in the u.s we have an llm and we sell to them it's a great business there are 87 physical workers in america not knowledge workers working in blue collar our kind of you know physical world jobs now we have a robotic foundation model we can address them i've doubled my tan i mean it's a bit simplistic but i think the lure of robotics for the foundation model companies and the desire to say oh we do robotics too i think will means that there could well be some acquisitions in the space it's one of those markets it goes back to something jason said it's one of those markets where you can kind of say to yourself if you just try and be logical about the steps between here and deployment you probably get caught up in the minutia and i'm often guilty of that where you know it's going to take a long time customers are going to be slow BMW is not going to roll out 100 humanoids in a week. But if you say to yourself, the technology capability is amazing, the teams are amazing, we love our position in journalist, and you kind of go, this is going to change the world, somehow you'll make money out of it. And that's probably the investment thesis.
Speaker 1Jason, any final thoughts to you on this? The only small, this one's really minor. It's almost not worth bringing up other than it's something I'm tracking. But a tiny amount of anxiety that the hugging face has drawn some DOJ scrutiny. I don't think there's been a formal request for information or anything. And it just, as investors, it would be a bummer for us if M&A isn't really back, right? As we discussed, we need $10 billion deals to even bring deals to the IC. And if this $12.9 billion deal for hugging face isn't going to sail through antitrust, it would just be a bummer. It would be, politics aside, it seemed like we were able to do normal M&A deals, right? With normal tax benefits and normal this and that. If it doesn't turn out to be the case, then we've got to go back to doing convoluted deals. Team and IP deals or slowdown deals. It'd be a bummer. And look at the other, I mean, Salesforce is on an epic M&A role. I mean, they've hoovered up everybody this year. And I don't know that they would do that if the antitrust environment, again, no politics aside, if the antitrust environment was where it was 24 months ago. It's good for venture that they're just hoover. I mean, who did they just buy this week? Acresta, right? They just bought Acresta for $2.7 billion. Yeah, bless Benioff and friends, right? We need these deals. They happen in every two weeks, right? And for venture to be like, at least to be de-stressful. In my opinion, we need M&A to work like clockwork. Otherwise, we're just, we're just stressed over these goddamn IPOs. So I just worry a little bit about this thing because we want, we want the sales forces and the service nows and Microsoft. We would just want them buying companies, you know, every, every couple of days for a billion and up. We need it. We need it to get out of our, to liquid our portfolio. So this one, if something happened here, I'd be bummed, but it's just something to track if it gets anywhere. Salesforce says the opposite. They don't, they're game on for M&A, man. Dude, I agree. Bless the team there. Smart too. You got it. He's buying his way into the future, into the present. It's, there's some point where it's too much. Is he with Cresta? I think what's happening, if you just look at all the deals that have been bought, this, this, this, I saw, I'm dating myself back in Adobe, but obviously there's a little bit changing in the world with AI and B2B, right? So basically everybody's getting a punch card, right? They bought a, some defense startup. I don't even know that for a couple hundred million bucks. Right. And what you do is you go around the table with all your SVPs and they get their best idea and whoever was in service or support or whatever. So Cresta was their best idea and whoever was trying to get these sort of support and sales agents faster, Finn was their best idea, right? And you just keep, it's not that complicated. They go down the best idea and then someone goes out and figures out if they'll actually sell because some folks won't sell and you just make this best idea and then people know their jobs are on the line. And so this, none of these deals are mark betting the future of the company. They're, they're SVP chips. And I've been in the room when, when you went around the room, Rory, what's your best idea? Harry, what's your best idea? Come back next week. I want your top three ideas and it costs you nothing. In a sense, because it's assumed some will fail, right? But basically they're getting around the table and they're saying, we're going to spend this much of our market cap and cash to do these deals because we got to do, we got to do something. And the interesting
Speaker 2question is, do you do a Cresta, you know, a more mature company that's using AI, but probably the original stack was pre LLM and they've probably transposed their stack once the LLMs come out in the last four or five years. But in return for that, they have some scale. They have some kind of enterprise deployments or do you buy something new, bright and shiny where it's all LLM first, it's two guys from YC and 24 and, you know, they've got $10 million and they're exploding, right? That is the interesting thing.
Speaker 3Well, the interesting thing for me is that you've got a relatively similar price being paid for them versus Listen, but you're going to have a 10X increase in revenue for Cresta versus Listen. Listen were 20 million, sold for 2 billion. Cresta are well over 200 million in ARR.
Speaker 2And given that Sequoia is in boat, it's not like they missed the fact that they're getting a different revenue multiple. So yeah, on the other side of the table, you're right. The seller. The seller said, yeah, I get why I want a high revenue multiple for Listen because it's got growth and it's new. And I guess why I'm getting a still good, but not as, you know, a stellar revenue multiple for Cresta because it's a more mature company. And yeah, no, you're right. It is interesting. It's the buyer deciding which bet do I want to take. And thank you for reminding me. Listen, that's a very good example. Do I want the ultra modern deal? But the problem is I'm going to have to pay a scary revenue multiple in terms of. When you're trading at 7X, to be fair, it's really hard to spend a lot of money on a lot of money at 40X. You can spend maybe a couple of billion, but it gets scary.
Speaker 3I think the Cresta deal is actually pretty good. You're paying 10X. I agree. No, I agree.
Speaker 2Exactly like I think the Intercom deal. I think the smart deals for Salesforce. You get critical mass. You move the ball forward. Maybe it's not as bright and shiny as the newest bright and shiny thing. But, you know, your service cloud business is your second largest, I think largest business now. And you have to make progress on that.
Speaker 1I agree. What you'll find if you talk to a lot of the big, big players, what you'll find is if they want to do an M&A where they want to put their resources. Their GTM machine, their platform, they'll all tell you this. They want at least 100 million of revenue and they'll wait and they'll take the meetings and they'll get excited. And what's the one Listen Labs, right? That's a tech bet. And most folks will tell you those are the dumbest bets, right? Either buy a small team and pay less or buy something with nine figures. You only do a Listen Labs deal in times of stress because they'll all tell you that's their lowest investment performance. That's what it says. But it's just it's a reason if you're confused as a founder, why deals happen a lot of them they just decide if it's not 100 million, it doesn't have scale. Like, I can't put my guys on it. I can't put my team on it. I've heard this from a lot of teams. It just is what it is, right? You know, even with Finn, like their core, their agentic business had to hit 100 million, right? The overall business was larger. It's the same story. And then all of a sudden it's like, okay, now I can see how I can make this material in my $50 billion business.
Speaker 2It's probably true. It's a shame, but it's probably true.
Speaker 1I don't even think, you know, it is a shame, but the Borg otherwise will just, they can't even assimilate you. You're too small.
Speaker 3Oh, yeah. Yeah. All right, boys, it's time to go make some money back to our day jobs. Oh, that's what I meant. Let's do this.
Speaker 2Let's do that. Okay, Harry, thank you very much.
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