Speaker 1your gross margin problem is my revenue opportunity for my Colossus cluster. Pessimists sound smart, optimists die rich. Only a fool denies that Elon Musk is wildly effective.
Speaker 2I would much rather initially work for Elon than for Zuck. I think it'll be like the scale acquisition. I don't even think this product will exist in five years.
Speaker 1You can't add expenses below the line fast enough to stop yourself making money. The only thing that matters will be the growth rate and the 27 and 28 projected revenue. Someone who was hired with a million dollar package in 23 ended up making 51 million four years later. A billion knowledge workers in the world, absolute bollocks.
Speaker 2- I think we'll give each of our best engineers a hundred thousand dollars of tokens. I had two board meetings in the last week where they finished the roadmap for the year. They're into 2027. If you're not into your 2027 roadmap, deep into it by August of 2026 in the agentic world, your team is not good enough to survive today.
Speaker 3- This is 20 VC with me, Harry Stebbings, and today it's my favorite show of the week. Rory O'Driscoll, Jason Lemkin coming together to discuss the biggest, best news that's happened in the last seven days. This is the only podcast that you need to listen to every week to stay up to date on what matters in tech. 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, AIAs, 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 off your plate, 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. That's base44.com. That's base44.com. While Base44 turns ideas into apps, Plaud 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 Plaud. Plaud 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 brain memory system. And the crazy part is the hardware itself. The Plaud Note Pro is literally as small and thin as a credit card, so it's just always with you when something important comes up. There are already more than two million founders, operators, investors, consultants, and professionals using Plaud to stay organized. So think more clearly and stop losing great ideas and important details. Go to plaud.fm. 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. While Plaud 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, so it understands the nuance and complexity of customer service better than any other agent. That means faster resolutions, more consistent support, and just better experiences for every customer. It's also designed to be fully self-manageable, so you can easily improve and adapt it as your business evolves. No third parties required. Leading companies like Gamma, Asana, DoorDash, and Crypto.com already use and love Finn to deliver better 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/20VC. You have now arrived at your destination. Boys, we are back. We have some mega news this week. SpaceX closes the $60 billion all stock takeover of Cursor. It's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world. And it's the largest company in the world.
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Let's say it's the largest company in the world. And it's the largest company in the world. optimistic take. And that's why, you know, it's the old cliche we talk about, pessimists sound smart, optimists die rich. Jason said it. There was probably some very tough days, but they had the guts to keep moving forward. And because the market's huge and because, frankly, the environment is risk on, they've had an amazing result. Good luck to them. And on the meta thing, it's just a
Speaker 2detail. I guess it's a parallel universe question, but I mean, Zuck would have had to pay 80 billion, 70 billion in like a week. That'd have to be very core because don't forget what happened was Cursor was about to close around 2 billion at 50 billion, right? From Andreessen and friends. And Elon did what you have to do in that situation. What does it take? So he bid 10 billion more, right? You've got a deal at 50. I mean, Zuck did Instagram and WhatsApp like in an hour on the back of a napkin and paid high, right? But I think Elon did even better. What's it going to take? They were already working together with Cursor, right? They're already working together. We're going to do the round at 50. How about 51? No. How about 50, 60? How about 60? Okay. And well, what if we pay you 10 billion if it doesn't happen? Well, okay. I've removed all the objections from the deal and I'll let you run the company the way you want, right? I think it was three points and they shook hands and did the deal. I mean, Zuck can do the same thing. He's done it at least twice, but you got to want it bad to do it, right? At 80 billion. And he would have had to move even faster. I mean, Rory's of course, right. Elon had the ultimate stock and currency to do this deal, right? And the ultimate match. But to do any of these deals, I think you've got to be Elon or Zuck because you've got to just strike this deal in a week at 60 billion. I mean, it's only a handful of people can do this, right? Only a handful.
Speaker 1Agreed. And I was reading, you know, a Smith who's kind of a damn leftist center, but moderate centrist blogger, who's not an Elon fan. Just wrote a great piece about a year ago that says only a fool denies that Elon Musk is wildly effective. You know, regardless of your opinion on the merits of the party, he's one of possibly the most effective person on the planet at getting shit done when it comes to industrialization, physical AI, and AI. And, you know, from a standing start a year ago, he built the cluster, and then he bought the product that's still on top of it. And he took SpaceX from literally a year ago being a really amazing rocket and satellite connectivity story to being, as the rest of one says, at least in terms of the quote, future prospects, 80, 90% an AI story. I mean, you saw his tweet, you mentioned it a year ago. You know, I've underestimated it. I have some version of underestimated AI time to go. He went from a standing start to owning more compute than pretty much anyone else and owning the most important product to fill that compute in less than a year, just over a year. That's just wildly effective management. It's a world class in getting
Speaker 2shit done. The other small factor, just thinking about it, we can move on, but imagine you are Michael Accursor, right? And things are going pretty well. You've got a term sheet from you're what, 24? You're a paper deca billionaire and then video and thrive on to put in money at 50, right? You're not that cash motivated. You could take out a billion, right? Or 500 million, right? Things are going okay. These are very rare deals, but even though working with Elon in a year might turn out to be terrible, I would much rather initially work for Elon than for Zuck. Personally, I would do it. Like I would be like, Elon is the guy I want. If I had to work for someone to be Elon, I mean, he is better than me. This guy is fucking rockets, electric. He does everything. And Zuck's firing everybody and going crazy because he doesn't have an LLM. Not that he isn't one of the greatest entrepreneurs, but I wouldn't want to work for Zuck, but I would want to work for Elon. And that actually matters. It may be a mistake in M&A as a target, as a CEO, because when we've been founders on the other side, we've made mistakes here, right? I tell founders to ignore it. Ignore the brand. Ignore what you think the job is today because you have no idea in 24 months what the hell you're going to be doing. But it is incredibly emotionally important to founders to land in something they want to land in. And I would not want to land at Meta today. If I was Alex at scale and I got 24 billion and I had a tough business, maybe. But this one, man, I'll take Elon over that one.
Speaker 3Do you think Amazon or Meta go, eh, we'll take Cognition instead? Is there a knock-on effect for the second player in market, which I think arguably now would be Cognition?
Speaker 1I think it's interesting you cite those two. There's actually a quality of absolute imperative to do something. You know, who has to? And I think SpaceX had to because they had all this compute and it looked like they had to fill it. Now, subsequently, they've also been able to rent that compute to Antropica and Google. I don't think it's nearly as existential for different reasons to the two you named, and I'll name one for whom it is. I don't think it's nearly as existential for different reasons to the two you named, and I'll name one for whom it is. I don't think it's nearly as existential for different reasons to the two you named, and I'll name one for whom it is. For Amazon, you know, they're in the AWS business. They got lots of contracts with Antropica. They basically have the compute for Cloud Code. So they're basically getting the inference side revenue for that. They don't own the model, but it's important but not imperative. They've never done a $60 billion deal. Data's starting now. Meta, that to me is more a, again, unlikely, and the reason they didn't do it earlier is their core business is an ads business. It's freaking amazing. This is literally, I have a wonderful ads business that kicks off north of $100 billion. I've chosen to do this new AI thing. We can pretend it's strategic, but it's really, I just freaking really interested in it. I don't know if you have to do another $60 billion deal on top of that one, so not as imperative. I think just to put it out there, I'm going to name the one. The company for whom this market matters is Microsoft, because remember, he's now long since gone and owns a basketball team, but Steve Barmer would jump around the stage sweating, screaming, it's developers, developers, developers. The fact that they've lost that connection with developers that they've been using for a long time, and the fact that Microsoft is now a trailing edge product, is to me, over the medium term, pretty significant loss. I mean, operationally, the numbers are fine. It's a well-run company, but if you wanted to name people who should want to own a leading state of the art coding product in this brave new world, clearly the number one person is Microsoft. Now, the antitrust issues would be a longer discussion, but I don't think, in other words, I don't think owning the developer is existential for AWS. I definitely don't think it's existential for Meta.
Speaker 3Is there a fantastic tweet that said Satya should buy it, and then make Scott the CEO of Microsoft? I thought that would be a rather ridiculous thing to replace himself, but I actually thought Scott would be a rather brilliant CEO of Microsoft.
Speaker 2My experience with big company M&A is that the idea that, Harry, what did you say that someone else feels like, you feel like they've got to, other folks have to jump in to respond to Cursor than everyone else? My experience is that doesn't happen. It doesn't actually get everyone else to say, "Hey, I've got to go buy Cognition." My experience is that usually the other thing happens. I wanted to buy Cursor, I lost Cursor, or I didn't even know I lost Cursor because Elon swooped in. Now it pushes it up my existing priority list. That's how number two and number three get bought, not because there's a panic for land grab, but because I didn't get what I wanted. That's when you got to be really thoughtful as number two, because that's when you get bought as number two and number three, when just number one just gets taken off the table. It's not so much a land rush. A lot of times acquirers are like, "I thought I had more time." Maybe Satya's like, "I thought I had more time with Cursor." Andreessen said, "I knew at $100 billion next year I wanted to wait and see, and they thought I had more time, and they didn't, so then they go buy number two." A couple of times I've said on the other side, "I don't know that it creates such a strategic arm race that everyone just gets picked off instantly."
Speaker 3That might be a VC partial myth. There's another mega acquisition that happened this week. It's not quite the $10 billion that was reported, but OpenRooter, $7 billion acquisition by the Irish Policen brothers. I mean, what an incredible journey. Alex Atala, CEO who I just had on the show, he founded OpenSea before. It's obviously the leading LLM rooting company. It raised a series B. It was at $1.3 billion valuation just four months ago, so it's 5x that, or capital G. It's a 12x for Menlo and Andreessen. How do we think about this? It's widely reported, now it's confirmed.
Speaker 1You can see intuitively how Stripe get there from here, right? When you look at their existing business, they get paid a small percentage of the money flow to manage complexities in collecting cash via cards, and also by ACH now. Here, they're going to get a small amount of the money flow to manage the complexities of picking models and running as an enterprise, using a single API to run tens and maybe hundreds of different models. I can see at the conceptual level, it totally makes sense. A lot of the lift recently has come from, even on their payments business, has come from just their customer base being so AI forward that every time you spend money, it would open to AI or Anthropic. On a credit card, they get some of that money. I can totally see how they get there. Again, it's some version of the same thing as the cursor comment. You can do the old intellectual, "Oh, what are the barriers to entry for this business? Oh, over the medium term, there'll be lots of people." There's a ton of weenie router companies out there, and everyone's building one. It turns out, in an early land grab, when people are moving-- remember, the metamarket here is growing 10x year on year, if you take Anthropic's growth rate as the big picture comment here, right? If you move early and you build a useful part of the infrastructure, you will probably find an acquisition at a price that doesn't make any sense on a DCF to you basis, but makes huge sense to the acquirer. Because just like Elon will turn cursor into money cash flow far quicker than cursor could have turned cursor into cash flow, I'm willing to bet Stripe will turn open router into money probably quicker than open router could do on a standalone basis. This is what happens in a crazy market is that if things slow down, a lot of these, the acquirer would run the buy versus sell and say, "There's no hurry. We've got five years." When things are moving as fast as they are now, you're going to see, in my view, until such time as you see the correction and the acquirer currency diminishes, you're going to see a whole bunch of people like Anthropic say, "Screw it. I want to be in world models. I'm just going to buy the card. I don't have time. Screw it. I want to be in Stripe. I'm huge in payments. I want to be in the AI influence flow. Quickest thing I can do is spend $7 billion, some of it stock, get these guys, and be rolling in a week." This is what you see. You saw it early in on that stage. You saw it back in times even before that, that would make you cry, Harry, if I even mentioned it. When things are moving really quickly in a build out, you just see these kind of amazing acquisitions where the value to the acquirer dictates a very healthy price. And it's one of the reasons why venture works. You go right out there on the risk continuum. But if you time it right, you know, you can get these kind of returns. And, you know, well done, A16, well done, Menlo, well done, CapitalG.
Speaker 2It's a reminder, you know, how weird revenue is in M&A. Because if you're bought by PE, top and bottom line are incredibly important, down to the significant digit, down to cell G38, OK? If Workday goes private, exactly what its DCF will look like in 2032 is so important. The weirdest thing about M&A with big companies is revenue is so important to argue over multiples and the price. Like, it's so important to price, but it's irrelevant because it's all about what Stripe can make out of OpenRouter. It's such a weird thing that your revenue going into big M&A actually doesn't matter at all, even though it's probably the biggest input to price. But then it's like Stripe. What's OpenRouter? Doing $70 million, $80 million today? Stripe does not care for that money. And so you often see acquirers will abandon even the existing revenue, right, to do the revenue. It's just, it's such a weird paradigm. Two things. Rory's right. Stripe actually appears to be very good at acquisitions. It's how it accelerated into crypto and otherwise. They're good at it. The flip side, you could say, is maybe they should be better at building these themselves, right? That's the grouchy version. Why didn't you build it? But if you're good at M&A, and this is 5% of your market cap plus cash, and you want it tomorrow. Well, it makes sense. If you're good, you have to be good at M&A though. And then you do it. The counterpoint is, I love OpenRouter. I talked about it on the show like six months ago. I'm a customer. I'm a user. It's brilliant. It was one of these pieces of software like 11 labs, which is just instantly easier to deploy. It's just elegant. It was just a beautiful piece of software, but it's pretty niche. In what sense, Jason?
Speaker 1Just a genuine curiosity.
Speaker 2So OpenRouter, as I understand it, and I think it's right, is really strong in sort of developer type tools where you want a simple way to pick a model. Okay. Okay. You don't need to pick any model. You don't need to get on fireworks. You don't need to set up anything. And it's really, really, really strong with chatbots where they don't have to be perfect. When you're talking with my digital Harry or digital Rory, you don't need perfect outputs, right? You can route between models based on availability. And those are their two niches. Now, let's talk about workflows with a lot of reasoning for B&B when it has to be accurate. You're going to down spec to one or two models because you can't have model drift. You can't be routing from Kimmy to Quinn to... Number six to Fable. And all of a sudden, you're like B2B workflow that has to be perfect drifts from all of them. It drifts even just going from like one Opus model to another. You see drift. You have to QA it, requalify it, fix it, test it. So for high reasoning models, people do frontier-esque outputs, right? People don't rotate through 11 models. And I don't think OpenRouter is the right product for that. And that's fine. They get that too. But I think Stripe is, hey, listen, any transaction on planet Earth, we can take two point something percent of. Right? But it's not going to be true for OpenRouter. It's a niche. It's a wonderful niche product. But in the world of routing, which everybody does, Databricks does, Replit does it, Lovable does it, Vercel does it. It's a niche product with two really good niches. But this is the risk to Stripe is that they end up owning a niche, a successful niche product. And that's not their... Their DNA is not niche. It's just not their...
Speaker 1First of all, I do think that's fair because we internally agonize about this space. And that was exactly what we're angsty about. And your framing is exactly correct. Like the positive... Let's spell it out. The positive trend is as long as you have the frontier models trying to extract 100 billion in revenue from you this year, and you're an enterprise, you're going to want a plan B, right? At least to keep the thing honest. So you are going to want some kind of routing. But it's what you said that resonated with me, Jason, a little bit, which is remember when cloud was starting, people were like, oh, I want to be multi-cloud. It's really hard to be multi-cloud. Here, maybe I want to be multi-model, but maybe I only want two or three models. And therefore, I don't need this kind of routing functionality. That is the risk. If your enterprise customer decides, I need to... Flit between three models, but not 10, then you're right. Your value here goes down. I would imagine the positive spin is your value here goes up to the enterprise if you can build on top of just picking a whole bunch of normalization of all those options and try and commodify the model. So that's the kind of tension point. The more you can do that, and the more you can service the people who don't care all that much, the better your business. But you're right. If JP Morgan says, I want more than just Entropic, but I'm not going to... Qualify 10 models. I'm just going to work with Poolside as my plan B, and then offload the rest to something else, then you're right. Then you have niche, then you don't get that revenue.
Speaker 2For example, this week, Rippling posted their view as a B2B player of what models they use. And they had it all. And they said, in the world world across Rippling, we looked at two things that were best for us. Opus 4.8. It's an N-1 model, but it's well-trained with their harness. And then there's price, performance, and speed. And then I think they picked whatever, GPT 5.5 medium or something. And they said... Okay. The rest isn't worth it for Rippling today. Now, that could change in 60, 90 days. So they downspec to two at a time. And then they have to manage the outputs from these. And you may tune one set of workflows here that are long reason and another. And even if you're Rippling scale, managing 12 models is too much. If you're a dev tool and let people pick, so be it. That's great for OpenRouter. Or if you want to build into your own product a fallback, OpenRouter is a 10 out of 10 for this. Let's say something's down. OpenRouter automatically falls back. But I think it's a niche product. But it could be a... It's a massive niche, you know?
Speaker 1Yeah. I'm remembering the conversations now. Because you are right. The great thing about the CoreStripe product is all payments are equal. And Visa is the rails for everything. That might be the case. I'm going to check out that post. Because, I mean, one of the big questions will be how much pricing pressure enterprises can put on the closed foundation model companies. And how do they put that pressure on? Because I think it impacts a lot. Sorry, Harry. Go on.
Speaker 3In five years' time, will this be considered a successful acquisition or not? That's on prediction.
Speaker 2I think it'll be. Like the scale acquisition, it will be the start of something that gets bigger. Whether this brand exists or whether even this product exists, five years, I don't even think this product will exist in five years. But I think there's a high chance, more than 51% chance, it builds into a 20% or 30% revenue stream for Stripe. And that's enough. But does OpenRouter, as part of Stripe, exist in five years? I'll bet you dollars to donuts. Five years is so much time. And it's such a niche product. This product itself, if it does exist, it'll be deep in a drop-down menu on the top of Stripe, like 11 layers down. Because it'll be subsumed into... The whole sort of token management platform, right? They're TMP.
Speaker 1I don't know. I think Jason's answer resonates with me. If it works, it'll be seen as a TAM expansion play. What's fun about Stripe right now is they're doing that acquisition, which is very much a, hey, we don't play in this space. Let's put a stake in the new ground. And at the same time, they're talking about a PayPal acquisition, which is very much, we own this space already. Let's buy these guys, fold them into what we already have, and just make a shit ton of money consolidating, right? And actually, I think that's a good point. It's a clever strategy. I mean, I think they're actually playing a very clever hand. There's probably a one in three chance that they have a massive AI routing business in five years. But if they do, that's a big second leg. Well, at the same time, if they get the PayPal deal done, that's the kind of deal you have a high, to Jason's point, if you're good at M&A and good at consolidation, you probably have a high degree of visibility that you keep those revenues, that you remove the entire G&A, you get more of a two-sided network because you have consumer wallets, which Stripe doesn't have. And you've done core consolidation acquisitions. Doing them both together, provided you can pull them off, is super interesting in terms of building enterprise value. And they're doing it all private. Again, back to the comment, doing what looked like public company size M&A and pulling it off while private. I know they got the investors to take Stripe stock in the open router deal. I think some portion of it was stock. And the PayPal deal is more complex and probably requires more thought. But again, being able to do what is, I think, a $40, $50 billion? deal and a $7 billion deal, issuing paper while private is pretty impressive.
Speaker 3Stripe's corp dev team need a bonus at Christmas time. They are busy this year.
Speaker 1They are busy this year, but isn't everybody.
Speaker 3We mentioned margin pressure on foundation models. Anthropic turns its first profit on $11.5 billion of Q2 revenue. The business is getting better for Dario. This is also in a week where Gavin Baker said about Dario saying he believes that they will be the final private company. Did you see this?
Speaker 1We did. And let's separate the hyperbole and the future from the facts and the present. It's not surprising they're making money. If you just go back to last year, they did $4.5 billion last year. And I think their gross margins went from negative the year before to like positive 30 or something like that. On track, I think end of the year, roughly 40. When you have decent operating margins, like 40%, and you go from $4.5 billion in a year to $10 billion in a quarter. That means you have $4 billion of gross margin, right? And that's literally in two quarters. You can't add expenses below the line fast enough to stop yourself making money. So it's inevitable. I mean, yeah, they 12x'ed growth, which means they probably 14x'ed gross margin if it continued to increase even slightly, and the trajectory has been increasing. You're not going to 14x headcount or below the line training costs in six months. So yes, I'm totally not surprised they are operating income positive. We had run numbers at the start of the year. And it kind of came to that conclusion. I mean, the interesting thing will be, as they continue to grow, as they buy that expensive compute from Elon, if you remember, that has a big price increase two months in, I doubt they will forecast for their IPO a base case of continuing profitability. I could be wrong. But this profit didn't surprise me. I mean, it's amazing performance. It's amazing revenue. I mean, revenue with any kind of decent gross margin cures almost all ills.
Speaker 2I think the other question is, as we gear up for an IPO, which could be very imminent, right? numbers does Anthropa get away with, right? You've got off-balance sheet liabilities, right? You've got massive commits you've got probably stock-based compensation like we've never seen in the history of mankind so if you get asterisks and daggers on your numbers they will be jaw-dropping right if they have to if they have to fully account for that and some of that's non-gap these off-balance if they're going to be hammered like uh like a poor wix or someone for sbc or and everyone's going to write up the horrific downside right but i i think everyone's going to look through all the nerdy negative things you could see in the numbers they're just going to ignore it right but i do think it's important that it get ignored i think it's important for anthropic it get ignored and i
Speaker 1think none of that shit will matter to use a technical term the only thing that matters will be the growth rate and the 27 and 28 projected revenue provided the revenue comes everything else will be fine if the revenue comes then you'll need the off-balance sheet stuff and you'll have the revenue to buy it in other words all these off-balance sheet stuff are basically i promise to buy a whole load of compute from you in two years time because if my revenue grows 10x for two more years i'm going to need all that compute well if the revenue grows you need the compute you're happy to have it in fact you're insisting you get it if the revenue slows down then you don't need to compute it all gets hard so almost everything is going to boil down to what number do you want to write for the next two or three years and then as you say the stock-based comp no one's going to care because the reason you worry about stock-based comp is because in a steady state like workday we can talk about that in a second if you're giving someone 500 grand every year to show up and be a middle manager they're probably mentally putting those rsus into their comp and they think to themselves i paid 400 in cash and 500 in rsus and if you stop giving them the rsus they're going to want cash so it really is a cash number so in a mature business it's totally correct to worry about sbc but the sbc numbers are here are going to be huge because all these people got grants and then it turned out to be worth way more than they ever thought and yeah the classic example someone who was hired with a million dollar package in 23 ended up making 51 million four years later that doesn't mean you'd have to pay the next guy 51 million if that person had gotten the million they signed up for that's all the real economic stock-based comp it take the other 50 million is just dumb luck you got lucky it's not a run rate i actually think it is okay in a hyper growth company to look back past a good slug of the sbc and normalize it out and conversely it's not okay in a mature company that sbc stock-based comp in workday or salesforce that's real money that people are spending and it's a little bit unfair because you're kind of giving the hyper growth company free pass but they get a free pass you get a free pass and it's like it's the same thing we said in margin you get a free pass on off balance sheet you get a free pass on sbc provided revenue go up
Speaker 3once revenue stop go up all bets off once revenue goes up all bets are off what would it take in usage for anthropic to hit the 200 billion dollar in arl plan for 2028 and then 600 billion in the
Speaker 2next year the simple version is how many knowledge workers are in the world all right how many folks can take a subscription being generous is it a billion human beings right you know if anthrax has a hundred percent market share at 200 bucks that's 200 billion if anthropic has 300 percent market share that's 600 billion i don't know rory's thought more the 600 billion seems complicated but you know our demand for in our for ai is only just begun you can see 200 billion
Speaker 1which is the number right once you start getting just the 600 billion number gets really hard because no one ever looks at the big number and i've just been doing some work on this right no one ever steps back and looks at the big numbers i mean you said a billion knowledge workers in the world absolute bollocks hard-nosed comment here u.s is typically 50 of the world's software budget because we're 50 of the world's high-end knowledge workers you know we're 25 of the world's gdp so at a minimum if spend tracks gdp it's only 4x the u.s but every software company is typically 2x u.s why because the rest of the world can't afford the same software we do because they're poorer and they have more people at lower wages and less software that's why we have crappy internet when we go to europe so the truth is the hard-nosed comment is this you put a billion dollars in your pocket you probably take the u.s knowledge workers spend and double it there are 83 million knowledge workers in the u.s and then roughly 86 physical labor workers so that's what you start with and you start cutting it down and i literally was doing the math this weekend thinking about it you start cutting it down real quickly the truth is you know knowledge workers includes everyone in healthcare i don't think we're not you know we're not going to replace the nurses it includes the teachers right the sweet spot the sweet spot of the whole damn thing is there are about 1.8 million people doing coding in the u.s and then including then qa and all the other there's around 5 million people that do software related shit systems admin stuff all the rest of that and they get paid in total grossing up about 600 billion a year 200 billion means you're replacing a third of them that's a lot and remember we said this before the single most important ratio and i asked you about what you thought it was jason is in a steady state what's the ratio of salary dollars to ai dollars because if it's 50 percent of salary dollars you can easily get to 200 billion dollars and if it's 600 billion 600 billion is hard encoding well you can't get there if it's 10 percent then it's hard to get 200 billion across the whole thing so it really boils down to in the steady state how much software because if software is the tip of the spear in terms of max adoption what do you think for every hundred thousand dollars you spend on an engineer two hundred thousand dollars you spend on an engineer are you going to be spending 100k on ai 50k on ai or 200k on ai that's the number
Speaker 2yeah we're testing it the last 60 days are every single scale up is capping the their ai budget for real it's not just ubers of the world everyone's capping it because it's it's grown truly exponentially right everyone's capping it it's six million a year eight million a year right i think it'll land at a hundred grand per engineer equivalent i think that's what we'll i think we'll give each of our best engineers a hundred thousand dollars of tokens and in return we'll cut the size of our dev teams 30 40 percent effectively it won't exactly work out that way but close enough is how it's going to work out so there's a hundred grand here for running inference
Speaker 1seven with ten agents in parallel for what it's worth i actually agree with that's that's what was my mental model too and that points to a total and let's assume it's not just dev engine let's give the sys admins the qa guys let's do the same thing for everybody same thing for everybody you are you get 200 grand of wages fully loaded including all the benefits and a hundred grand what ai but we cut 30 percent of you that turns out to be terrifyingly about a 200 billion plus or minus market in the u.s next year no ever well yeah i mean that's anthro sorry that's anthropic estimate for next year my point is this if you count all the heads and apply the jason matt you get 200 billion in the u.s which probably means you struggle to get 350 billion worldwide that's the time and then you've got to go beyond software and there is obviously revenue beyond software but it's nowhere near as fertile and the percentage isn't going to be anywhere near as high yeah but it's funny that's exactly the number i come out because you see the ramp data that says you know the top one percent of their sample which in turn obviously is a biased sample of tech forward spending 7k and then the median is spending like 100 it's amazing the dispersion and 7k times 12 is only 84k so the top one percent of the most curated group you can imagine in terms of tech spend is spending and that's one percent for all employees so you you i did that that's the pointy edge of the most optimistic spend is 50 cents of salary dollar i think we're going to get to 100 000 in
Speaker 2the investments i've made that are the best ones the ones growing faster especially ones that are 2 23 so they have a frame of reference they literally are shipping two to three times faster only recently only recently that was kind of bullshit last year right people would say that but it was all performative like token maxing i had two board meetings in the last week where they finished the roadmap for the year they're into 2027 these are my fastest growing two fastest growing but not brand new companies they finished the roadmap they're well into the 2027 roadmap so you're gonna spend 100 grand on your team to do that but it's adding up to so many millions it's overwhelming so i do really think there's some this hundred thousand makes a lot of sense you could justify more or less people will ratchet it but i think it'll be it'll be the new normal and you'll cap your team and it'll all be that's just what the cfos will do 100 grand of inference and you get to hire this many engineers but the idea that they're pulling their 2027 roadmaps in it's not just performative it's not just prs you want to invest in that up until the maximum where it works right but the absolute numbers are just getting really big yes i gotta say man if you're not that way you're losing you're going to lose a lot of money if you're not that way you're losing today if no if you're not into your 2027 roadmap deep into it by august of 2026 in the agentic world your team is not good enough to survive today this is your last chance to make changes listen if you're if you're open router you didn't even have a 27 roadmap it didn't even mean it because you're just remaking it day by day but if you're running the classic playbooks of these i can get this much done each quarter this much done each month and you're not into 2027 you're going to lose to the competition you got to be honest how deep into 27 are you not deep enough yeah
Speaker 1jason always gives me these terrifying sound bites that i go back and think about because you know we did this survey you know we tend to be fact-based people we did the survey of all our companies and we saw similar to the ramp dispersion which is some companies all in some companies adopting but still you know dramatically less spend per head i can't i can't remember the average but it was dramatically less and you know what i didn't do and actually now that i think about it i should do and i will do is go back and see you know if you can touch a strong correlation which you believe you should be able to between output and spend you know can you justify the spend then you should be saying to the laggards you're just going to fall
Speaker 3behind if it goes out at two to two and a half trillion would you be a buyer first of all i want
Speaker 1to be clear i don't think the software market is definitionally the end of the time i think the average knowledge worker won't have 50 of salary and think but they'll have a meaningful percentage so the time is you know significantly bigger than just developers because you have lawyers but i think lawyers won't look the kne guy who's pulling 2 million a year as a partner isn't going to be tokens. He's definitely not going to be doing a million dollars worth of tokens. A lawyer would die before they gave a million dollars of tokens instead of a million dollars of take-home pay. So the market is bigger than software, but there's nowhere else that's such a sweet spot as software. So I don't want to be limited to 200. But I think the really challenging thing, I definitely want to be first out rather than second out in terms of going public, especially if you have some kind of near profitability story or bouncing around profitability. I think it's a far more attractive strategic position to be going out as entropic in the fall with a, we've been profitable, okay, we're unprofitable again, but we're the winner in the enterprise, than going out next year where maybe the growth rates have started to slow both for entropic and the public markets. And if you're OpenAI trying to access the markets, then I definitely think they're in a strategically more challenging situation.
Speaker 2I think they've just capitulated to it. Of course, you want to be first to your point, right? I think OpenAI has had to get their house together, more executive turmoil. So apparently a great last 30 days, right? But first half of the year, slower than its previously junior competitor, right? And they've had to do so much to say, listen, we're going to go public second, and then we're going to have a comp out there. And the comp is what it is. And we may not trade with the hype that SpaceX and Anthropic did, and the world will not end. Like we will trade at a very precise number. We will know what we're going to go out at. And the world will not end if we trade at 1.3 trillion. I just think that they've given up on worrying about that because ultimately Rory's right. It's much better to be first. But in the long run. But it doesn't matter, right? You're just, if you don't need the capital, it just is what it is. It is what it is.
Speaker 1But Jason, that's the sentence. This is my point. I'm going to push a little. That is the sentence. There are no two companies on the planet that need more capital than these guys. In a world where you do need the capital being second sucks. Because I agree in general, you are correct. It doesn't matter, you know, if two companies go public plus or minus a year and a decade later, no one cares, right? We've definitely seen that over the years. The thing that's challenging in this particular case is both companies still have, you know, enormous, many hundred million, billion dollar capital. In that situation, I would much prefer to be, I do, I'm putting an aspect around fear there.
Speaker 2I think you're right. But the thing is, let's say, and pick your number. Let's say Anthropica is public at 2 trillion. It really doesn't matter, right? OpenAI is going to be able to sell stock at a discount to its implicit valuation before it goes public. There's, there's some, there's still enough capital. Let's say they're both worth 2 trillion, right? Implicitly. OpenAI is going to be able to sell stock next year at 1.8. People will do it. And especially if you have no stock as CEO in your own company, it's okay to sell at a small discount.
Speaker 1Yes, agreed. Look, I'm not. I'm not catastrophizing here. But I think the interesting thing is, if you're the smaller market cap company, and you have the bigger capital need, which right now OpenAI does, because they have a more ambitious capital need target. Now, would you prefer to be the guy trading at 1.5 trillion who only needs to raise 100 billion or the guy trading at a trillion who needs to raise 300 trillion? At some point, these things become troubling. And yeah, price clears all markets. This is the best new technology market we've seen in ever, perhaps. And if you are the founder in that market, and even now the number two, you're going to be a track capital, but you just don't know the terms on which it happens. And going back to my comment, I think you will regret not being able to access the capital markets this year.
Speaker 2No, no, of course, I agree. And I don't want to spend too much. My only point is the media and social media will make a big deal out of this, right? Who goes public first and who does better? I just think Sam and the OpenAI team have said this is our fate. They could go public tomorrow, right? There is enough people to buy these shares to go public. They've decided that while this isn't perfect, right? This is the best on the board. And we're going to live with the doubt like it's not the end of the world. Like you can't solve every problem tonight. They got to solve bigger problems, right? The cards are the way they are, right?
Speaker 3Jason, you said about management team churn, that the churn for those that don't know most recently was Denise Dresser, who was the CRO who left and Dali Rajic has replaced her. For those that don't know Dali, he's one of the most respected CROs. He was a fricking master at whiz. And I think the best CRO or sales leader in the business is Chad Peets, says he's the best of the best. So I'm feeling. A little bit more confident for their Kodak's and enterprise division today.
Speaker 2Yeah. It's just a lot of change. I don't know anything inside. I just think Greg Brockman took over, right. And brought in the whiz guy, just had enough of this Salesforce crap, right. Or wrong. Actually, if you look across all of AI, a ton of Salesforce executives have been recruited, right. To come in and help. And you can make fun of it. Like I used to make fun of how back in the day Salesforce hired Oracle executives because they took shots at Oracle, but you need folks to know what a scale, what is Salesforce at 45 billion run, right? 50 billion run, right. I mean, Anthropix past that now, right. Open AI. I was past that. So you don't want to hire kids. You want to hire someone that has some idea how to play. So Salesforce is about it. Right. But if you step back from it, I'd rather have someone from whiz that is close to technology that is in a hyper-competitive space, rather than asking how many seats of slack you want. It's just a very different go to market motion, right? It's very different.
Speaker 3Jason, you said if you have not already hit your end of the year goal in terms of product, and you're not well into 2027, you're behind I'm making assumptions. I don't imagine. Workday is quite at the cutting edge. Like two of your companies at 2027 already hitting those goals and Silverlake circles a $43 billion take private bid for Workday. One of the biggest SAS buyouts ever. We've got two of the best SAS minds in the business here. Guys, what should we take from this? SAS isn't dead. One of the biggest firms, one of the biggest buyouts, the stock popped 18% afterwards. Wow.
Speaker 1I think what you can take from this. The SAS isn't dead thing is just too simplistic. I think what you can take is a very financially oriented, wildly savvy buyer is willing to bet money that they can buy this at a constrained price, lever it, and generate a return because the revenues are sticky enough to allow them to pay down the debt over five years. And with reasonable multiple stability, sell it on and make a 20% IRR plus or minus. I mean, I ran the numbers. That's the bet. So it's not quote dead, but what it is not is wildly exciting. When it says it. This is the mature phase of an industry when it's not about wild growth. It's not even about untempered growth. It's literally about someone saying this thing is growing at 13% year on year. We can buy this thing for roughly five times revenues, 16 times trailing EBITDA. We'll probably leverage it two or three times and four times EBITDA, but it's going to be a big equity check. And then you run the LBO model and you say, you keep at a 35% operating margins for five years. You use all that cash. You get $10 billion a year in revenue. So it's like $3 billion a year of cash. You pay down the debt and the interest. And provided you buy right, you can make 20% and almost a 2x over four or five years. I look at that deal and I go, I'm torn because first of all, I think Silverlake are wildly smart. It's very interesting when you run the sensitivities. If you pay like 20% too much, it dips down into the mid-teens. It's almost the exact opposite of venture. In venture deals, if you're in the right thing, it almost doesn't matter what you paid. You see cursor for details, see open router for details, right? This is the exact opposite. This is fine, precise financial engineering. If you're wrong by 20%, 30% on price, you know, your IRR dips from 20, which is totally acceptable at scale, to low teens, in which case you wish you hadn't done the deal.
Speaker 3Can I ask you a question? Precise financial engineering for a four to six year hold period. Six years ago, Chachi BT didn't exist. Are you able to manage it? Yeah. Are you able to do fine, precise financial engineering in a world where we move so fast?
Speaker 2I don't think system of record is, I think it's a moat, but I don't think it's a ticket to growth. This is, I think, super important and it's something that everyone on X gets wrong. It's great to have a system of record, which Workday has, even with AI and LLM's help, it's very hard to churn or you just don't want to churn, but it sure as hell doesn't mean I want to spend more money with that vendor. That's their challenge, but it sure as hell means the five years are far more predictable than 95% than poor Monday, which we love, or others. We have no idea where Monday or even HubSpot will be in five years at the SMB level. We know pretty much where Workday is going to be 10 years. Right? And so I think this growth versus retention is misunderstood. There is a little bit of upside in this deal, which may, I don't know if it's part of Silverlake's calculation. The CEO came back. One of the co-founders came back and Neil came back. He came back. He hired his successor when times were easy, just before AI. He brought in a great knobs and dials co-CEO. Yeah. You know, like our friends at Daniel at UiPath and others and realized if I go to work today, came back. So I don't think Silverlake is planning on, on a Neil, like radically changing it. But I think if he does, there's real upside to that. Maybe instead of their 20% IRR, it could be a game changer. If he creates the agentic version of Workday, they at least have the founder back in the saddle doing it. And that would make me feel a lot better if I were Silverlake that I have upside.
Speaker 1But it wouldn't be in the damn base case. Jason, you framed the base case exactly correctly. It's 5.3 times 20. In other words, what this says is financial minds will pay five times revenues for system of record, growing at 13%. Anything that's not a system of record, anything that's not growing as fast, price accordingly. Because you're right. There's no way you'd apply the same kind of leverage to, for example, a to-do or a task management or project management software, or a website building software. What this gives you is a sense of what the baseline is for best in class LBO takeouts. If the Airtable bending spoon. Bending spoons give you an idea of what it is if you just-- if you don't have that kind of system of record, you get 2.7. If you're vaguely profitable and in a space where, as Jason says, you can predict five years, you get 2.7. And what Workday says is if you've got 30% operating margins, modest growth, but you're a system of record where you really can believe in the next five years, then if you're lucky, you get 5.3 times revenues. That's the bid-ask spread right now. Contrast that with the game for OpenRouter, where they're going to get-- let me see. I think a trailing revenue of plus or minus 100, you're going to get 70 times trailing revenues. Which game would you prefer to play?
Speaker 2Workday has something that makes it a better game. deal for P that I think than anybody else on the target list, which is that it is a somewhat closed system of record. Now, Salesforce is out there working their frigging tails off because they are a muchly open platform. You can build your own agents on top of Salesforce tomorrow. And a lot of the hot GTM startups are built on top of Salesforce. They're not necessarily only on Salesforce, but it's open. Try building on Workday. It ain't so easy, right? It is like LinkedIn, right? It is intentionally barely open. So there are negatives to that, right? But it also means you're going to capture more budget overall in your ecosystem than you would for others. So it has more of a buffer against agentic damage to your growth than an open ecosystem has, right? Open has negatives today. And so I would want system of record, churn impossible, closed AF. I want the most closed system that can't churn because the reason system of records aren't that great is because you need your system record. But if you're remotely open and you can produce a better agent yourself or a third party, the value will extract to the agent even if the system of record is retained. But Workday is so closed, they've got a leg up, right?
Speaker 3Jason, how open is Salesforce?
Speaker 2They are a toll keeper like a Shopify, but they're pretty open. Shopify and Salesforce are pretty open. The three of us, we can use OAuth to ship a Salesforce app tomorrow.
Speaker 1Just to prove that, Harry, really quickly is that, look, there's a bunch of companies even in pre-LLM world like Gong, Outreach, Sales Loft. They're all effectively built on top of the Salesforce platform. You can't name the equivalent with any ease in Workday. There's a few, but it's much harder. Some of the planning tools, but pretty much most. And it makes sense. Within the financial accounting system, everything gets sucked into the gravitational pull that is the GL and the accounting system, right? So I agree. That's a good point, Jason. Whatever dollars are in that ecosystem, if they're careful and shrewd, Workday will get most of them. And on the other hand, if they get too greedy and they don't invest enough, then the customers start thinking, oh, my God. This is just not advancing. Over five years, maybe I do need more of this agentic workflow on top. Maybe the smaller customers start evaluating that. So we've started evaluating the next generation. Even at the very small end, you've got the realists. You've got the campfires. You've got the people like that. You can't be such a greedy bastard in your ecosystem that you incent people to start trying to move out, right? But Silverlake are smart. O'Neill's smart. You could have this be a profitable, self-contained universe. But remember, the most exciting version of that is... You pay down all the debt in five years, and you double your money for a 25%. That's as good as it gets now. It's on a lot of money. You're probably putting in plus or minus a $20 billion to $30 billion equity check, because you're not going to get infinite debt. You may be $20 billion. You might get $18 billion, $15 billion of debt, which means you need a $25 billion to $30 billion equity check. So you're going to turn $30 billion into $60 billion, which on a multiple basis is not amazing, but it means you've generated $30 billion in gains and 20% of that in carry. So someone's about to make $6 billion. If they can pay down this debt and just knuckle down for the next six years. Go team.
Speaker 2Yeah. And O'Neill gets to rebuild his company outside of the public company eye, which is slightly overrated because he has to hit the underlying numbers, but it's much better.
Speaker 1Instead of large numbers of stupid comments, he will get one very focused comment from one of the world's smartest investors. It's probably a trade-off.
Speaker 2Just one last thing on this versus Salesforce. It's just interesting. So we run Salesforce entirely headless. So we have our own agent, 10K. I VP of revenue. It runs Salesforce under the hood. Pro is it makes Salesforce much more powerful than it ever was. Like I didn't log into Salesforce for seven years. Now I log in every day because I have an agent con. It can connect anything. The agent, it literally can connect to any other agent, including competitors, including other data sources, data lakes, data, everything. The agent doesn't care. It's really a weird world as a system of record or a core system. Do you want to be extensible and open, right? Salesforce has said you can be headless risks and opportunities. Because you make it much easier to abstract you a way or to compete with you. Even while you may retain a few seats, right? The logo retention may be high, but, but it makes you have to run faster. Workday doesn't have to run that fast. Everyone can't run it headless and integrate any single thing or pull out all your employee data and push it into my own ATS or my own system or own financials. It's a shrewd deal because it's the best. It's the best mode out there with the system of record. And I go back to my comment.
Speaker 1If it is a shrewd deal, it also by definition means it's the high watermark of what deals are going to look like. Plan accordingly, people, you get 2.7 from the Ben Spoon and you get 5.7 from the Silverlake guys and you pays your money. It takes your choice.
Speaker 3Lemkin, you have a buyout fund, which other asset would you buy next?
Speaker 1I'd want to know who gave Jason money for buyout. I would give Jason money for venture, but I don't see him as the spreadsheet guy.
Speaker 2I don't, I, Harry, I just think more and more about the fact that systems of record are going to retain their customers. But I think we, we just underestimate that that's just not enough to grow. It's grow or die today, right? It's grow or die this whole show, everything grow or die. Who cares about that stock-based comp or anything at Anthropic? My God, it's open router, 192 X revenue. Just because your customers are prisoners does not mean in today's world, they will spend one more dollar with you. In fact, the CIOs want to cut what they spend when they're hostage, right? They're like, okay, I want to spend 90%, 80% of last year. What can we cut from our bill from the vendors we're stuck with? It's a, I got to think, but yeah, Rory's right. I'm not sure. He's right. I'm not the best at this, right?
Speaker 1You know, I'm actually going to, I'm going to cancel my comment and disagree with myself. Actually. I think you'd be great. Cause I'll tell you what you would bring to the table that I think a lot of these P buyers missed. It's this idea of mission clarity around growth. If you don't have growth of some sort, you're in a desperate race against the debt and the best you can get is a mid teens IRR. If you work day and you buy cheap and remember that's when you buy at 5.7 times revenues, some of these PE deals were done four or five years ago at 10 or 12 times revenues for not as good a quality asset as workday today, the PE firms should hire you as their operating partner, where for every new deal they do, you explain the facts of life. It's really clear here. People, the only thing that matters, you can't just stick it to your customers. If you don't give them value, you're going to get shafted in the end.
Speaker 3Rory, for me, the death spiral here is the exact car. Who's got no idea about AI and has a load of logos and has motor middle management. And I think Jason would be the fricking best.
Speaker 1I agree. I changed my mind because you're done. If you don't.
Speaker 3By the way, you can click the link below to donate to Silver Lake Lampkin Ventures for the buyout firm.
Speaker 2I don't want to spend money on the positive side. If you look at it like a more S&B version, I'm not saying how widespread it is, but if you look on social media, a lot of folks are like, okay, I'm lifting off Airtable now. And they're like, Bending Smooths is going to raise my prices 3x, right? Let me start doing it now. And so it's just an extreme version of what you have to be careful with everywhere, right? I mean, Bending Smooths may lose 20% of Airtable's customers who finally spend a week lifting off of Airtable. But when they triple prices, it's a good deal for Bending Spoons. But it's going to happen a lot faster than Workday.
Speaker 3Growth at all costs on the consumer application side. Two big fundraisers from Higgsfield, who raised at a $5.5 billion price from DST, and they hit $700 million in ARR. And then you have Lovable, who raised a new round from Menlo. They're around the $600-700 million ARR range too, raising at a $13.3 billion price. Big price divergence for very... Very similar revenue numbers, which I find interesting. Guys, we've talked about these companies a lot. How do we think about them?
Speaker 2Well, you know, on the Lovable thing, the thing I was thinking, I mean, it's so crazy since when we started the show, right? And Lovable and Replit were both raised in like $2 billion, and were really terrible products when we started the show. Now they're great products. They're truly generationally great. I do think today, engineers and developers will mock me for saying this, but I do think that they deserve arguably a somewhat similar to be in the cursor conversation in terms of stickiness, strength, capabilities. They were not when we started the show. Did Menlo pay up a little bit as an existing investor, right? It was already in it for maybe, but is that multiple that far off the cursor multiple that we just saw? It's not radically off, is it?
Speaker 1Yeah. A lot of it for the end of the year. It's probably a little pricier, but whatever.
Speaker 2But it's not as out of whack as it might've seen with cursor as a comp. These platforms are becoming... One thing is they're becoming very rich. They're very good now, right? Cursors, they're very good. They can do so much more than they could six months ago. There's so much more complexity. I mean, cursor launched... Origin, right? Which would bought Graphite or whatever. It's going to become a GitHub entire workflow replacement in a couple months, right? I'm closer to lovable, but they both just launched automatic deep pen penetration as part of their products, right? So you can go really deep on security. So these aren't just little hacks a year ago, and it also makes the startups harder to beat them out, right? As these become these cursor and lovables and replates become true platforms. They're great software today. So when the cursor deal was announced, our jaws dropped. Now it's a comp. It's just a comp. And I don't think this is such a bad comp for lovable. To cursor, I mean, maybe that sounds wacky, but that was the one when I thought, you know, Higgs field's cheap. Although when the deal was done, it was at 500. So it's funny in today's world, by the time the deal announced, it's at 700 million. So it's still cheap, but like, that's what happens if you don't announce a deal. The hour, the term sheet is inked, right?
Speaker 1And you guys know what both of them have done really well is parlay that kind of massive bottom end demand for AI in lovable's case for website building and coding in Higgs field's case for video. Yeah. Start with a PLG motion and then, you know, add mid-market and enterprise products on top. It's, it's a well-trodden path. It was well-trodden in, in kind of the SaaS days. We did a bunch of that. It all works. You build your top of funnel. And then over time, you just add the enterprise features, but they've both done it really well. And you're right. Lovable have punched their way into being a big picture coding alternative. There's different ways of going at it. You got the cognition style. You got the cursor style. You got the lovable replica style. They're not direct comparables, but in the big picture comment of the thing is, you got AI does best is write code. Lovable is a tool that uses that to write a lot of codes. It's got a lot of lift. And yeah, so I think they're both. built good enterprise business on top of, you know, good consumers. It's not as Higgs field. And I know you guys are in them. So, you know, much better than me. I think there is clearly a market for enterprise video. It's a good market. It's, it's not as perhaps deep as the coding market, but you know, great to see him do it. The one meta learning for me is I do think
Speaker 2took me a little while to see this. I do think these products today, not forever, maybe only for six months, right. Or who knows? I do think they now are defensible and have moats. I mean, for example, Higgs field, I was one of the first 10 customers. I think, what could you do? Make a four second video using Kimmy or Quinn who care? It was a great way to do it because I didn't even know how to use a Chinese model. Okay. But that wasn't particularly defensible. Now you can make a full length motion picture and you can do it another way. It's just so hard. And now that on love repable, which we, even though I'm a user for you, you could have made fun of these products when Harry invested, when we started the show, now they really can almost build production grade, highly secure apps with everything across. Like it's just some, I know we're building, so quickly you better be into your 28, 29 roadmap or you're failing, but they are starting to get these layers of moats. And the folks that work at these companies are so smart, right? Higgs field is like the smartest mathematicians in, in Kazakhstan, lovable and replet have become talent magnets. I mean, I know the team at replet better. You walk into, I mean, these are the smartest people that Amjad could recruit for years. And so these layers are not impenetrable, but they start to get thick and crusty this crust around them. Right.
Speaker 1I stay with that. Cause I think, you had that moat comment. I think you're exact cause there was a whole bunch of, Oh, what's the moat. I think the truth is in any new software market out of the gate moats are light, but the companies that execute and get traction, you, you accrete moat over time. I mean, just give two historical examples. The Netscape browser wasn't that early on. It wasn't that hard, but as yet you parlay that into other things that ultimately you only got acquired for 10 billion, which at the time feel like a failure oddly enough. But the initial thing was relatively simple and it got complex. I mean, the MS-DOS product and the classic example is Magnet. The MS-DOS product was mind-blowingly simple, but over time you just accrete more and more value. And the same thing's going to happen here. Yeah. I mean, will there be some guys who stumble along the way? Of course they will. But you're right, Jason, if two years ago, it is probable that someone could have built a lovable competitor with the features that they'd had relatively quickly as they add more and more features, that just gets harder and harder. Yeah. And I don't know that that was obvious
Speaker 2six months ago that this would happen. I don't even know it was obvious to these companies we're
Speaker 1talking about that it was obvious, right? Yeah. I think it, going back to my, it just shows, just push on forward, add more stuff for your customers, revenues grow, good things happen. If you're faster than everybody else. You just have to be faster and better,
Speaker 2that's all. Just faster and better, then it will accrete.
Speaker 1Faster and better is a more tangible thing than thinking some kind of, I mean, yeah, there are businesses that are much more moat central. Right. You know, massively high IP, you know, some obviously the model companies to some extent, and definitely things like the bioinformatics companies there, but there are also businesses that will become wonderful businesses where the moat is, as you say, Jason, faster and better.
Speaker 3And you just gotta know which game you're playing. Speaking of high IP businesses, literally like three weeks ago, Etched raised at 10 billion. Today they've announced they've raised 700 million at 21 billion from Jane Street. Kleiner, Sequoia, Andreessen, four weeks after, double the price.
Speaker 2It was a good month, Harry. You only need one great month to raise today, whether you're pre-seed or north of 30. You used to need three to four good months to raise. Now, now you just raise on the one. Listen, I don't know the details of the deal. I mean, Jane Street wants to be a customer too or something, right? It's not that they're suspect. It's just, you never quite know how it's all tied together. So that was the only asterisk I had in
Speaker 1the deal, but I don't, I don't know the details. Boys, what have I missed that we should discuss? There's one that, I don't know if you missed while you were vacating there, Harry, but the Department of Justice is picking on Paul Andreessen because of these overlapping boards.
Speaker 3I put it in. It's in my schedule. Thank you for mentioning the vacation.
Speaker 2Why is it? What's the story behind the story? There must be a reason.
Speaker 1And I did the story because, you know, I often think one of the jobs we try and do here is let everyone in our, you know, people who listen know what's interesting this week, right? And I will admit this time yesterday, I knew exactly, Jack, I was like, huh, what gives? I looked at this and I'm like, why is, let me never say something cynical and then retract. Why is the Trump administration picking on Andreessen Horowitz? One would have thought that there is, you know, honor among thieves and gratitude. You know, the definition of an honest politician is when he gets bought, he stays bought. Yeah. Elon got his deal done in weeks, his $60 billion deal done. So I did the research and it turns out that this initiative, no surprise, was actually kicked off in the prior administration, which frankly was much more willing to quote unquote, you know, get involved in business and kind of try and tell them what to do. What's happening here is zoom out. There's something called the Clayton act, which I think is the early 1900s, an antitrust act section eight that basically says individuals can sit on two boards of companies that are competing. And there's all sorts of definition of how you define compete as a de minimis threshold. And that's on the statute books. It turns out under the Biden administration, the DOJ, I think it's the FTC within the DOJ, but don't quote me, had actually made some actions on that. There was a couple of kind of general business folks who were in overlapping boards. And interestingly, they had a couple of companies where they were kind of like, oh, we're going to have to take the board members off. And in one case, I think they'd spun off a separate company from the existing company. So they had a lot of overlapping boards. The DOJ kind of got on them. And eventually they said, we just take the board members off. Right. So this is a thing, right? This is apparent. And it's like, it's a low consequence thing, because what invariably happens is, if the department just comes around, you just pick the less interesting board and you come off it. And what sounds like what happened here is, even though, as I say, you'd have thought the administration change would have killed this, apparently as part, remember when Fivetran and DBT were merging? The kind of DOJ had to look at that because there was antitrust issues and that got true and it was passed. But as part of that, it kind of, the light went on in someone in the Department of Justice head that says, hmm, do we have a Section 8 Clayton Act violation here? Because Andreessen's on the board of Databricks and they're also on the board of, I think it's Fivetran, right? And now they're competitors. So now this has been percolating and now they're investigating, right? This is one of those things where I know why the law originally exists. It's all back to JP Morgan and overlapping boards and the antitrust. And whatever. You look at this and you go, really? Is this the biggest fish you have to fry? But my guess is it peers out into some version of the venture firm just saying, we'll take off the board member on Fivetran's whatever. Now, there are, it's interesting, there are ways you could contest it. If you gave a shit and wanted to litigate, there's all sorts of things because it actually said, the legislation says individuals can't be on two boards, but it's not as clear on can two separate individuals be on two separate boards. There's a whole bunch of reasons why. Well, you could decide if you had the stomach for it to litigate and see would the Department of Justice back off. But the truth is no one's going to bother. I shouldn't say no one's going to bother. It's, it feels to me like if this thing rumbles on and the Department of Justice doesn't back off or they don't decide the competition issue with the minimus at some point, if it got really serious is my point. No one's going to get into trouble for this. If it gets really serious, they'll go, okay, we'll take a board member off.
Speaker 2Yeah, it's probably a non-story in the end, thinking through it more, right?
Speaker 1Yeah, pain in the ass story.
Speaker 2There is a remedy here. You resign.
Speaker 1If you're the compliance officer in Andreessen, you're wasting a lot of your time on this. But you're right, a non-story is a...
Speaker 2The only weird niche thing, but classically you might ask the founders if they're okay with it of each company. Maybe that's not even a permissible out under the Clayton Act.
Speaker 1It's not actually. The funny thing is, to your point, you're exactly right. And this is, it's a very interesting example, because it's an example of you and I both know that that's the acid test, because we would be worried about, is founder A pissed about founder B? Yeah, it's a very interesting example, because it's an example of you and I both know that that's the acid test, because we would be worried about, is founder A pissed about founder B? Yeah, it's a very interesting example, because it's an example of you and I both know that that's the acid test, because we would be worried about, is founder A pissed about founder B? And here we are in 2025, 2026. And do we really think that Databricks and Fivetran are our DBT, are colluding about the price of data tools? You're right. The logical test would be, founder A, are you cool with this for founder B? And if they're cool, we're cool. But it turns out that's not the way we write laws.
Speaker 2Yeah, I mean, if Martin Cassato had to step off the board of Fivetran after exiting Cursor at $60 billion, it's probably okay, given their position in Databricks. It's all right. That guy just got us a $60 billion exit. We're sitting on $200 billion at Databricks. We're sitting on $200 billion at Databricks. Fivetran, good luck. We'll switch to an observer seat.
Speaker 1Yeah, anytime you want.
Speaker 2I'm going to move to observer status. Like, that doesn't work either. You got to-
Speaker 1It doesn't work either. They've actually thought of that. They're literally like, Mr. J.P. Morgan can't bring his big banker nose in 1909 into any of the meetings. Yeah, no, that's what we're trying to solve. So be it. Just CC me on the updates. Right. And if we pass some law about AI regulation now, you've got to be really careful. The unintended consequences, you know, months, years and decades later, once the regulatory law is passed, it doesn't leave.
Speaker 2You know what? One last thing in all seriousness. At Andreessen's scale, and everyone has to take the Series 62, there's probably 40 or 50 legal things going on in the background at any given time, right? It's probably not even four. It's probably like 40. They don't even talk about this one, right? It's mentioned. Let me know if I got to do anything. I got to go to that. You got to go to that pasta lunch with Michael for the closing lunch.
Speaker 1The $12. $12.
Speaker 2$12. Yeah. Let me know if there's an issue because there's like 50 other lawsuits. Everyone's coming after Andreessen, right?
Speaker 1Yeah. It's the old no conflict, no interest comment. Exactly. They have lots of interest.
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