Speaker 1Anyone that has been blindly loyal to Elon, they've all got stupidly rich. At the face of it, this is a Rubicon moment in the history of the AI industry. It's the first time that the U.S. has ostensibly regulated an AI model based on capabilities. Good intentions bite you in the ass more than evil deeds. Outside of China, there are basically no good open source models. Where are the U.S. open source models? There's a partner here at Benchmark that says any liquidity for pre-AI SaaS companies is top decile performance. Any liquidity at all.
Speaker 2This week, it's different to any other week. Why? The one and only Jason Lemkin is traveling. But do not fret. Roy O'Driscoll is joined by one of the best early stage investors ever at Randall, GP at Benchmark, where, again, we analyze the biggest news in tech this week. Number one on the agenda, SpaceX completes the largest IPO in history. Then we hit on Anthropic, launching Claude Fable on Monday, and the government bans it by Thursday? What does this mean for sovereignty? Next, Salesforce acquires Finn for $3.6 billion, one of the nicest teams in tech. And then finally, Adobe beats and raises, but the stock falls 6% as the CFO exits. This and much more in an incredible week of news. But before we dive into the show today, let me tell you about Omni. It's an AI analytics platform, and it solves a problem every scaling company hits. Your team needs insights, not just data lookups, the stuff that really matters, and it's critical to get it right. Like CAC Payback Picks. It's a tool that allows you to track your company's growth, and it's also a tool that allows you to track your company's growth. It's a tool that allows you to track your company's growth, and it's also a tool that allows you to track your company's growth. For AI agents to act on your company data, they need your business context, your definitions, your logic, your permissions. And that's what Omni's governed context graph provides. Your data team defines it once. Then anyone, your ops lead, your CFO, your PM, can ask a question in English and get an answer in seconds. Perplexity, Mercury, and DBT run on Omni. And 20 VC listeners get a free three-week trial. Three weeks, very specific, not a month, but three weeks. Go to omni.co forward slash 20 VC. That's omni.co forward slash 20 VC. After Omni helps you find the right customers, Checkout helps you close them. Over the past 15 years, Guillem Pozaz has led Checkout.com through what he calls the velocity years, a period of hyper growth with relentless product building. The lesson? High growth is a gift, but it demands ruthless focus. As his mother put it, play the game you're good at. For Checkout.com, that game is digital payments, obsessing over data, chasing basis points, and compounding learnings over time. And that discipline is paying off. 2025, Checkout.com processed over $300 billion in total volume, up 64% year over year, and returned to full-year EBITDA profitability. They now support over 1,000 enterprise merchants globally, including 63 that process more than a billion annually, with brands like eBay, Vinted, Amex, ASOS, and Tmoo. Guillem's message, though, it's pretty clear. They've earned the right to win anywhere. Now, they're investing in innovation across marketplaces, issuing, financial experiences, and agentic commerce. If you want payments built for what's next, talk to the team at Checkout.com. That's Checkout.com. While Checkout powers the moment money changes hands, Invisible powers the people behind the work. Why don't we hear more real AI success stories from big companies? The models are insanely good, but implementation's the problem. It's really, really hard. There's data all over the place. There's legacy tech and manual workarounds. It's a Ferrari engine in a shopping car. It's a lot of work, but it's a lot of work. Meet Invisible. Invisible trains 80% of the top models and then adapts them to the messy reality of your business. Take the Charlotte Hornets NBA team. Invisible took years of game tape and analog scouting notes to go from uncertainty to a draft pick and summer league championship win in weeks, not seasons. Get the data in order first, and suddenly AI can do almost anything for you in the enterprise. If you want AI that hits the P&L, take a look at InvisibleTech.ai forward slash 20VC. You have now arrived at your destination. Okay, boys, I am so excited for this. We have a very special guest. Ev, thank you so much for joining us, man. Harry, Rory, thank you for having me. Now, where else are we going to start? SpaceX, the largest IPO in history. It was a very successful IPO, and it's held its price really well. In the last 24 hours, it's hit $2.7 trillion. Elon Musk has actually earned, in 2017, in 24 hours, what Warren Buffett took a lifetime to earn in terms of net worth. And he's now a trillion dollars richer than the next person as a result of that increase. How did we evaluate the SpaceX IPO?
Speaker 3Well, with jealousy. It was an amazing outcome. And you said it's traded well. I mean, arguably, it's traded way more than well. I mean, it's up like, you know, I haven't checked today because I just got off the car, off the plane, but it's up 30%, 40%. I mean, it's been an astonishing performer. On the day, I mean, I was trying to decide, Ev's old benchmark. I mean, I was trying to decide, Ev's old benchmark partner, Bill Gurley, like, you know, is there a number above which Elon gets into trouble with Bill for leaving money on the table? And I was watching it during the day, it went up to 30, and I'm like, oh, Bill's going to be mad. And then he dialed it perfectly. I think it ended at 19, which is the perfect pop, the designer pop. So not only has he changed the world, built the biggest, most valuable company in the world, but he pretty much, without any price discovery, remember, we talked about this last week, he didn't do any price discovery. He just told everyone the price he's going to take, went out and got it, and then landed the plane at a 19% day one. Which is kind of the high end of perfect. So I was like, this is perfection. And then in the last two or three days, it's just traded up nicely since then. So it's just amazing. It's really hard to say I made $1.2 trillion, but I might have left $50 billion on the table. How do I feel? I think he feels okay.
Speaker 1One piece about all these IPOs, and we can't help ourselves because the company starts trading. You can do the math on everyone's net worth immediately once it starts trading. But I do wish there was like a moratorium on even talking about, or even if you own the shares, looking at a stock price when the shares are still locked down. What I mean by that is like all of these, I mean, a traditional lockup means that any of the like venture insiders, the CEO, the management team, the employees, they typically can't sell for like six months. And what often happens when you have so little of your shares trading. So like right now, SpaceX's total share count, only about 4% of the shares are being traded. That's like a tiny, you know, they call it float. It's a tiny amount of float. And it allows for all sorts of weird things like gamma squeezes, which we can talk about, or any of these other things. Make the share price just insanely volatile over the first few months of trading until the lockup releases.
Speaker 2You can stay on that. What is a gamma squeeze and how does it impact SpaceX price?
Speaker 1So gamma squeeze. So when people are allowed to trade options on a stock.
Speaker 3Which opened today, SpaceX options started today. So it's gamma squeeze day. You're exactly right, Ev.
Speaker 1Exactly. And so what a gamma squeeze is, if I buy a call option, I'm buying the right to buy a stock at a certain price. And so there's some market maker on the other side of that trade writing me the option. And what they need to do. On their side, in order to hedge their risk is buy some of the stock directly. And so what a gamma squeeze is, is when you have a ton of people buying a ton of call options on a stock, you then have a bunch of counterparties, a bunch of market makers that then have to go structurally buy the stock in order to hedge their risk. And then you create this cycle, this like self-reinforcing loop where the more call options people are buying, the more forced buying there is from market makers, which then forces more or counterparties, which forces what will, which then encourages more risk. And so when there's only 4% of the, the flow trading, only 4% of the shares trading, there's just, it's so thinly traded that something like a gamma squeeze where you have this forced buying reinforced loop can happen very quickly. So that's not to say that the stock's going to collapse or anything, but when you have this sort of situation, when a, when a company starts trading, especially a really hot company, you use the price action, even though it's very fun to talk about because Elon can make, you know, Warren Buffett's net worth in a day or whatever. You know, nothing matters until the lockup's gone because that's the only time that anyone can actually, you know, it's almost like a private, it's like a private mark. Like it looks good. You love to look at it. You put it in your little spreadsheet, but you can't take it to the bank. And so it matters much less than, than, you know, what, what, like the, the stock price in six months from now, like that is what we should be talking about. And that's going to be the barometer by which we can grade, you know, investors and insiders. And there's been plenty of IPOs before where, you know, people do the victory lap, you know, on day one of the IPO, the stock goes down 60%. And then it's a different situation once, once the lockup's up.
Speaker 2Abhi, you'll regret joining this show very quickly. Six months time. Will the stock price be above or below where it is today? I'll give you the over or the under.
Speaker 1I would probably just because of the retail mania around the stock in particular, I would personally probably take the under in six months. Not because I don't think that the company is going to be valued extremely well. I think that, you know, 4% float, call options coming online. There's just so many like engineered things. Things that are going to make the stock price go up over the next month, including some of this index inclusion where there's more forced buying. It's just, there's no shares available. There's a lot of forced buying. There's a lot of retail activity. It's going to be popular for being, for people to be buying call options on this. So I think it's going to still be worth a ton. Like I still think it's going to trade really well, but if I had to go over under, I'd go under from six months from now.
Speaker 3And as you know, that's where I come out when you ask me, but there's just such a lot in that. I mean, yeah. And first of all, I just, in passing, got a laugh at that. You're exactly right. I have so much room between 2.6 trillion. And even the last private round at 400 billion, there is 1.8 trillion of value between this and the last private round. So yeah, there's lots of room to adjust. But I do think I was right is that, you know, two comments. One is, yeah, my gut would be lower rather than higher six, 12 months from now. And I think he's also right. The short-term comment of in the interim, there's just a lot of news that will be strong, good news and strong technicals in the face of a low float, which means the short-term bet is much harder to call. You know, we can talk in a second about. at Cursor where I believe Benchmark has a stake. I believe they just announced that's going to close. But the funny thing is, when I do this show, I always try and avoid having opinions that I don't have the courage to act on. So I started saying to myself, OK, Rory, today options became tradable for the first time. If I think it's going to go down, you can make that bet, right? So you go on and you price it, and you realize how hard it is to make money. I mean, roughly six months at the money puts, the idiot version, the right to sell the stock at the same price six months from now, right? It's going to be depending on their estimating volatility so high. And volatility is what drives the pricing of options. And options, stepping back a million miles, options are the coward's way of shorting the stock. If you short the stock naked, you can lose all your money. If you buy a put option, you're taking a bet. And the worst case is you can lose the amount of the consideration. So it's the baby way of shorting, and I'm a baby, right? So I look at it and I go, oh, my God, it's roughly 20%. If you wanted to buy it at the money put, it's going to be, based on the estimates yesterday, and I haven't seen the updates today, stocks just options just started trading, 20% of the share price. So if the share price is at $200, it would be $40 just to buy the right to sell the stock at par, which means if it goes down to $160, you want to break even. So you've got to get right down to $120 to make a 2x. And that's a 2x on a security where you can lose all your money. So I'm looking at it and going, I might have these opinions about the SpaceX price going down. Do I have the nuts to put a million bucks on the line and say, I believe it's going down and buy those options? Decided. But I didn't have that just yet.
Speaker 1I mean, I think the one thing that people very much underestimate, I had a coming of age moment as a young value investor at the time. I think every value investor has gone through this. So I was in this value investing club in college where you basically, you know, you read Benjamin Graham and Howard Marks and think you're smarter than everyone else and buy things that like, you know, five times PE. After college, I was still on that kick with all my college savings, I shorted Tesla. And I feel like everyone has gone through this experience if they were a value investor, at some point in their life where it was like, you know, you just, oh, my God, Tesla. Maybe it's not a fraud, but it's so overvalued. It's an auto OEM, all these things. I lost all my college savings shorting Tesla. That was such an unbelievably valuable lesson for me in my life. And I was able to rectify it years later, which many people aren't, but I was able to rectify it. When I went to Kleiner Perkins, the very first investment I led in 2022 was actually SpaceX. And when we were going through and when people, LPs or anything else, when there was questions around, like, well, how much, how much upside is there? I think it was. You know, 120 billion or something. How much upside is there here? And the way I talked about the investment was like, look, the numbers alone get you to a solid return. But it would be it would be dumb to not incorporate what Elon can do, which is he sells the market on these incredible long dated call options, like these tech call options. He's made his whole career doing it. And so it's like at the time, whatever it was, 2019 or whatever, you know, Tesla wasn't worth, you know, the 800 billion of its or the 400 billion of its market cap, but he convinced everyone that, like, hey, I'm going to figure out full self-driving and that's going to drive a trillion dollars of value. And it's going to take, you know, eight to 10 years. And then you get to that point and he solved it. Tesla on the number still probably isn't worth a trillion dollars. But now he has Optimus. That's another like 10 year project that's going to create trillions of dollars of value if he figures it out. And guess what? He's probably going to figure it out. And so with SpaceX, he's done the exact same thing where at first it was, you know, rocket reusability. And then the second one was Starship's going to work. And now he has orbital data centers. The Mars. Mars mission, you know, the moon mass launcher, all these things. So he sets up these stories, which he honestly usually accomplishes what he's going to lay out. But they're basically these long dated call options where he can go to the market and go to shareholders and say, look, like on the numbers. Obviously, SpaceX, you can't really look at the numbers of SpaceX if you were just looking at the numbers in the panel alone. It'd be very, very hard to even get like a two trillion dollar valuation as a fair market value. But he says, I'm going to figure this massive thing out and that's where the next trillions of dollars of value. Are going to come from. And historically, he's had such a track record that the market's willing to believe him.
Speaker 2When we look at the assets that you mentioned, big news story from today is that exercising the right to buy a cursor at 60 billion dollars. It's looking like an incredibly prescient deal. I think it's at four billion today. It's going to be six billion by the end of the year. He's acquired one of the best teams with lockup. And so he's got retention of them baked in.
Speaker 3For a price equal to one third of the variability of stock between yesterday and today, it's exactly. It was a great deal when he did it. It's a better deal since then. Yeah, exactly right. And the odd thing is he solved his what am I going to do with this compute problem? Not once, but twice. He solved it first of all with, oh, look, I have cursor. I forward bought cursor to fill the gap in Colossus. And then obviously since then, but before the IPO, he announced the contract with Anthropic for one point two five and a contract with Google for, I think, seven hundred billion. So roughly two billion a month of compute, again, filling the gap in the Colossus revenue stream and doubling his revenue. So I agree. I think that between twenty four billion a year in kind of core we've like revenue from Google and Anthropic and then a six billion dollar run rate, six billion year end potential cursor. Yes, he's AI business now as a matter of fact, as a statement of reality. As of the minute those contracts kick in in September, the revenue run rate of the quote unquote AI business across Google and Tropic and Cursor is larger than the revenue run rate across the entire SpaceX installing business. So, yeah. Just great corporate execution. I think it's the move fast comment. It's just everyone else has spent two years thinking, yeah, we should probably do something in AI. Maybe we should build a data center. He's like, no, I've built two data centers, didn't get the model working great. So I bought a company to fill it with kind of coding and then that wasn't enough. So I did two huge contracts moving right along people. It's year two now. I mean, it's it's the execution speed that's just so impressive. Hundred percent. Well, I just love your comment on the long dated call. Because the really weird thing is kind of contrasting it, the volatility in the stock is super high and that's the option traders are saying that. But you contrast that the implied predictability of the long dated call options is actually they're basically saying they're highly predictable. In other words, the stock is moving around like a crazy thing. But the valuation is effectively saying, hey, we, the equity holders, believe, as I've believed, that this guy has done these things. There were whatever I was going to say X, but that would be stupid because the thing itself is X. So it would be self referential. But there were four hundred billion dollars today. He has ideas to be worth a trillion. More. And I'm just going to give him a hundred percent credit for it. I agree. That is the secret to the fundraising. I mean, if it ever stops, if the time to deliver goes too long, there's a big gap between fundamental value and anything you got here. But right now he gets the benefit of the doubt like no one else. And the weird thing, because I've been thinking, obviously anyone in our business who's not thinking about it this week is a moron, is the competitive advantage that gives him is because his cost of capital is low. That's right. Because no one else could have built. I mean, if you've gone into your local bank and said, I think AI is going to take off. I have a crackerjack engineering team. I really can build Colossus one and two in less than a year. And I don't have any contracts, but I reckon shit will turn up. I'd like twenty four billion dollars. You got laughed out of there. He gets a chance to roll the dice and it comes up. No one could have done that unless they had the cost of capital. And the cost of capital allows it's kind of a self reinforcing cycle. It allows him to make these bets that no one else can. And he's earned he's earned the right play.
Speaker 1I remember both for the X deal and when XAI was fundraising. There were a lot of people that were on just the pure dimensions of the companies. Both of those investments were hard to look at and think that they were going to be good deals. So the X take out at whatever, forty five billion or whatever it was. And then just generally XAI just felt like it was too little too late to keep up. And what people forgot in that moment is that anyone that has been blindly loyal to Elon in terms of any time he's asked for money, you could just give him money for whatever he wants you to invest in. They've all got stupid. Rich every single person. There's like a small village of these people, by the way. Like there's all these funds that you've never heard of that ninety five percent, like ninety five percent of their cumulative invested capital is in SpaceX and or other Elon companies. They all got they've all gotten stupidly rich. And so the amount of surplus and by the way, you could say that about Tesla shareholders to anyone that's held Tesla for ten years, anyone that's had anything to do with Elon and just trusted him with their money has gotten unbelievable returns out of it. And so the amount of like surplus good will he has to burn down, like I think he could. I think SpaceX, I don't think it will, but I think it could go nowhere operationally for five years and people would still be a believer in him because he's basically done it for shareholders every single time that they've gotten involved with him. And to your point, Rory, he has a much lower cost of capital because he has an army of people like a small village of people that will blindly give him money to do whatever he wants because he's such he's been such an unbelievable steward of capital to anyone who's given him money.
Speaker 3You're right. And I wrestle, to be honest, I don't know if I could get my head around that belief statement in an investment memo, even though I objectively recognize if it's true. And you're right. I say, you know, I know some of, as you say, the small village and it may be a small number of people, but they're going to have very large houses in that village pretty soon. And they're going to be an inclined village for all, which is just over the border of Nevada for all the obvious reasons. So, yes, they're going to do just fine. I would wrestle with that kind of approach. The rationalist in me says that's not the way capitalism should work. Even the best person should have all these different deals. But you're right, it's worked. And it does mean it's a single point of failure in the sense of if it goes wrong, it will go wrong for everything because it'll all be because he's going to I mean, they are going to roll in Tesla and it's all going to be one big happy family. It's going to be awesome. He's kind of taking on this ever larger burden of making more and more return for more and more people. And the whole mystique of it is tied up in that sentence. Anyone who's piled in has never lost money. There's a little part of it goes, wow, that's a tough way to live your life versus that we do deal some work, some don't. But it's worked for him. And When people, something works out
Speaker 2well for someone for 20 years, they don't change it. Will Tesla and Axe be together in three years
Speaker 3time? It seems to me that it's the thing that's happening. But, you know, I mean, I thought the CEO, Gwen Shotwell, said it's probably easier for Elon if they're together. And I reckon if I was worth a trillion dollars, I would probably solve for things on the basis of, oh, it'd be so much easier if I only had one board, not two. I had one set to share. So it seems to me a thing that could happen very comfortably. And again, back to what I've said is that, and there ain't going to be a ton of votes saying no, especially after you've made them 2.2 trillion. If you look
Speaker 1at the polymarket calci odds on a Tesla-SpaceX merger, again, you know, not that those markets are so big that they're that indicative, but I think the probability that they have on there is something like 70% in the next two years or something like that. And so some free market seems to believe that it's more likely than not, but I have no idea. On the other hand,
Speaker 3some poor fool bet, felt that it was 95% likely that Spain would beat Cape Verde last night and put a million down. That's right.
Speaker 2I saw this for an $85,000 gain. Yeah, yeah, yeah.
Speaker 3So yeah. So close, but yeah. But Elon is more predictable than the Spanish soccer team. So keep rolling. I'm sorry. I cut you off. The coffee's kicking in.
Speaker 2He's not used to such caffeine. It's okay. The second on the list is Anthropic. Anthropic launch Claude Fable on Monday. Unbelievable reviews. I actually had a founder on this morning who said it was the ultimate game changer for them. Unparalleled. US government bans it by igniting this kind of global sovereignty argument over how far should governments reach into private
Speaker 3companies. How did we analyze this? I'll start with trying to put together the facts because you got to start with that, right? I mean, obviously this is the front end model to the mythos model, which was the, I mean, if you step back, Dario, when they announced that, they said, this is so dangerous for cybersecurity that we're not going to make it available to everyone. So they kind of prefigured that this was dangerous. Then obviously they announced this model, which is effectively a front end to that model and quote unquote, shouldn't be able to do this kind of cybersecurity stuff, right? So they prefigured that this was problematic. And then what happened was, I guess, maybe sticking with the facts, first of all, it looks, now it looks like that Amazon discovered a case whereby you could in fact interrogate the model and have it give some cybersecurity import. So they pick up the phone, they ring the government and, you know, that's going to be stepping back. I'm sorry, I'm a bit incoherent here, but the two parties in question don't really like each other, right? So no one's assuming good fate. And I look at, I read the Dario statement. I read the Dario statement. I read the Dario statement. I read David Sachs statement. I read all the other stuff. And you could literally see everyone according to their rights is correct, but they're just zero communication. That's the big, there's just zero communication, zero trust. So something that I, you know, I listen, I go, in terms of the actual facts on the ground, I see Dario's point in terms of what he was saying, why that quote unquote jailbreak of the model didn't represent a meaningful threat. And it was coherent with why he thought mythos in general was threatening. So it was a very logical coherent, as you'd expect from a world-class scientist who was a very, very smart man. At the same time, politically, I get why the other guy said, fuck this after 90 minutes, I'm pulling the puck. And it's going to be really problematic. So that's kind of the big picture comment, and maybe kind of drilling specifically on the cybersecurity comment. What they've said consistently about mythos is really, it's not that any one cybersecurity bug it finds is so terrifying that, oh my God, no one else could have done this, and now you can. It's that the scale at which they can find bugs and problems is what's terrifying, which is what AI doesn't get tired. It doesn't, you know, it can't do anything. It can't do anything, it can find a thousand and you can't defend yourself against a thousand. So when this one thing happened, their comment was some version of, hey, look, yes, I get that this thing gave cyber advice and the way the model was released, it wasn't meant to do that. And it wasn't meant to do that. So technically it was a foot fault, but they were saying to Amazon and they were ultimately saying to the government, but the real danger of mythos is, hey, it's that they can spin up a thousand or 10,000 different instances, all of them finding cybersecurity things that we'd get overwhelmed. And that's not what's happening here. And this fault wouldn't have allowed that to happen. So they were kind of technically correct. However, if you run around telling everyone that you've got the scariest thing in the last 20 years and it shouldn't do any cyber, and we're not going to let it do any cyber, and then it does cyber and they don't like you anyway, they're going to pull the pin on you. So that's just what happened. They just said after 90 minutes, they're like, fuck this. You're not taking us seriously. And you can see it. That would be very logical. I'm a scientist. I'm a computer scientist. Let me explain why this doesn't matter. You got a bunch of people. I'm the chief of staff for the U.S. They had an assistant chief of staff on the call. So what's going on here? You're not taking us seriously. They're like, dude, if you think I'm going to brief the president of the United States on multiplicative instances of cyber incidents, and he's going to get that, you're dreaming. We're pulling the pin here because they were like, you stop it now or we're going to declare this export restriction thing, which means you just can't bring it. And it's very restrictive. And the terms of this are pretty restrictive. So you can see how it all happened, right? And both sides to their lights in the context of where they're coming from, it all made sense to each of them individually, but it's just a comms mismatch. And that's problematic for Entropic because one of the big a-has is this export restricted act, which is the thing upon which the ban was put in. Unlike the thing that happened with Hague said, there's no judicial review here. This is clearly within the powers of the administration to make this declaration. So they're offside, right? They don't have a ton of leverage in court. So it's a tricky
Speaker 1situation. The hardest part of this story is that there's a lack of reliable narrators. Like you mentioned, Rory, there's like, there's two parties that clearly don't like each other. There's been a ton of conflicting reports on this, that there hasn't been, I mean, not that journalists get things a hundred percent right most of the time anyway, but that there's been like actually contradictory reporting on, on the way things went down and how it all went through. I actually think what matters most though, is what happens next. Like, I think we're going to know a lot more about the significance of all of this in like six to 12 months time than now, because at the face of it, this is a Rubicon moment in the history of the AI industry. It's the first time that the US has ostensibly regulated the United States. It's the first time that the US has ostensibly regulated an AI model based on capabilities. The first scuffle with Anthropic was due to a disagreement over the basically like the contract that they were signing and what the government could use the models for. They were not regulating it or restricting it based to, to, you know, to non-US citizens based on capability. They are now saying at least on face that they are regulating an AI model based on the capabilities and what those capabilities could do in foreign adversary hands. I think that's a huge deal. And what we're going to see is if they're, they actually mean that, or if this is again, just like another battle between Anthropic and the government, but when open AI or when Google, like they're going to get to mythos fable quality models very soon within the next three to six months. And then we're going to see, we're going to see if the government actually wants to regulate models based on these capabilities. And if we've crossed this Rubicon where now the government is going to gate access to intelligence. And I think the most interesting thing is if we extend the analogy even further, and there's been some people on, on X that have talked about this as a, as a possible future. Imagine if we get ASI, imagine if we actually get things like recursive self-improvement kicking in and we actually have artificial super intelligence. We have this vision of geniuses in a data center. What happens when the government is gating access to super intelligence, who gets access to that? Do NATO allies do, you know, just a select few allies of ours get, get access and their citizens get access. If we think about how powerful a lot of people think AI is going to be and the power of the government to either give or restrict access on a country by country basis or a citizen by citizen basis, it gets pretty freaky from a, from a, like a macro and geopolitical standpoint, because imagine if you have like the economic implications of the United States and China, having you, uh, having access to super intelligence and, you know, Greece not having it, it's not, that's just like a random, random country, but like, imagine, or Argentina or Brazil or Greece, you know, like if you only have two countries that have super intelligence and everyone else's is, is metered or gated, it makes a lot more sense why people are starting to take the idea of sovereign AI much more seriously. The only issue is that, you know, none of these sovereign AI plays have, have amounted to anything yet. And so it's sort of a, yeah. So, so I think in, in general, it's a Rubicon moment and I think we're going to know a lot more in six or 12 months than we do now about how important this moment in time was.
Speaker 3Agreed. And yeah, I'm sure if I am the Mr. Al shareholders, I am lighting a candle in church at this one and going, this is the best thing that happened. But I want to go back to the funny thing about this thing is it's so illogical. What I love about some things in politics and crisis is often people end up on surprisingly the wrong sides. And if you're looking at Darius, the guy who's been saying, this is dangerous, we all need to be careful. He's been funding the pact for regulation and, you know, some VCs have been on that side. Meanwhile, on the other side, you've had, um, you had the administrator, David Sacks, I might be doing, it's hard to say, but excellent work trying to keep, you know, the government out of the hairs of AI, right? You've had a bunch of VC investors giving money to the Leave AI Alone pact and kind of feeling like they're with the administration and suddenly everything's mixed up. Now, Darius is in a very tough position of saying, when I said it was really dangerous and we should regulate it, what I meant was it's really dangerous that we should regulate it, but not regulate me. It was a tricky one. And then on the other side of the table, all the, oh, leave it alone. We should deregulate this thing. Suddenly this administration, as Ev said, is taking one of the strongest actions we've ever seen against the technology. So it's, it's kind of, everyone's like, as they piece through what's happening, everyone should be looking and going, hang on, I thought I was on this side of the table and you were on that. And we've just switched, which again, makes it hard. Forgive my naivety. If you were
Speaker 2internal within Anthropix research teams, what do you do now?
Speaker 3Well, first of all, if you're internal to Anthropix team, then you're not a naturalized US citizens. You step away from the keyboard because otherwise you and your organization is going to be in breach of the Export Restriction Act. And I'm willing to bet those are an attorney at Anthropix who knows exactly the penalties for that right up and down the line. So first of all, and let's get frank, a huge percentage of these teams are overseas highly intelligent. I think Andrei Kapathy is actually one of them. Oh, wow. I mean, there was a reason my wife, on the fifth year, the day we were eligible, applied for our green cards, because at some point they'll turn on you. So yeah. So first of all, those guys step away. What do you do if you're an American and you're there? You're like... I mean, the weird thing is, I really like what Al said, because you trigger the thought we have is that if they don't treat the other labs the same, then interestingly, Entropic may have some kind of due process claim. I'm guessing here, but if the Export Restriction Act, I mean, there's probably some... It's pretty untrammeled CEO, administrative power, because it's a national security thing, so it's like delegate. But I do think if you don't treat everyone the same, it'll be problematic. So sometime within the next... Again, it'll just mix things up. Does OpenAI go with it? We're as good as them, but then they don't want to get regular, or do they go with, "We're not quite as dangerous as Entropic, so you kick those guys in the nuts. We're the AI that's not quite clever enough to fuck up your cyber security, so we can sell to everyone." It's just really zany, but if they are comparable, and they don't ban all of them, then they have a problem. You're right, because they're being illogical, but if they start doing it, it's a huge moment. You're right.
Speaker 2I'm just struggling here, though, guys, because you said that... Have we done that? Because you said about six to 12 months. Six to 12 months today, it's years in prior cycles. We were planning an Entropic IPO.
Speaker 3Yeah, this is definitely a downer for the... I mean, I can tell you, there's someone updating the prospectus.
Speaker 2The ongoing seven out of 10 holiday. Yeah, it's a downer.
Speaker 1This is a bit of a tangent, but I think it's related in that, if you talk to some smart people in AI, they will tell you, "Actually, with the right harness and the right amount of test time compute, you can use open models to find all of the vulnerabilities that Fable can find." Actually, this is sort of a nothing burger, because you can actually replicate this with non-mythos level models. I think, again, the legibility of AI to the administration. I mean, hell, the legibility of AI to a lot of people in Silicon Valley, it's just such a fast moving field that if you're not inside one of the labs, it's hard to just keep up with everything that's happening all the time. Now think about DC and the average age of someone in the administration or a lawmaker in Congress or the Senate. The legibility of these things is very hard. So I do think that by saying like, "Hey, we're..." By pounding their chest and saying, "We've created this God model that's very dangerous. Anthropic has painted a target on its back." I think the flip, the inverse of this whole thing where you could say, "Oh, well, that's like a negative for Anthropic and the labs and IPO prospects and everything like that." The massive positive from this is this idea that with the right amount of test time compute, basically the right amount of inference thrown at a given query into a model or a harness with an open source model, you can replicate these results. And Noam Brown...
Speaker 3Sorry, the balloons are blowing up here, guys. Oh my God.
Speaker 1That was... I signed up for test time compute too. Yeah. Yeah. It happens.
Speaker 3Okay. Keep going. With the right amount of test compute, we can keep this thing on the track. I'm interested.
Speaker 1Keep going. So with... Like Noam Brown tweeted about this recently where he said, "The way we think about these benchmark cards, these scorecards where it's like this model has larger numbers than the last model, AKA good." He's like, "It's all wrong to think about because the models actually perform very, very differently if you just continue to throw more compute at it at test time, at inference time." And so the really, really good thing for, I think, all the frontier labs. And just the inference market in general, companies like ours, like Fireworks that run inference platforms for their enterprise customers on open models, all of these companies that have to do that are in the token path is that it's very clear that if you just throw more test time compute at any frontier level model, you continue to get results. They haven't found where the wall is, where you stop getting better results, the more test time compute you throw at it. And so there's been all of these like step function increases in how much compute AI models use. Yeah. Yeah. Yeah. I mean, it's like very simple autoregressive, next token completion to these agentic models that do chain of thought and agents use an order of magnitude more inference. And now you have this whole thing around, well, if you want to have mythos like performance, just spend a lot more compute it, do a lot more inference, spend a lot more tokens. And so I think that the other side of this is that even though we've had such an insane growth in the amount of tokens process for the industry over the last three years, we actually might see another kink in the curve. More test time compute creates more and more of these unbelievable results for capabilities and things that you can do with models, whether or not they're, you know, fable or mythos or whatever open AI comes out with, but open source models as well.
Speaker 3But what you're saying on that is, and yes, and I've seen the same statements, which is that the mythos can get there quickly, but, and it actually is the defense that Dario is offering is that a open source model, just given enough time, we'll find many of the same issues. Because what it means logically then is, you know, if you can't have, if we can't have mythos at all for national security. Then we can't have open source models, provided if they have more than X compute. And you're right. What it points to is this is going to be an unsustainable medium term position. It's hard to imagine unless the US government really wants to start regulating AI up and down the board. This is going to be, it's going to sound like it was an easy decision one Friday afternoon. It's going to be a very hard decision to implement it with any degree of coherence across 12, 24 months. And for what it's worth, I think that's because the original premise, which is that this is dangerous is in and of itself incoherent. There are real problems. There are risks, but this is where the cry wolfism, overwrought cry wolfism is binding everyone in the ass. And I think we're just going to have to figure out how to do it.
Speaker 2That was going to be my question, which is like, just to what extent is it a model capability question versus a miscommunication question from your marketing?
Speaker 3Well, it is a model capability question. They can do the thing that they've said. And it's also true that, yeah, Devon's point, while the open source stuff can do it, a non-frontier model can get to the same place. You know, I love this. I often use this expression, you know, the Russian army quantity has a quality all its own. And the ability to find a thousand bugs in two hours is more terrifying than the ability to find a thousand bugs in a thousand hours, right? So it was, there was an issue that had to be addressed here. It wasn't just marketing. And oddly enough, in a weird kind of way, they tried to address it, but I chop it credit. One thing in politics I often notice is that good intentions bite you in the ass more than evil deeds. Machiavelli explained it years ago, right? They were trying to do the right thing and then they got caught in this buzzsaw of we've warned this is dangerous. But now that you have an instance of it, people are coming at me. And the real truth is they're trying to say it's dangerous, but we're the good guys. So trust us. And I think the stepping back comment is this. Private citizens don't get to run around and say, this is really dangerous. This could be awful. This could cause world damage. Oh, but by the way, we're the arbiters of the decision making. You've made yourself part of the political process because you claim to have invented the most dangerous things in the atomic bomb. You are ipso facto political and you better get good at politics really fucking quick.
Speaker 1Zooming out. I think the most important thing in all of this is that we step back from from entropic and realize that the models are to place now, whether they're from entropic or elsewhere, where they can autonomously find and chain multiple vulnerabilities together and orchestrate an attack autonomously. If they do get good enough where they can take down parts of digital infrastructure that run the US economy or Western economies, then there is some concern about a nation state adversary like a North Korea or China or Russia having those capabilities. So it's a real conversation that we're going to have to have as, you know, Western democracy very, very soon. And we probably should have already had it. And entropic right now is the poster boy for it because because the relationship that they have with the administration and the things that they've said. But this is true for AI now. This is an AI discussion. This isn't an entropic discussion anymore.
Speaker 2Yes or no. Before we move on, Gene, I'll go public this year.
Speaker 3I mean, statistically more than 50 percent. Yes, because in a world where this doesn't get solved for four or five months, there's so many other problems that our heads are going to hurt. So you have to say in a world where it does get solved, then yes, they should go public. So still statistics. But obviously, if you're again, I'm just a simple Bayesian. If your prior before was 90 percent plus, which it should be because we've just seen a stellar reception to a company that even though it was called SpaceX, turns out that the vast majority of the market is in AI, at least they frame it now. You've just seen that have a stellar reception. You'd be pretty much of an idiot to see SpaceX trading 2.4 trillion and to say, as the board of entropic, let's hold on for a better market, of course. So your prior should be they're going public with a 90 percent certainty. So this thing is a significant wrinkle and they're going to have to work through it. So it lowers the probability, but still way more than 50 percent because they'd be crazy not to.
Speaker 1Yeah, I think they will. I think one last final anecdote and we can move on is, I mean, obviously, they're already on this incredible trajectory that's been reported on publicly. We had a founder in our portfolio when Fable was active, that after a day of using it, said with Fable, they're not going to hit 100 percent. If they hit 100 billion of ARR this year, they're going to hit 150 to 200. And that was just an anecdote from their personal use because they thought that the model was so unbelievably powerful and they were going to spend that much more money on it. But so I think with or without Fable, we'll see. But I think it's about as good of a market as any to for them to go out. And I think the results and the numbers are just going to be eye watering.
Speaker 2I'm sorry, Ev, while you were explaining how America has changed model capabilities, Rory was struggling with European inventions of bottle caps on water bottles.
Speaker 3I'm aware of the European nanny state. By the way, it's really sweet that as an English person, you call it Europe, given that you're not in Europe anymore. But I know what you meant. I know what you meant.
Speaker 2Well, speaking of Europe and to the point that you said there, sovereignty and Mistral investors rubbing their hands with glee at the potential, Mistral in talks to raise $3 billion at $20 billion. They've actually been incredible in terms of their kind of FDE model. They've scaled to over half a billion dollars, some of the biggest enterprises in Europe. Will we have money? many more sovereign models like withdrawal. How do you read this? I think you'll have a push for it.
Speaker 3Even if the European alternative isn't as good as the US alternative, there will be cases where it's not quite good enough, but you don't have the sovereignty risk. So yes. That's just the whole European economy, isn't it? I was getting up for doing the swing. I was going to build up to it, but you just took the words right out of my mouth. Absolutely. No, I mean, there are areas where they're actually genuinely better, but there are a lot of areas ... Europe is still trying to do some kind of GPS alternative. The more we exert our sovereignty in the United States and do this kind of thing, the more important it will be to decouple from it. Would you prefer to have the second best model that you have access to, or the best model that gets cut off once every six months on a random basis? So I think you're seeing it in defense procurement. There's still stuff that you can only get from the United States, but more and more if you can get it from either place, you'll do it. And I think Europe, to the extent it perceives this is important, at the margin ... I mean, it'll be the classic European thing. They'll care enough to fund it, but we won't be able to care enough to find the $100 billion to compete with it. Good for Mistral. They're in a good place. I find it plausible that that would continue, even if it's not the best model.
Speaker 2You think Greece is going to come out with a model soon?
Speaker 1They should. Well, I don't know if this is real or not, but I saw on the timeline that Rio, the city of Rio in Brazil, apparently, post-trained or fine-tuned a Chinese open-source model. And I think that's a good thing. I think that's a good thing. Yeah. And I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. And I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing.
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Speaker 1I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing. I think that's a good thing.
Speaker 3path, it's a failure of the board. Totally agree. And I think they'd be the first to say it. And by the way, it's hard, right? Because they're competing against, you know, one of your very best companies, Sierra. They're competing against Darling's with a very low cost of capital and, you know, and a great new architecture. So, you know, wild success. And they'd be the first to say, you know, congratulations, you've made yourself not a dead SaaS company anymore and you've earned the right to punch against, you know, more impressive people who are in this AI first marketplace. So, yeah, that's what it takes to win. And it's brutal. I like that top decile comment. You're exactly right. It's very true. It's like being able to do that and it's brutal.
Speaker 2If I am a pre-AI SaaS company founder listening, is there anything other than go all in, burn the boats that I should take from this? Be realistic, first of all, about what you can do. Customer
Speaker 3support was a space where you really could obviously add AI, add value with AI, and it was pretty obvious what you had to do, right? You know, there's other areas where I think sometimes they're trying to do a little artificial, I'm going to say almost thing here, like almost trying to do AI for the sake of it versus think what you deliver value for your customer for, right? It may be that in some of the financial accounting plays, it's going to be a longer journey with AI and you've just maybe got to set your stall on that basis and maybe focus more on profitability and steady growth. It has to be situation dependent rather than saying, oh, burn your boat. It's an easy answer to say, burn your boats and do everything, but you should burn your boat only after you've checked where the boats are. And do you want to stay in? Because the original cliche is from Alexander's invasion. Do you want to stay in? Do you want to stay in? Do you want to stay in? This invasion of Persia. Do you want to stay in Persia fighting the Persians? That was more topical than I intended. Sorry, everybody. I'm talking about Alexander the Great here, people. Don't revoke my citizenship. Yeah. If you want to stay and fight, then you burn the boats. If you want to do something else, then you think differently. So be very realistic about what AI means for your particular asset and what AI can do and not do. And then once you do it, I think Anne's right, execute violently to the new thing because you don't want to be the guy in the middle.
Speaker 1Yeah. It is true that I say that, but the most annoying board member ever is also going to go into a company where this isn't relevant at all and say, why can't you do what Intercom did? Or why can't you do what Finn did? And that's also completely unfair to a management team where it's just not realistic. There's been a lot of VC advice around like, oh, if you're a pre-AI SaaS company, you just need to triple your growth rate or get margins to 30%. It's like, well, those things are really hard. I'll get right on that. I would love to grow three times faster, by 30X, but those things are very hard. And so again, all said with the caveat that every company is very, very different. But the amazing thing that I think Finn proved is that there is a market. It's not like, I think some people said like, oh, well, the only thing that these incumbents are going to buy are these new age startups building AI companies if they want to buy AI companies. And I think, I forget, I don't know when Intercom was founded. I think it was 2012 or 2010. 2012.
Speaker 42012. Totally. Yeah. Yeah.
Speaker 1So it's like, that's, you know, they're buying a 14-year-old company. It's an AI play for them. It's not that incumbents aren't going to buy older companies to bolster their AI efforts because it turns out in AI, you can teach old dogs new
Speaker 2tricks. Nice. More money back for Chamath as well. So glad to see that his liquidity is coming this year with Grok and Indica. Was that a Mamoon A, right, at Social?
Speaker 3Yes, it was. I looked at the B. It got done by Bessemer. I went to Hawaii for Christmas and I wanted to deal with Bessemer. Sad face, but good for him. No, it was Mamoon did the A when he was at Social and then Bessemer did the A.
Speaker 2Speaking of turnarounds, that was a turnaround that's been very successful. Speaking of potentially in need of something changing, you mentioned the word Wix. Wix slashes 2026 guidance, cutting 20% of staff, 1,000 employees, and cuts Outlook by 50 million and Revenue by 25 million. What the fuck do we do here? I really like the Wix team. They're really good people. What do we do here? It's hard because, you know,
Speaker 3you look at it. Let me just make the pro case. By the way, for some reason, this is one of the two or three businesses we seem to love to dissect, especially when Jason's here because he's really good at the Replit, Lovable versus Wix discussion. So I feel we give Wix more air to cover, more grief than perhaps they deserve. But I think the two things here, I mean, but there are some things relevant here. One is they did do the right thing. They made an acquisition. The acquisition is growing nicely. It's kind of that next generation website. It's at 100 million, but of course, Lovable and Replit are at four or five hundred million. And Ev just decided to walk away. He's not interested in Wix. I'm just adjusting the window. I'm giving you shit, man. It's a good idea because it's pretty toasty in here. The interesting thing is the stock is now, I mean, they did a buyback. I think the acquisition was a great idea. The buyback was obviously a bad idea because the stock is now, I think, well below half that point and trading at one time's revenues. To Ev's point, if you don't have a compelling AI story, it's just really hard, right? And they're just, in my view, they're just going through the same journey Intercom went. I don't think it's done. And I think at one time's revenue, I actually made a mental note to think, what would I have to do? You know, the bear case is that the website building market, what they did is going to become a subset of the Lovable, Replit, just build me a website. And they just don't have any relevance there because they're just not far enough along. If they can create any kind of leverage, then at one time's revenue, that's actually a very cheap stock. But obviously, you know, it's hard to say things are great when you guide down, you bought your stock back, and now it's at half the price. So it's been a tough period. I wouldn't be giving up, but I'd say this, this is one where, to Ed's point earlier, there's clearly a relevant AI story. And not only is there a relevant AI story, there probably isn't a story without AI. They are definitely in the burn the boats because you're stuck in Persia, because you've got to figure this out.
Speaker 1The SaaS market in general, obviously took a huge bath sort of over the last year. And until recently, you know, every SaaS stock was getting, you know, cut in half, cut by 60%, cut by 40%. It seemed very indiscriminate. The nice thing that's happened for the SaaS market and the public markets for software. Over the last like three to four months is that there's now at least a filtering mechanism. And it seems like there are like clear scales. And so you, I mean, you have, I mean, Palo Alto, CrowdStrike, CloudFlare, Datadog, Palantir, all of these companies trade above 15 times NTM revenue. And so the premium stuff is, is still being priced at a premium, which is nice because for a while it just seemed like, wow, like, I guess this, this category is just dead. And I think now there's like very clear kind of scales at, at play. And we were actually going through with, with the founder and trying to like actually collate, well, like what, what do public markets want to see? Like, what are the good attributes and bad attributes of any of these companies that impact their multiple? I I'll just go through a few of them. So on the good side, you know, all these companies that are trading well, they have a usage based component that scales in relation to tokens or correlated AI. Yeah. Like Datadog and Snowflake are good examples of this. Two is that there's a clear AI tailwind for the use case. So cybersecurity is, is, is a big one there. And then a third good one is that you can actually leverage AI to accelerate share gains. So maybe you're not the market, leader, or you're a faster growing, smaller company. And if you are a newer company that has better AI than an incumbent, you can actually accelerate your share gains, share gains from that on the bad side of the T chart. The first one obviously is perceived business model exposure. So like you're a perceived model in an economy going down this AI outcome oriented or token oriented business model path to, you have an easily replicable product or easily replicable value with coding agents or something else like it. So this is obviously where, where Wix gets really dinged, obviously into it as well. I think a ton of into its profit comes from TurboTax and everyone's scared now that TurboTax, you know, will become extremely easily replicable in the future. A third bad thing is like, if you're already the market leader and you only have share to lose, if you're already the incumbent, that's a really tough place to be because there's not really share to gain. There's only share to lose. And AI is a great way to, for startups to take share from you. And then the fourth is like, if your product's just lame, ultimately like enterprises have an IT budget, there's like a, there's a pie that equates to a hundred percent. And right now, let's say on average, that pie is 10% AI spend and 90%. It's other like software. People probably want to make it more weighted to AI, like maybe even 50, 50. So that 40% from 90% down to 50%, it's got to come from somewhere. So if you just have like a lame product that was already on the fringe fringes anyway, you're going to get dinged in your, your retention is going to go way down. So if we take like Wix through this, you know, everyone has some mix of these good and bad. And what the market is doing is weighing. Do I believe the bad is worse than the good, or the good is better than the, than the bad. And right now for Wix, it's like massive replicability problem. They were an incumbent that is perceived to have a lot of share to lose to AI players that are coming up in the market. It, some of their product does have business model exposure and like the product is, you know, at least relative to the product experiences of lovable and others is sort of laying on the good side. You know, they, they did the base acquisition. They have a usage based component. There's an AI tailwind for what they're doing, but the net of the scale is people are seeing way, way, like there's way more credence to the bad than there is the good. Figma also has Figma make, like they're also in this market. They have this usage based component now and people aren't giving them credit for that because they think the bad outweighs the good right
Speaker 2now. You're essentially getting the core business for free though. When you look at base 44 at 150 million of ARR and you look at them being priced at 10 billion, you're pricing base 44.
Speaker 3But if you agreed, but if you step back on that and the two, the two of you, what Ev outlined was your pros and cons of a business. And he didn't mention the stock price once. He basically said, these are good things to have. These are bad things to have. And then what happens is the stock market is basically taking all that and saying, okay, you've got six good things and only two bad things. I'm going to give you 10 times. And Wix, you've got two good things and six bad things. I'm going to give you one times, right? And what it means is at one time versus 10 times at a shitty enough price, you can be a value investor. We'll talk about Adobe in a second. And maybe at one X Wix is now priced to the point where logically the expected return at that point should be equivalent to the 10 X, right? But what you're saying is exactly if you're on the bad side of the T accounts, the only forcing function function left is price, and price has its wicked way.
Speaker 2If you're a founder, price has its wicked way. Yeah. I'd be lining up the debt providers and the finances to take this far.
Speaker 3But this is, I'm going private. I could not agree more. If I was running Wix, instead of having wasted that buyback, like, actually, maybe the buyback. Because you're right. If you're going to break your pick for the next five years, and they're willing to give you the company at one time's revenue now, well, screw it. I can break my pick. Find your silver lake, take the company private. That's exactly. That was the sweetheart deal of all sweetheart deals, which is why he's, you know, top 10 on the billionaire list. Exactly. If the market doesn't like me, well, I like me, right? And I fancy my chances. So, you're right, actually. Maybe we need to go do our PE roll-up of Wix with the boys and just call them and say, because at one time's, you know, right? Don't give Harry ideas. I see him writing down a note. I mean, totally. He'll be on the train here.
Speaker 2I'm excited to have Avishai on the show in the next few weeks. Yeah, good. And look, I mean, you're- Actually, I am. It's true.
Speaker 3And you should be. Look, I mean, genuine, I have a ton of empathy and respect for you. You know, you build this thing. I mean, just capitalism is built. You build this thing. You're doing a couple of billion dollars in revenue. You know, the architecture crank turns. And suddenly, you're, oh, my God, I got to do it again? And I have a ton of respect for anyone who says, damn it, I'll strap in and do it again. It could be Webflow.
Speaker 2I mean, that's-
Speaker 3Well, I think the genuine comment on that is, if you're going to be in this situation, I actually think it's interesting is that being private, late stage, with a lot of venture and high valuation, I'm not commenting on Webflow in particular, but you're right. That's even tougher, because at least these guys have capital and are profitable. But yeah, it's- It's a haul if you're-
Speaker 2Or like, sorry, I'm not paying for it, but like Squarespace, you haven't got the base 44 acquisition and just have the legacy business.
Speaker 3Yeah, it'll be hard. They had a takeout. They're private. I can't remember who bought them. One of the PE guys. Francisco or someone. Yeah, yeah, yeah. No, that's a tough add. There's no price at which you want to have six times revenue in debt.
Speaker 1That's also why I laugh whenever you're like, where are the PE firms? Like, why aren't they buying all these things? I'm like, they bought them all in 2021 and 2022. And now they're dealing with, you know, companies that are probably worth 30%. Of what they bought them for.
Speaker 3Agreed. Just because you were wrong to pay 10 times in 21, doesn't mean you'd be wrong to pay one and a half times in 26. But you have to have a real strong stomach to say, you know, I know this hurts like hell, guys, but what we really need to do is maybe, you know, but yeah.
Speaker 2And just the opportunity cost. You're going to have to grind it out.
Speaker 3PE guys are good at grinding. That's what they do. They love the pain. They love the pain. Remember, he's a value investor. We got a value investor at Benchmark. That alone makes me happy. He knows how painful it is. Which is why he's-
Speaker 2Well, if you're a value investor and you were saying about the bad on the kind of negative side, Adobe beats and raises, but the stock falls 6% and the CFO announces he's leaving.
Speaker 3I think you should reverse that order. The CFO announces he's leaving. Let me give you a clue. When you have a turnaround story and a complex story and the first sentence is the CFO is leaving, no one was on that call for the second sentence. They were pressing the sell button. Yeah. I mean, but yes, keep going. Sorry.
Speaker 2No, no, no. You're absolutely right in terms of the chronology. But CFO leaving for Marvel, they have a lot of the characteristics that you mentioned on the negative side in terms of seat base, large dominant share of market, could be pursued as a slightly lame product with regards to a lot of the generative AI that we're seeing. Is it just, to your point, it takes a lot of negatives and not a huge amount of the positives?
Speaker 1I mean, if you went through 820, I actually had, knowing that we would talk probably about the SaaSpocalypse, I looked at Adobe and I was like, this thing trades for eight times LTM free cash flow.
Speaker 5Eight times. Eight times. I'm like, oh. I was like, oh my God. It was like a heart attack.
Speaker 1Yeah.
Speaker 3That's the value investor. His little Graham and Dodd.
Speaker 1Totally. It's stunning. It's absolutely stunning. At the same time, again, like one, yeah, I mean, we don't need to go down the list again, but again, it's like they have basically every single one of the bad attributes. They're already like the 80% share winner in all of their markets that they compete in. They only have share to lose. The product is getting increasingly replicable. The terrible business model, it's been amazing for so, so long and is now the wrong one for the given moment for what the market wants. And then just very few of the upsides, that no real kind of usage-based components to the business. Hard to argue that their products get in the ITL one that they can capture because they don't have the talent internally. I think the other, so the other big vector on this that is, I think, somewhat under-discussed is that if you talk to hedge fund managers right now and you talk to them, like if you talk to like a TMT hedge fund manager, what a lot of them will say, I think Brad, you know, from Altimeter has said this publicly on podcasts where he's like, look, like, yeah, I can go buy Adobe. We're eight times free cashflow with all of these problems that we don't know how they're going to resolve, or I can go buy NVIDIA for 16 times earnings. So like, who's like the poster child of every single tailwind that we're talking about in AI that has, you know, 80% share themselves of the most important piece of the compute tech stack. And so what I've heard from a lot of public managers is that SaaS, you know, maybe, maybe it's oversold, maybe it's too cheap, but why does it matter? Like, well, it's just too hard. You can buy these memory stocks for very cheap. Multiples you can buy. And like, if you look and like, again, all these, all these guys and gals in the hedge fund industry, they're graded on how they do versus the index. If you look at the SOX index this year, I think it's up like 45 to 50% this year. Whereas like the SaaS index is probably down 20 to 25%. Even if you're an expert in SaaS and you got the good ones, you've underperformed the semis index. And so their job isn't to be smart, you know, on SaaS, their job is to make money and they can just invest in semis right now and play that.
Speaker 3Let me give you that number for five years. Cause I don't have a whip maker. Cause I'm on the road today. But when I do this show, I have my ETF list and the five-year return from WorldCloud, which is the definitive ETF for SaaS is down 30%. And the five-year return from semis is 2.7X up. It's just been a great trade every time. And it was one month just recently where the SaaS thing bounced off the bottom and outperformed for a month. And then even the last two weeks, it's kind of relative underperformer. And with the trend, these guys, the trend is your friend is the first thing that Momentum Traders learned.
Speaker 1I just pulled it up really quick, Rory. Just for. Since you mentioned it. So the Bessemer Nasdaq Emerging Cloud Index over the last five years is down 44%. And the SOX, the iShares Semiconductor ETF is up 325%. And so it's just like, you just like, you know, go short SaaS and go long semis and you've made, you know, better money than any other hedge fund manager in the world besides Leopold.
Speaker 2There's a point there where the trade makes sense.
Speaker 3Yeah, there is. So you ask yourself, in each case, you have to ask yourself what breaks that trend. And it's a different thing for each. What breaks the trend. What's the catalyst? Yeah, the catalyst on the semiconductor CapEx trend is a flattening out in CapEx. If that happens, then all bets are off and those things are going to go down so fast and hard. So that's a call you can make. That's one call you can make. The thing that breaks the catalyst on the software trend, I don't think there is a single thing. It's what I've said. There's a bunch of sorting going on because this is the winnowing of the week, right? It's never pretty. And the guys who are individuals get through the gates to be winners, right? And, you know, the data dogs, you know, are kind of on the positive side. And, you know, are starting to outperform. And for something like Adobe, I actually think there has to be an institutional catalyst before there can be a pricing catalyst, right? What is that? I think you need someone like Owen running it. Because I'll tell you, now I've got a vent. The one thing, and I don't like to pick on amazing companies. I mean, I was around when, you know, one of my partners years ago was early at Adobe and she recounted, you know, to your point, they had 90% market share and were stuck just below a billion dollars for four years, right? Turns out when you sold everyone PDF, you get stuck. My vent. My vent on that company is they have milked their users for so long that it just feels a piece of financial engineering. Interacting with the product, it's always the login or crap. I don't even understand the licensing model. I don't even know what I can use and not use. So my sense is they've, it's like being a PE owned without ever being PE owned. They've extracted every piece of value. And someone's going to have to go in there and kind of rethink through what it takes to make their users love them. And until they do that, I'm going to have maybe a 10 times or eight times it's cheap and shock how it might go to 10 times. So you might get a one-off 20% pop, but to Ed's point, it's just a lot easier to own NVIDIA and have it go up 30%.
Speaker 1Rory, are you calling your shot as, as Owen is the next Salesforce CEO? Is that where you're going?
Speaker 3You know, it's been my experience having sold companies to Adobe and Salesforce and many things like that. One is I've often sold, I've sold companies in the past where I kind of go, that person could easily run the acquired company. Most times it doesn't happen. It's just too hard. You've been your own boss. It's too long. I mean, you know, Brett, you guys know so much better than me. Brett Taylor could. You comfortably have run Salesforce, but it turns out there's someone running Salesforce who appears to like running Salesforce and has done it well enough to keep running Salesforce. So no, for that reason alone.
Speaker 2I just know Baniyof, there's no way he's leaving unless he's 80 and 90 and in a coffin. This guy's loving life more than ever in the AI world.
Speaker 3True. But yeah, but as a comment, I don't know if you see this, Ed, but we're saying it. One of the smarter things we've seen some of our good companies do is some small acquisitions building in founder teams. And one of the best ways to Ed's point. To do a little bit of a cultural change can be picking up some of these founder-led early AI companies, and you should be doing that. So I think that is one way to get really good talent in. I'm thinking of one of my companies, a really well-run company. It's an AI company, but kind of pre-gen AI. They've done a magnificent job of hiring, doing two or three small acquisitions. And you fast forward a year, and each of those guys is running a $20 million BU. And you're like, wow, that works. Going back to the Adobe company, I don't know how they do it, but it's not more the same. If they hire more financial engineering units. Shoot it in the head. They need to hire someone who says, I know where this thing needs to go.
Speaker 1I think this is where, this will be my last comment on this, but this is where it gets really, where this cycle becomes really insidious to these incumbents. Because I think in 2021, when your currency as stock is worth so much, you can do a lot of these really ambitious product acquisition things. So you can have the square cash app deal. And it's fine, because even though the stock goes down later, it's like, well, at least you paid for expensive stock with expensive stock. The really tough thing is when the pair trade. where like all of the AI values valuations or like are going like thermonuclear up and your evaluation is getting cut by 60%. You can't buy anything. You can't buy anything. Like you want to know what would make the stock price go down another 30% if they paid like, you know, if they paid a quarter of their equity for some AI company that like public shareholders might not even want to buy. And so all of the really amazing AI, like they should have done this two years ago. They should have robbed the cradle of all these AI companies before and overpaid when they were still like C to A companies and like gone in AI product suite. They failed to do any of that. And, you know, of course they sort of attempted with Figma, even though that was kind of before the whole AI wave, it was pre-ChatGPT, but like they failed to do any of that. And now every single good AI company that they could acquire is too big for them to acquire and they can't do it. And so then it's like, well, we don't have the talent internally. We can't build a good AI product portfolio because we don't have the talent. The talent's very scarce. And now we can't acquire the talent because all those teams are too expensive. I'm not, you know, you can't pay $10 billion for a company that's at 200 of ARR because it'll just nuke your stock price more.
Speaker 3Which is why, going back to the first principles, that people running the company have to be good enough and close enough to the metal to themselves know what to do, at least well enough to have a product vision, hire people, as I said, maybe smaller acquisitions. If you're trying to do it from a McKinsey management perspective, you're doomed because you don't, I like what you said, you've no buttons left to press. You had buttons to press in 21. Now you don't have buttons because the kind of things that you can do, like obviously if Adobe bought Runway or Higgs field or pick your button, you don't have buttons. You don't have buttons. You don't have buttons. You don't have a lot of things. Great. But I think you're right. They'd have a shit fit because the only people who own this damn stock now own it because it's trading at eight times cash flow. And if you tell them, I've taken you eight times cash flow and now we're trading at 47 times cash flow because we've just spent all the cash flow and bought this last making thing, they're going to have a conniption. You're right. You can't do that. It's a tough place to be. It's why, again, I want the Wix guys to make it because they strike me as knowing what they have to do. They did the small acquisition.
Speaker 2They've just got to grind it through. They also have a phenomenal acquisition machine. The CMO, that's amazing. Any that I have missed, any that you think we should
Speaker 3discuss that we haven't? Well, there's lots. I think I'll pick on just one random one. I think I saw Standard Bots raised, which is a company raised $200 million. I do a lot in robotics and I just like those guys. I mean, I spent a lot of time talking with them. I had something else going on and they wrote a really good piece that Paki McCormack published, right? And what I liked about it, it was calling a shot against humanoids. It was basically saying for a lot of these use cases that humanoid is a mistake because a humanoid is putting a whole bunch of money into legs, which maybe you don't need for most industrial manufacturing. And what these guys do is they built a next generation robotic. The bet they're making is, so you have the humanoids, which is a lot, and then robotic foundation models. You're putting a lot of money into a lot of enabling technology that maybe you don't need for the task at hand. In fact, you're overscoping it. And then on the other extreme, you have the old school robotic arm manufacturers who are doing all of the current robotic work. Most software vendors are using one of those old arms. And they're basically saying that somewhere in the middle, you can build this next generation, kind of the analogy they use. Like, you know, you have an integrated hardware software stack like Apple. They're going to do the same thing for a robotic arm that can be integrated. And they think they can take a lot of revenue that way. And what I liked about it, it's a pragmatic play. So I think the case they articulated against humanoids in the short term, I think is more correct than not, which is it's overkill for many industrial practices. And what you really want is a thing that can see, that can pick things out, can flexibly be trained very quickly, and then can pick things up and kind of do discrete tasks pretty efficiently. So I think it's a good play. It's a US-based arm manufacturer, and we don't have many of those at scale. So I like that deal. I like that team, and I wish them luck. Av, do Benchmark have a robotics investment?
Speaker 1We do. So my partner, Eric Vichier, led the Series A of Sunday Robotics, which is, I'd say, pseudo-humanoid. It doesn't have legs. Sunday AI, I think, is the URL, but it has sort of like a platform that can help it go up and down. And it almost looks like Ness from Super Smash Bros. It has like a little hat and these long arms. It's like pseudo-humanoid for the home. But I mean, Rory's totally correct that I think the two opposing views on robotics writ large, at least on the vector of humanoid or non-humanoid, the pro-humanoid argument is like the world is human-shaped. Like everything, our homes, our factories, our workplaces, they're shaped for humans. Like we've built them so that humans can use them. And so therefore, humanoid robots are going to be able to most naturally interact with the environment because the environment is designed to be interacted with by humans. The pro-non-humanoid argument is a lot of what Rory articulated, which is like, look, like robots are expensive. Like these parts are expensive, like actuators, which are like the engines that provide torque for a robot. They're expensive. And so like for a lot of these use cases, depending on what the use case is, you know, it might be gratuitous or vain for there to be like these expensive legs that are like running around when you can just wheel the thing up to, you know, a warehouse where you're doing pick and pack for logistics, which is like, you know, you take the packages and you sort them. You might as well just have the arm that's doing that. And so I think in general, we as a team, I mean, we talk about robotics a lot. A thought experiment I love asking people is like in the year 2060. So take like a really far out view to allow the supply chain to catch up. What will the ratio be of digital agents to humans? And then what will the ratio be of physical agents like robots to humans? And I think there's like some argument that by 2060 in some places like the US, I mean, obviously like, you know, that there is no ceiling to the digital agents one, maybe it's like 10,000 or maybe even more depending on how the agent landscape evolves. But by 2060, you might have like a one to one ratio of like useful robots to humans, or it could be like much greater, depending on how fast we go. So obviously, it takes longer to scale robotics AI than it does chat GPT, because a robot is not accessed through a website or an API, you have to buy it and put it together and put it to use. But I think that we think it's in terms of the things that are still in the first inning that are going to become trillion dollar, you know, we're trillion dollar companies are going to be produced, we think it's one of the prime candidates for sure.
Speaker 3Look, I'm on the board of Locus Robotics, we have 15,000 robots in the field, we do kind of $180 million a year, right? But it's stunning how long it all takes. I mean, you know, I remind people, the total number of robots in the world today, like in total, about 3 million. And there's, you know, a billion people doing real work. So you know, and those robots have been around, arms have been around for 20 or 30 years. So in 20 or 30 years, we've replaced less than 1% of the humans doing manual work. It's a long journey. And what you see is, when you get to the front line, where these companies are actually kind of trying to do the work, you just see frankly, how good humans are, how flexible they are, how for anything other than very repetitive tasks with a large quantum thing, you know, the human, the buyers, the funny thing is, in software industries, the buyer is typically a buyer of an industry that themselves have high gross margins. So they're kind of a bit loosey goosey on the ROI. Yeah, you're, you're a high value knowledge worker, we're paying you 300 grand, fuck it, we can give you a 20 grand piece of software. Let me tell you, when you're running a warehouse with 400 employees, each of whom is getting paid minimum wage for pick and place, right? You know to the penny how much labor costs. And if the robot doesn't cost half that, you're not going to switch. So it just takes longer to adopt. I do agree. I love the long term, that's why we did four or five, I have four or five different robot deals. I love the long term trend. But I've been sobered. I've internalized that it's a long journey, right? Not, I don't think there would be, I could be wrong on this. And so I'm interested in standard bots. I mean, those guys met a very compelling or this could be the sweet spot. I'm watching it like a hawk, right? But where you go from what we have now, which is steady adoption to some kind of takeoff. I mean, Optimus, Tesla's that bad. If Optimus takes off, for example, that could be it. But you know, what you see when you get out on the factory floor is finickety little stuff that you wouldn't think takes time and kind of you go, Ooh, that was the issue. I didn't have that in my investment memo. I have one robot company now where the biggest impediment to them getting a very large order is that when the poly bags aren't flat, the label reader can't read the barcode. So the whole thing goes pear shaped because you have to have people smoothing them out. And if you need people to smooth them out, you don't need the robot. I'm like, wow, I did not have that in my memo. The whole poly, the poly bag problem. Hmm, who knew? The poly bag problem. But you know, but it's, yeah, love the trend and love the deals in it. But yeah, I thought standard bots is super. And I hope those guys make it. I really liked it. It was a well-designed US, I mean, the arms today, going back to sovereignty, the big manufacturers as German, the Japanese, and the Chinese. I think it's a good thing if we can make a hardware arm in the US that's cost-effective and probably will be less, not as cheap as the Chinese robot, but probably have way better software. And that's a credible bet. Because I mean, I know I'm riffing on this now, but someone did a translation, the Unitry, there's a humanoid company, Unitry, that's going public in China and it's doing 500 million. It's a real company. It's profitable. Most of the humanoids are still being used for demonstration purposes, but there is a trend there where you go, and I had that because that could be where I'm like, you see that takeoff and I'm wrong. So I'm just watching that space. There's a blog post I really love where
Speaker 1it's like a little mini essay called reality has a surprising amount of detail. And you know, it's like ostensibly about like, you know, making a set of stairs, but the whole point is like in the real world, in the physical world, stuff is just really complex. And like, you think it's like, oh, I'm just going to like nail the stairs up there, but then you kind of decompose all the steps, all the complexity, all the edge cases and reality has a surprising amount of detail. So I think that that is what makes us so excited about this moment in AI for robotics though, because for the first time you can actually have an edge LLM on a robot, even though the LLMs have to be much, much smaller than we'd have for, you know, you know, like a frontier digital LLM, because they have to be on the robot itself. There's these really, really, you know, like you can, if you think about talking with, you can do things and like, and they can be very versatile. They can learn from very few examples that like, oh, I actually need to smooth out this label. It's easy to begin teaching robots these things, to be dynamic and to be as versatile while, maybe not as a human for a little while, but probably approaching the asymptote, which makes these things generally useful versus historically, they've been very useful for like an extremely brittle, narrow scope of responsibilities.
Speaker 3Totally. No, we also put some money into journalists recently, and I was just wowed by the demo. It's like, wow, because again, I have bigger robotics companies in the field, and I know, and Evan's exactly right. The good news is they can do stuff, and they can do it at speed and scale. The bad news is it's fairly brittle. In other words, if the process drifts even slightly, there's a little more programming. Well, the next generation of software, which is LLM-based, the bots are way more flexible. Instead of telling it what to do at the individual, you know, move your hand here, it's like, put this thing in that thing, and it can figure it out. And the way you see that manifest itself in a demo is you do three of them in a row, and then the next one, you push it, you move it to a different place, and the machine stops, and it thinks, like the raptors in Jurassic Park, and then it goes, I see it, and it reaches over there and picks. And then you're like, ooh. That's when you see that is the brain working, and that is the future.
Speaker 1Yeah, we took a field trip down to Sunday, and in the basement, all the robots, they were all folding laundry on beds. You know, it was like a ton of these things all like folding. And the Sunday employees were purposely messing, you know, they'd be in the middle of holding jeans, and they'd rip the jeans out and like crumple them and throw them, and the robot would sit there and be like, you know, and I almost started feeling bad for the robots. I'm like, let them finish the laundry, you know? Like, I started feeling, because they have these cute faces. I was like, gosh, let them finish folding the laundry. But they're very patient. That's the beautiful thing about robots. They don't get mad. They don't skip work. They don't do it. You know, they just sit there, and they just keep folding.
Speaker 2In 90 minutes of hanging out with us, we've turned him into Jason Lampkin. Yeah, yeah, yeah. The agent. They don't complain. They don't complain. Yeah, they just want to smell people. They're super easy. They just. Yeah, yeah, yeah. We just want robots. Dude, I cannot thank you enough. It's so great to have you join us. You've been a fantastic guest. Really, you've been a star. Thank you, Ev.
Speaker 1Good to see you, man. Great to see you. I wish I was there celebrating Rory's in-person appearance, but, you know, maybe next time.
Speaker 2No, no, no. We're going to celebrate. We're going to watch. We're going to celebrate, dude. Bring the tequila around.
Speaker 3You're so wrong. I've got to go to a board dinner on a board meeting in the morning. I know, yeah. Tell me about it. But then tomorrow, we'll watch England play Croatia and pray you win. Dude, thank you so much. Take care, Ev. Nice to meet you.
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