Speaker 1I think Zuck's had a lonely stretch. There's a material chance Meta has just a monster AI product on its hands.
Speaker 2We roughly generated 20 plus or minus decahorns per decade for the last five decades. And we generated, what did you say, 42 decahorns in less than a full year of this decade.
Speaker 1I think everyone without massive scale is living a worse saspocalypse than in March or April. I don't think we should be breathing any sighs of relief.
Speaker 3This is 20VC with me, Harry Stebbings. Now, Jason Lemkin, Rory O'Driscoll, the biggest news in tech. What is on the agenda today? My word, the salaciousness. We have Valor Atomics sues its own pre-seed investor day one. And the pro-rata debate that ensued on Twitter. Then we have Meta, Zuck, and Alex Wang. The bromance is real. They're crushing it with Muse Wonder, their new model, just shy of Opus. And then big tech, they go shopping. Amazon in talks to buy Descartes and Nvidia circling around reflection for a whopping $30 billion. This and so much more later today. But before we dive into the show today, every great software company eventually runs into money. Uber had to move it. Shopify had to hold it. Airbnb had to settle it. Money movement stopped being a fintech problem. It became a software problem. And increasingly, God, it's an AI problem too. Zero hash is the infrastructure that makes global instant money movement seamless. One API integration. For stable coins, digital assets, and modern payment rails. So builders can stay builders. Zero hash powers some of the world's largest enterprises and financial institutions, including Kalshi, Stripe, Morgan Stanley, Gusto, and interactive brokers. If you're thinking about stable coins, digital assets, and the future of money, it's time to talk to the team at Zero Hash. Visit zerohash.com slash 20VC to learn more. While Zero Hash powers your crypto infrastructure, Deal helps you build a global. We get it. Global IT can be a headache. New hire in Tokyo, but the laptop, well, it's stuck in London. Someone left the company last week. Wait, is that access already revoked? Deal IT handles hardware, software, and access to across 130 countries from one system. You have the right to be impressed. Brands like Eleven Labs are already managing their global IT at scale with Deal. It's one system, one source of truth, with zero vendor gaps or manuals. So build your global team with Deal. Visit deel.com slash 20VC and start expanding your business today. While Deal builds the team, Framer builds the site. Framer is a complete website platform, not just a builder, so teams can launch and keep improving their sites in one place. Framer is the AI website builder that helps creators, teams, and businesses ship production-ready sites faster than ever while getting every detail right. Prompt. Inspect. Edit and publish in one place at a whole new pace. Agents and humans work in tandem. Agents bring speed and scale. You bring taste, judgment, and control. The work lands on the canvas and stays editable. Build custom code components, manage CMS content, optimize SEO, and audit for issues all in one place. Enterprise-grade hosting, security, and 99.99% uptime SLAs trusted by leading brands like Perplexity and Miro. Learn how you can get more. Get more out of your site from a Framer specialist or get started building for free today at framer.com slash 20VC for 30% off a Framer Pro annual plan. That's framer.com slash 20VC. Rules and restrictions may apply. You have now arrived at your destination. Boys, it is my favorite 90 minutes of the week. We have some big stories. I love the, like, salaciousness of this market. I remember when it was quite boring, I look back. And so we're going to start off. We're going to start off with the news of the day. Valor Atomics sues its seed investor over ProRata. And so the backdrop here is that day one ventures put about a million dollars into the seed and $15 million into the A. They hold about 5%. And the fight is over August's billion-dollar series, be it $6 billion led by Sequoia. Basically, the CEO asked every major investor to take zero Series B allocation. But there's a springboard. There's a springback clause, which basically meant that day one wouldn't relinquish this and basically put up a bit of a fuss when everyone else didn't. How did we think about this? And is ProRata outdated in modern venture?
Speaker 2And just to remind everyone, ProRata simply means if you own 5% of the company, you can get 5% of any round. So you can, quote, protect your ownership. Typically, all major investors get that. It's typical also that a majority of the investors can waive it for everyone. So someone can say, hey, you know, if most of us don't want to do this because we want to do a different thing for the company that's right for the company, normally you should just be able to waive it and then those rights go away for everyone. So it cancels the problem entirely. But then you mentioned that the second thing is you have these weird springback rights, which it's something like if we waive our ProRata rights and then one of the investors who had ProRata rights gets to put some money in, then you can say, hey, you waived, but then you took care of yourself specially. That's kind of unfair. It's not really a fair vote. So I get my springback rights too. And that's what I think they want is it was asserting at one point in time. And there's actually another level of act, but those are the two big rights.
Speaker 1I think as usual in these disputes, no one's 100% right here. It's rare in life. There are disputes where someone's 100% in the wrong. And even when you look back, you might say, you know what? Maybe I contributed just a little bit to that. Here's my read of the situation for what it's worth. Here's the more interesting thing. What happened? Listen, we only can read the tweets, right? And I love the fact that immediately everyone was all over it saying that day one was suing their portfolio company, which was completely wrong, right? It was quite, it's quite the opposite, right? They may have hired a Quinn Emanuel, now a notorious firm, but it's Valor that wants declaratory judgment to move on. They just want an answer. So all of a sudden X decided that day one had sued their portfolio company, which wasn't true. The other thing that I think if I read what Masha, who's my co-investor and owner, I don't know her that well, but I have observed her behavior and she's a good investor. It sounds like to Rory's point, really happened was Sequoia came in very aggressively and said, we're going to make, we're going to make you a great offer. We're going to make you a fast offer. It's clean, it's simple. And just like Sequoia and Index and others do, everyone has to waive their pro rata so that we can get our ownership target. And I can say as a seed investor, this happens all the time. It happens all the time. The big funds, in fact, they put it in their term sheet without even checking it. Their lawyers immediately put in that my pro rata is waived in every single round, okay? So it happened here, probably annoyed day one because they clearly had, even though they're a $450 million total fund, they have more funds, whether it's SBV or whatever. So this annoyed them. They want to do the pro rata. So be it. And then Valor said, oh, we're actually letting one of our investors invest because they're strategic. They're strategic. This might piss me off too. What is, first of all, if they're strategic, they're already on the cap table. You got the strategy. You already got the strategy you need. If they're a new investor, right? If someone wants to invest and help this nuclear startup go further, that's truly strategic, let them the hell in. But this is someone already on the cap table that wants to own more, which I get. That probably means they're adding more nominal value than your early investor, which I get. But this is the whole point, right? This is, you're not supposed to play favorites. And so I get all of it. Having said all of this, I've observed versions of this many times. I've observed VCs suing their portfolio companies for doing the wrong thing. When founders have decided to do this, you just got to get with the program. At the end of the day, when the founders are in the wrong here and the big funds often convince founders to do some things that are a little bit wrong, you just got to get with the program. It's not your company.
Speaker 2It ought to be clear. Say, hey, that feels unfair, but I accept. I'm not going to waste time with Mr. Quinn and Mr. Emanuel. I'm just going to go with it. Is that what you're saying?
Speaker 1You might even, listen, if you feel so wronged, and I'll tell you why I think that day one feels wronged, if you want. If you feel so wrong, maybe you do send a letter, okay? And maybe you don't hire Quinn Emanuel. Maybe you hire Stebbins and O'Driscoll because they're not quite as intimidating. Maybe once in a while, you send a letter, which you shouldn't, but you do, but then you got to let it go. You just got to get in line and move on. It is not your cap table. And this isn't just assets. These aren't just, I mean, the founders have to work at this company for 20 years, right? That's the uncomfortable part. But the fact that they bridged the company when no one else would, led the rounds when no one else would, and then were discarded later, you know, that can hurt. It's happened to me several times and it hurts as a human being. It does hurt as a human. I don't have, I didn't have a hundred, a billion lined up to do the Valor round. Don't get me wrong, but multiple times, I've had three or four portfolio companies where with a small fund, I had to bridge or do an A, B, or C, which I don't even have the resources to do. And then sometimes the founders just forget it even happened. And that would bother me.
Speaker 3I actually agree with everything you said there, Jason. The challenge is you are seeing people like Ali Partovi, who's a fantastic investor, who's made a lot of money for his ambassadors, and he's brilliant. Yeah, I nominated him last year for investor of the year, right? Yeah, come out and say, we waive our rights and we don't think it's, and many great ambassadors support him. There is a moving tide towards pro rata rights not being included. Yeah, but you know why he said that?
Speaker 1It's because his fund doesn't need them. His fund doesn't need them.
Speaker 2Yes, I mean, because you then have the Gary Tan comment on how pro rata rights is what made his IRR and I think initialized one of his funds on Coinbase, right? I think, look, if your model is all seed and no follow, then you can waive your pro rata rights no matter what. I mean, the interesting question is, will the mega fund be waiving its pro rata rights? In other words, is Sequoia coming into this round saying, going to take anything on the follow-on rounds. So to me, I always think anything that a majority can control in a cap table which is heterogeneous, where there's lots of people, should be roughly fair. If a majority can waive pro rata rights if it's good for the company, typically two or three of the VC investors can get you there and it should all be fine, would be my assumption most of the time. I do think for the seed guys, I can see why it sticks in the troth of a seed investor who takes all these risks and most of the deals don't work out and only a few of them work out well and they're going to want to grab some of that when the guys coming in later say oh thanks for everything and now you should waive. So I totally see that.
Speaker 3So is it complete bullshit that we have to just let the big platforms come in with their timesheets that automatically waive our rights?
Speaker 1Look, there's obviously many types of rounds but I would say roughly there's two later stage rounds, okay? There is the Sequoia index or whomever that wants to take all of it. They have the resources, the capability, the fund size and they've been very aggressive since for 20 years. They have the resources, the capability, the fund size and they've been very aggressive since for 20 years, right? These terms are not new. We take the whole round, everyone wins. This is not a new thing. Some funds do that and then or sometimes you'll find other investors that are growth stage that their target's 5% or 7% and all of a sudden everyone gets, can play in the round. It really seems like there's two types and founders get really pressured to go along with the program. That look, the Sequoia brand is super powerful, right? It has been since the 1870s. You're treated with love and you're paraded in the office and you're given, these days, you're given a very generous evaluation set of terms, right? And you're given help and you feel great and I just ask one ask. We have a target, Harry, and we just need to own 15% of the company, 10% of the company. So I just ask that you let us do the whole thing and nine times out of 10, founders agree to it without thinking and maybe that's the right thing to do, maybe it's not. But there's another category of investors that that's not their target, right? There's plenty of growth funds that isn't and it's the way the sharp elbows are in the industry. This is not an industry full of soft growth funds. It's the way the sharp elbows are in the industry. This is not an industry full of soft, cushy elbows and this is a messy, messy way for it to spill out, right? So Jason, you're on the side of day one. I think everyone's wrong here. Yeah. I think it went too far. I think the CEO handled it poorly and said he wished they'd never been an investor when they clearly bailed them out multiple times. That's not cool. And hiring Quinn Emanuel for a very aggressive investor is a step too far. They both did the wrong thing.
Speaker 2Yeah, I agree. Because I think, you know, play it out here. I mean, because, I mean, now down in the weeds, what are you actually going to win here? Whenever you start an argument, and I do this a lot too, you forget to ask yourselves, what are you going to win? First of all, you've waived your pro rata rights. So you won't 5%. You're not going to get 5% of the round because someone's waived the rights. Once that's happened, it's all up for grabs. The springback is only proportional to how much the other person who got to come in on springback rights puts in. In other words, if the strategic got to put in $5 million, then your ratio is relative to that. So it might be a whole ton of money anyway, right? Jason: Right. So you're suing for the right to get $10 or $15 million in at $6 billion pre, when you already own 5% of the company, which is worth $300 million. What are you doing here? Even if it's $100 million, right? You have your win. Picking the fight's a mistake. Whenever you pick a fight with a founder, and occasionally you do it when you're not thinking, it's just not worth it. I'm kind of with Jason. Both people can be intellectually wrong, but pragmatically right. Pragmatically, this is a, you know, why and say I'm hurt and then move on. Jason: We've left out the whole Russia-Epstein dimension. There's a whole bunch of noise around that. That's very Twitter-centric about day one, and I know nothing about it. I'm going to acknowledge it, and I'm sure at some point it'll be used in the defense. I think, forget that, leaving that aside even, I think the pragmatic thing is, what are you fighting for relative to what you already have? Why are you doing this?
Speaker 1Jason: That's just my life lesson is, listen, if you are "wronged" by a founder as a VC, in fact, it happened to me once with Harry years ago, raise it once and let it go, raise it once. I made this mistake once years ago. Around years ago, Harry doesn't even know, he wrote a small check in to a company he didn't know, and a very large fund. This is one of the rare cases where I wanted my pro rata. It was important to me. I don't really care after the second check, but I needed to get my second check in. And I love this guy, Harry Stebbings, but I get an email that Harry's invested in the round, and I'm cut back to zero. And I'm like, I was the only investor in this company for years. I bridged you. I helped you. I've been the only one. And I love Harry, but I know he has this fabulous podcast, but I don't know if you know him, but I know he has this fabulous podcast, but why is Harry getting an allocation and I get nothing? This is a true story. When I said it that way, and I shouldn't have quite said it the way I did, it was so obviously wrong that Harry got his allocation that it really bent the relationship with the founder. It didn't break it, but it bent it, right? Because there was no good answer to why Harry gets his allocation and I don't. And I learned from that, don't even say it, because the decision's been made. It doesn't matter if it's right or wrong. Let it go. It doesn't matter.
Speaker 3But Jason, I felt a real bond with you as a real investor. Yeah. Jason, I felt a real bond with you as a real investor. result of that. You didn't even know what happened until today. Say that Harry.
Speaker 1This was five or six years ago. You never even knew until today.
Speaker 3Dude, I have no idea what company you're even talking about right now. I hope it's a good one. It's a good one. Yeah. Oh, good. Then fantastic. But you got to let it go. You got to let it go, right? Jason, I thought that was incredibly nuanced commentary, by the way, from you on that.
Speaker 1I was very impressed. The interesting thing for this, everyone's so biased on this issue. I've never seen more self selfish takes on Twitter that are seen as generous. Like, you know, I'm only a pure seed investor. I don't need pro rata, right? And then you see other folks who are like, this is the most important rights under the constitution of venture capital investing. You peel the layer back, everyone's biased in the answer they give. It's just, you can't get a straight answer on this, right? The only thoughtful answer I ever heard, the last time this issue came up a couple of years ago, I remember what Keith Raboy wrote, which was, I thought a simple answer. He's like, you could get rid of pro rata, but it's core to our business model is larger funds. Maybe it was at Founders Fund at the time, right? And he's like, I just have to pay a much lower price then, worst case, right? If I'm investing early with an expectation I can deploy out later, I'm comfortable overpaying in the early round for my pro rata. I'd have to pay like half the price I'm paying otherwise. Are you comfortable with that Founders? And the crickets, no one set up, I'm willing to raise it half the price for no pro rata.
Speaker 2Yes, you can value an option, you're exactly right, Keith's right, you can value an option and deduct it from the price. You're exactly right. It has a value, right? You know, and it is one point, as I said, and you said it, Jason, all the people out there, even the megaphones who are coming in saying, you guys should waive your rights, ain't fixing to waive theirs, which should be a clue about the real value thereof, right?
Speaker 3You waive, but I ain't waiving mine. Moving swiftly on, I love the bromance and partnership that is Zuck and Alex Wang. It's like uplifting
Speaker 1in ways, they're cool to see together. I like how they match, that's my favorite part, the outfits match.
Speaker 3Did you see Zuck drinking the Guinness in the cheeky pint? And then he pulls away, and it's like clear that he's never tried Guinness before and he hates it. But Meta is back at the frontier with a new model, Muse Wonder, just shy of Opus 5.5 on independent index. Let's start there, I don't want to add too much. How do we think about this, guys? Another meaningful movement from Meta into the model layer, even more pros for Zuck? It's a zero. It's a zero.
Speaker 1Yeah, because there's no API, we can't even use it. It's only for interest. It's only internal use by Meta. This is the most performative eval I've seen to date of a never-ending spiral of performative evals. I'm not saying they're not nominally true. I'm not saying that you don't want to celebrate the team, congratulate the team, you do want to do it. Clearly the team has done good work at some level, right? For the show, I'm like, okay, look, I'll hook it up. You can't use it. You can use it in Muse. So what's the point of a model that allegedly has parity for the same price, it's not even cheaper, and you can't use? This is the height of performative evals.
Speaker 2It's available in Muse code. It's set on an API as well. I didn't check the API. Are you saying it's not up yet? You can't put it into your own app, no. Okay, got it. That's a fair comment from a business impact, but nonetheless, you have to give him credit for getting at the risk of sounding like someone we all know back in the arena. They were competitive early on with open weight, then they kind of faded back way to the back of the pack, and now they're upfront again, notably with closed source models. So we've decided that if we're going to spend a hundred billion dollars, we at least be able to charge for the damn thing as the takeaway. And it'd be interesting to see if anything comes to the enterprise business, but at the very least, the Muse instinct war will now be powered by a super modern model. But yeah, I thought that's the takeaway. And yeah, $12 billion got you more than you thought a year ago. Yeah. And to the body language
Speaker 1thing, got him a right-hand man. Yeah. And great tweets. That's what I saw on the cheeky pipe thing. I think Zucks had a lonely stretch. I think it's been a tough job. No, no, it's hard being a found CEO. It's been lonely. And I think it's been lonely since the beginning. It's been lonely before the IPO. I think he had Sheryl Sandberg back in the day. He's had others. But clearly, it's not easy to pay someone $10 billion and have them stick around and work that hard. It's easier said than done. And it's even harder to find someone you can truly trust in that body language. It's key to making this work, right? I know he's got all the other folks, the Nat Freemans and the Daniel Grosses and all these guys, but hard to get a right-hand person. It's hard. So I think that's the untold story. To Roy's point, this may have been a great deal for scale. We almost laughed at it when it happened. Not literally, right? It may turn out to be the next WhatsApp or Instagram. But the more interesting thing, I wasn't that impressed with the model I can't use. Hard for me to get too excited, right? The fact that it's just going to make the Muse app better, though, is super interesting. The world changes so fast, but I think there's a material chance Meta has just a monster AI product on its hands. The amount of investment into it is so high. The capabilities are so high. The autonomy is so high. And now you're going to make it 10 or 50 times more powerful. I mean, this could do better than the AR VR goggle stuff the amount
Speaker 3of Muse and Instinct competitors right now is pretty astonishing okay big tech goes shopping baby we have two rumors that are circulating obviously we don't deal in rumors so I'd love to start with the first one reflection which for those that don't know is a fantastic team building open source models in the US backed by Sequoia I think the last round was at 25 billion dollars or so and the rumor is that Nvidia is buying them at a 30 billion dollar price this is on the back of them buying Poolside for 12 billion dollars which is in the open model game as well guys how do we analyze Jensen further going into the open model space yeah and by further
Speaker 2just to be clear you're you're reminding us that they already bought Poolside they already have their Nematron existing model and I think the answer is as we've discussed several times if if you're in the chip business and all you know and you've got some of your biggest customers are close source model companies zooming out and buying them at a 30 billion dollar price if you've got a pile of money that's going to go into that collective pool it's in your interest that more of it stay with you and the chips and less of it stay with the model companies right so by definition you love open source model and only one chip provider just like on the other side of the table the model companies love close source models and everyone having their own chip provider so it's you know we're friends we're the best of friends we lend each other 100 billion dollars or so but we're watching you closely and we want to be able to fight back if you get margin greedy so it just all makes sense do you think it'll go through when you've got five trillion dollars if you want to buy something for 30 billion dollars you can buy something for 30 billion dollars whether or not there'll be that whole pushback after the grok thing will the structure of an acqui hire work now or will there be pushback who knows the world is pretty busy right now it's not like these next two months are going to be idle time for the U.S. government so who knows but I think if you're on the board would you say sell or would you say reject or I'd hit the bid because they're amazing companies but the standalone business you know if you have an open weight model you know you're relying a lot of the monetization is inference are you in that you know I I've always thought open weight is really exciting but how does it work monetarily you know if you're getting these kind of excess prices the value to the acquirer is very high and the market cap of the acquirer is very high this might be a moment in time that doesn't come
Speaker 1back it's also honestly it's I have been on the other side of it it's very stressful to say no to Nvidia knowing that they're going to directly compete with you and promote your competitor if you like we're doing this we're investing 50 billion 100 billion in our own open weights model U.S. based open we're going to continue to do it this isn't a one-off and you have a chance to take seven or nine million but if you don't we're going to be a bigger and better competitor it's not it's not as simple you can say no but it is a little scary it is a little scary when you say no and they're going to buy other people and get bigger and bigger it doesn't change the game but it as a founder it certainly weighs on you when you get that build by our sort of threatened with the smile message right yeah so I would take it unless you're confident you got to have the winning hand and you know we don't know where it's going to go but you know Salesforce announced they've got their own models that are built on Nematron and built with Nvidia you got to predict where this is going to be in 18 months with Nvidia putting all of its software engineers and all of its team behind it right this is a software company not just a hardware company you could imagine that the moat here between software hardware model is so powerful that in 12 or 18 months why would you want to use Nvidia any other sort of open weight open model other than Nvidia's like today doesn't it doesn't seem logical but I could imagine it being the case in 18 months it's such a perfect combination
Speaker 3does it make thinking machines more or less attractive at 44 billion which is the round
Speaker 1that they're raising now do you get pro rata rights in the round do we have a sense do we know very good question now let me just check my price substantially to Keith's point
Speaker 2as long as there's either a larger acquirer to get pay more or an obvious clear business model I mean it's not going to be the same as it is right now it's going to be a little bit different from the last time I've been doing this I mean it's going to be a little bit different from the last time I've been doing this I mean it's going to be a little bit different from the last time I've been doing this I mean it's going to be a little bit different from the last time I've been doing this where the early guys made a ton of money and then everyone after that kind of sorry they're still in it it's also situation dependent it's useless to have an ironclad rule you know you just got to know which the game here is and again I go back to you know I believe thinking machines has grown nicely in revenue but you've got to have a lot of clarity on revenue and revenue visibility to make that call now you know we're just going to see what's going to happen in the next couple of years I mean it's interesting with recording on Tuesday publishing on Thursday and on Wednesday Anthropix doing its investor meeting and I assume the Q3 revenue numbers will leak within 24 hours so you know it's not like there aren't big revenues attached to these businesses they're the biggest revenues ever seen but the only question is you know how will it shake out how will it shake out for you know one level down like thinking machines
Speaker 1the sort of poolside why we're selling memo that we just couldn't get enough compute we it does sort of it's not as simple as 44 billion versus whatever can't can you even get the compute to be competitive like I don't know I don't know I I you need someone that's even closer to it than I am but my gut is no my gut is you can't get enough compute to be competitive everything's being taken right even uh Anthropix reaching out to Muse seeing that Meta can we get some of your computes right maybe they'll give it to thinking machines I don't know but that war has just begun you can't you can't even get memory let alone compute it's not as simple as software right so
Speaker 3I don't know it's not as simple as software right so I don't know I'm for investment committee Jason on the agenda for today we have Jev and type safe the parent company raises an 870 million dollar series a and a seven and a half billion dollar valuation weeks after launching Jev Andreessen led Sequoia participating one of the largest series a rounds ever Jason will we be participating in this round at seven and a half billion dollars
Speaker 1well listen obviously we're lucky to get into the second close because there's plenty of money that wants to get in at 10 12 and even 15 today so I recommend we can't even get our full allocation I recommend we put in the maximum amount we can out of the fund because it's already valued more than this right that valuation is several weeks stale and Jev usage has quadrupled just since Andreessen actually shook hands on the deal so we have no choice we have to be all in and get every share we can I'm asking that we can get all the the earlier investors to waive their prorata that's my only requirement but we want to put in every share we can are we worried about competition are we worried that it appears that Cloudflare already has a competitive advantage are we worried that OpenAI appears to be having a competitive product are we are we worried that anthropic could even give this away for free are we worried that amazon has suggested they're they're building their own version of jev we are but growth like this is the point of venture boys and if we don't do this we should just stay home we're raising new funds every 12 to 13 months these are massive funds we have to deploy it into winners and to be clear and we have years of data that's not every winner wins but you can only win by being in the winners this is a winner will it be a winner in a year no it is one of the massive breakout winners today we're still getting to invest at 7.5 billion we can probably do a paper mark up to 15 and tell our lps we're geniuses i say we buy every share block the prorata and do as much founder secondary as we can the terrible
Speaker 3thing about that parody is it's accurate as hell totally
Speaker 2it's not a parody at all it makes you realize yes you can do this job in three minutes can you paint
Speaker 3the upside for me on jeff how does this become a wildly successful massive company where's the 500 billion i'll tell
Speaker 1you though just at a tactical level at a builder level right which is that you know no no models are particularly going back to the evals and the meta whatever the the muse turbo none of these hit 90s or 100. all these models make many errors and many issues okay they're not reliable i can tell you endless issues from this week i you know jeff is a classifier which we're now in classifier 2.0 we're like in a and it works and it's maybe it gets 70 to 80 percent of careful prompted matches right will the cloudflare team keep putting as much effort in as a standalone team will amazon will open router will all these people try as hard or will these be niche products with not enough revenue that they don't have time to invest in and that these guys at jeff just make classifiers do something they couldn't do before get get incredibly high resolution rates and then they can expand it you know right now you can ask relatively complicated questions but you only get binary outputs that's why it works so well right rory or harry who's my better investor rory harry they're going to get better and better and better and i don't know that even if the cloudflare amazon teams can catch up today when it's easy it's easy to build what open router was six months ago today right but are they going to maintain that investment i think as vcs we have to make this stressful investment that a core team that is very strong out of open eye that is doing nothing else will pull ahead from the seeming parity you can achieve today i'm actually willing to make that bet because i'm using jeff a lot and i can already see that i'm going to have to make that bet because i'm using jeff a lot and i can already see that if it never changed maybe i would swap it out right but if it gets better than the rest there's no way i would change even just somewhat better on its evals you would never use anything else so i'm i would still make that bet today that this this team will do nothing else and i don't think the inference costs are going to destroy them i think that 750 this is this is a low inference model i don't know the training costs i think 750 gets you pretty far in this space for real i think it gets you further than it gets you to thinking machines it might get you two or three years to run away so i'm cautiously behind you and i'm going to have to make that bet because i'm going to have to make that bet bullish that a focus team rather than four smart kids at cloudflare can can maintain its lead and get to accuracy levels to summarize that were never possible before that's the unlock jeff is super fast and super cheap okay and it is accurate enough to use for maybe 10 of your ai use cases if they make it hyper accurate it changes the game
Speaker 2and that's the theory on the just get back to the numbers if it's 20 of your total you we just said this i think two weeks ago if total ai frontier inference is a 200 billion dollar market which it better be in a year or two overall then 20% of that is $40 billion. the price of that goes down by, you know, 80%, you're still at $8 billion and $8 billion. And if they get half of it, that's a $4 or $5 billion revenue company, which is probably worth $50 billion. That's the case. Every one of those sentences is credible. And then the biggest question is, you know, the other competition. But to Jason's point, the business is there.
Speaker 3What worries me in every justification for a lot of these prices is, wow, the Lickpref's only a billion one. And it's such a strategic asset with a good team that the downside protection is they'll just get bought by a great acquirer. I just hear this every single time. And maybe that's true, but not everything has a downside protection of being acquired, does it?
Speaker 2I mean, it does until it doesn't. And that's meant to be glib. But in a world where you've got 12 companies above a trillion dollars, all of them are acquisitive, all of whom are in a wild, tearing hurry to build companies where time is money. And especially if the legal window is open, then there's going to be a lot of acquisitions. And the logic is true. If the market slows down, then all this stuff will go. In a bad place at the same time. So, you know, it'll be true until it's not.
Speaker 1I think it's overstated. I will say today it feels like a liquidation preference in in Jev is much more valuable than a thousand liquidation preferences and a thousand 2021 unicorns. Many of those will end up being worthless. So we overstate the value of the liquidation preference, right, to get the deal through the committee. But they have real value today, right? It's just I'd rather have this liquid preference than quite
Speaker 3a few from 2021. Okay. You said 2021 there, Jason. 2021, there were 34 DecaCorns. We now have a record 42 startups that have become DecaCorns in 2026.
Speaker 2As they say in the Simpsons cartoon, that's 2026 so far, right? What a quarter to go. Yeah, there was 34 DecaCorns in 2021, right? So in other words, it's more DecaCorns than the last time things went horribly wrong. That's the first obvious description. In other words, because if you look back at those DecaCorns, Mirror was a DecaCorn in 2021. You know, Airtable was a DecaCorn. I don't think they'll be the same, but just worth pointing out. I think the more funny statistic is this. There are in the public markets a grand total of 98 DecaCorns ever. And if you look at them by decade, there's a scary word. It's like, and you take the private and the public DecaCorns as of the start of this year, we roughly generated 20 plus or minus DecaCorns per decade for the last year. And that's a lot of DecaCorns. And that's a lot of DecaCorns in the last five decades. And we generated, what did you say, 42 DecaCorns in less than a full year of this decade. Now, there is some, obviously, market caps continually go up, all those things pointing in your favor. But it is stunning to think of 20 to 30 DecaCorns per decade, and then 42 DecaCorns in less than a year. And, you know, that does only 98 public companies. I just talked to 98 above 10 billion, another 30 above 100 billion. So, 130 companies in total, worth 10 billion or more since the dawn of, in tech, since the dawn of American capitalism, and a further 42 this year. You're scratching the obvious itch there. You're basically saying that we're in a bubble. I don't know if I'm saying, you're trying to make me say I'm in a bubble. I just think that, well, we got the pref, as Jason points out, so we're all fine. What you can say for certain is the production rate of DecaCorns is higher compared to anything we see in before, including five decades of data in the public markets. It definitely, I mean, either this is the most economically transformative event since the industrial revolution, or we're getting a wee bit ahead of ourselves. You pick. Which would you pick, Rory? Maybe the better answer is this. I'm actually going to go back to the pref answer, right? It's kind of funny, because you have to remember all these private company valuations, that valuation is set by someone who does have a LIC pref. And once you have a LIC pref and you believe it exists, you can say to yourself, unlike a common stock where it trades every day, you can say it's a 1x plus option value. And the thing right now is option values have high value because there's a lot of vol. Some, apparently, three companies in this decade will become, what, a trillion dollars? Many will become 100 billion, even if it's 10. It's rational to say there's some non-zero probability this company becomes freaking amazing. And my downside is a 1x. To make it concrete, I don't think all these stocks would trade at $10 billion. Or more if they were all traded on the public markets. That's not giving me an answer. I think it is.
Speaker 1Well, we're all, we're betting this is true, right? I mean, Menlo had some math when they raised their last fund. It was, I think it was a $3 billion fund to deploy the next 12 months. They're betting they'll have at least four $25 billion plus exits to make the fund, right? That's just the math. It's not complicated, right? That they can do that like clockwork. That's the bet. The AI spend and the recent exits of the last X months justify it. Historical evidence makes sense. It makes it suspect. So are you, are you, are you living the moment or are you living as a student of history? I just don't think in venture, there's a lot of upside in being a student of history, even though we have one starring on the show, which I'm grateful for, but I don't know if it gets you the huge carry checks.
Speaker 2And in fact, as I looked at this data, which one of my colleagues was doing for something else, I think what you actually, what I actually realized you need to do is then you say to yourself, okay, if you extrapolate, what level of growth are you assuming to make this math work? Because yes, Jason, you are. In other words, because every year, I mean, every decade, it looks bigger than the last decade. With the exception of the 1970s, because stocks go up. But the question is, I mean, you made a comment for 25 billion plus outcomes and in a world per fund. Yeah. And there are only 130 above 10 billion ever. So there's probably only 70 above 25. And so you got to get four new ones. It's, it's doable, but you can't miss, you can't miss a lot here, dude. But that's what Andreessen got
Speaker 1so right. People, when we started our investment world and maybe pre my investing career, but you know, we talked Andreessen in the early days for overpaying and doing this wrong and saying we have to be in all the winners. And they just did the math. Yes, you have to be in all the winners. And even a lot of the winners, you won't make money in because you'll overpay, but the super winners will make up for all of it. It's, it's just basic and everyone, all the Yahoo's mocked them and they are completely right. The price of a overpaying for a winner is being in the super
Speaker 3winner. Well, talking of super winners, Jason, do you want to come back to the investment committee? We can do a deep mind. Damis Hassabis, the legend that is Damis Hassabis, raised it about $10 billion, give or take from thrive matter of months ago. Now isomorphic labs, his company in talks to raise it between 40 to $50 billion price. We can do this.
Speaker 1I mean, generational talent is generational pricing today. As much as I believe in the Jev teams and the type safe teams, he's going to pull together a team likes never been seen since the dawn of mankind and artificial intelligence. Maybe he fails. Maybe he's had enough of it. Maybe he's enjoyed life in London too much, too many posh clubs. But I think I've seen the fire. It is a scary bet. Um, we have our liquidation preference and no one will be able to assemble a set of talent like this. This is the next and last chance to cherry pick the best of the best of the best. And this is the job.
Speaker 2The interesting thing about this company will be that unlike the vast bulk of the revenues that come from the foundation models where it's, you value capture is replaced labor here. The value capture is not replaced labor. It's actually make science discoveries. And the way, cause you know, when you discover it, when you do a molecule, if you automate the $500 million of science spend that you pay science wages to, that's not really going to cut it. What you really want to do is, you know, when you create the $200 billion drug, you want to get 10% of that on a royalty basis. So it's kind of the, as the models devour all the knowledge worker dollars that are available to them in terms of direct replacement, at some point, they're going to have to monetize via creating whole new things with their intelligence. And yeah, it's a lot more credible today, just given the amount, the math, the recent work they did on math, which as one mathematician correctly point out, you don't actually get paid a whole ton for solving Stokes Navier, whatever it is. But if you can discover the next GLP drug, that's a winner because those things do money. So it will be interesting to see I have in the past said it's hard to get the drug companies to extract meaningful royalties when they still got to do phase one, phase two, phase three. And many of these companies end up being drug companies down the line. It'll be a lot of money. And I think that's a good thing. It'll be interesting to see what happens here. But it's a big pile of money if you can extract the value, not just from a labor percentage.
Speaker 1No, no, I think we're all going to be on 10 GLP-1 like drugs in a few years. And I think, you know, we never really got the full story on Anthropix Wet Lab. I think the potential here is even greater than is let on. I think the potential for drug discovery is probably massive. And, you know, we're going from weirdos microdosing to finding out we're all going to have a set of drugs that dramatically extend longevity and they can radically accelerate it, own the IP and have other people do the hard work. Maybe AI really can reboot the entire industry fairly rapidly. Of course, not all of it, not the trials, not the rest. But man, if you could get a GLP-1 out five years faster. Jason, do you actually buy that? I don't mean that cynically. The drug stuff? Yeah. Yeah. Only very recently did I buy it. I thought it was wackos and Brian Johnson's and people selling crap. What caused you to change your mind? Because the medical evidence for GLP-1s is so, it's so profound. It's so, for heart disease, for so many other things. And I think our ability to tailor drugs to extend longevity is the massive market. It's better than inference. You know, if you, and if you talk to any, just physicians at the cutting edge now, they're all saying to anybody like your hip or whatever, just don't hurt the other one. Like just get there. Like in another couple of years, the amount of longevity we're going to be able to achieve is so much higher that I just think the wackos of the microdosers of SF and Brian Johnson made me skeptical, but just the overwhelming evidence of the benefits that the doctor almost everyone should be on a GLP-1, right? And the fact that we're going to get better and better at figuring all this stuff out, I mean, we're just walking sets of cancer and heart disease and other things that having material impacts will radically extend longevity, radically extend longevity.
Speaker 2There's a whole sequence of steps before you even have adequately good molecule identification with some understanding of how it works. And then you still have all the different bio phases. So as I say, I do believe it'll be harder to capture value than you think, but I'm really glad they're trying.
Speaker 3Guys, I want to talk about one, which may be a little bit earlier than usual, but we had Mecca, which is the macaw or the surge for robotics data, physical world data that can be implemented in most often robotics, raises 60 million series B from Sequoia. The reason I wanted to bring it up is that, you know, we have micro AGI in Europe, which has posted race to 100 million very quickly. There's Mecca, which is well over 100 million in ARR. There's another provider that I'm forgetting the name of, Exosoft or Exosoft, or whatever it is. That's again over 100. And we just see the sheer volume of data providers over 100 million. What should we read, infer, analyze from this?
Speaker 2You can infer from data in general that, you know, in Tropic and Opening, I spent a large amount of money on training data, as do the other three wannabe foundation models. And there's an entire industry that suffers to take care of that. It's an interesting business because you only have five or six large competitors and they all obviously want to go on and sell to enterprises. So the vast, vast bulk of the dollars comes from a relatively small number of enterprises. You know, those companies have grown very quickly because, you know, the foundation model companies want data, they want it now, and they're willing to spend big to get it. So they've been able to go from zero to hundreds, and in the case of some, billions very quickly. And the interesting thing in the foundation model case is there's clearly an end revenue source that's paying for that. In the case of robotics data, it all makes sense. It's the same analogy. There's a bunch of companies really interesting doing, various forms of models for robotics. It's obviously early in its deployment life cycle. So, you know, you've got the early burgeoning spend, you've got the $10 million and $100 million deals, and you can get that on venture dollars from the robotics companies and foundation model companies too because they want to be in robotics. I think what's going to scale that to a billion or two billion is when the deployments happen, and that's still unproven in terms of timing. Because, I mean, the humanoids, I saw a GXO, which is a logistics company, that one of my companies deal with. They sent me a post, one of the guys there, and the summary of the post was 42 POCs of humanoids, zero deployed. And then there was some thread about the BMW relationship with FIGR, where again, we talked a big game, but the humanoids aren't out there. So I do think there's a deployment issue in robotics, which will filter back upstream to ultimately spend on data business until such time as the unlock happens at the deployment level. But for now, you know, definitely making hay while the sun is definitely shining. Are we doing. Macca from our. Well, you have to do the second half of the Sequoia round that the regulatory 20X step-up or whatever it is they deem to be appropriate.
Speaker 1So no. Well, it's just. Listen, I'm not smart enough to really know. I do think it's an interesting play in the sense that obviously the current level of interest in robotics is beyond an all-time high, right? And they all need training data, right? And you can be skeptical of some of these folks, but the demand for high-quality training data, even if it's just paying people to wear sensors and do work, it's just off the charts. I met a founder at YC Demo Day. He wasn't in this class at YC. He was just there that I knew from Zaster stuff. And he tilted his company into doing just, you know, a very niche version of training data. And he did 30 million in 60 days. And he said the problem is they just don't want to do all the stuff he's asked to do. He's like, we have 300 million of demand. It just takes so many specialized humans in so many countries to do this niche product. We don't. We're turning away 270 out of 30 because we don't want to do it, right? So if you could nail that two by two of, being able to provide the data labeling, the humans and the everything, you have the right one. Maybe I'd rather do this than invest in a bunch of robots that are going to, you know, throw Aunt Bessie out the door or smash their fists through my kitchen when they're trying to grab the pots. I'm certainly skeptical of the residential ones. Maybe this is the safest place to put our money.
Speaker 3Oh my God. I would way rather do this than any robotics company.
Speaker 2But the absurdity of that is you can't. These things aren't going to exist unless the robotics companies are successful.
Speaker 3So I disagree. Well, no, no, no, no, no, no. No, no, no, because I'm saying I don't know which robotics company will be successful. I don't know what form factor. I don't know what vertical, but I believe that robotics will be. So I want to be in the infrastructure that allows any of them to be. But pushing back on that,
Speaker 2that's like saying I want to do scale AI, which is a Mercore, which are great companies instead of Anthropic. If I had a choice, I'd do Anthropic. If you can pick the winner, pick the winner, right? Because the model companies are by definition bigger than the companies that sell to the model companies.
Speaker 3Sorry, I don't quite understand that analogy. It's a bit like saying I want to be in. in scale, not Lagora, because I don't know who's going to win the application layer, but I do know that models are going to need to get better. That's a better comparable, which would be understandable.
Speaker 2I personally. What you're saying implicit in that is you believe there's a statement in that, that each robotics company has its own foundation model and that the company is like, we're in the journalist pie and skilled. Like if journalist pie and skilled become the dominant foundation models for robotics, then it is equivalent to my foundation model, but if every robotics company has to build its own specific model, then yes, then it becomes a very fragmented market at the model layer. And I don't know. It's definitely one of the areas where I have a fair number of robotics investment and the least amount of clarity.
Speaker 3Okay, boys, there's a lot else. Guide me in terms of where you'd like to go. We can talk about Anthropic cutting the price of Haiku by 90% as the price war with OpenAI further intensifies. Jason, I'm relatively intrigued. I'd like to hear your thoughts on that, given how intensely you use them.
Speaker 1I mean, look, I know we've talked a lot about this kind of stuff on the show. I will say it's under-discussed. These models, Haiku 5.5 and Sonnet 5.5, they're great. And they're really, from my perspective, the first thing that's actually been deflationary with LLMs and AI. Nothing else has been deflationary because no matter how much you talk about token prices falling, we've been consuming so many more tokens, we're not getting the benefit of it, right? None of our portfolio companies are seeing their COGS fall in AI, are they? Not really, right? We've all consumed so many more tokens and used more and more of the state-of-the-art frontier models that we haven't seen inflationary benefits. These, to me, are the first ones that are deflationary. Haiku, basically, since the beginning, since before the show, there's always been the N-1 model, which isn't quite the frontier one. And you get last year's Cadillac and Fins for this year's Shiny. It was sort of worth it. But now, Haiku 5.5, which is a joke. I mean, developers would laugh at you. If you used Haiku 5.5, it's almost as good for a lot of use cases as Sonnet. And it's a 10th or the 20th the price. It's like shock. It's so cheap. It's almost Haiku 5.5 is like the first reasoning model. And you can dial up how much reason you want that you can almost not care about what it costs like Jev. We haven't had this before that worked for me. We haven't had a reasoning level model where you didn't have to stress every token, every dollar, because it is a 10th the price of what Sonnet 4.5 was. It's a 10th the price. So I think it's disruptive. Sonnet 5.5 is interesting as an aside. It's basically, you know, it seems at least in the testing that I've done, it's almost as good as the Opus models before. But what's interesting, it's only about 10% cheaper than the previous Sonnet, but it's twice as fast. And these evals don't talk enough about speed. Like this is why a lot of these things are useless, like Grok and others, because they're too slow or they time out. Speed, like if you can have your chat go twice as fast, it's a big deal, right? And Sonnet 5.5 is twice as fast. It's twice as fast, 10% cheaper, not that much and better. Speed is also deflationary because you can do more and more quickly. So for me, these two plus Jev, the first time we've seen deflation. And yeah, you're going to have your Jevons paradox. So we're going to use even more, of course. But this is the first time you can literally go in, swap out models and have much more speed and pay a lot less, like in a week. It's exciting. And I think it's most exciting for like B2B stuff where we're all still we're all still making these tradeoffs for a lot of B2B apps, right? We're making how much how good can we make the resolution, how good can we resolve this issue? How good can we do this workflow? If it's twice as fast and in some cases attempt the price, we sure better see a lot of results at the next board meeting. No more excuses, boys. It's the first one at a practical level I've seen this deflationary.
Speaker 2And I think the next interesting thing will be, you know, call it Jevons, call it price elasticity because price elasticity simply says, you know, for a proportional reduction in prices, does the net dollar spend go up or down? And the bet obviously they're making is it's highly elastic and it goes down. And you end up spending more. And we'll see. That's obviously the bet. I mean, you would not want to be cutting prices in a demand inelastic product because then you'd have the classic problem of high fixed costs, low demand expansion and lower prices, which is terribly, horribly bad. So the bet here, as you see, these price cuts is, in fact, that this stuff is very elastic in terms of demand.
Speaker 1Yeah. And I assume we'll see it in the S1 soon enough. I assume, listen, all the accounting for these LMS is going to be interesting, right? But I assume you can when you when you're using Haiku or Sonnet, when you're using essentially the N-1 model, the only cogs is going to be inference, right? You can basically write off the training costs because you can assign that all to to the frontier models, to Fable and Opus, right? Assuming that's the case, it's sort of a win win all around, right? Because I believe that Anthropix inference margins are quite high, right? Before that, I believe it. But I believe their real world gross margins are still pretty crappy because of training costs. Right. So I think it'll be interesting to see how they break this out. Right. But I think it's interesting. I think it's exciting, but yeah, we'll just use more. There's going to be a lot of stuff where it's like taking a 20-minute shower when you don't have to pay for the hot water. You never get out, right?
Speaker 2Just as a reminder, and I agree we will, and I agree with that assessment, but when you cut prices by 90%, we're going to use more doesn't cut it. We got to use 10 times more. Otherwise, demand elasticity is less than one and your revenue goes down.
Speaker 1I do think we'll use 10 times as much because what's going to happen instead of sampling something, you'll just do it all.
Speaker 2That's what my colleague said on using Jev. You'll use it in every row of the database.
Speaker 1Everything. And the key is speed, Matt. We don't discuss speed as much. Jev is so fast, right? And Haiku 5.5 is actually slower than the one before, but it's not even comparable. It's Sonics twice as fast. You can just use more of it because it's faster. If it's slower, you can only use so much in parallel. But yeah, I agree with your part. You just use it for everything.
Speaker 3What does this mean for open source in US enterprises? Does this make it inherently less attractive where you're like, hell, I can get Haiku and Anthropic for 90% less? That really reduces the attractiveness of open source.
Speaker 1That's why I said on the. I don't know whether it was Dev or. Or Jack, but I said you could imagine it would all flip around next year and the whole open router thing would change and people are not loyal. No one wants to use, right or wrong, no one wants to use at least China-based open weights models. No one in the enterprise wants to use them. So when you have a domestic solution, ideally from a vendor that's already been qualified and trusted, I'm not saying it will happen because there's a lot of smart people working at DeepSeek at all, right? I mean, some of the best of the best. But you could imagine that this being a moment in time. And in 12 months. In 12 months from now, they're niche models that are used by some companies we invest in, but really in the enterprise are almost non-existent. Again, I think Salesforce making Finn rip it out before the deal closed is telling. It's a moment in time. Maybe that won't happen. But I just. Some people don't want these China open weight models. They just don't want them.
Speaker 2But they'll have reflection.
Speaker 1Yeah. That's why the open router could. Maybe if NVIDIA buys reflection, then reflection plus poolside plus everything ends up being 50% of the usage and 15% of the revenue. It wouldn't surprise me at all. Right, Jason? What else tickled your fancy from this schedule? You know, I mean, I almost don't want to bring it up, but bending spoons laying off basically all of Airtable. Not a surprise, right? But man, I mean, I wrote this when it happened and no one cared. I'm like, guys, everyone's talking about the money and the ARR revenue and the. And I'm like, you realize almost everyone's losing their job. I didn't see anyone give a rat's arse about the fact everyone's going to lose their job. I'm like, everyone lost their job at Vimeo. Everyone lost their job at Evernote. Everyone's going to lose their job at Mirror. And I barely saw a tweet about anyone giving a rat's arse. And I'm not even judging because this is capitalism. But man, when you sell your company to bending spoons, you just got to realize your entire team's going to be gone. And do founders owe anything to their teams? Do boards of directors own anything to their teams? Or do they just owe their best returns to Cedar Sinai, right? Do you have any moral obligation to sell to someone that's going to lay off 80% of your team within weeks? They are stakeholders, especially if you're cash flow positive and growing like Mirror and Airtable, right? They both have. Hundreds of millions in the bank and growing. Do they matter? Do they matter legally? Do they matter ethically? Do they matter at all? Or is this just part of the startup game? I wouldn't do it. There's no way I would sell my company and have 80% of my team laid off. I just would never do it. No, no, no.
Speaker 3But just pause, Jason. Let's just stay on that. You have a fiduciary responsibility to your board and to your shareholders, if you're Mirror, say. And that is the best and only offer for you.
Speaker 1What do you do? I think Rory can help remind me. I do think legally you have an obligation to your shareholders above your employees, right? I believe that. I'm mixing up my Delaware law. I'm pretty sure that's true, right?
Speaker 2For a public company, it is the only obligation you have. And they're extraordinarily clear on that. And even if in your mind you're thinking about something else, you never say it in a public company board because it just lays itself open to shareholders. Your sole job when you enter into an acquisition period is to maximize value for shareholders. So, yes, that's there. I actually don't know in private what the action. But they're private, right?
Speaker 3Yeah. So, Jason, would you not sell if you're Mirror? A private company?
Speaker 1No, I wouldn't. I wouldn't. The people that work for me so hard, I wouldn't let them all be laid off the next week. No, I wouldn't do it. Life's too short.
Speaker 2Pushing only on that, I hear you. And obviously, if you have another alternative that even if it's going to make you less money, you might well choose to sell to them. The question is, if you're locked into a forever march where, you know, over the next two years, a lot of them are going to leave anyway, right? Because when you get on the forever march, as you know, retention is the problem, especially for the best people. There's a little part of it that says accepting that. But having that kind of talent repurposed is actually just better for everyone. Go into the bending spoons deal, but cut your deal on your employee economics up front. So know what everyone's getting into. Because I do think that the debt march will get old pretty quickly. You know, you'll try and do the noble thing for your employees. And then over the next two years, they'll all peel off anyway. And you'll be left with your even more empty husk that's now worth one time's revenue. So I hear you. And I'm normally the softy in this group, but sometimes resolution. It's worth it, even for the employees. It's complicated. It's complicated.
Speaker 1I just don't think that there's an acquirer you can be more sure will lay off the vast majority of your team than the bending spoons. The mission is clear. You don't know what Vista's going to do. You don't know what Tom O'Bravo's going to do. You don't know what Francisco Pardo. But you know what the bending guys are going to do? They're going to just axe almost your entire team, right? To a next level I've never seen before, right? Maybe Constellation does this. I don't know. But I've never seen it before.
Speaker 2For what it's worth, I think bending spoons hasn't, I mean, they all have been very efficient. Bending spoons has a bigger centralized component. I think Constellation's argument is everybody runs on their own, but we don't spend a ton of money in sales and marketing, and you've got to have 40% EBITDA. I don't care how you do it. I think bending spoons' argument is all of the above, plus all your G&A is centralized, all your people are centralized, so you just need even less. So it's variations on a theme of lean and mean, and even leaner and even meaner.
Speaker 1I'll tell you the other one just on the theme, and Harry, you can cut me off if you want, but I was thinking about this, and I put this, I'm very sensitive to this. As we had on the DevPod, I guess, I'm confused what loyalty means in the AI age, right? I've got many flaws. Loyalty isn't one of them, but, you know, Cloudflare is an interesting one because a lot of folks are doing little layoffs, Netflix 5%, HubSpot 7%, you know, Cloudflare earlier this year, crushing it, had a great year the whole year, right? Even during the saspocalypse, Matthew just came in and said, I'm laying off 20% of the team, just doing it. He did it in one day and they beat the quarter, they accelerated growth even more, the stock price is up like 80%. And it's not, it's not bending spoons, he didn't decide to gut Cloudflare, but he made the right call. He's like, we're not failing. We're an AI beneficiary, but we are too slow. We're wasting too many times on too much effort on folks that aren't going to get us there. I'm going to do one 20% cut, not because we're struggling, but because we're to grow even faster and they've re-accelerated, you know, I think bending spoons, it will, I don't know, but some of these are just too small. That's when I see these layoffs. I always think on as, as much as I care, I'm like, they're too small. Cloudflare did 20 and it worked.
Speaker 3The thing for bending spoons now is it actually has to find large enough companies that it can buy. There's lots of smaller companies, but it needs to find large enough revenue based companies they can actually buy. That was what was really interesting when I spoke to them. Yeah. It's 30% organic growth. So if you want to grow 80% like they are, you got to buy big stuff, right? Honestly, Jason, the churn on these companies when they buy them though, I mean, the numbers are just, you have to price increase to the max just to keep this, these businesses going. While we were talking, it may be uninteresting to you. I might've been a user of this company in the past. Bumble has announced that it will be taken, Rory Bumble, if you don't know, you probably don't. Being a happily married man for so many years, but it's a dating app where young men can find young women. And I think there's a professional network as well where you obviously have a dating app and they are being taken private by Mr. Ravi Gupta in his new firm, Ithaca Holdings for $1.3 billion. I believe it is. It's a pretty cool bit of news, a holding company taking Bumble private.
Speaker 1Yeah. It was, market cap was like 500 million before the deal, right? Yeah. Yeah. Good premium, man. VCs have always hated it, right? The churn, the problems with the customer lifetime value, they've always hated it.
Speaker 2Right? Yeah. It's funny because, you know, given the percentage of people who meet on the apps now is 50, 60%. But if you think about it, there's a business that provides the most basic human need, which is marriage, et cetera, dating, marriage, like literally the thing that people care about the most. Just look at the number of pop songs about it versus everything else. And all you get is a few lousy billion bucks. I mean, you're solving the needs of half the Western world and all you get is a couple million bucks. It's a funny world.
Speaker 1Billion bucks. Listen, I could be wrong. I'll give you the bull case on Bumble, right? Just as a builder, right? And this may be wrong. Having built a matchmaking app for our SaaS community, having thought through this in AI, you can do so much more with AI than you could do before, right? I haven't used Bumble, no criticism, right? But I can only assume the matches are at best mediocre, right? Yeah. They're visual and you have a fairly small amount of data to grab from, right? If Bumble has massive historic data, if you can get other data and you can use AI to make dating better, and if you have a data science team that can do this better than others, everything's competitive. But I could imagine the outcomes being much better with AI, right? Much better with deep analytics across lots of data. This is Captain Ivy. It's obviously not new to the team, but I would imagine there's a bull case where someone can actually make much better matches, charge more for it, right? Raise prices because it's much better, right? Instead of going on 20 horrible dates or getting a bunch of creeps, you have five great ones, right? You know, the old, old eHarmony idea, but it actually works, anchor high, and quintuple or 10X the value of this business, that that would be the bull case to me. But they're not the only guys probably thinking about it in the space, right? How to use more data in AI
Speaker 3to make better matches. And also actually how to use synthetic versions of yourself, AI avatars that represent you. And then you can go out and meet a hundred people. different people without actually spending any time meeting anyone. What a wonderfully antisocial way to date. Yeah, but it might work, but it might work.
Speaker 2In the end, I do believe the object of dating is at some point to make contact in the physical world, as I understand the mission. So for a while, but at some point.
Speaker 3That sounds terrifying. We sit scrolling, which is why we have such a good business.
Speaker 1Yeah, but AI should get to know you. If AI can reduce the friction, the wasted time on dating, the wasted time and money, the ROI is really high, right? I totally agree. What's a date cost? 200 bucks? A good date? You know, I put 150 on Bumble AI. I'm already 50 bucks ahead. Jason, any final ones? Because Rory's not going to give me a suggestion. This one is barely worth talking about, but because you had it on the list, it's just worth reflecting on as we were in Q4 of the year. Do I have this right? Yeah, we're in Q4, right? Reflecting on the saspocalypse for a moment, right? And I really don't even want to talk about it in 2027, because 2021 is so far behind us. But I think the saspocalypse is still here. And I think about this a lot. What I mean is the saspocalypse of when we're, you know, earlier this year was in part a short driven thesis that we would vibe code our way out of all these applications, right? The market feared that growth, growth for many leaders slowed at the same time, which seemed to self-reinforce the fact we'd vibe code the own app. And we reached all time lows in like March or April, something like that, right? And the markets roared back, right? NASDAQ's up 22% this year. I have a sastra dot AI index. You can see a sastra of those. I think it's up 28%. The world cloud's up 25%, right? So nominally, the saspocalypse was a joke. And Mark Benioff made this point at the low that this too will pass. And nominally, it did. Like that fear passed. But I just say two things. Here's what I think about this. One, it passed for those well above a billion in revenue. I think it only passed for those with massive scale. And I think everyone without massive scale is living a worse saspocalypse than in March or April because no one wants to buy software. I think we need a new term. But everyone's breathing a sigh of relief.
Speaker 2Agreed. Because if you think about all that happened is it's a mature consolidating industry now. And what happens in mature consolidating industries is that the market leaders have scale, they have market cap, and they have a leverage. And they're just going to start, you know, you're seeing Benioff doing it. You're going to see acquiring companies. And then the ones that don't acquire, you can grind out. Because you're right, Jason. If you're already at 40 billion, you're money good. You've got cash flow, you're good, right? If you're at 100 million, you're trying to get to 300 million in a sas product. It's really hard today.
Speaker 1Yeah. And I wonder if we even when we started the show, it seemed like 500, you could IPO at 500 million. I'm not sure after Aura and Friends that's even true today in the saspocalypse. I don't know that 500 is durable or safe any longer, right? You might need a billion and a half or two billion of ARR as a software to have a safe IPO. And that, outside of Jev and Friends, that has a lot of implications that the saspocalypse is worse than we thought. 500 million isn't good enough anymore. Now it's got to be one to two billion in ARR for these companies to go public. And the math gets harder and harder. So I don't want to talk about it forever because it's a new world. But, you know, the only thing that is safe is scale.
Speaker 3And credit to the few who are able to transition pre-plays into post-plays of the pre-AI play to the post-AI play, like an intercom did. One of our businesses last week, I'm not allowed to say how much it sold for, but it sold for a very large amount of money. Not billions, but hundreds and hundreds of millions, TechWolf to SAP. And it was a pre-AI enterprise software company in the HR space of all spaces. And it was able to transition into an AI first company and sold to SAP for a big amount of money, the biggest ever for Belgium, which isn't particularly saying much, but still big. And so I think there is still room.
Speaker 1But I don't think, in all fairness, like, congrats to the TechWolf guys. I mean, I remember that, too, in 2020 here, but I just didn't get the HR thing or even Finn, like, OK, I don't think they count and Intercom and the team is great. I'm a minute shareholder, Rory's a shareholder, but that's not true scale. That's not a billion north and recurring. So those deals are great for the founders and they're fine for the VCs. But I don't think they countermand this point that the SPOC is as bad as it ever did. Kudos to the Intercom for building an AI native reboot of the company to nine figures in revenue. But that's very different than building to a billion growing 50 percent. And so I don't think it countermands that right in these exits. Menlo's point is we need three twenty five billion dollar exits per fund. TechWolf and Finn don't count. Well, not for Menlo, but for my fund, they return twenty four.
Speaker 3It made a difference to Harry.
Speaker 2I mean, I think there's two separate points. One is I think you should disaggregate them. One is who does the five hundred million dollar exit count for and who doesn't? Yeah, if you're a mega fund, it doesn't count. If you're a normal sized fund, you really can make good money there. It's not to be sneered at when the check hits. That's the first comment. But the second comment, I think, is the more interesting one you implied. Jason, which is post-SAS apocalypse, there's just not going to be as many of them because let's just say there's two hundred, three hundred of these similar sized SAS companies. Big tech can only buy so many at a time because it's a distraction. So they're going to get hoovered up at the rate of 10 a year and that's like infinite time. That's the real issue, which is, is that because there's no probability of getting critical mass and scale and an exit, you're just done. I'm not done, but you're just destined to be one of hundreds of mid-sized companies. Trying to compound your way to something that matters. And you very much have to proactively get AI native, try and drive to an outcome, try and be important to some other company or be happy running your company for the next decade and taking a dividend. Because, I mean, you could cynically say the same is true in AI apps. There are way too many apps relative to the likely number of half a billion or billion dollar outcomes. But in an expanding market, all is forgiven. What is product categories look like? Product categories, everybody expands, just like SaaS did 20 years ago. It'll all be great until
Speaker 3you hit the tipping point again. Can I ask, guys, I don't want to be Mr. Negative or finish on a negative, but Flock Safety had some problems with privacy backlashes previously. We touched on it very previously in an episode. Now they're cutting 270 people, 18% of staff. Is this a company in real trouble?
Speaker 2Is this. I thought, you know, I saw a tweet, you know, I prefer the crime. I prefer the crime to the surveillance. Personally, I prefer the surveillance to the crime. I prefer the surveillance was actively controlled. You know, we talked about that a while back. The problem here is a bunch of, you know, renegade, you know, off limits use case for law enforcement not doing it in the right way or not even doing it for law enforcement at all but checking up on their personal lives has now damaged the brand. I won't say irrevocably, but, yeah, it's a pretty tough problem. You know, you wouldn't want to be Flock right now trying to, you know, position this. Because, you know, whenever Red and Blue America both hates you, you got a tough thing going. And, again, I defend that, the other side. I do think the crime deferral is really worth it. I think the improvements in crime in San Francisco and New York, they're just awesome. And it really expands things. So I'm not a hater, but it always sucks when the public has you, you know, when everyone has you like that. So I don't know. I'm sure it bottoms out. But it's a tough, not just a comms problem, it's a tough business problem, too.
Speaker 1But I'll tell you my concern, which is this worries me with a lot of people. What worries me with a lot of startups is I don't know that they have a strong enough engineering team. And I think they cut too many quarters because the security issues they've had are unacceptable. They've had cameras just streaming unsecured across the Internet. They were using dated versions of Google on old Android tablets to save money that were no longer supported or had security patches in the last year, year and a half. This is unacceptable from a company where security has to be at its core and paramount. And it's happened multiple times.
Speaker 2Interesting. I don't know if it's because of use, but you're saying there's also been access. That sucks. I'm saying
Speaker 1all startups cut corners. It's how you get off the ground. It's something we don't like to talk about too much at board meetings. But when you are ultimately a security company like Flock, maybe the police departments don't understand the corners you cut. And maybe the VCs don't want to probe. But there are certain companies where you can't cut too many corners. And I worry Flock cut too many. It just didn't build safe hardware or software. And if you're not investing in the hardware and the software, what about the rest of the team? What about other vulnerabilities up and down the stack? It's culturally consistent. And so I don't want to pick on them because I think they've done a lot of social good. But I wonder if they cut too many corners and now they're reaping what it comes from it. Stored images unencrypted. The cameras sent credentials in clear text. Pressing the button on the back of the camera would open up a Wi-Fi any attacker could get into. The police interface didn't require any authentication. This is pretty bad stuff, right? Security patches stopped in June 2018. For many of its cameras.
Speaker 2Ouch. Those are not good facts, I will admit.
Speaker 1Not good. And is it ever just that? It's always more when
Speaker 3you pull on the string, right? It's a very valid worry, to be fair. And actually, I wasn't aware of the security vulnerabilities there. But on a theme that Rory loves, Jensen Huang's just announced that he's going to invest $2 billion more into European AI companies. So go Europe, eh, Rory? Go Europe. Yeah, that's about the right ratio. How much money is that for Nvidia? It's about a coffee. Maybe a coffee and a croissant, you know?
Speaker 2$2 billion. I think the cash flow is $150, $160. Yeah, so it's 1% of cash flow. Yeah, don't spend it all at once, kids. I did debate bringing it up
Speaker 3because I wasn't so confident about the rebuttal.
Speaker 2Jensen is just going to spend that money wherever he can to fragment this market.
Speaker 1Okay. Well, probably also, Rory is much closer to this than I am. I'm not an expert. But anything you can spend to deflect any anti-Americanism is probably worth the money up to a certain point, right? Keep your head down. Don't be associated with any anti-Americanism. A couple billion here and there to mitigate it is probably a great investment, right? You know what, boys?
Speaker 3No one is talking about this. they should be like the downfall of france i mean jesus christ yeah you talk about a failed ecosystem in paris yeah it's really good of them to step up and make the uk look great i know do you want genuinely yes thank you so much france for making us look like yeah the peaceful orderly
Speaker 2society i did enjoy you know the lab i don't know why we're getting on this but i did enjoy the fact that the greeks now borrow at a lower interest rate than france or germany it's just pleasing you know after what we all went through you know a decade and a half ago
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