Speaker 1This is 20VC with me, Harry Stebbings, and it's the best show of the week. Rory O'Driscoll, Jason Lampkin discussing the biggest news in tech. So this week, number one, pacing the frontier. We discuss what it means for infrastructure, what it means for energy, and what it means for the biggest frontier model providers. Next up, AI assistant war. We've got town, we've got instinct on the startup end, and we've got Zuck and Muse on the incumbent end. What happens here? Who wins? Next up, Bending Spoons, baby. They are on an acquisition spree, having bought Miro for $1.35 billion. And then finally, staying with Europeans punching above their weight, Mistral raises 3 billion euros. Europe's largest ever tech funding round. This and so much more in what is always quite a colorful discussion with Rory and Jason. But before we dive into the show today, when you're building a company, you learn that trust is what closes deals. You may have the best product, but no buy-in. You may have the best product, but no buy-in. These days, without proof of your security. Here's what happens if you're not prepared. A prospect asks for proof of compliance. The deal stools when you scramble. Your engineer gets pulled off the roadmap to audit prep. Every enterprise conversation turns into this horrible fire drill. That's where Vanta comes in. Vanta is the leading agentic trust platform that not only gets you compliant fast with frameworks like SOC 2, ISO 27001, HIPAA, and GDPR, but keeps you compliant by continuously monitoring your controls. So your deals keep moving and your engineers really keep building. Now access the Vanta agent everywhere you work, even if your team lives in Claude or Cursor. And that's why Vanta is trusted by more than 16,000 companies like Ramp, Harvey, and Writer. So prove you're ready for business and get $1,000 off Vanta when you go to vanta.com forward slash 20 VC. That's vanta.com slash 20 VC. While Vanta keeps compliance covered, deal helps you hire globally. 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 manual workarounds. So build your global team with deal. Visit deel.com slash 20 VC 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 out of your site from a Framer website. Get started building for free today at framer.com slash 20 VC for 30% off a Framer Pro annual plan. That's framer.com slash 20 VC. Rules and restrictions may apply. You have now arrived at your destination. Boys, we are back. Now, I was thinking about where we should start, and in all honesty, I just thought it'd be egregious to not start with the most important thing I thought, which was Dario coming out and saying that we need to pace the frontier to where we should start. And I thought, well, I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't know. I don't which Sam Altman then agreed with him, and then Elon, too, agreed that it is important now to put in place some form of external regulatory body to slow down, regulate the capabilities moving forward of model providers. How do we think about this? It's been fairly universally panned. I tend
Speaker 2to be on the side of the people who are saying that the hostile reception is deserved. What is the problem you're trying to solve? Dario, if you read the note, Dario's definition of the problem was, you're trying to solve the problem. You're trying to solve the problem. You're trying to solve the problem. You're trying to solve the problem. You're trying to solve the problem. Well-defined, it was cyber attacks, it was economics, and then it was we lose control of the AI. So even though that sounds like a lot, it's fairly controlled. The guy who quit and started this crazy thing as a coxswain or whatever his name is, and then the employee within Anthropic kind of chiming in saying, I think there's a 10% chance of human extinction in 10 years. That's a very different thing. So let's deal with that, first of all, because I'm just saying it's complicated. Every time Dario makes a comment, a lot of the tweets back are, hey, if you're going to blow up the world, you should stop. And they're right. The truth is, he didn't actually say they were, to be fair. He didn't talk about P. Doom. But I'm going to do the same thing as everyone else. I'm just going to throw some rocks first. If the feds really thought that there was someone in downtown San Francisco building a technology that was going to blow up the fucking world, had a 10% chance of blowing up the world in the next 10 years, they would move in with a SWAT team, kill everyone in the place, and close it down. Replace the word AI with, we're building a nuclear reactor. It's totally safe right now, but there's a 10% chance it goes wrong in the next five years and blows up the world. Isn't that statement, how many seconds after that, before the entire weight of the US military is shutting you down? What it says is, is this kind of 10% P. Doom people, the truth is, the US government is asleep, which I doubt, or B, it's looking at this going, this is a bunch of excited teenagers. We'll step in later if it gets crazy. My first point is the, to be fair to Dario, not Dario, but the, oh my God, the world's going to end. We're going to destroy the world, but we're going to keep doing it, people. I cling to the hope that the US government, if it was a real issue, we'd do something, right? So I think all that's overwrought bullshit, which is different than saying what Dario said is overwrought bullshit. It's just not realistic. Dario's stuff, on the other hand, it's hard not to disagree that the cyber risk is real. Of the three risks he raised, the cyber risk, real. The economic risk, I will all be unemployed. I think it's a little bit more than that. I think it's a little bit more than that. And then the third one, we lose control of the agents hard to assess. So, okay, that's the problem he's trying to solve. And then the solutions range from the unlikely to the impossible. You know, the unlikely is, yeah, we're going to install third-party monitoring agents voluntarily, but then the ask is that it be made a requirement. That's the first thing. Then the second thing is all the democratic governments have to agree. And that'll be easy because we get on so well with Canada and Europe right now. And then the third thing is we have to agree with the Chinese, which is great. Though it might go greater than the Canadians because we like the Chinese more than the Canadians. We should put in the Russians. We get on great with them. So stepping back from the bullshit side two and side three, right? Just proposal one, which is we're going to introduce these kind of third-party monitors. And if it's voluntary, knock yourself out. You do whatever you want, Dario, right? If the government decides that they should do something, which is different than Dario thinking they should do something, then it's not going to be your friends regulating. You're not going to get to choose that. It's going to be a law and it's going to be regulated. It's a law and it's going to be regulated. And I'm not sure that's a great idea. I'm not sure it'll work really well for innovation. But if it does happen, I mean, a lot of the comments were either this is silly, we don't need it. Or if we do need it, well, who the fuck are you to tell us what we need? We're a government. I'm kind of sympathetic to both responses. Sorry, that was a vent. But I just think it's so overwrought. Sorry, Jason, I just launched.
Speaker 3No, no, no. My very tactical view, and then I'll give you my very tactical view, was this was just a risk factor in an S1 done live. My tactical view is anthropic is going public. He is just, you know, in part because of the employee that worked there four weeks or eight weeks that said there's a 10% risk of destroying humanity, which many agreed with. But he's just getting ahead of a risk factor so that when the $2 trillion IPO happens, it's a non-issue. I honestly think he's enunciating a risk factor. We're ahead of it. We're going to debate it as a society. And so when we go on the roadshow to New York and everywhere else, no one cares. It's not even cynical. I think it's your job as CEO. That was less discussed.
Speaker 2I can't say, I mean, words have meaning. If you, again, I'm going to be fair to that. He didn't say 10% chance of blowing up the world. He responded to it. Yes, you're right. He responded to it. I feel like if government was doing its job, we'd convene a congressional committee, we'd subpoena Dario and say, you're head of safety, not the guy who quit, Jason. This is an important point. Not the guy who quit, but you're head of safety said me and many of my people, there's a 10% chance of blowing up the world. Get a fucking congressional committee, subpoena the guy and say, Mr. Dario, as the head of this organization, do you believe that your safety commissioner is correct? And there's a 10% chance that you're going to blow up the world in the next five years. Yes or no.
Speaker 3Right. But it's going to happen. This just started. You're acting like the feds aren't going to raid anthropic. I don't think it's literally going to happen. The feds are going to raid anthropic conception. This just happened last. How many texts did you guys get from folks outside of tech asking if AI is going to kill ourselves in the last week? I got texts from people, relatives I haven't heard from in years. Are we, is AI going to kill us, Jason? There will be congressional committee and hearing after ad nauseum for the next 24 months. We have just awoken the sleeping giant here that AI isn't about a bunch of folks in SF becoming, you know, sent to millionaires. The public is going to believe it's going to kill us. And I think that's why Trump, I don't want to go too much. I think that's why Trump cut it off so quickly. I actually think he said, it's not issue. We're going full bore. I don't think that was out of nowhere. I think this is because there's going to be two years of every, this is all they're
Speaker 2I think you are right, so maybe I should have said the future future tense. We've kicked off a bolder cascade here now whereby, you're right, if I'm an ambitious politician, I would do this, right? And maybe you are right. There's two risk factors in the S1, what you're saying, Jay. It's a really good point. The first risk factor is, by the way, there's a 10% chance we're going to blow up the world. We can discuss that one. That's a fun one. But the other risk factor is, because I employ people who believe we have a 10% chance of blowing up the world, and I do this because they're actually very motivated to build great AI, and for whatever reason that motivates them, we can talk about that with our therapists. Because I'm running this company where these people say these crazy shit, as Jason's just pointed out, I'm probably going to spend the next two years being investigated. And there's a series of bad things could happen for that, up until including the government shutting me down. You're right, Jason. That's the risk factor. I agree with you. Yes. It's going to be the weirdest risk factor ever.
Speaker 3We say dumb shit, so we may get shut down. There's so much going on here, it's hard to track, right? I would just add two things I thought were the best things said. One maybe a little political, one I think non-political. I think the best thing actually was David Sachs this week, who said, "If it's that bad, Dario, it's your effing job." Whether it's 10%, or if there's any material risk, your company is going to exterminate even a subset of humanity. That is your job. Your job is to fix it, shut down the company if you can't, right? And if you're unable to CO, bring in a new CO. If there's any company that had these sort of odds, it is your job, right? This is product liability one, zero, zero, zero, zero, one. You can't kill... There are only so many people you're allowed to kill with your product.
Speaker 2Jason, first of all, you're exactly right. I got a hand in today. I think it was spot on, 100%. And I think it was really odd to see Lena Kan, who is probably the antitrust regulator most of the Silicon Valley hates the most, come out on exactly the same point. When you get David Sachs and Lena Kan both on the same side, and both making excellent points, it's a really fun issue. I agree with you.
Speaker 1I'm sorry, I'm naive. If you build recursive self-improvement in the way that people talk about it... ...is what it becomes not relatively unknown? Like I could have good intentions for it, but it could become something else, or used by malicious actors, could be weaponized to be something else.
Speaker 2And I think, okay, being really clear here, I agree. That is actually the only one of the three risks itemized in the Dario thing that I think is interesting, because the other two, economics, I think it was a foolish thing to say for a whole bunch of reasons. You can't say I'm not going to invent technology because it puts people unemployed, we'd still be back... Yeah, on all on our farms, 73% of work in the farm, that was a dumb point. Just trying to be nice and sucky yuppie. The whole cyber thing is real, but that cat's out of the barn. The commies have the cyber, so we're done. The only thing that was a fair point, and then on the other hand, the P. Doom thing he didn't talk about. So the only thing in his letter that was actually simultaneously, yeah, that's a fair point. And I don't have the answer, is exactly that. We could, quote, lose control of the things, recursive self-improvement, that kind of stuff. You're right. Of the three issues he raised, as I think from the three responses... The three responses he gave, that was the one that you go, "Hmm, okay, I can't..." Jason's point, I think Jason and David's points went on at that point. What you're saying is, forget the other two, which are about other people will do shit with our technology, we can come back. What you're saying is you're building something you can't control. If you're building something that you can't control, then maybe you should stop building it. Because you're the CEO, and as Jason, I'm going to agree, Jason and David, the third part is, can keep an eye on you, but if there's people cleverer than you, who can figure out the problem that you can't figure, you'd have hired them years ago, we should probably assume you're the cleverest people doing this. So either you think this is a manageable problem, in which case keep building, or you think it's not a manageable problem, in which case you probably should stop. But stop wringing your hands and saying, "If only the rest of the world could stop me killing humanity." You're the CEO. The cacophony of anti was really good there.
Speaker 1But you've also taken it to a level where you've weaponized a Chinese economy to have an open source ecosystem that's incredibly strong, and now to go, "Mayor Culper, let's put the brakes on." You've weaponized them enough to be a serious cyber threat to all of our institutions, and now you want to put the brakes on.
Speaker 2First of all, I'm going to push back on the weaponize. You're basically saying, "Oh, they wouldn't have had these models without us doing it." I'm not sure that's the case. I mean, you can get into how much of open weight has been distilled, and I can't assess that. So there's some of it. But you know, they got smart people, too. I think there's too much attribution of godlike status to individuals. The truth is, independent of probably what Anthropic did, there's probably going to be a bunch of LLMs. LLM alternatives in China, this technology, the cat's out of the bag. It exists. And you're right. So your main point is correct. It's out of the bag. So you can't...
Speaker 1I mean... But it's out of the bag because you let it out of the fucking bag. Like, sorry, to be blunt.
Speaker 2Well, I don't know if you just did, but you were the best at it. You are. You are. Yes. It's like, I hate the atom bomb metaphors because they're like Nazi metaphors. They're just so crude and simplistic, and it actually, in this case, feeds the ego of all involved. But it's a really good metaphor here, Harry, unfortunately. Yeah. I would say, if these folks are all the Oppenheimers and the US invented the bomb, there's no doubt that the Russians had the bomb by like four or five years later, three or four years later, and in part because they stole our shit. They had spies in Los Alamos from the UK, let me remind you, Hans Fuchs. And then they stole our secrets and they built the bomb too. But you know, what are you going to do? Right?
Speaker 3They probably would have got there anyway. Elon's been clear on that for three years. He said he wished that AI hadn't happened. He said, but since it did, I'm going to do it anyway because it's too late. He didn't just say this last week, he's been saying this for three years. That it's gotten too strong. Before XAI even got anywhere, he was consistent. I don't want to be doing this, but it's already been done. It's too late. I don't think we should have this much progress.
Speaker 2And in fairness to the CEO of Anthropic, some of the most hyperbolic stuff he's not saying, but you have that pacing letter that a bunch of scientists signed. There's a lot of hyperbole that's not coming from him and he's a little more nuanced on what he is worried about, where the only one that's really meaningful is this kind of losing control.
Speaker 1But I think this is where his prime messaging has come back to bite him on the ass. Because to Jason's point previously in episodes where he's so dogmatic about what it's going to do to jobs and employment, now when things do come out, it's tied to him, sometimes unfairly, just because he's had that stance because of his labeling before.
Speaker 2Yes. And to Jason's point, we're doing a spot on, my God, is this unpopular in the rest of the world? I mean, cause yeah, it turns out, I mean, you know, we're building a technology. It's going to definitely cause 20 to 30% wide coverage. We're going to follow unemployment. And my VP of safety, whom I haven't fired, has said on Twitter, there's a 10% chance it blows up the world. Hmm. I wonder why we're not popular. Well, let me give you a few quick clues.
Speaker 3Can I just say what I thought the best thing I read on all of it was on Twitter or anywhere? It was Jay Kraps, who was the founder of Confluent, acquired by IBM for, I don't know, 12 billion. Just step down. This is the best thing I thought was written on all of it. He said a lot of people have fake and stupid takes. It's a lot of marketing. He said, here's it. Here's the Captain Obvious point. He said, most positive use cases for AI have a corresponding dark version. If you're superhuman at coding, you're superhuman at hacking. If you're superhuman at structural engineering, you're likely superhuman at finding structural flaws to knock buildings down. If you're even superhuman at designing drugs, you're superhuman at designing novel undetectable poisons. If you cure viruses, you can create them. Some of these are not that bad. They're manageable. Others are scary. It is a fact. Like, if you don't get guardrails right, and there are no guardrails in open weights models, for all intents and purposes. Dark versions can be created. Your AI will be just as good, all things being told, at the dark version as the light version. It's a fact. We need to solve these issues. But it is a fact. And it is not even, there's so many opinions in anthropomorphizing and temper centers, but the dark versions will escape into Hugging Face.
Speaker 2I do agree with what you said, Jason. Absolutely right. When people invented books, when Gutenberg invented printed books, the Catholic Church were pissed because they really liked to have a control on all knowledge, and they just didn't like information dissemination. Ditto the internet. There's a reason every totalitarian regime hates it. I think it's great framing. Every technology has a positive side and a negative side. We're going to do what we do every time. We're going to roll out the positive and find a way to manage the negatives. But in the interim, we're not going to sell chips to China, which of course produce a Jensen response like you've never seen, the usual Jensen response. So on the implementation side, not realistic.
Speaker 1Do we see ripple effects across the infrastructure layer in publics? In privates?
Speaker 2There was a one-day minor hit on kind of the semi stocks on that first day. Separately, pleasingly, CrowdStrike and all the cyber stocks jumped 10%. So it's actually interesting. I looked at Monday, and we're recording this on Tuesday. It'll appear on Thursday, which is a whole lifetime away in the world we live now. But the instant response was slight markdown on semis and the AI capex, but not a lot. So no disruption. Concern-- I mean, maybe-- which implied some level of slowdown. Significant markup on the cyber stocks, because it looks like that's where the actual reality of the problem exists. And overall, I always look at world cloud, which is the software index, versus SOX, which is the semiconductor index. And it was a great day for world cloud relative to SOX. Software up, semis slightly down, but not big. I mean, I loved-- I saw a tweet. Market moves 0.1% on news of 10% probability of extinction. Capitalism took on board the risk and said, it'll be fine.
Speaker 3I mean, this may be like a much faster version of the '20s. There's no regulation. Everyone just wants to get rich as F in the '20s, right? And what our version of 1929 will be for AI, you know, we don't know yet. But everyone just wants to get rich. $2 billion is just a start around in venture today. I was literally thinking that today when I saw Shield raise at $20 or $30 billion, and they had a little chart. I'm like, wow, $2 billion is a start around now in today's world. It's just so much money. And AI is so much money that-- it's just so much money. It's just so much money. It's just so much money. And AI is so much money that-- it's just so much money. too easy to take advantage of the dark version if that's how you make money. It's too easy for you to be because every LLM has a dark version. It's too easy to cut that corner if that's how you can raise it a billion after Demo Day. It's too easy. I don't think that's actually what happened. I
Speaker 2actually think a different version of the same thing is that everyone's saying, oh, my God, this is evil and bad and could be dangerous. And as it were, they're purging their conscience by worrying. But Jason, you're exactly right. No one's saying I'm going to push away from the table. And I don't think the people wanting some of this coming, especially on Tropic and nobody, oddly enough, I mean, you've got to defend them a little. They're not profit maximizers. If they were profit maximizers, they would own more than 2% in the case of Dario and 0% in the case of Sam.
Speaker 3It's the other folks that we should be worried about, not the three of them. We actually have half decent stewards at the top. Sam, Dario and Elon are about as good as, they may be better in theory, but in practice, we can't get three better stewards. They have the right reasons to do what they're doing. The real problem is that 10 or 15% of founders are sociopaths. They genuinely are. In fact, especially the successful, it lets you drive will something out of nothing into existence, the ability to manipulate people, the ability to have that look and do it. That's where the bad people using AI come from, the sociopaths. You really don't think 10% of the founders you've ever invested in are sociopaths? Of course they are. We're going to move on, but fantastic.
Speaker 1Next, we have the AI assistant race that we touched on last week, but I was really annoyed because we actually missed Matter releasing Muse, which is Matter's product that is an AI assistant in the United States. So we're going to move on. We're going to move on. We're going to move on. What did you say, Harry? We didn't miss it. Well, it came out after we recorded the show.
Speaker 2Correct. I mean, I'm actually going to give us an A. I'm going to give us an A. We recorded on Tuesday because you used that clip of me. On Tuesday, I was like, somewhere there are 20 meta engineers locked in a room being told to ship something. We said that on Tuesday. On Wednesday,
Speaker 3Muse shipped, and on Thursday, the Pod shipped. So I think we nailed it, man. You just didn't know it was 500, not 20. That's the only slight thing that was missed. It's 500. You didn't realize that the minute OpenClaw took, Zuck took a huge chunk of his AI team and said, we're building OpenClaw for consumers. And from that night on, people worked days and nights. I mean, I was logging bugs over the Muse weekend on Twitter for fun. The engineering team was responding in real time, Saturday night, Saturday morning, Sunday morning. I mean, they're working 996 on this thing. This is not 20 people. This is a top priority since OpenClaw launched, right? It's interesting it came out seemingly oddly after some of the other agents, but this has been a P1 since OpenClaw, right? Because, you know, people were like lining the streets with their Mac minis trying to get figured out how to run an agent. Now I can do it on Facebook.
Speaker 1Let's actually just start with this, Rory. And I think you'll be as interested as I am by Jason's analysis. I'm not able to use it being in the UK. So we'd love your thoughts. Jason. I'll get you a VPN. Yeah, thanks, dude. What did you think? How good is it? How good a response is it to instincts? What do we think?
Speaker 3Well, first of all, as software, it's very, very, very good. It instantly works. This is the definition of great software. Like you just can't believe how, well, it works because all the hard work was done that you can't see. Most of the things you wanted to do, create a reservation, send an email to, I asked Muse to send us a bunch of stories for this show. It sent it to me and Harry, I forwarded it to Rory. I did it at the right time. It sent it to us, right? I had it rebuild the entire sastra.com website for me, log into WordPress, redo it. It did a pretty good job of it. A lot of the things you wanted to do, it just works. I'll add one more thought. And then the meta question. The really interesting thing is, you know, we didn't talk about, this is something I know a little about. It's not cheap. Okay. You're giving everybody up to a certain point, a free VM, which I think two CPUs, two GPUs, eight gigabytes, or I'm a hundred gigs of storage or something. I do know that like the replets, lovables, Vercels and others, it costs about three to four bucks per person to deliver that. And Muse is at the edge of it. It gives you more than they do. Okay. And those guys are working on it every week because it's such a huge part of their cogs, right? Because every time you spool up a website, not a free one, but a paid one, they, they've got a three to $4 nut, you know, Wix before base 44 as a two cent nut to serve that website. Now it's three to four. So they're very incented every day to work that down, right? Meta is lucky. Not only does it already have the infrastructure, right? So we could argue whether it's free, but it has tons of infrastructure. This is running on a, on its own LLM, Muse LLM. So it has a massive infrastructure and LL benefit that no one else has. That's why it's fast. That's why it works well. That's why you get more VPUs, more GPUs, more everything. So I think from an infrastructure perspective, it's almost no one can compete. You get all the VM, all the infrastructure, all the storage, and they have their own LLM Muse. And my learning is for these lay usages, like what we're talking about, not frontier drug discovery. Muse LLM is really good for this, but the question is, does it matter? What do you mean? Does it matter? Sorry. Yeah. What's the killer app? Another reservation at a cheesecake factory or TGI Fridays. We need to see the, the visit calc of Muse. We need to see what is the killer app. Every horizontal platform needs a, you know, traditionally needs some sort of killer app, right? I'm just skeptical. I'm just wondering, right? I don't think on this whole thing, I don't think there was a killer app for OpenClaw. I don't, I don't know if there is a killer app for Muse because, or Instinct, because there wasn't one for OpenClaw. Is it, is it not being your
Speaker 1discovery mechanism to shopping? Like a WeChat, a super app, you know, Zuck has spoken about taking portions of transactions as being the business model as well. The model's good,
Speaker 3but what are, what are his examples? Scheduling his daughter's carpool. Is that really what a trillionaire needs to do with a general? He can't even come up with a good use case of Muse for himself. He's making up consumery things. I had to schedule ballet lessons for my daughter. I mean, great, but you need to run this thing eight hours a day. I think like Claude code or codex to really matter. And so if, if we're in it eight hours a day, like a super app, it's cool. If it's a random task, I'm just waiting to see what the killer app is. And I've run and Muse is really fun. Like it's so beautiful. The beauty is it gives you all the ideas. It has an idea tab and it tells you all the things to do. I've done most of them and they're great. I just don't know if
Speaker 1it's killer. I don't know if it needs to be. And I know that sounds stupid, but no, but I use instinct in a similar power user way. I think latency is a real problem with instinct, by the way, which might not be with matter. I wait minutes faster for responses minutes. It's like the first days of chat GPT. It's a real problem, but I don't know if it needs to be. It does all of my bookings, travel restaurants. It does all of my shopping. It's very good. It does all of my calendar invites. I know there's no killer app, but it's just incrementally better than everything else. I don't know, but it's lots of little bits, not good enough. I have a feeling it might be. I think, well, I'm skeptical of the category on a
Speaker 2standalone basis, but you know, I always have my three venture questions. Is this a category? Who's the winner? And are we getting paid for the risk? And is this a category question? Is there a role for AI in a kind of personal assistant messenger type thing? And I will say, having used both instinct and news, I can see it. I don't know if I love the word killer app, because a single thing that does everything, that just ignites a platform like Visical, let's leave the killer app concept out there, right? At the margin, you kind of go, yeah, I'd use this. You do have the example from long ago of WeChat, you know, Chinese messaging systems having very much all a super app. Facebook tried to do that with the messenger. It didn't take off because the truth is the UI, pre-AI, the UI of trying to book things on a chat, is a pain in the butt. It's actually a lot easier just to go to the United website and see all the flights at the same time and book it. It is possible that with intelligence at the back end as a thing from non-intelligence, you actually have an interaction on a mobile device where enough of the intelligence is in the cloud that it can do a lot more for you. It knows a lot more about you and it just becomes an easy place to get shit done. And therefore, to your point, Harry, at the margin, you can imagine people using this. If you're a Facebook user, you get Muse, you're a camper, you chug along. Do I think there's more that's going to happen? Yes. To me, the interesting question is, the second one is, do you think it's a standalone company that wins here or do you think it's going to be Facebook with Muse and open AI with whatever product they come up with? Do you think that the instincts of this world can build a standalone business here, giving that, to put it out there, having raised at something like 50 pre, less than five months ago, then 400 pre, then a couple of billion pre, then now rumor has it raising at north of 10 billion? They are raising
Speaker 11 billion at 10 billion. And the most popular segment of the show that we got was Jason's IC. So Jason, we have a billion dollar round for Instinct. Welcome to the partnership meeting. Thank you. And it's a $10 billion valuation. Will we be putting in $200 million into this
Speaker 3billion dollar round at 10 billion? Well, we will. And I'll be honest to the team, This is a risky one. I am impressed with what Muse has done. And if we had to compete head on with Meta, and that was the only thing, we'd be in trouble. I would not recommend this investment because we can't compete with their servers. We can't compete with their GM. They can't compete with the LLM. However, after having done several reference calls and over a dozen synthetic ones on Claude, I've learned a couple of things. First of all, Meta cannot go cross-platform. It cannot go in. It does own WhatsApp, which is a real threat. It won't be work with all carriers. It won't work across all services. It won't work across. It's highly focused on its own platforms. And so that is only a subset of how we communicate. How many folks between the ages of 18 and 55 are on Facebook all day? Very few, right? It's really your grandmother's application. Now, WhatsApp is popular and Instagram. But the fact that it is not going to be interoperable across all these different services means it's got a fairly limited reach. Two, how long will Meta maintain the energy? How long will it be here, right, when this produces essentially trivial to no revenue? Anyone remember Workplace? way was probably better than Slack for folks that lived in Facebook. It was probably better. It had a lot of neat use cases. It worked well. It was architected. And it was actually the highest NPS of any product in the entire Facebook meta platform, but they couldn't maintain the energy. My reference checks say when Alex leaves scale, this product will fall apart. If this was the only thing that meta had to do, I wouldn't bet against them, but we're just not going to see the commitment to do the kind of things the instinct team is going to do. And let me tell you, this is one of the greatest teams I've seen in my history of investing. They're great. These kids come and they play World of Warcraft in real time during the pitch. They're top 10. They're both top 15 on League. I recommend leading the round, but being cautious with reserves because the next round valuation may hit into realistic IPO limits. So you would do this round? I wouldn't.
Speaker 2You asked me to do it. There's no effing way I would do this round. Okay, good. Okay. Here's
Speaker 3why I wouldn't do the round. Okay. And you can call me a fuddy-duddy for it. Okay. I believe most of that. Okay. For the pitch. I just believe the infra costs here are so high and the incumbents, this is like, if we've been talking since this show started, what if Claude, what if Anthropic and OpenAI actually built apps? Okay. And in the entire history of the show, they've only built outside of Codex and Cloud Code, they've really only built half an app, Claude Design, which isn't even really a fully an app. Okay. Here's meta building the app. They have the LLM. They have the cost advantages. They have the speed advantages. They have, they have more available compute and GPU and all of it than anybody else in the world. And they're building the app. This is the threat that every VC worried about. And we all got a hall pass since the start of AI because the LLM didn't build any apps. This is the one that they're building. I just don't want to compete against this because I do think for the next 24 months, it's a big priority. And it's just, Harry already said instinct is slow. That's a sign. That's a sign of compute costs of other, that's why they have to raise a billion. And can they? Sure. If they're going to subsidize with venture capital, five to $10 per user per month. Sure. But if they have to over monetize it, what if they become poolside? They could become the next poolside. Like it's great, but literally I've got 10 million users at 10 bucks a month. Now I've got a $1.2 billion nut a year to pay off. I'm struggling to raise the next round. I'm not Databricks. So it's just, I worry when the incumbent has infinite, all the capabilities here and wants to build the app. That's why I would say no, but I might be wrong, right? I might be wrong. I wouldn't bang my fist on the table. I wouldn't bang my fist on the table. I wouldn't bang my fist on the table. I wouldn't bang my fist on the table at the meeting.
Speaker 2I'm trying to remember, was it Socrates or who was it? One of the ancient Greek philosophers where you could literally say, take one side of the argument and then halfway through you could say, now take the other side of the argument. And Jason clearly can do that here, right? That was a perfect, this is why you should write. Harry put me on the spot. I don't want to do this deal. He did put you on the spot, but I'm just impressed with the mental facility, which you can do both sides. It's terrifying. It's like a human LLM. You can be convincing on whatever you want me to, pulling the boat together, right? I actually think, I want to take the pulse out of that. What you basically said is this is core to meta, and it feels like something that they would want to do. And despite your comments on cross-platform, today Muse is a standalone app, so it's not a cross-platform issue, but to the extent that they fold it into, I've just got to assume they're going to make it accessible in Messenger, make it accessible on iMessage, et cetera. But it seems to me, if there was one thing that meta should do within the world of AI, it would be this. It's hard to imagine, spending $100 billion plus on AI, saying that we're going to build the personal AI, and then not putting all your effort on this. So I agree with you, Jason. I think this has to be an all-in meta bet in a way that, frankly, I reject the comparison with Slack. The Facebook for Work product was like a toy. It was not a core issue to them. This is a core issue. So I think you're right. They go for it hook, line, and sinker. Now, the interesting thing about the poolside analogy and instinct is you could have the same outcome here, which is poolside said we ran out of cash. We're going to have to do something about it. We're going to have to do capital to keep playing. But we had an excellent outcome because there was a company with an even bigger market cap who wanted the assets that poolside has assembled. NVIDIA wanted access to the model, access to the talent. I mean, let's put it out here. The same thing could happen here, which is that instinct executes, build a huge user base, and an open AI steps up. And it's interesting. I think that the founder of instinct either worked at Sierra or Brett Taylor's a big fan and Brett Taylor is obviously among the many other things that man does, is the chairman of open AI. It may well be that instinct builds a lot of traction, doesn't have a cash flow positive IPO potential, but has a very attractive upside exit. I don't discount that. Maybe 10 billion is a little lofty, but you got to believe if it got meaningful differentiated traction, that it would be interesting to someone who wants to build a business in this space.
Speaker 1The only thing I will say that Noah Shin, the founder of instinct from every single person I've spoken to, they cite him as one of the most generational talents. And in a world where generational talents in strategically attractive segments are very acquisitive to multi-trillion dollars, you can see that being a very legitimate upside scenario case for 50 to 60 billion,
Speaker 3as crazy as it sounds. It's possible. Listen, we all have different experiences. The way I was raised to invest in venture was don't take bets that a hundred percent require an M&A outcome to right. They're just too, they're just too unpredictable. I've been on the other side and know how capricious you could be Clem's best friend. He brings you in to meet with Jensen and then he quits the next day, right? You literally just can't predict it. You need some real something to steal to make a bet where an arbitrary super high value outcomes, the only plausible exit. I'm not saying it's not a bet. Like it is definitely a bet, right? It's just, it's a big one. And just to come back on that,
Speaker 2because I've been thinking about that. It's not what I do either, but I look at this, and I do, you know, you always question yourself. Is there anything you can learn? There is an argument. I'm not yet making it, but I'm just acknowledging that the expected value of a number of those bets could be strongly positive. Admittedly, the variance is high. In other words, it's a risky way to make money. You should ask yourself, as you're building a portfolio of 30 bets, is it okay to have three of those bets in your portfolio? Probably not a 10 billion, but right. It wasn't reckless. I think Kleiner did the round at 500. Mamoun's over shrewd. It's not reckless to do a round at 500, even if you believe the profile, the payout profile is two in 10 chance of a 20X positive multiple. And if you don't get the positive multiple, you're going to build a company that just can't cash flow and doesn't make it. For sure. If you've got the right portfolio and you can take the risk. It's not the way I run my business, but I'm in a bull market, or as Harry said, there's a whole bunch of upside acquirers with frankly free market caps that are fairly untethered themselves and have massive need to move quickly. It's actually not a crazy way to make money.
Speaker 1And you don't even need much. You've got a billion and a half preff to reach. So like your downside is relatively capped on an incredible team that everyone acknowledges is industry leading.
Speaker 2I mean, this is the classic Silicon Valley thing is that examine that risk return profile at 50 pre, which was as far ago back as April. I think that's a wonderful profile at 500 pre, which I think was the May or June round. That's interesting. Yeah, that's a good bet because a little further along. The interesting thing is, in the space of two or three more months, you've had around, was the other round the 2 billion, Harry, from memory?
Speaker 12.5 billion.
Speaker 22.5 billion. Now you're getting into the, it's a 4x if you get out of the billion, and now you're raising a 10. Now you really need that 50. You need a, a reminder, the largest M&A outcome ever was Cursor doing 4 billion, got 60 billion. I don't know if you get a $40 billion income without a shit ton of revenue. My point is the risk return profile was wildly attractive in April and increasingly unattractive fairly quickly by the time you come to September. So that is the problem with those kinds of bets.
Speaker 1You know, one interesting thing that it's just like the consumer product market fit for this product is so wild. I did an Instagram reel on it. I had over a thousand DMs asking for invite codes. I've never had a thousand DMs on the back of a reel. That's pretty wild.
Speaker 3It's awesome. No. I just had one interesting thing just on your, on your thing. You know, Alex Curlin just left to go to Menlo Ventures, right? From there. He was on the board of owner with me, known him since the very beginning. So OG Sastra when he started the industry and he wrote a little presentation about how Menlo thought about this. And not that this is so profound, but he said kind of that they're targeting 25 billion plus tech tech exits. They're, they're targeting a hundred of them. That's how Menlo's modeling the world. And that's what he went to join to find, you know, some of these 100 of the $25 billion plus exits, right? That's the model we can say, wow, cursor was at 60, but cognition just raised at 48. So if this is your world model that there are a total of 81, 25 billion tech companies now, but that's up from 23, 10 years ago. And that that trend is going to continue in the age of AI. You know, I wrote that the new DecaCorn is 25 billion. These instinct rounds make sense. Like if, if the good exits are all north of 25 billion, then at least I can make three acts on instinct, right? It was just interesting to see that's their model, right? Is that we're targeting $25 billion plus exits and any investment that we do. And we see there to be another hundred of these. Now how that all math works out with GDP and the market caps of trillion dollar companies. I need to defer to Dr. Rory O'Driscoll next to me because I can't make it work in my head without an LLM, but I assume there was some thought behind the Menlo math there of $125 billion exits.
Speaker 1We're going to go a layer up and just a little excursion out of like deliberate AI, which is Miro, one of the hailed names from 2021. that raised it $17.5 billion, Interactive White boards for teams, for people that don't know, sold to Bending Spoons, the Italian juggernaut that buys everything, for $1.3 billion. As I said, it's a long way down from the 17 and a half. We didn't, well, Paul, my partner, who is very intelligent, did an analysis of it. Excel made money. Founders and employees made money. Latest stage investors, not really. How did we see this exit, guys, for a darling of the SaaS ecosystem? Inevitable and not bad.
Speaker 2Inevitable because I have a little report on our sales force that literally lists every unicorn, and I can do it a bunch of different ways, one of them being literally by post money. I just eyeball down and you see what's going on, and you just rank them, and it jumped out at you like a sore thumb. The last round was in 21 at $17 billion. And when you eyeball, you start to see the Ligure, you start to see the level, you start to see all the cognitions just above them and just below them, new rounds at $10, $20 billion. You see, we track headcount growth at the same time. Oh, my God, headcount's exploding. And then you have the thing stuck at $17 billion. And it was really the largest, utterly stale valuation from that period. So you look and you go, ah, almost inevitably, you're high and dry because you're a productivity tool in a world that just doesn't work that way. And it's obviously way ahead on valuation, I mean, of where its actual market size or traction can be. So this is just an inevitable. It was inevitable at some point. It would get done. I mean, Andrew Reid from Sequoia had a really cute tweet. It's like a little graphic of, you know, that picture of the death with the sickle knocking on every door and it knocks on the Evernote door and then it knocks on the Airtable door. And then in this case, it's knocking on the mirror door. And instead of a sickle, it has a bending spoon. Death comes for us all in Sassland, right? And it was exactly right. It was just an inevitable cleanup operation because it was just so far wrong in terms of pricing. And it was a good outcome. And it was a good outcome for everyone. And you kind of snidely said something about the late-stage guys. But I'm going to say something. The great thing about the late-stage business is this. If your losers give you a 1x, then you'll die rich. So Iconic, I think, Iconic had a ton of money in that deal. So that's a bad deal. A bad deal is when they get a 1x. You know, if you're playing the venture game and because you're playing late and your preference gives you 1x and everything, on the worst-case outcome, by definition, I mean, just using simple math, the overall distribution is 9%. So it's a good outcome for everybody. It needed to happen. It's now part of a liquid asset. I think, I didn't know this until today, so I'm winging it a little. I did see some portion of the consideration rolled. In other words, some people said, I'll take stock in bending spoons for that, which is an interesting choice.
Speaker 3Yeah, I don't know whether it was required or whether it was a way to juice the outcome, right, by rolling it over. You could see it being either way, right? Bending spoons needed the cash. They don't have an unlimited balance sheet. There's only so many murals they can do, right? But it could have also been to roll it over. It could have been a rollover into.
Speaker 2The cynic in me says, it's interesting if you do roll. It's like basically saying, we couldn't do what it takes to turn this company into a cash flow positive machine. So I'm selling it at 2.7 times to guys who are trading at 14 times because they are tough enough to do what it takes. Because that's really what's happening. And to some extent, even though that sounds bullshit, it's true. Venture syndicates, I've been in boards where the company just flattens out and it needs to get ruthlessly efficient. Venture, it's just not our job. It's not our DNA. It's not how we roll. It's a syndicate of five different people. Oftentimes, these assets are better owned by a single owner who says, look, this is the way it's going to be. This is what we're going to do. I mean, I don't know if you saw the CEO of Bending Spoons. He made a wonderfully controversial take where he said something to the tune of, you know, we don't basically get all excited about the title founder. We don't want to know what you did. His basic comment is, we don't want you to know what you did 10 years ago when you founded this. We want to know what you're doing now. And what it's basically saying is, we can't do what it takes to fix this thing at 3x revenue. So we'll sell it to you. Take your stock at 12x revenue, because you'll be hard-nosed enough to cut extraneous costs, raise prices, accept a fair amount of churn, and plow truth. Just interesting, but also not great. It's kind of an interesting comment on how institutions can determine outcomes. It's not all rational economics. And it probably makes sense. Bending Spoons will probably do a better job than a venture syndicate at making that thing cash flow positive. And if you're a customer of any of these companies, just be ready for the 40% price increase.
Speaker 1Yeah, the churn on their acquisitions is brutal. When you actually study the graphs on usage, the churn is absolutely brutal. They are not revitalizing these. They're increasing prices and cutting costs to the extreme.
Speaker 2What they're really finding out is the marginal propensity to pay versus how much. The VC, we probably almost certainly, as an industry, over-invested in sales and marketing and sold people who had to be sold into the product. What they're saying is, I don't want the customers who had to be sold into the product. I want customers who have to be sold into the product. I want customers who hate us so much for doubling our prices, but still need this product and won't go away. It's a different worldview, actually. Because, yeah, you're going to get initial churn when they put you on those price increases. But the perspective is the people who stay really need the product. This is like what happens when you have to pay full boat.
Speaker 3Yeah, you triple the prices and you have 30% to 40% churn. And the math's pretty straightforward, right? I'll tell you, my thought on the Miro one, it was, I almost want to move on. What's the game Duck, Duck, Goose with kids? And don't you take out a chair each time you go around?
Speaker 2Yeah, yeah, yeah.
Speaker 3I felt like there's only like one or two chairs left from the pre-AI era. And Miro took, Bending Spoons looks, they said in one of the interviews this week, they do 1,000, they look at 1,000 targets seriously and do 5 to 10 a year. And even they do not have an unlimited balance sheet. PE is sitting out. Tom Abravo is mostly sitting out. I feel like there's one or two seats left for 1,000 unicorns. And we can talk about why Iconic got 1X back. And if there were a lot of options, I felt like it's different. There's like two chairs left at the end of Duck, Duck, Goose. Miro grabbed one. Just like Airtable, they only got one offer. When you sell for 2 point something X, you know for sure there was no other offer. Because anyone can pay 2.4X or 2.5X. It's not much more for Salesforce or Tom Abravo or Francisco Partners. So you have two. And I almost want to move on. Because I can tell you personally, I've ended the game for me of Duck, Duck, Goose. I'm not running around the chairs anymore. It's fine. Who's next then? Look, of course there will be more deals. But I think we've entered the era of capitulation. And if there is a seat left in Duck, Duck, Goose, grab it, grab it. But otherwise, the game's just ended. And these companies are going to go into 0%-er mode. They're going to go into 0% to 5% growth mode. And no one may buy them. Because this is the best Miro and Airtable can do. What if you're not Miro? These are not bad companies. Miro's $600 million in ARR, still growing high single digits and cash flow positive. Like, it's a pretty good asset, right? So anyone working... First in Miro or Airtable is not going to get one of the last one or two chairs. Just no one wants to buy these things. And I don't mean to be grouchy. I just mean I just give it like, kids, go do whatever you want. Here's the keys to the house. I've moved to another city. Have parties. You know, crash the cars. Do whatever you want. Because...
Speaker 1Boys, moving swiftly on. What would we like to do next? Jeff Dean's company hitting $50 billion after just raising it 10. We've got Citrini selling his company to Dylan Patel and Sammy and Ali. This is for $100. We've got OpenAI pausing pro signups. Is SBF getting out? Well, I mean, he's got to accept his Midas list, doesn't he?
Speaker 3He might have even been on the 30 under 30 or something when he got it, too. When he did the Anthropic deal, I think it was under 30.
Speaker 2I'm going to be the voice of humanity. I mean, yeah, he is doing significant time, which really sucks. And that's a life wasted. So I'm not going to pile on the guy yet.
Speaker 3I think the Supreme Court is going to take the case and overturn it. Narrowly. Because I watched his lawyer on YouTube. He was pretty good. He's done 50 cases from court. He's like a badass, like Supreme Court lawyer. Basically, and listen, I'm not the I'm not the total. His point was this is an eighth amendment issue. You can't find somebody $12 billion. This is unconstitutional. That can't repay it when at least according to the terms of the bankruptcy court, everyone was repaid in whole with interest. We could argue whether they would have made much more money. Right. But there are some constitutionality issues. I think he's going to get his day. I think the Supreme Court is going to take it. They don't have to take any case. And I think he's going to get it. And, you know. Whatever he's in jail for 30 years and 11 billion. I think it's I think, you know, Sam may be freed eventually. This is the Supreme Court here in the case is a far cry from being freed. But I think he may have.
Speaker 1Jason, do you think he should be freed?
Speaker 3I mean, he seemed like the biggest scammer of all mankind when that was this all way back in 2023. It is weird. He didn't enrich himself as far as we know, materially. Right. It is weird that argue. This is very arguably, very arguably. It's, of course, terrible that he's he moved assets between Alameda Research and after it's terrible. But the argument that it was allowed by terms of use is an interesting argument. It is an interesting argument. He did not self-enrich. The reality is, if you use a generous version of made whole folks were made whole, should he go to jail for most of the rest of his life and have to pay 11 billion when he get out? It seems like a lot in the era of sentient AI that could kill us all. It does seem like a lot today. But at the time, you know, Silicon Valley Bank failed. I lost 10 million over the weekend. I don't know about you guys. It seemed like it's just desserts at the time. Right. For what it's what one.
Speaker 2I hadn't prepped on this because it wasn't on the list. And I don't like my wife, who is a lawyer, gets mad when I practice law without a license. But I will say it was so low down, Harry. I didn't think we'd get to it. You never do.
Speaker 1Oh, that we get. Well, Harry asked.
Speaker 2Genuine comment. Genuine comment here. Separating the fine, which might be an issue, doesn't matter. But there was misallocation of funds. It was white collar crime. It should be punished. I actually think 30 years was probably disproportionate with the. I mean, I think what was it? I'm trying to remember the ex Goldman Sachs. guy who misallocated and brokered funds and M.G. brokerage about 10 or 15 years ago, I think walked entirely. I can't from memory think. I think white collar crime should be punished. And it's a shitty world where someone steals 20 bucks and they go to prison and someone else steals $10 billion and they don't because they're white and upper middle class. But I'm also not sure 30 years is the commensurate thing. Now, the interesting thing is that's not the issue at hand in the Supreme Court. I don't think they're appealing the sentencing on the sentencing guidelines issue. They're appealing the facts and circumstances of the case. So we'll see. Yeah. And I don't think it matters that the fact that he took the money and was a brilliant investor doesn't excuse him for taking the money, because by definition, if it worked and anyone could take money provided it worked. Hey, I stole your money, Harry, but I bought put call options and the stock went up. So we made money. Here's your money back. You shouldn't mind. Well, of course, you're going to frickin mind, because when you took the money from you, you didn't know what the outcome would be. And there was a 50 percent chance it would go down. So you're going to want that guy punished because you're going to want that behavior stopped because you're not going to want the next guy to think that. So it doesn't matter that he was the most brilliant, genuine, most brilliant equity investor of our generation between Entropic and Cursor. It just matters if he took money and if that was against the rules. And I haven't heard the terms of service argument, Jason. That will be interesting. If he took money, it was against the rules. Then he should be punished. If he took money, it wasn't against the rules. Then he probably should walk and the process will take
Speaker 3place. Not my problem. What happened to Matt Mullenweg? He was he was out for a day and back. What happened to poor Matt? Did someone not read the bylaws, Rory? What happened? Did someone forget to pull the certificate of incorporation from Delaware? So Matt Mullenweg is the founder
Speaker 1and CEO of WordPress. And he was ousted by the board. And then he came back and overrode them, it would seem. And now he is back as the CEO. And the power to the founder has reigned true here.
Speaker 2And he is back as CEO. Correct. And this is a company, Automa, that has been the steward of the open source project WordPress, which is, you know, one of the most commonly used blogging and website platforms out there. Very successful product. Matt's the CEO of the company that manages the product. I think it's fair to say that the stewardship in the last few years have been troubled. He's been in a big argument with WP Engines about the argument is WP Engine is a hosting company that is hosting WordPress sites. And I think Automatic wants some of that revenue. So they've been pushing WP Engines. But the way in which he's behaved has been unhelpful to the open source project because it's kind of like, you know, it's not going to work. I will use the leverage of my company to try and frankly prevent other people from benefiting from the open source ecosystem, which seems to be untypical to the idea of it. So I think it's been a troubled situation for a while. I think the truth is the real issue is the world is passing that product. It's kind of a sad little thing because the world is passing that product by. And Jason will be able to tell you that, you know, you can build most of what you have in WordPress with Lovable or Replit or any one of 10 things. And increasingly, they are, as I've quoted before, the Henry Kissinger thing about academic arguments. The fights are so vicious because the prize is so small. The truth is Automatic doesn't matter a damn anymore. It should try and build something new. But it's kind of on the tail end. I mean, to Jason's point about it's on the tail end of the tech trends. They should be doing things totally differently to try and survive in the brave new world. Instead, they're arguing internally. So that's the zoom out comment. Within that context, that's kind of the big picture. And the funny thing is, when you get caught up in the detail of the day to day, you forget the big picture. The big picture is this company needs to point WordPress in a forward direction to think about how you take advantage of what's going on in AI and become a relevant player in the next five years. Otherwise, you won't be. That's the corporate imperative. Instead, the corporate imperative has turned into a pissing match between the board and the CEO, when now it looks like the CEO has won. Congratulations, you've won the poison chalice. You get to keep your diminishing empire. And it's worth pointing out, this is a board full of evil VCs. And I've been on boards as an evil VC where you've had to replace a founder. It sucks to the end. This is actually a board of, I think, Salesforce as an investor. They have some really good independent board members. They don't need this grief. I'm well about what happened. Now down in the tactical weeds. I think Jason probably nailed it. You probably have a board. They probably have a majority. They probably said to the CEO, we're a majority of the board. We're independent directors. We think you should replace you. And my guess is the founder CEO went deep into the bylaws and says, you are the board and you can vote to replace me, but I can actually also vote to replace the board. I'm hereby voting. I've seen this once. I'm hereby voting to replace the board. You're all off the board. Oh, look, the new board is me, my pet dog and my ventriloquist dummy. And after due consideration, we've decided I would be a great CEO. There you go. And all the independent board members at that point promptly resigned because there's no point wasting your life and getting into a whole bunch of litigation about an ever... Remember Jason, the Fortnite island that's getting smaller. You are fighting to maintain control of an island that's getting smaller and smaller. So congratulations, Matt, you're in charge. I feel like going, if you are in charge, well, how about you turn this thing around? So yeah, that's my takeaway of this. It's kind of sad in a way these things happen. People behave how they're going to behave. I think a lot of other people were involved in that company and put a lot of effort in. You know, one of the guys, Tony, who was a true venture, did a lot on it early on. It's kind of a bleh situation. Yeah, it's been pending for a long time and you kind of just go, gosh, I wish there surely should be more of a win-win here.
Speaker 3Well, Automatic would have been a great company if it hadn't raided venture capital because Matt could do what he cared about, right? Which is having a commercial arm of an open source product he created, right? Very young. Imagine it's doing 500 million a year, spinning off 200 million. It's like a bigger base camp. Those guys aren't venture backable and they don't give a rat's ass with their 22 Lamborghinis and Paganis and Villas in Italy. And they're fine growing 30% at 60 million, spinning off 30 million or 40 million in cash a year. It doesn't bother them at all, does it? I don't know the full funding history, but one could imagine it didn't really need to raise all this money, a version of it. And it might've done just fine. It's easy to say, but that might be the one. And that might be why Matt's frustrated. It would haunt me as well. Companies do get overfunded, boys. And I might be sitting here, I'm like, this could have been 37, like I could be like 37 signals. I could be running this. I didn't need this. What the hell did I need this 800 million and a bunch of people running around doing nothing all day long? I could have run WordPress and Automatic both side by side, with 80 people like DHH and be making a hundred million a year. And who the fuck cares if I'm growing? If this is my mission in life, if you're making nine figures a year out of your company and your growth is 5% and you're happy and you're, and you're doing a good deal for the world, you know, screw you VCs. Yeah. I mean, first of all, I do agree
Speaker 2is that you shouldn't take VC if you're not signed up for that program. I'm also not sure that that's one dimension VC versus kind of lifestyle business. I do think there is another dimension here of the open source business. I mean, so on the first dimension VC versus lifestyle business, it's pretty clear. You should do the lifestyle. If you want lifestyle, there is another dimension, which is open source community project versus managing just for the quote unquote company that controls the open source product. And I'm not sure that on that dimension, the company has been an amazing steward of the project, right? So I hear you. I think that, and that's just an initial dynamic, but you could also say to your point, Jason, if you didn't take any venture money, if you initiated the project, if you have whatever open source rights you have under the copyright or whatever leverage you have in terms of the licensing and the copyright, then it's your company. Do what you like. I'm actually, I do agree with you is that this is America. If you built the thing and you want to mismanagement mismanagers and you want a hundred percent of it, you're allowed mismanagement go team. That's what ownership means.
Speaker 3You know, it's tough to, I know you want to wrap it up. I just, I'm just learning. I'm learning later in my investment career. You gotta be effing ruthless to do a venture backed open source company. Ruthless. You really do. Because look what Matt did. Matt did said, listen, I'm focused on the platform. This is what I'm passionate about. I'm not so into the hosting. Okay. That's a commodity business. I'm going to let WP engine do 500, you know, a hundred million, 80 million, a hundred million, 300 of these other folks do. And there's like, I'm kind of into this e-commerce thing like WooCommerce, but I don't want to do what Shopify and Toby did. Like that's too extreme. And so you end up not owning that much of the revenue in your ecosystem. And I, and I don't think he's mad from revenue because WooCommerce actually is Matt used to be massive in terms of scale versus Shopify. But I think he's looking at WP engine. It's like, not only did these guys treat my community worse after the P buyout, which I do think is objectively true, but I kind of want that 500 million now guys, I wouldn't have minded having that extra 500 million for this crappy commodity hosting that I could do a better job. But in fact, we're on their own product. It's a great product, but my guess is it's doing a fraction of what it has to be mathematically. Right. It's like, I want that, you know? And so if you're too kind and open source, I think you'll lose. If you're too kind, you lose. You got to be ruthless.
Speaker 2If you think about a couple of different agenda items that we've talked about here, you know, on the one hand trailing edge of tech trends, you have mirror getting bought for 2.7 times and you have a nasty little spat over a flat to declining asset in open source land in automatic. And then on the front edge of the thing, you have companies like instinct, you know, raising Lily four weeks ago at two and a half billion, now raising a 10. You mentioned the Jeff Dean kind of spin out, raising at 10 billion, now raising at 50 billion. The big picture point, it's really Captain Obvious here, but it just shows venture. So unlike PE is not about valuation and there's not, there's not any safe assets. It's just, you're either in the head of the train in the new, new thing. Everything is possible. Are you in the tail end of the train and life is
Speaker 1shitty? I was with one of the biggest CIOs the other day. And I said, you've been doing this for 30 years. And I said, you've been doing this for 30 years. And I said, you've been doing this for Have you ever seen a time like this? I'm cognizant that I'm on the young spectrum. I'm not that young anymore, but I haven't seen all cycles. And he said, I've never seen a time like this. This is more nuts than it's ever been. This is unprecedented. I think
Speaker 2that's true. I was investing only since, I love this, only since 93 or 94. So I did live through the dot-com investing thing. And it was pretty crazy because you also had the whole millennial thing about Y2K and the world was going to end just like now. We always have to have a world ending thing. And let's be honest, New Year's Eve, December 99 was a pretty wild freaking party in San Francisco, right? Half the people were getting toasted drunk because they were rich. And the other half of the people were staying up, making sure that the Y2K thing didn't bring down the world, which was the actual worry at the time, bizarrely enough. But it's nothing compared to this. I think the ability of AI to just excite the imagination is just way higher. And the internet was awesome. But AI, you can start talking about the AI, the software is human. You can get carried away. And then the second thing is, you know, instead of existentially worrying about the computers won't work because of Y2K, we now get to worry about the whole world ending. It's the same thing on a way more
Speaker 1magnified scale. And the money is 10x bigger. Can I ask, speaking of the money being 10x bigger, I sit in Europe, as you know, Rory, and remind me frequently. Well, actually, Harry, you don't.
Speaker 2You actually sit in England, which deliberately chose not to be part of Europe. But I know what
Speaker 1you mean. It's okay. Sorry, that was mean. Listen, you know, I wasn't pro-Brexit, but you're technically right. I agree. Very similar. That's sad. Mistral raises 3 billion euros. It's Europe's largest ever tech round. They're going to hit a billion in revenue by the end of the year. For a company that's had, I think, a lot of criticism, definitely in Europe, this was a very meaningful sign of progression and hope that actually we do have a horse still, so to speak, in the race. What should we take from this
Speaker 2round? I think it's less about being a competitive frontier lab and more about AI sovereignty. I mean, if you're saying Mistral is now competing with open AI and anthropic in the frontier model race, you and I know that would be bullshit. I think what you're really saying is Europe has decided, based on the antics they see from the companies at the frontier in the US, coupled with the dynamics of the political interaction between the United States of America and Europe, that a technology as important as this has to have a sovereign European component. And, you know, even though it's obviously ludicrously inefficient from any kind of rational perspective, they've decided, we just got to make this thing happen and give Mistral enough business to make sure that it's a viable European AI competitor. And it's clearly Mistral. And, you know, there's a long tradition of Europe doing. I mean, Airbus is an example of that. They said, we can't just be relying on the Americans to make planes because otherwise we're a vassal state. And they said, we're going to make it happen. France and Germany are going to make planes and we're just going to do it. And it took 10 or 15 years, but they built a viable competitor. It's probably the same thing to have. I mean, you know, we've seen instances where I think recently, I'm doing it for a member here. I think the US government said to Anthropic, thou shalt cut off all other countries from Fable. I think it was Fable, one of the most recent models. Cut them off because it's a security risk. And we didn't say cut off, you know, Russia, but leave the United Kingdom and France and Germany. We said cut off everybody. If you're in Europe, the day that happened, you said to yourself, we can't rely on these guys anymore. And the day that happened, you made Mistral a viable European competitor. Is it going to be as big as us? Nah, it's not going to. I mean, I don't think it's going to be. I mean, Airbus has actually overtaken Boeing, took 30 years, right? But in the short term, it's not going to be any near as big a market cap as OpenAI or Anthropic, but it's going to be a winner and it's going to be the European winner. So thank you very much, politics. If you're a Mistral shareholder, you should be very grateful for the current political tactics. It's just made you a couple
Speaker 3billion bucks. Also, you know, just to be technical, I mean, the round's led by Samsung, right? So 200 billion of free cash flow a year right now. So 3 billion, like, I don't know if I take the mark up. I mean, I guess I would take the mark up, but you could argue it should have an asterisk and a dagger next to it because is it really real if it's led by Samsung, right? And the last round was led by ASML. Yeah, I don't know if those count. The money counts. I agree. Look, the valuation. Yeah, the money counts, but I don't know if the valuation is connected to any, like we should, that it's the same as an objective valuation done by financial parties. I just, it's just not.
Speaker 2I agree, but there is some intrinsic value to be, like, you know, if, I mean, let's ask what the, I mean, brutal comment. If the American winners are worth a trillion and the European GDP is roughly 70, 80% of the American GDP, I don't think that implies, to be clear, 800 billion, but you might get to 30, 40. It's not a crazy end state, but I agree, Jason, it feels like your problem. I don't think they did it on the basis of market comps and compors. I think they
Speaker 3did it on the basis of market comps and compors. I think they did it on the basis of market comps and compors. But with so much scale that it survives, right? It's a, you know what it is? It's a reminder that Miro didn't, in today, you know, it's funny. If when the three of us met, I told you about this $600 million company in collaboration, we would think that was scale, right? In the old days. It's not scale. Adobe has scale. So even if Adobe isn't really making the right moves in AI and it can't really afford it, and it's just moving the deck chairs around for its CEO team, where the CEO said like a year ago, Shantanu said he's going to retire. And it took him a year to decide which of the two internal candidates to promote. I mean, it's pretty bad. I think it's a nothing burger. You know what it is, Rory? It's a sign, just nothing, nothing's going to change. It's a sign of capitulation. It's a sign that we're going to just keep bulldozing our way through the world the same way versus really changing. Super high margin, bleed our core products, add some imaging from AI and kind of call it a day,
Speaker 2right? I broadly agree with you. And it's interesting. They did the, you know, we're not leaning into ARR growth. We're leaning into getting free usage. And that was the play
Speaker 3they did in the 90s. That's their fake AI metric of the week.
Speaker 2And that's where it's going. I think, you know, because this is where I reason I asked you is that's a playbook that might have worked two or three years ago. But to your point now, what your basic, because net new ARR went down significantly. In other words, the growth of new ARR didn't happen. So they have their AI ARR metric went up, but overall ARR went down. And you know what that means is you're just channeling some into the good thing. But yes, you're at least with the program that you need to win, which is a start, but you're not winning because the Jason rule, which I go back to, if it ain't growing, you ain't winning. If people ain't paying for it, you ain't winning. They have scaled. They're not going away. 25 billion in revenue, whatever. There was no news here, which is interesting because overall, it's been a pretty good few weeks for software in general. I mean, you've seen big jumps and I say huge jumps in the cyber stocks, big jumps overall in world cloud and the entire SaaS apocalypse has been unwound. But I think Jason, to your point, what's been happening is there's been a real distillation of, oh, these kinds of businesses aren't going to be winners. They should stay low. And then these kinds of businesses aren't going to be winners. These kinds of businesses are doing super well. Adobe is more in the first category than the second.
Speaker 1So boys, their market cap today is 105 billion. Yeah, about 100 billion, 25 billion. Yeah, exactly. In three years time, what is their market cap?
Speaker 2120, 130. Same as today. It'll be the same as today. Yeah. It's not going away. Basically, again, from memory, it's a sub 10 times cash flow multiple, Harry. So unless the ARR evaporates, not just doesn't grow, but evaporates, you can get there on no cash flow multiple. If Jason's view of the world, the mental view of the world is correct. If there are 10 or $125 billion plus outcomes, which by the way, I don't think, the point of your relative significance will go down. I mean, I couldn't tell you HP's market cap now to save my life because it doesn't matter. And that's the same thing. You'll do fine. You'll cash flow positive. Maybe if you find the right leader and the right product, you'll reignite growth. Your trajectory is not to blow up, but your trajectory is to trade eight or nine times cash flow.
Speaker 3That's the way it was for a decade. Adobe stock didn't move for a decade. It was traded on cash flow. Shantanu was amazing of that. Then cloud worked better than anyone expected. And either they're going to run that playbook for another decade, or they'll have some magical AI thing that even Canva hasn't figured out. I'm not betting on it today, but I was there when cloud happened. They didn't expect it. They could have a killer AI app that just were early in the AI thing. So I don't know, man. Would you rather invest in Canva or Adobe today? I'll tell you why you just can't invest in Canva. I want Canva to win very badly. I love them. You just can't be not growing. Service Titan got destroyed for lowering guidance, fell 30% last week. I think Canva fell 30% or 40% this year when they had to lower guidance, maybe more. They're just not public. But you got to grow. But at least Adobe is going to get to this stable plane, to Rory's prior point. It's going to get to a stable plane. It's not impressive, but it's going to grow six or eight or 9% a year with lots of free cash flow.
Speaker 2I'm going to give you the numbers, Canva's numbers. They are growing. They're growing 20%. They were growing 30%. They're growing at 20% now. And I know that because in Australia, you have to file your revenue with the Watcher McCollum's. But it's not, but that's a big deceleration. Agreed. So they're not, it's not that they're not going, they're decelerating.
Speaker 3So are they entering DCF world or are they still a growth stock? Are they growth or value?
Speaker 2Okay. I'm going to agree with you now. And the only reason I interrupted you, Jay, is I didn't agree when you said they're not growing. I want to be precise. What you said now is really the insightful point. Seriously. I want to pause on this because actually comes to a lot of different things. Going from a growth story to a value story is really tough. You go from a revenue multiple to EBITDA multiple. I think it's a really good post on Twitter recently, where basically above 30% growth, you can use a revenue multiple. Below 30% growth, you have to use an EBITDA multiple. It was a very insightful comment. It basically said, if you're growing fast, everything is forgiven, and you'll be valued on a revenue multiple. If you're growing slow, nothing is forgiven, and you'll be valued on an EBITDA multiple or low revenue multiple. It's just a different world. I remember I did a post way back that Box, as a public company, went through that transition and came out the other side, but it takes three or four years. Because when you go from six or seven times revenues to 20 times cash flow, you're going to get that cash flow to 30% just to hold the stock flat. It's brutal. It takes forever. This is going back to the point is, I think Canva is still growing very nicely, but it is decelerating. Even though I like them and I want them to win, they're founders. The lead, whereas Adobe, as you say, is at this point exploiting me every time I buy their product. I load their licensing system so much. The hard truth is that when you're going through that transition, it's hard to get to a public offering. When you ask about the two stocks, Harry, what you're basically saying is, would you like to own something at eight times cash flow with 13% growth, or at least you're liquid, or would you prefer to own something at 20% growth, admittedly decelerating? The question is, can they get through the liquidity window? Price clears all markets, and there's a I think the interesting question is how you think about relative valuation. I just think having to go from the growth valuation world to the value-based world sucks. Doing it while private is hard because it takes a long time to just get through that nut. During that time, you're standing still. It sucks doing it as public too. It just sucks doing it in general because you get a different investor base. You have different dynamics, but it's just a hard role to hold. And it's the risk of being private for a long time. Stripe avoided that risk because they reaccelerate. And I really hope Canva can find a way to reaccelerate too because I want the founders to win. I want good guys to win. But if you look at it, if instead of Stripe reaccelerating to 40%, they'd accelerate it down to 20% and 15%, then they'd still have huge cash flow. So no matter what, they're fine. But it's just interesting. Slowing growth and being valued on a cash flow basis is a profound adjustment in the valuation metric. Oddly enough, as I think about it, Stripe is the only guys who could weather that storm because apparently it kicks off so much cash.
Speaker 1Roy, we got to go let Jason be a superstar at Dreamforce.
Speaker 2Oh, you are. I'm sorry, Jason. You're off to be a superstar.
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