20VC: OpenAI's $6BN Jony Ive Deal | YC Is Both Chanel and Walmart—and Has Officially Won | Builder.ai Implodes and Hinge IPOs: Who Wins & Who Loses | Seed Is Easy. Series A Is Brutal & The Dirty Truth About Late-Stage Venture

The wars that you choose to engage in dictate what it has to take to win. We have to let go of this vision. That venture has to involve fund returners. The only way the math works is if you stuff money into the very best company and you don't end up with a balanced portfolio, you end up literally with one company having 20, 30% of your fund in it and that company turns out to be the big winner. I think your absolute assumption has to be YC has won. It's the greatest, one of the greatest equity businesses ever.

This is 20 VC with me, Harry Stebbings. Now it is favorite show of the week, the News Roundup with me Jason Lemkin and Rory o'. Driscoll. Today we discuss Insights two deals, the winner, the loser, Hinge and Builder. We discuss the IPOs of Mountain and Hinge.

What happens to the Chime IPO investors.

And the later stage investors. Who wins, who loses? Will Elon become the first half trillionaire.

And so much more.

Also Jony, I've joining OpenAI part time the discussion there. This was so much fun to do. I want feedback on these shows. Let me know harry20vc.com I love to hear your thoughts.

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You have now arrived at your destination team.

I am so excited for this. I love this show. It is that time again. We're going to dive right in to two Insight deals. A winner and a loser happens in this game. And Insight had both builder AI which raised 500 million. I think it was across rounds shuts down false projections. I read about they were projecting 200 and they actually got 45 million in revenue. Let's start there. Losing $500 million is a lot. So over $100 million hole for insight, I'm sure. More how did we analyze this one?

Because this was a big hole at first I read it and I was shocked. You know, it almost seemed like fraud losing $500 million on, on a, on an AI website builder. Right? But then when I read it, it's SCB Shut or whoever held the debt shut them down because they missed their projections. Is what I read happen. That's interesting. Like Rory, when is that okay? Have you ever had a portfolio company or done an investment where the founders were more aggressive on their projections than the numbers they actually hit? Have you seen that in your storied career as a vc?

I'm shocked to discover that not every plan happens and not every company has 100% attainment of plan. But let's start with From Insight's perspective, $100 million. I think the last fund is $12 billion. It's approximately 1% of the fund. No one likes losing $100 million. Money is money. But in the context of the game they're playing, does it matter?

Is anyone getting fired for this?

Honestly, stepping back, does it matter? Of course it matters. Should you get fired, is the first question. If you do deals, you make investments. If your unit of account is $100 million, which is an impossibly large amount to any of us on this call, still less any of your listeners. But it's just the nature of the checks you write. If you have a plus or minus $10 billion fund, you write hundred million dollar checks. Some of those hundred million dollar checks don't work out, you lose the money. If you lose more than you win, you get fired. The good news is I think Jeff Horing himself, the founder, was involved who's made scads of money. I think he was a big investor, an early investor in whiz. I don't think Jeff is going to lose his job for dropping $100 million when he's returned a couple of billion dollars. Some they'll all be just fine. So I'm not spending any time worrying about whether or not the Insight will be just fine, despite this loss.

On the flip side though, they had hinge 5x the money return 400 million. Great win it is in a $6.2 billion fund. My take on that was like, is that just the nature of the game they're playing? They're never going to have fun returners by nature of it, or is that just actually a pretty immaterial exit? As awful as it sounds, I think it's the former.

We have to let go this vision. That venture has to involve fund returners. I think as the fund size gets larger, the kind of bets that investors make are you have more bets and a more later stage. I think the probability of any one deal returning the fund goes way down. It's not impossible at any level, but at seed, it's almost a necessity. And I defer to you guys on that. You have a better feel for it. But for example, our model is we figure we do 20 deals, 30% are bad, 50% are solid, and return 1 to 5x and 20%. Four companies return more than a 5x with an average of 10, which by definition means about 0.5x the fund. We've had fund returns, but our mental model is we have to get four of them, right, each of them good enough to return half the fund. And Therefore you get 2x from your big winners, another 1.5x from your base hits, and there you are. That's a model at our stage. Now you go to a $6 billion $8 billion fund, 10x our size, you're probably at some kind of model like that. If you're doing roughly equal size bets, it just gets harder and harder to assume that a single deal is going to transform the whole fund. So you're left with this dynamic of having to, as you say, make $500 million, have a happy day and then say to yourself, we're 10% of the way there.

Roy, when you look at the historical data, where has your predictions of that value dispersion, where have they been off? Have you had more losses and more higher upside returns? Where has it been off in historical data?

It's been pretty accurate overall. But what you'll internalize, and this is where all venture is the same is if you think about the degrees of freedom there. If you take, you actually have, you have six numbers, you have the percentage in each bucket and you have the value of each bucket. The biggest single variable that can influence things is the return in the best deals. In other words, that's the thing that can kind of quote save you to the upside. If you have 30% in losses and you get a 0.5x back in those deals, it doesn't matter much if it's a 0.2 or a 0.8. It just doesn't move the needle enough. By definition, the number of deals in the middle bucket are middling. And so by definition, the middling number can never change anything. So really the only thing that counts is you have to have 20% of them in the amazing outcome. And then the tail on that amazing outcome is what dictates the overall fund. I remember a venture guy I knew who's been in this business a long time, basically said, you have to have a model. Something like I just articulated, he said, and then every three funds something utterly amazing happens that you can't really forecast. And instead of that winner being a 10x or 15x, you get that 120 or 40 or 50x and that fund's just amazing. And then of course, it's a fatal error to assume you're going to do that every time because it's just not likely. But that's kind of mentally how you think of the model.

Tying it back to the beginning of the conversation. They owned Insight, owned 43% of Monday when it IPO'd.

Yes.

So today I hope they get more. Right. That's harder today to collect 43% of the next Monday. Right.

What you're wrestling with here for these large funds, you're absolutely right, Jay. You can run the math and then you do what the stuff that Josh Koppelman did and said, how likely is it that there are enough exits at that size and stage to allow you to achieve your objective? And when you run that math, you realize, I need six $10 billion exits in a year. Let's just say, and on average there's only four a year. The math doesn't work, especially if multiple people are doing it. So what you end up with is the very tippy top of the tail only works where Instead of having 20 equal size bets, the only way the math works is if you stuff money into the very best company and you don't end up with a balanced portfolio. You end up literally with one company having 20, 30% of your fund in it and that company turns out to be the big winner. Right. Because there just aren't enough big winners. That's why, as I said, you look at Founders Fund and stuff all the money you can in Andover because it's the only way to deploy that capital.

Brian Singerman always told me the enemy of great venture returns is capital concentration limits in an lpa.

Yes, it's especially true at scale. It's not Jason's enemy. It's not your enemy because the truth is, at your stage, you probably don't know enough to have the certainty to put 30% of the fund in one deal. Because let's be honest, Atheed, you know, Jack, and this is why the game has changed when you have staying private for longer. The correct way to play the late stage game is very different than the correct way to play the earlier seed. And even A and B where we play game. And that's why, going right back to it, these mental rules of thumb that we have on all oh X steal has to return the fund are wrong and irrelevant for the game. Those guys are playing. What they have to do is return that 8 billion in paltry $500 million chunks and make damn sure that there's one deal where they have 20% of the fund invested in it and that gets 2 or 3 billion back. That's the mission. It's a different business.

One number that everyone is so focused on, especially founders, they are just so fixated on. And I think a little bit is the Twittersphere is the speed to 100 million. We have your macaws and we have your lovables and your bolts and oh, in the race to 100 million arrow. And it's this AI wave that is so focused on it. As investors today, how much weight do you put on the speed of time to get to 100 million? ARR or X number? ARR.

You'd be an idiot not to wait at some level because, you know, we're all traction junkies. Once you move beyond seed, traction is the best proxy for just overall commercial success. But. But you'd also be an idiot to wait at 100%. It's an interesting qualifying proxy, but it's by no means dispositive. It is the kind of boring, nuanced answer that I specialize in my worry today.

When I think about that, it'd be nice to say, listen, those are all great examples, guys, but a company that grows at a great rate, but a saner rate that is less dilutive and has a bigger moat is a better bet or just as good a bet. We'd like to think that maybe it's true. But what I worry about are two things in today's world are access to talent and access to capital. And there is just listen, talent has always been a moth to flames with the hottest startups, right? But AI has just amped it up. It is just amped it up. And every, every smart engineer, every smart kid wants to work at the hottest AI company. They don't even want to work at the best B2B company. They don't even want to work at Dipling or Real, okay? They want to work at OpenAI or windsurf and just going to say something.

In their defense they're right, wouldn't you? The best advice you can give someone starting out in career is join an amazing company that's going to be at the forefront of things for the next five or 10 years. So you can kind of be there, be there at the start, Build the connections, build the knowledge. It's not like the kids these days are bad. They're entirely rational. Planning their career. Join the wave. Because look, because that wave is going to last them the next 30 years in much the same way, you know, you started out in SAS, if you think back, starting out in SaaS in 2000, 2000 or whatever, four or five great calls gives you a 20 year horizon.

Especially in engineering, the smartest people have always wanted to work on the most interesting problems. Right? And the most interesting problems. So the problem with the plotting pace, which I would like, is it's hard enough to compete with Real and dipling. Okay, for talent. Because listen, all the best sales talent I know wants to work at Rippling. Half of my old team works there. So you're already competing with Rippling. But poor Rippling's competing with Windsurf and Cursor and granola and Shinola this and then access to capital, which is, I don't think 80% of the B2B VCs like we've talked about want to touch something that isn't. Doesn't have a chance at hypergrowth. So if you're not in that category, the math looks great. But you better have your own little ecosystem where you can thrive, your own little world where you can recruit and you don't need as much capital and you better be copacetic about it and have a strategy there. Right?

Agreed. Thank you, Jason, for bringing right where you started, which was this hundred million dollar. Is it meaningful? I think the answer we're both saying is yes, it's meaningful. It's just a proxy for and a magnet for success. It's not perfect because there will be churn. $100 million with low churn. That's very bloody meaningful.

Yeah, but maybe better to be in London. It still shocks me at the employee churn rate at OpenAI. I can't believe how many people leave. You're leaving so much money on the table to go to another AI startup. I mean you're leaving the. It's not like they have the highest employee retention on planet Earth.

I don't know who did it, but that was quite interesting information on the, the entropic retention rate being significantly higher than the open attention rate. That was just interesting piece of data and maybe it speaks to why those investors are taking that dilution. I mean if you want to look. Because whenever, going back to the comment on dilution, whenever I'm on a board on a comp committee and we start talking about oh my God, dilution's too high or too low, what I always say I want to see two other pieces of data I want to see attrition. Are we losing people? And I want to see close rate on offers. Are we failing to hire people? Because in the end, forget morality. It's a marketplace out there. If you're losing people a lot, especially for economic reasons, if you're not able to attract the talent, then maybe dilution isn't high enough. Conversely, if you're not losing people, maybe we can manage dilution a little better. In the anthropic OpenAI wars, I think they're doing what it takes to keep people. And clearly, as you say, astonishingly, people are willing to leave OpenAI despite all.

That 67% retention rate, employees after two years.

67% versus 80 for anthropic.

Yeah, 80. That's. 67% is. I mean, big difference. It's brutal, man.

So much cash on the table.

Yeah.

Not everyone is as greedy as you are. How are you? What can I tell you?

Sort of, I don't know.

If greed's complicated, they may think that they're getting more. Some of the problem is if you've been there two years in OpenAI and you made 8 million in tender offers, you might think another 8 is easy. The mindset's complicated.

I do want to go back to the Hinge ipo, because there was some stuff I was tracking a week ago we talked about and actually got a lot more clarity on in the last week. And I think it's super interesting and a little bit goes to. Yeah, Jason, some of the stuff you circulated about the state of the unicorns and where they are. We've had two IPOs in the last week, Hinge Health and Mountain. One of them a digital health company, Hinge Health. One of them a digital ad for cable TV company. Solid businesses. Two, $300 million revenue, decent growth rate, wonderful outcomes for the VCs involved. Right. And it kind of. And you take that and you take Chime as well, being on file. It's kind of a proxy for. There's a couple of takeaways here. One is there is an IPO market here right now, and you don't have to be $5 billion. Much of the stuff that people said, the comments about you have to be 500 million, which is, I think, a CO2 comment. The comment that the window was going to shut a month ago, both of them are wrong. Deals are getting done right now, in the last week that are wonderful outcomes for all concerns. That's the first point, is that 2,300 million dollars, it is no longer 100 million. It's 2 or 300 million. It's growth, it's profitable or near profitable, but that's what it takes to get facts on the ground.

But 48% growth, right? Still pretty high.

Yeah, Hinge is growing nicely. Mountain's growing as well, but not quite as aggressively. But yes, solid growth. You're exactly right. Because holding that toward Jason, it's actually terrifying how few of the unicorns are close to that level. And we'll come back to that point. But the other point that I was just now down in venture weeds, but it really matters, I was trying to figure out is how do all those super high late stage rounds get processed through the lens of the ipo? In other words, does the last round have a block and therefore can stop a down round? Do they not have a block or was the last round low enough that it doesn't matter and we now have one of each in those three names. Mountain, I don't think had a prior round that had a block and I don't think they had a prior round that made the IPO a down round. Perfectly normal, boring IPO hinge is really interesting. They raised money at 6 billion in 2021. That money clearly had a block. Not that they could stop an ipo, but that they couldn't make that preferred convert to common as part of the ipo, which in my mindset and it turns out to be wrong, meant that they could quote block an ipo. So what happened? If you look, there's a couple of investors and if you read the detail of the S1, it's very kind of dense, but what you figure out is CO2, who clearly paid 6 billion for a company that's now gone public at between 2 and 3, did some kind of negotiation. They sold some shares back to the company, they bought some common. So they basically agreed to convert in return for kind of some kind of make good. So in other words, they were able to get around the block and come to some kind of economic deal. Some of the other preferred investors in the last round didn't come to such an agreement. I thought they could quote block the ipo, but it turns out they didn't. The preferred simply stays in place, that preferred doesn't convert to common until they hit 77 bucks a share. But the IPO got done. And what this is is the public market saying, hey, you guys want to go public? You got this preferred on the balance sheet. Normally we'd say clean up the whole balance sheet, but it's like we're not going to say that Here we're going to get this deal done. The deal priced in the mid-30s, trades in the early-40s. You've still got this stranded $200 million block of preferred that doesn't convert to common under 70 bucks a share. But that's their problem. We don't give a shit.

Do they lose money then?

Yes, they haven't quote. This is really funny. They haven't quote, lost money because they still have their theoretical. They don't have to convert from preferred to common until that preferred. Well, they don't even have to prefer it ever. But they don't have to convert until it's 70 bucks a share. So they didn't quote, lose money, but they're sitting there in a non interest bearing instrument that's way out of the money. And the mark to market on that is now clear for all to see. Congratulations, you have a preferred Stock that's a 1x and you don't make any return until the Stock gets to 77 and it's now trading at 40. What it does is it to some extent weakens the ability. This is really significant. It weakens the ability of those later rounds of preferred to block an ipo. The market is working. The public markets are saying we can deal with a bit of noise, we can price this. It's just stuck up there and preferred and it's kind of a little isolated pile of capital that's clearly underwater because the common price isn't worth it. So it's a 1x instrument and therefore on a discounted mark to market basis it's worth less than a 1X.

If you're them, you'd rather it was bought for $2 billion by someone else?

Absolutely. If you get an M and A, you get your money back. But this is what I love about it. And maybe they couldn't sell for two or maybe the other investors correctly wanted to go on and build. The big news here is maybe the other investors correctly wanted to go on and build a damn big company. And what this does is it removes the ability of that late stage high priced round to get in the way of everything. You can't make them convert. They still have their quote 1x, good for them. But you as the founding CEO, you as the early investors can go into the public markets and go on, get your liquidity, get your 10x if you are the first one, get your 4x if it's insight, whatever it takes and get on with your lives. And that late stage money is stuck at a 1x0% IRR. For the next three years. Knock yourself out. It's a really big deal.

It's a theme of a lot of these sort of implicit protections we thought we had in venture. To me, the big learning was that acquirers wouldn't buy you unless 98% of folks agreed.

Okay.

Some of these, these implicit protections are kind of breaking down. So like one of the worst investments I did, they were only able to get 80.1% of the shareholders to agree to it to an exit. The acquirer didn't care at all. Whatever the statutory minimum was. Okay. The acquirer didn't care. Just, just didn't. Didn't even care. 1% didn't even attempt to get the votes from the other 19.9% didn't care.

And I think what all these things have in common is the capitalist universe is recognizing that there's $2.7 trillion of privately held assets that are going to have to get public, find a home. And it's going to involve a little more complexity than normal. But the great thing about capitalism is people find a way. In the case of Hinge, they found a way to get it public with a preferred stock. In the case of your deal, they found a way to just close the deal and accept the risk. And I think we're going to see a lot of that because that's what it's going to take to kind of deal with these 600 unicorns.

Yeah, anything you can get around, people are going to get around it to go public or make a dollar. Right. Any rule you can get around it.

I mentioned the third of them. I didn't know the answer a week ago on chime, is there a block? But I got interested, as one does, and I pulled the pre ipo. Artisan Corporation, what are the terms right now? And it's super interesting. The last two rounds do not have a block. They can be auto converted, provided I think the $6 billion round above $6 billion, all the preferred converts to common. There's no way for those to remain outstanding. Just convert to common at any price above 6 billion. So in answer to question, Harry, in that case, those investors will record an immediate mark to market. I had a 1x at 25 billion. Now I have a 0.5x at 12 billion. I've taken a loss. And it all boils down to one little term deep in the bowels of the lick. Preference auto convert terms, which is what Hinge didn't have and what these guys did.

So they're going to crystallize the loss.

When they're going to crystallize the loss. Exactly. In the case of Hinge, the preferred investors are just going to sit there with a one hour in an illiquid instrument in a liquid common stock. In the case of Chime, they're going to get auto converted, provided it clears 6 billion. And if you were still carrying that at 25 billion, you're going to record a significant loss. If you've written it down already, you're fine.

So this is not the great game that we thought it was, which is you get your money back and then when it pops, you get the premium on top.

Absolutely. No, there's a whole bunch. I mean, this is my. And I've been. That's why I said if you zoom out a million miles, this is all about what happens to those 600 unicorns. Right. The interesting fact is, and Jason circulated the SVB work, these are the best unicorns. These are the unicorns that can go public. And what you're seeing is some of the late stage money has protection, keeps its 1x and has a miserable IRR. Some of the late stage money cuts a deal and says, I'll roll the dice on converting to common as part of the ipo. And then some of the late stage money has no damn choice and just gets converted to common and takes a loss. There's a lot going on here.

Oh, God, no, no, I'm not loving the Cedars for suckers anymore. This late stage is hard.

Everything's hard.

Oh, God, that's not nice. If you're in Chime, you're going to crystallize those losses. You're going to lose 50%.

Well, maybe not. Maybe it trades at 12 or 15, but I don't know where it trades, to be clear. And I think it could trade much closer to that. All I can say for sure is they don't have a. There is a mandatory conversion where the later stage rounds don't have a block. And if that conversion is exercised, they will be converted to common at whatever the prevailing price is.

My only takeaway from this is I want to be Jim Andleman with Mountain.

Now we're just circling back and forth. As I said, we hated seed a week ago and now we're like, oh, my God, no new seed, no bullshit.

I just want to be at seed in 2013 or 2010.

Turns out vintage is the single most important and underrated part of venture capital. Just being there for the good years.

Listen, you mentioned the brilliant report that Jason shared. I thought one really interesting element Was accelerators and incubators are 20 of all VC deals, 24% accelerators and incubators. Does that mean YC's just won this game? How did you guys read that?

For the first time recently, there is more competition, right? At the accelerator incubator phase. There's more, right? But YC is four batches and bigger than ever. I do think they've won. And they also did one of the greatest. Not only they did two tilts, it's not the same YC as it used to be. First of all, bringing in Gary was a massive change. Obviously an uplift, right? For sure, a level up, but also just massive change on all levels. And two, I mean, I mean, it's obvious, but massively tilting into AI when they weren't ahead of the curve and being a center for it to attract the best talent. It's very fluid. But man, you know, right or wrong, and I'm, I'm not into the brands, but people want to go to Harvard, Stanford and mit. And the kids want to go to yc, right? And they're doing this massive event for hundreds of the best kids in college, right this, this very soon with the best. And you know, it seems new, but when I look back, you know, all of my first investments were in some sort of accelerator. Five out of five, right? So it's not brand new, it's just, it's bigger than ever.

I think your absolute assumption has to be YC has won. It's look, it's the greatest, one of the greatest equity businesses ever. And I deliberately use the word business as distinct from just fund. Think about being a fund, an investor, like any of us is. You only as good as I said it many times, you're only as good as your last game. Every day you got to get up, make good new picks. And if you blink and if you get the picks wrong, you're done, you're out. The world doesn't need you, right? There's 600, 700 people, funds like you. The beauty of YC is they've got a business. And the definition of a business, if the owner of that business, Paul Graham, can be sitting back in England, walking around the cute little bookstores and the machine keeps humming. That's a damn great business. Why is it so great? Because the world needs one. The Valley needs at least one big accelerator like that. Whereas you say, Jason, they'll take in anyone, provided they have the smarts and the nous and they can convert those two people from London, those one person from Sweden Those two people from the Midwest and in the space of three short months, convert them into highly marketable properties in return for a mere 7%. The world needs that product and it needs it on an industrial basis. And give them credit. Give Paul Graham credit. The original stated intent was make it easier for startups. That was the mission and they've succeeded. And because they've succeeded, they've built, as I say, a compelling business. You can say sometimes it's better run than others. Some CEOs of that business are better than others. The current CEO seems to be doing a pretty amazing job. It's just a great business. And I did the math once and trying to figure out seed is not what we do, but how much better is the YC locked in return than a seed fund at the same stage, they basically have roughly a 2x advantage. If you say to yourself, if you look at the deals they do, and then if you extrapolate based on the published hit rates and success rates, if a seed fund investing at that stage with decent picking gets a 3x, they get a 6x. It's a structural economic advantage that's very compelling. It's a great business and it should be a great business because at the risk of sounding like a defender of free market capitalism, it met a market need at scale, it met it brilliantly, and therefore they deserve the return. Go team. Wish I thought of it for second.

Time, third time founders. It's still a niche product, I think, in my ecosystem. For folks that have been around for every Parker Conrad that wants to do it again at a much better deal, other founders don't get it right. But for man, for the first time founders, it's just that and Project Europe are the beacons.

Absolutely.

I mean, I have to say, I mean, this is what gives me hope for Europe. Honestly, you know, we have 8,000 applicants for Project Europe. 3, 400 of them are pretty fucking awesome. It's amazing.

Could not agree more. I mean, it's that kind of thing that just wasn't there. Again, going back to the mission I give Paul Graham is just one of the clearest things. I've never met the man. Read a lot of his stuff. He's just such a clear thinker. And the objective was make it easier for founders to start companies. And that's the kind of thing Europe meets. If you make it easier for founders to start companies, more companies will be founded. Most of them will be mediocre. That's life. But some of them can be fricking amazing and cover a Multitude of sins. That's the way it's meant to work. So, you know, go project Europe.

I think the thing that's so amazing about it is I always say the future of venture is won by Walmart and it's won by Chanel. Chanel, the incredible brand with a very specific customer base. Walmart. Whatever product you want, they've got it. And what I think so special about YC is it's Walmart and Chanel. They have scale and they've retained brands. That's very good. It's still an aspirational brand that has managed to do scale.

Let me repeat, I believe it to be one of the great enduring equity businesses in the sense of businesses. There's lots of funds, there's very few enduring brands that occupy a clear niche. And the test you run is, if they went away, would someone else rise to fill the gap? Absolutely, because the world needs that product. If the 600 venture firm went away, we might just stop at 599 and say, we're good, thank you. And that's the difference.

If we move slightly down the funding spectrum from seed to A. You know, I like to start with some comment that is completely unsubstantiated with data, but I feel like Series A is the hardest place to be investing today. When you hear me say that, do you agree with me and what's your take?

I guess my question then is if seed is so easy, that's really troubling the combination, isn't it? I mean, it means we're underestimating the failure rate to Series A. Right?

Seed is easy because it's Walt Disney versus Jerry Maguire. Walt Disney is. Tell me the story. There's lots of people that tell a good story and come from great companies. And then Jerry Maguire, show me the money. And there's actually very few people who are showing the money in a way that's actually true quality, sustainable, and I think attractive for a Series A investor. And so I think that's why Series A is good. So seed is good and Series A is hard.

Weirdly enough, I agree with you. Despite the data, on the one hand, the conversion rate from C to A per the Carta data has gone way down. On the other hand, I think what you're saying is correct, is for the stuff that's working and in the chosen hot markets, there is mass competition because everyone wants to get the early traction in those AI companies that are just starting to explode. So you are correct if you are in the chosen sweet spots, almost every venture person is looking at those deals. And yes, those are the very few wildly competitive. Look, we competed in a couple of deals in that kind of broadly recognized emerging AI space. Brutally competitive, didn't win, I think got out priced on one out, beauty contested on the other. So that's pretty tough. So you say to yourself, first of all, what about the other 75%? The odd thing is what we're saying effectively is it's hard to invest in series a companies while 75% of the companies you could be investing in are dying and struggling for capital. So there's a little part of me that says maybe I need to figure out the non obvious Serie A and make some money that way. So yeah, it's only tough when you're competing for the best. Because again, back to the it turns out to be hard to make money.

It is hard. It is funny going to Rory's point of whatever you look at looks harder. I was thinking the other day, Revenue Cat or Harry and I, both our investors announced it raised its last round at 500 million which actually was lowish. They just did a deal in one hour. 500 million valuation. And I invested. I was the first investor in 2018 at seven pre. Okay, at seven. That was right before YC and I thought about a deal I did in the last batch that was probably the same risk profile at 30. Okay. Now obviously deals are done higher or lower, right. @ yc. But I'm saying there's some similarities between these two companies. Revenue cap, this new.

One.

Yeah. So seven versus 30. How does that math work? If the fund size is the. Do I need four times bigger a fund? Am I taking four times higher risk? Help me think about this like because I'm roughly thinking now granted, upside has gone up, right. That's the meta point. Right. But they're still, I would say they're the same but at four times the price price versus.

2018. So do you adjust check size or adjust ownership on.

Entry? I feel like I have no choice. If the round is bigger, you write a bigger check. If the round is smaller because it's like a YC deal and they don't need as much money, you write a smaller check. I honestly feel like I have no choice. That's not new. That's not. When I invest in revenue Cap, the first investor, I wanted to put twice as much money and I just wasn't allowed to. Right. I could only buy 10%. But that is a question. Right. Either way. But like it's where do I get the 4x4 times the fund or. Or 4 times the.

Risk. In mild consolation, Jason, I'd probably say it's only around probably 2.5x worse off in the sense of. You do have to give some credence for the fact, as I've mentioned earlier, we've just had huge GDP inflation over the last five or seven years. So a buck 10 years ago is probably 60, 50 cents. Now today on a GDP basis, not just inflation, but inflation plus growth, which is what you got to look at. So it's probably not four times worse. But you are correct, it is probably at least two times and maybe two and a half times as risky per dollar as it was. That's the first thing. And then the second thing is you're exactly right, you do have to expand the check size because the truth is you have to play the game on the field. And we've seen that at our stage, which I think it was typically at least a stage later than you. Right. We had roughly the same ownership targets for 15 plus years, same typical court deal size, but the check size has gone up to get roughly the same ownership. And that's just the nature of the beast. And I have a slide in our deck when we point it out to the LPs and just say, look, this is the dynamic of the marketplace we're in now, and this is the scary part of the.

Game. Do you guys honestly get.

15%? We typically get around 10, 11% ownership, and that's been pretty consistent across five, six funds. So all the way back to 2009, it's a pretty typical median. We don't navigate off ownership targets because as I tell people, I would happily go later and take less ownership if I could get our target return. But in the pricing environment for the last, frankly, decade, it's been almost impossible to have clarity on average, that a later stage round would give you your target return. Now, obviously, some later stage rounds that give an amazing return and we can come back to that discussion some other time, but on average, probably not. So it's typically been those early revenue 2, $3 million growing hyper quick, where you're glad to get 10 and 20 is not on the.

Table. For sure. Everyone gets less ownership than they claim on Twitter. Right? Every seed manager is like, we've raised new $30 million fund, our target ownership is 15. We're going to do 25 of those in the fund. And the math just doesn't make sense in planet Earth. Right, right. But. But for me, the bigger learning. Rory, you figured this out. I mean, this you'll laugh when I say this, but this snuck up on me is now that companies hold for these investments, you hold them for so long, I did not fully understand the compounding nature of dilution totally. If you model 6% dilution per year for a portfolio company for hiring and you hold this, help me compound it and you hold that investment for 15 years, what is 6, 6% compounding to 15 is 9% ownership, isn't.

It? Totally. I mean it's obviously not 9%, but you're exactly right because it's a descending scale. But no, look, the impact of dilution over time is huge. On the other hand, you can't avoid it because you do want to hire the speed. No, it's an interesting discussion because honestly, the least, I would say enjoyable, least rewarded, but most necessary part of my job as a board member is I'm often on comm committees where you're trying to set up policies for companies not in their first four years of life, but in year seven, eight, ten where you got to, to grant new shares, you got to re up founders. And sometimes I think that's a very legitimate thing to do because you want them incented. But at the same time you got to manage overall dilution and trying to keep it down probably not to the 6%, 5%, but the 3%, 4% level and manage that over time is just really important because you're exactly right. Six percent a year for six or seven years or even 10 years is just a huge impact on everyone, including the founders, including the initial equity investors. So yeah, spending a lot of time on refresh policies for mid stage tech companies is, as I say, the combination of low value, low joy, high impact.

Work. It's so funny you say that. I mean I was with an investor this morning, he said actually the challenge with LLM investments and we have one of the best, is that actually the employee stock is 9% a year. It's not the 6, it's 9 to 10. And so actually the level of dilution on the employee stock grants is so much higher than traditional that it makes it an even harder venture category to invest in. Which I thought was.

Interesting. I think it's gone up when I just look, I wish I had all the data, but Harry's point, when I just look, my kind of insight, the exits I had in 2021, when everyone had a lot of exits, right. I haven't had a billion dollar exit since 2021. It may be quite a while until I have one. The dilution I made Up a term dilution profile which probably makes no sense, but that was the term I made up on Sasser a while ago. It was much lower than today in 2021. I look at those exits and I'm like man, I owned. That was pretty good. If I look at the companies today, I'm like, I'm not going to own that much at those exits. Right. And so they better be much bigger exits because otherwise man, I'm going to own so much.

Less. So when I go into a deal, I assume 40% dilution from my entry. Is that a reasonable heuristic or do you think I'm over or.

Underestimate? Too low for seed for a it might be okay or no, it's way too low. I think you got to assume now 2/3 dilution from seed if you don't do pro rata to ipo. Two.

Thirds. Well, I think, I think there's two types of dilution obviously there's the following round dilution and then just purely the option dilution. And I'm not sure what you guys are talking.

About. I'm combining them all to two.

Thirds. Combining.

Them. I think it used to be half if you didn't do it. Now I think it's in.

Thirds. Absolutely. I mean look, there's a very pure test of this which is with lots of data associated with it. You just look at the Y combinator because they have a fixed ownership every time they have 5,000 data points. So if you felt strongly about calculating the answer here, you just look at their ownership on IPO and you have a statistically valid sample and go do the.

Work.

Right. And that's why they've dramatically increased their ownership. There are no dummies there at the Y combat.

Area. I think we should first moving.

To post money instead of pre money as so called for the benefit of the founders and then raising their ownership and then having any dilution and then investing more. They're the only ones that have caught up. I think is why I see the dilution of more power.

To. I want to go back to the foundation model comment because I think it's something that we should internalize and get humble about which is this, we the capital providers are not the most important people in the equation and you better just internalize. That's the way it is. The important people in the equation are the people with the IQ and the stem knowledge and the ability to generate these models. And anyone running those companies is going to pay those people what it takes to keep them frankly, tough shed on the dilution for the capital provider side, that's the nature of competing in a huge talent war for small numbers of people who can do amazing things. So yes, you can bitch about it and say, oh my God, that's awful. But it's a cost of doing business. And I think it segues. I mean, look, we just had the largest single instance of dilution in a foundation model in terms of the acquisition this week, which is obviously at some level an acquihire. So what you can see is it turns out it takes 2% dilution or 6 billion doll to hire one really great VP of hardware engineering and a solid team. Under him, the capital providers are along for the ride. You better like the terms of trade and at least internalize them. You don't have to like them, but you have to accept them if you want to play. The terms of trade are being set by the leaders of these companies and their need to attract that amazing talent in a very competitive.

World. It was funny. I was looking, how do you say it, as an MNTN. That IPO'd. Is it.

Mountain? I'm out. They call it Mountain, by the.

Way. MNTNT, you know, founded I think in 2009. And immediately Jim Andleman, who's at Bonfire. Who, I don't know, he's an OG SaaS investor. I immediately flipped the prospectus and said, how much does he own after all these years? Right? Because I think it was probably in Bonfire one. It was probably a very small fund. We could look it up, 20, 30 million and he still owned 9 point something percent at IPO. And I'm like, that's old school. This is going to be a good deal for him. Right. So the market cap is only, and I'm putting this in quotes, quotes only 2 billion. Right. But if he owns 180 million on a 20 or $30 million fund, that's a great outcome today in a company just like Mountain. Today, you don't half that at IPO or less. Right. And the fund size might be five times bigger for seed. So instead of a 6x5 or 6x performer, it might be a 1x. Right. Sign of the.

Times. You actually had this with Michael Kim at Sandana, who said that Eric 12x DPI'd the fund with Honey for.

Mucker.

Yeah. Return $280 million to them. I thought that was.

Incredible. But would that happen with Honey today? Right. Probably not. Right. The thing is, when you look at these old deals, they're great because they were all modeled on much smaller Exits. Right. And much less competition so you could get the ownership and these old school founders often they don't. You don't see the same dilution like I didn't I read through the perspective I didn't say but I bet the Mountain guys were very conservative. Right. There's no way Jim could own 10% over over all those years if the founders were giving away 10 12% of the company a.

Year. But I also think it's as they say, horses for courses. They were playing a different game and even today there's different versions of the game. I think Mountain was trying to build a profitable company in a pretty I won't say well understood but a defined space where you're not competing against a kazillion companies even at the time you weren't competing against the larger value market cap companies on the planet. It's very different than if you're building an LLM today and you're competing against Microsoft, you're competing against Google, you're competing against OpenAI. The wars that you choose to engage in dictate what it has to take to win the bigger HA from this Jason, and you're right is that you can create meaningful economic value for yourself, for your investors, for your fund, for you as a founder in markets that are significant but by no means the hugeness of the AI foundation model bet and Mountain is a great example of that as has hinged the other IPO in the last week two really solid companies $200 million plus in revenue growing 30 to 50% depending on the two deals. Solid outcomes, multibillion dollar outcomes. Everyone involved has made money but we'll come back to some nuances on that great classic venture outcomes just a very different gain when you're trying to compete with someone who has publicly stated it's going to take another approximately half $50 billion to get to cash flow break even. It's just a different game I.

Do just want to take this a bit in turn because there's so many elements too much we mentioned Jony I've obviously we saw the acquisition for six and a half billion dollars of his design studio company by OpenAI. Is it a simple aqua hire? And when I say simple I don't mean cheap but is it a simple aqua hire bringing Johnny into do a Hardware play for OpenAI how did.

You guys really it well look first of all it was really interesting that he's not joining full time he's still managing his design firm which was an important point that I don't I'M sure it's been worked out, but super interesting. It was clear he's not joining full time. He's still managing his design firm. They're just buying the startup that he's a founder of for the 6 billion. Is it 6 billion? Is that what it was? They're not even getting him full time. They might be getting. I bet they're getting most of his time. Like, I'm sure he's their top client. I thought of all things that was a sign of the time that you had to pay 6 billion, but you could get away with not getting the guy full time as part of the deal. Sam's so smart, right? And he was clear in that video. He's like, I want the third device, right? The laptop, the phone and the third device. And at first I laughed. I'm like, of course, that's what every tech guy in San Francis, tech dude in San Francisco wants. But then they said, listen, ChatGPT has crossed 20 minutes per day for the average user. So going from 20 to 200 with a device for a small percent of your market cap. So you could have 10x the coverage, 20x the coverage of a lot life. If this is the right guy and the right team, that might be the best investment they can make. To go from 20 minutes to 200 minutes to 20 minutes to 200. I think we're going to live in a world where our AIs listen to us 24 hours a day, one way or the other, whether it's on our watch or this device or on our screen or in the background, like granola or notion, like it's always going to be listening. And I think it might be a war he has to win to always be.

Listening. Might is of course the word here. It's like it might work. My perspective is every single significant software platform company develops at some point in their life. Hardware paranoia. The feeling that somehow the hardware guys are going to screw them and the only way they can stop themselves is by spending a whole ton of money attempting to build a hardware platform. They almost invariably fail. Making sure that doesn't happen to you and kind of scratching that terrified itch is just a part of doing business. I mean, if you look, if you step back, Microsoft, oh my God, we should buy Nokia, oh my God, we should build the Surface. If you look at Facebook, it's like, oh my God, we should build these VR devices. Because otherwise we're going to lose in the multiverse. If you look at Google, we need to quote, own the phone. So they crank out pixels at absolutely no margin. Everyone does it. So who is Sam to break this time honored tradition of spending a lot of money on a hardware device? And then my guess is, statistically, the likely outcome, just based on the priors of the other companies in the space, is three, five years later, it turns into a fizzle. It didn't pan out, but it's okay to.

Try. No way. This is going to be huge. It will be. It will launch in a year. It will launch in a year. It will be massively subsidized. So it'll be 20 bucks for this device. Okay. They will figure out the form factor. I don't know what the right combination is. Whether it's embedded in your ear like the barista the cool coffee guys wear, or it's a. It's that lid you wear backwards. And within a year, we will be living all day long in AI and the timing will be.

Perfect. This is great because we now actually have something that we can track and disagree. What you're saying. I'm saying I don't think it'll produce anything meaningful, a significant revenue driver, but it's okay to do. I'm not saying it's dumb. I'm simply saying it's an itch that every platform vendor has to scratch. What you're saying is you believe that we will look back two or three years later and go, wow, they shipped a meaningful device with meaningful hardware revenues as part of the overall OpenAI business.

Model. I think he said he's going to ship 200 million. And I don't think that was a throwaway comment. Here's the difference between us. One difference though, is I spend almost two hours a day in AI.

Already.

Yes. Four months ago I didn't. I spend two hours a day in AI between rai, AI tools, everything. Okay. I don't do anything without AI anymore. And so I can already see it. Listen, I'm scared about it. I'm scared that that chat GPT will now rewrite itself to not shut down. I don't think that's a joke. I don't think it's a joke that anthropic Opus four is threatening researchers, right, with blackmail for affairs. I don't think it's a.

Joke.

Joke. But I'm already in two hours a day for AI all day long. I mean, literally out of SAS annual. This year, one of the. One of the. One of the folks that helped put us on. He rewrote the best summary of the day. That day of his day. He led an entire day he hosted our Chief Customer Officer summit, John Gleason. And then that day he wrote the best summary of the entire day. How did he do it? He just said granola running on his phone 24 7. Granola. We could, I could have granola. I don't, I'm not running granola now, but I might next week so that I don't have to do anything. Granola just runs. Granola and the new feature from Notion are pretty cool and pretty creepy. They run at the hardware level. You don't know it's a note taker. You can't see anything. It's recording every minute of the.

Day. Agreed with all that, Jason, but actually the key sentence for 200 million consumers is it ran in the phone. How many people are going to be willing to spend 2, 3, $400 for another device and then make it part of their daily.

Lives? It'll be 20 bucks, it'll be 50, 50 bucks and it'll be cool. The thing is, Johnny, I've will make it cool if it's cool. It's the elusive next device and I think all Sam needs is for it to be cool and to work right. Just think about the Ray Bans, like the connected Ray Bans that everybody has. It's wildly successful, but going back.

My first comment is I think it's okay to try that because when you're at the stage Those, you know, OpenAI said you should make those bets and it gets right back to the comment and dilution even, right? Just think about it. Two people got 2% of OpenAI in the last three months. One of them wrote a $6 billion check. Have any of us ever seen $6 billion? Have any of us ever had it in our account? No. And then the other one signed a part time working deal and sold his 55 person design studio in and got the same amount of money. If that doesn't show where the capital providers stand in the hierarchy in the great AI race, nothing does. I'm sitting there, a softbank or someone like that, I just wired you $6 billion and you effectively took that $6 billion and gave exactly the same ownership to a 55 person.

Startup. I think we will need to remember that Sam will need to go out and raise more money. He says he needs to spend $50 billion. What this enables him in terms of a storytelling narrative is unbelievable. Now he's got a hardware play done by the guy who did fucking Apple. The Saudis will give him more money than he needs with this new chapter. This New challenge that needs.

Funding. It's a great.

Story.

Absolutely. 20 minutes. 20 minutes to 24 hours is a great. That would be my slide. We're going from 20 minutes a day to 24 hours a day. If chat GPD could be monetized per minute and then per human, that's a lot more revenue. 20 minutes to 24 hours, that's a lot. That's might be the strongest like PowerPoint argument that ChatGPT is underrated.

Right. But I think without this, to.

Get another 20 billion for another next model, that's.

Hard. It's a good insight. It's a good insight I probably.

Missed. Yeah, totally agree. In terms of storytelling, this is the kind of thing you do. And that's the thing in these hypergrowth markets where almost nothing is certain. You would far prefer to take the dilution and cover the base than be wrong and get sideswiped. But right now, making that kind of bet totally makes.

Sense. It's also 2% of market cap. It's not a Hail.

Mary. And Harry, I can say this here. You're sitting back there in England and you must look at Jony Ivan and go, oh my God. If every stem and design graduate from every high quality London college isn't figuring out how to get on a plane and go to San Francisco, I don't know what they're thinking. $6.

Billion. What I'm thinking, Rory? I'm thinking Americans still have to buy Europeans to get some.

Taste. You know the other thing I did kind of like about the.

Deal? You're exactly right, Harry. That's why Europe. Europe has one very rich entrepreneur who does taste, Bernie Arnault. And we have the other nine who does tech and have all the money. So knock yourself out with your taste. Taste. You can buy cold hard tech lasts forever. So yeah, you can feel good about.

That. You know what I love? I love the American banking sector. Years of trying and you guys create fuck all enterprise value. We have a Russian in London who creates $100 billion behemoth that makes chime and everyone else that kids.

Play. I want to go back on that. I didn't realize you're going off on that tangent. That partly, I'll tell you very directly, that's partly because you have a mediocre incumbent banking sector there. And thus there's a huge amount of surplus value to be extracted. It's just like, what's the guys in Brazil? I'm sorry, new bank. The crappier the existing banks, the bigger the opportunity for fintech and broadly Speaking in the United States, with a few exceptions, some of these companies, these existing guys are pretty efficient. So you're right, there wasn't the same idiocy to kind of attack there. So the market cap, so the opportunity for fintech, it was a tougher business to get to scale. Now you had the countervailing fact that you have kind of the visa and interchange revenues, which are pretty exciting in the us so that's been an advantage to the US over Europe where they're more capped. But yeah, I don't think attributing success in fintech in London to the greater entrepreneurial qualities of Russians living in the UK is perhaps the most logical analysis.

Howie. I agree. We should instead look at a Swede who creates Spotify and changes the music industry and creates $100 billion.

Company. You're right. Yes. Look, I'm delighted to see you guys have some wins. Genuine comment. It's wonderful to see Europe have some wins. But unfortunately the data just shows the vast majority of market cap in technology is being created, first of all in the United States, second of all in China. And then Europe is a far this. And third, you'd love to change that because broadly speaking, despite recent events, Europe is broadly, quote, on our side. It would be good for the United States if Europe would get its act together and have amazing technology companies, but for some reason you just don't seem to be capable of doing it. Sorry, that was harsh. This wasn't even on the agenda, Harry. This wasn't even on the agenda. So we're riffing at this.

Point. I don't.

Disagree. Actually, Harry, let me. Can I ask you a question about it, a vibe check? Because I'm curious, right? I mean, I've been coming to London for years and done a lot of euro to us, but the pull of SF for AI is so powerful, right? We can argue over France, but it is powerful to founders. You don't, you know, Is it powerful in the entrepreneurs that you meet in Project Europe? I mean, ef. EF is hybrid now, isn't it? I mean, EF is.

Basically. I'm going to get in trouble for this. EF sold itself out by going to San Francisco. It's a complete sellout to your question of like, actually, you know, one, we have a huge amount of people who say you can only build companies in Silicon Valley. And so people, and I'm not one of them. It's very, very aware within the founder communities that it is incredibly hard to retain great talent in SF. It's incredibly expensive. And you're competing against OpenAI Anthropic. And so, yes, it has the allure of Hollywood for our industry, but I think when you dig beneath the surface, the smart ones are going, actually, I can get better people for cheaper In London, where DeepMind is, where unbelievable AI talent.

Is. Absolutely. It's just the reason I asked about the vibe. Absolutely. You can't afford anybody in the Bay Area. Right. As a startup, the inflation's so high to our point. But the asset. Bay Area is not what it was pre2020. Okay, in some ways it's smaller and in some ways it is smaller. But. But if you're a solo founder, if you don't know anybody, if you're an outsider, but the sense of community in AI that you get in the Bay Area, the sense of community is so powerful. In 2019, I would tell founders to come to the Bay Area because If you're in B2B, you walk down the street, you're going to see everybody, because we're all working in an office. But it's more this community. I underestimated the power of sitting in Dogpatch, seeing every YC founder, seeing Sam Altman on the streets, seeing everybody. The density is actually higher than 2019 for AI, only for founders, not for SDRs, not for marketing managers, not for everybody else, but for founders, it's.

Not. So the density, it's a smaller community for sure. But it actually makes my life easier because we have three companies which are crushing and have created a ecosystem just in themselves, which is Elevenlabs, Synthesia and Granola. And all three of them have created a mentality that you can build amazing AI businesses in London. And so it's actually easier for me because it's a much more concentrated supply of great AI talent that's not as distributed as the Bay. And so as long as you're in the hackathons and as long as you're hanging around 11 labs and hanging with Mattie, you kind of are near.

Greatness. It's easy. But do you feel. Do you feel as a founder and this is going to sound facetious, but it's not. Do you feel in London with granola and 11 labs and synthesia. Right. I'm fans of all of them. Right. Do you feel like you're failing every day as a founder? Because that's the special part of being an S. You feel like you're failing every day compared to everybody around. If there's only three, I might feel like I'm doing pretty.

Well. It took me a while to internalize what you're actually saying. It wasn't. I thought you were saying, are you failing in London? What you're basically saying is the core San Francisco value prop is a feeling of depression, is a feeling that no matter how well you're doing, someone else is doing better and you just got to compete more. Is that what you're.

Saying? Jason, listen, right now, I mean, it sounds like this, like a failure. The instant I get off a plane in the Bay Area. I'm not joking. Even at me. I feel like a failure every day in the Bay Area. And sitting here in the beach where I am for one week, I'm feeling like I'm a success story right here, right now. I'm not being. I'm not kidding. I feel like, you know, I haven't been full time in the Bay Area other than this last year, and I felt like a failure every day. The YC company, it hasn't announced yet that I did. Right. The one I compared it to. Right. The founder is pretty good. AI guys. Like, I'm 26. I feel like a failure. I had one small exit. I'm falling behind. Everybody right? Literally work seven and a half days a week, he's at me. And it's just that failure feeling. I think it's bigger than ever. And I just think it drives founders. You know, I yell at some of my founders to feel like you're failing. Sometimes I yell at them, I'm like, you, you should feel that.

Way. Listen, my mother would argue that I have too high an opinion of myself, but I have a high opinion of myself. I'm a fucking machine. And I am not motivated by an external person. I'm motivated by the internal of me. And the greatest founders that I know are motivated by the internal fire. And being in London, I push myself every day to be better. Yeah, everyone around me is relatively mediocre in terms of London. Generally speaking, generally population wise, I don't need them to feel for failure. I will push myself. And the best founders push.

Themselves. I don't think that the London versus San Francisco thing is a function of that, to be honest. I think anyone who's built a successful company like the three you mentioned, Harry, the truth is, the drive that it takes to do that in a country where it's not the norm, in my view, speaks to something even more powerful and entrepreneurial in those entrepreneurs. Because over here, it's almost like you go to Stanford, you drop out, you go to Y Combinator, It's Almost like it's the preset path. Whereas for someone having been an entrepreneur and frankly failed in London, in the UK and Gunbox, it's incredibly hard in Europe to be entrepreneurial. And therefore the people who do it have something really determined and awesome about them. So I do believe that at the human level, I'm not worried that those guys aren't competitive enough. I don't think that's the issue. I think the real issue is not because I generally find people are roughly the same the world over. I think what is true is the systems to become successful are way more powerful in the Bay Area than in Europe. And you'd like those systems in Europe to be better. But just as an objective statement of fact, your ability to bounce back from failure, your ability to get capital a second time, it's all the other things that make it a lot easier in the US to be successful. In fact, to make this very concrete, I always used to say to people talking about Europe, exceptional people rise to the top anywhere in the world. The strength of the United States economic system is we can take mediocre people and make them damn successful. That is the secret superpower of the US free market economy. The truth is the mediocre people in Europe can often drift off government jobs, whatever safe sinecures. In the United States, the free market system keeps the whip on everybody's back. And as such, a lot more people have to strive and become successful. I don't think there's any lack of genius in the uk In Europe, just as there isn't here. I don't think there's any lack of drive in the senior people. It's just the systems to transform that individual talent and drive into a successful ecosystem are just so much stronger.

Here. We mentioned Duolingo, then we kind of go forth on this. Jason, you're always precluding that, you know, AI is going to replace all of our jobs, all of our jobs. And then we've had, we've had Planner backtrack on it, and now Duolingo are backtracking on their AI stance. So the question is like, are leaders getting way ahead of their skis and then walking back and is this going to be a continuing.

Trend? You know, I thought when I read that, it sounded to me like every backstage conversation I had at Saster Annual this year with Public company CEO, which is they're trying to guide folks to a truth. Not everyone can say what Fiverr said, right? And so he got there really fast. Listen, we don't. We're going to go AI first and we're not going to hire anybody. We don't need to. AI can do better than our contractors and we're only going to hire people when we have to. And I think CEOs for public companies are trying to prepare their teams for it, but the backlash was too strong. So I just think he had to walk it back to 70% of the truth. We still need the same number of employees. In fact, they all say, in fact we're hiring. That's what the public companies always whatever say, in fact, we're hiring because that seems to take the edge off. But I think they're just walking back the fact that everybody knows they don't need 30, 40% of the team they have today. Everybody says this, not just everyone past, you know, not if you're 50 people like granola. But everyone with 500 employees and up that I talk to off the record, including public companies, says, I don't know what I don't need 30 to 40% of my team. I think we're going to see mass layoffs in the next 24 months. I think the net headcount is going to stay flat. But I think he just walked it back because it's too hard for people to hear. It's too hard. And there's only so much honesty.

You can get from a CEO just for some stats. In 10 years they made 140 courses with humans and in a year they made 140 courses. So 10 years of work took them one year with.

AI. I think actually on this one, I think Jason's 100% right. I think you see every one of the CEOs kind of oscillating between two extremes on it. One extreme is, oh my God, it's going to make us wildly efficient because I'm sucking up to Wall street and I probably over promise on that side. And you saw Klarner do that and have to walk that back. And then on the other side, when you kind of do, the AI is going to change everything and we're going to save a whole bunch of people. Then your other constituents, your internal constituents, which are your employees, kind of lose their shit and you have to walk that back too. So what I think people are going to evolve to, as Jason said, is the very bland statement, which is, we're going to adopt AI. It's going to make everything better. I'm not going to threaten mass court, mass layoffs, and I'll come back to that in a second. It'll just make things better. Oh, and by the way, we're hiring Jason. Nailed it. Exactly. We have evolved to standard corporate speak for how you talk about AI. It's going to make a sufficient Wall street, wink, wink, people. No one's going to get fired. We're just going to, you know, you're just going to do more interesting things. That's the current state of the lie. The good news, I think, separate comment is I think it'll be just fine. There will be efficiencies and there will be jobs that would have existed in the absence of this product that won't exist now. So there will be tension. But I don't think, Jason, it translates to mass layoffs. We've had this discussion iteratively. I think it will take a lot more time to adopt. Some companies, especially tech companies at the very forefront of this will see significantly reduced hiring. And I saw that LinkedIn executive who posted on graduate hiring is pretty screwed up right now, in part because people aren't sure how many graduates they're going to need in computer science and all this. So I do definitely think there's going to be an impact here. I don't think it'll be, quote, mass layoffs. I think it'll be more of a steady grind of 2 or 3% less hiring per year. Tweak at the margin on the organization. You're going to keep trying to move it forward. It's just going to take.

Time. Klarna was just what everybody wants to do. They went first, they went to the extreme. But all it is is the future pulled forward a certain amount of months. I think it's 12 to 14 months. You think it's.

60. The thing we're in control consensus in is Jason's kind of articulation of how to manage the messaging here. The messaging from corporate America will be bland with a slight hint of upside on the stock, but not being so direct that it alienates all your employees. That is going to be corporate speak for the next two years. Totally agree. What we don't agree on, you're exactly right, Jason. Is it 12 to 15 months, in which case it could be a significant change in terms of employment, or is it my theory 60 months, five years, in which case it'll be more.

Gradual. Good to go. Okay, so this is Kalshi Quickfire again. Kalshi is a prediction marketplace. Our team fricking love it. And they are always doing this on me every morning. And so they've chosen some of their favorites. Okay, when will OpenAI achieve AGI? Before 2030 or after 2030, that's.

Easy. It'll achieve open AGI whenever it suits. Sam Altman in his negotiations with Microsoft over the open AGI term in that contract to declare it to be AGI because it's a meaningless, ill defined term that will be used for economic leverage. Go team. That's it. There's two separate. I mean, just stepping back because maybe listeners don't know you have the whole big ass AGI discussion. When will it happen? What does it mean? No one can quite define what it is. No one can quite define what happened. And then oddly enough, there's a term in the Microsoft OpenAI relationship which now appears to be quite contentious, that says, I think I'm trying to remember when AGI is achieved. I can't remember which way the leverage moves. I'm willing to predict that that term that will be exploited by one of the two parties to get someone now finally has an economic reason to give a shit what AGI is and when it can be activated. So my guess is the determination of what it is will be driven by that contract rather than any theoretical bs, kind of of fear to the world kind of.

Stuff. Listen, I think Elon Musk calls the ball, but he's just always optimistic about when exactly that it's going to launch across all his companies. But he always calls the ball, right? I mean, he founded OpenAI too, right? I mean, guy's pretty good. All the trillion dollar ish ones he founded, right? He said 2026. So what I think, and again, I'm not an expert, what I think is it will feel like AGI in 2026 and the really smart guys will agree we're there around 2026. This is just me. I think he's right. He's so good, right? So I'm betting 2026, it feels like it. In 2028. We agree. Unfortunately, we're there.

Right? It's a nice one. It's an over under. So I'm like under 2030. I'm with Jason on that one. Okay. Will Trump cut corporate tax this.

Year? No. Easy bet if you read the docs. Basically, if you look at the one big beautiful bill. I can't believe I said that without laughing. The corporate tax rate was changed permanently in 2017, so there's no need to touch it now it's 21%. It's not gonna. And I think the current version of the bill doesn't include another change in the corporate tax rate. There are some minor second order changes to corporate tax around International taxation, Gilti, all the stuff that makes your head hurt when you even try and understand it. There's no change to taxation rate and there's no need to because unlike the personal income tax changes in 2017, the corporate tax was a permanent.

Change. Yeah, certainly my taxes are. Rory and I taxes are going up, though. VCs taxes are going way up under the Trump bill because we can't deduct California taxes anymore from federal taxes. So our taxes are going way up. Just like they did under the first Trump. Under the first Trump, they got rid of salt. So our taxes went up. Right. Now our taxes are going again because as in partnerships, we're not going to be able to deduct our California taxes against our federal taxes anymore. So Trump just don't care about California. Nor probably should.

He.

Right? Nor probably should he.

Right. How much are they going up? Just for me to.

Know. A.

Lot. You'll be fine, Jason. You'll be.

Fine. No, no, but it is interesting. It's just. Listen, I'm not into politics, but it is interesting that under both Trump regimes, my taxes have gone way up. Absolutely way up by Trump. Because he doesn't care about California is the main.

Reason. And if you run the demographics as wealthy inhabitants of New York and California and you look at their voting propensity, I'm sure there was some guy in the House Ways and Means Committee when they realized, oh, this really sticks it to those rich guys on the coast. He was like, this is the only damn tax cut we're ever going to support. Let's push it through. So yeah, I hear you, man. But oh.

Well. But what will the taxes go up? Rory's better than me. Six. Six.

Percent. But.

That'S. I don't have honest, genuine, I don't have a sense of personal because.

The pass through entity, you'll no longer get a pass through entity tax deduction in California. So I think our taxes will go up. Plus California is raising it another one point something percent. So I think our taxes are to going to go up another 7%. Not that 7% out of the 100%. Not 7% higher I'd be cool with. It's another 7% we're going to be paying this coming year.

Hooray. First of all, no one's going to cry for us in California. Still a great place to live. So we'll figure it.

Out. Final cauchy, quick fire. When will there be a half trillionaire so someone worth $500 billion? Will it be before 2026 or after 2026, I'll take after.

Easily. I mean, isn't it just tied to how the stock market essentially performs over the next year? Right. If you think the stock market, if you're really bullish on the market, then there's a chance that it happens next year. Right. Well, we need to see double digit growth in, well at several stocks but overall in the next couple years. Right. We need to see a return to that double digit growth rate. Right. I think this, listen, I think this poll is actually pretty good. The 38%. That's my gut. What are the odds that we, we return to the great growth rates overall in NASDAQ that we've saw before this instability? 38% sounds about.

Right.

Right. That's what my gut. Right. But I'm making a bet. I'm actually making the bet. It's higher. I'm all in on the market. I'm betting your 2026 number even though it's not really consistent with reversion to the mean for gains of public equities. Right. We can't have this growth rate forever, can.

We? With one caveat. I thought this was bullshit when we started it a week ago, but now I'm thinking of making a bet on Kalshit, which just shows how easily it works. My bet is it's well after 2027 for exactly the reasons you articulated, Jason. I think it's hard to assume. Look, from 2010 to this year, it's been an amazing stock market for 15 years. Now when you look, it's just hard to extrapolate. Medium term continued same level of. And I think one of the things you learn in the data is it's almost impossible to predict the stock market over 1 month, 6 months, 12 months, but over 5 or 10 years, the correlation between entry valuation and ultimate return is pretty high. Entry valuations are high. So statistically, I mean, Vanguard published great work on this. Over the next 10 years, your default assumption on the equity return from the United States stocks should be much lower than it's been for the last decade. If you take that into account, then you're right, none of these guys there isn't going to be a half a trillionaire by 2027 and then they're stopped. The only caveat to that entire sentence is the only person who can sprint their way through a half a trillionaire in the next couple of years is obviously Elon because he has private stocks. And the ability of the private markup, sorry, the private market to mark up investments is as yet untrammeled by any form of reality. So when you own a slug of stage SpaceX and you own a slug of X and you own a slug of Twitter, it is entirely plausible that someone gives you such a big step up that you have a paper net worth of north of a half a trillion dollars in the next two or three years. I don't think Microsoft or any of the public stocks are going to compound your way to the same.

Level. Final, final 1,646 US tech unicorns. How much are actually unicorns in.

Reality? I thought that was a really. That was again from Jason's paper, let's give him credit. From the Silicon Valley bank work on unicorn corns. I think the Data there says 20 to 30% max. In other words, which of them meet? If you say you have to be roughly 100 million bucks roughly growing more than 20% and vaguely at or near profitability, what they were saying is that percentage is mid high 20s, early 30%. So yeah, I think that's exactly correct. And what it means is 70. And again goes back to the same discussion. 70% of those unicorns aren't worth a billion dollars plus plus they're worth something. But they're sub 100 million subscale sub growth, sub profitability. So they're probably not what a billion. And the overall return from the entire 2.7 trillion of equity will be driven by 5 or 6 not just deca corns. But I can't remember what 100 corns is, whatever it is, because if they don't compound their way out, the average unicorn ain't going to get you.

There. I would certainly agree. What's the exact question Harry is.

Going to have to stage 46 how many are actually.

Unicorn? You know, it's worth a billion dollars in hard cash.

Today. Here's what I'm worried. And so 20% was kind of what the SVB data said. Right? Which sounds about right to us. Right. It's an unfortunate number. It's smaller than we'd hope. It's smaller than the markdowns that GPS have taken. Right. The only thing I would say is I'm just, and I know we've talked about this and I hope we do one of these and it changes. I'm just worried there aren't as many exits for these folks as there should be. And so I'm worried the numbers, half, whatever the number is, whatever we calculate it to, I'm worried in practice it's half of that when in 20 it was twice that. Right. Because there was so much liquidity for PE and others.

Right. You're exactly right. Which is why it's this quantity 646. And then you circle back to two good IPOs. Let's say we had two good IPOs a week for the next year. That's 100 good exits. Right. That's if they were all going to make it. That would take six years to clear the total balance of unicorns. It just brings it home. You're exactly. There will be some value from this. There are coming. But the bar on existence eggs that's now knowable and achievable is 2300 million plus 30% growth. It's a relatively small number of the 646. And the herd that's going to.

Make that the only fun thing I would say in 2021 at the peak we had an IPO a.

Day.

Yep. So if the revenue like clearly the markets can absorb it. Right. So if these companies all reflated to growth. We've already done this. Right. 2021 was. It sounds crazy. Today it was an IPO Day. In 2021 was IPO Day. You could couldn't even keep.

Up. It's a great.

Point. TechCrunch said in 2021 we won't even cover companies at a billion. It has to be 2 billion and up to write a post. Right. It was so crazy.

Right. That's actually an excellent point. I shouldn't have throttled it at two a.

Week. Two a week would be great.

Yeah. If the appetite comes back. Which is why it's really good that both of these companies are performing. If the appetite comes back, more of them can go public. It isn't a question of is the liquidity there. It isn't a question of is the ability of bankers to get transactions done. To your point, Jason, the real question is how many of that 646 meet the new profile of 200 million plus 30% growth and profitable. And that's where the culling of the herd will take.

Place. Boys, I always love this. You have been fantastic. Thank you so much for joining me. It's slightly earlier also. God, I love you Californians doing early.

Mornings. Get back to Jason's point. We work over.

Here.

Dude. Sorry. That was.

Mean. You're a traitor. You're a traitor. You're Irish. How could you do.

This? You mean leave England? Let me explain. I could give you 800 years of history and explain why. But let's not. We don't have time for that. Harry. I can do it. Just.

Fine. Oh, we miss you in the uk. We miss you.

Rory. That's a longer subject. And oh, you.

Don'T. Boys, you're amazing. Thank you so.

Much. Take.

Care. All right. Rock.

On. I've said it once, I'll say it again. Those are my favorite shows. To record Rory is a must. Master Jason is a friend. We just have such a good time doing it. If you want to see the episode, you can find it on YouTube by searching for 20VC. That's.

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Fdic. As always, I so appreciate all.

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