20VC: OpenAI's Multi $BN Deal with AMD | Polymarket, Vercel and Supabase Raise Mega Rounds | Does King Making Really Work in Venture Capital: Harvey vs Legora | Chamath is Back: The SPAC is Back

Paul Graham was right. Sam Altman understands power. He has more power than AMD. So he took 10% of their company for the privilege of selling stuff to him. The interesting thing is the leverage that OpenAI has even though they're losing a shit ton of money precisely because they have the users.

Nvidia is making so much money it's almost incomprehensible. So I think Jensen knows he's got to give up some of it.

The more you do this, the more you just say to yourself, you just need to do big exciting deals in trends that are absolutely obvious. And every time you try and make it harder than that, you just, you lose money.

This is 20 VC with me, Harry Stebbings. It is my favorite show of the week now.

What a show.

We have in store for you so many great bits of content. We have OpenAI's partnership with AMD and their ability to buy 10% of AMD. We have their dev day announcements analyzed and broken down. We have Supabase's new round, Vercel's new round. Chamath's new SPAC is back. SPACs are back. Bab. It is an incredibly fun show. I cannot wait to hear your thoughts. Let me know what you think. I want this to be the best show of the week for you, harry@20vc.com let me know your feedback. I want to make it better for you. But before we dive into the show today, now, most people who get scammed never talk about it. And if it can happen to tech savvy professionals, CEOs and investors, it can happen to anyone. But the problem isn't just losing money, is that today's scams, they're built differently for a very new world. One where I generate convincing messages in seconds and fake sites look more like real sites than the real thing. Traditional tools were not built for this future. And that's why Guardio exists. Guardio is this incredible predictive and proactive engine. It leverages advanced AI threat detection to block highly targeted, socially engineered scams before they ever reach you. From phishing emails and fake login pages to financial fraud, Guardio protects you across the ways people actually live and work online. And security shouldn't be complicated. Guardio continuously monitors across all your accounts and devices, uncovering risks in real time and guiding you to close gaps before attackers exploit them. Trusted by over a million users, Guardio is setting the new standard for personal cybersecurity. Visit Guard iO20VCToday to start your 7 day free trial. Because the threats of tomorrow, they're already here and Guardio is built to stop them. And as Guard IO defends your clicks, HubSpot turns them into customers. You want to grow your company, right? But instead of having the time to get to the next level, you're stuck maintaining the status quo. It's freaking maddening. Well, HubSpot's customer platform, it actually solves this breeze. No, it is not a fabric refreshener. This is the next generation that built in AI takes over all the busy work. It writes emails, it qualifies leads, it answers common customer questions and even help create content. Also your marketing, sales, your service teams can focus on what matters most and the impact is undeniable. Teams are saving 750 hours a week. One even increase leads by 251% and these results show up in days, not months. Over 238,000 businesses already use HubSpot. So join them. Visit HubSpot.comai and while HubSpot builds your funnel, Framer builds the experience around it Are you still jumping between tools just to update your website? Don't do this. Framer unifies design, CMS and publishing all on one canvas. No handoff, no hassle, everything you need to design and publish in one place. Framer already built the fastest way to publish beautiful production ready websites and it's now redefining how we design for the web with the recent launch of Design Pages, a free canvas based design tool, Framer is more than a site builder. It's a true all in one design platform. From social assets to campaign visuals to vectors and icons, all the way to a live site. Framer is where ideas go to live start and finish. No figma imports, no messy HTML. Just design, iterate and ship all in one place. And it's completely free to start. Ready to design, iterate and publish all in one tool. Start creating for free@framer.com design and use the code 20VC for a free month of Framer Pro. That's framer.com design and use the promo code 20VC framer.com design promo code 20VC rules and restrictions may apply.

You have now arrived at your destination.

Guys, I am so looking forward to this. We have a lot of news to cover this week. We're going to start with I did laugh when I was putting this together with Jason's brilliant suggestions thinking you know that this could also just be called this week in OpenAI. That could be a relevant name. But obviously we had dev day yesterday. I want to start though on the AMD deal setting the scene OpenAI announced a major chip supply partnership with AMD. OpenAI will buy AMD's upcoming Instinct chips up to 6 GW. As part of the deal they get warrants to purchase up to 10% in AMD. Big news if we start there. What the fuck does this mean a week after Nvidia invest 100 billion in them?

It means a lot. There's a ton in this. And it means first of all, the odd thing is whoever does corp dev and OpenAI gets a bonus this year. Whoever does corp in AMD and Nvidia all get bonuses this year. Because so far this has been, oddly enough, and I'll come back to that, a win win. I maybe start right down in the weeds with the AMD deal, right? Because contrasting with Nvidia because Nvidia is strong when they get to get equity in OpenAI in return for giving OpenAI chips. And OpenAI use that money to buy those chips. AMD because it's weaker, has to give their own equity to OpenAI for the privilege of having OpenAI by their chips. It speaks to OpenAI and this is why Paul Graham was right. Sam Altman understands power. He has more power than AMD. So he took 10% of their company for the privilege of selling stuff to him and he has probably less power than Nvidia. So he let them get equity for the privilege of selling him chips. There's dominance clearly been established. That's the first thing out of the gate.

Well, I just want to understand he got warrants to purchase. That is different to him purchasing.

It is and it isn't if you look one level down what did what he gets. OpenAI got warrants to purchase 10% of AMD at a penny. So in other words they're free warrants. When? We'll come to the accounting on that in a second but only if they buy the chips and the AMD stock price goes up. So I can imagine the discussion, the discussion was OpenAI come in and say hey amd, we're going to buy some shit from you and that's going to be so good for your stock price that we want warrants to do this deal. And the AMD guys say no way, we're selling you chips, we're getting money. What the hell do you mean you're going to get warrants as well? And OpenAI, I bet you your stock will go up just because you're doing business with us because you're kind of a no hoper and now we're saving you and we Want to get some of that upside. So therefore did I repeat, we want the warrants. AMD eventually says, here's the warrants. And the interesting thing is, and remember, OpenAI's got to buy the chips step one and step two, the stock price has got to be high. The interesting thing is that we'll see if that lasts when those chips get shipped. But as of right now, the stock price went up 30 something percent. So if they were shipping the chips today, they'd be getting the warrants today. So OpenAI was correct when they looked AMD in the eye and said, dude, we're going to get 10% of this company. I think that's worth 30 or 40 billion because it's a 300 billion company. And your stock price went up 60 billion. So you're up.

My initial sense, which I think may be wrong now you said, Rory, my initial sense was AMD is getting the better end of the stick here. Right. We need to diversify away from Nvidia. OpenAI does, but we're going to do much more for them in the short term than you do for us. And then you're going to turn around and monetize it with our competition. You're going to sell them all that you launch. That's how I read it. So we don't want egg on our face. It reminded me at first of Shopify and Stripe. And Toby was so angry in his mind that he put Stripe on the board that then he went to Klaviyo and said, listen, I'm going to do the same thing for email that I did with payments on Shopify, but you got to give me 10% of your company. It felt like not getting egg on your face. Maybe they just want the money.

Yeah, I mean, it's all together. It's. They came with a Kingmaker package and they, you know, made them an offer they couldn't refuse. As I say, as of today, it would work. But remember, they don't get those penny warrants until they ship the chips and until OpenAI buys them. Because remember, because whenever you do these vendor deals, you're worried, are they really going to buy the shit two years from now? OpenAI still has to need whatever vast sum of chips that they set. But interestingly, if you zoom out a level, go a little historical here, what you're seeing here is uncanny. What you're seeing here is the Windows intel game beginning again. Right. If you zoom back 30 years, Microsoft was the software company that took control of the PC monopoly. Their adjacent partner was Intel. IBM was the old school company that set them up by doing that famous DOS licensing deal. And AMD was the little player that got dealt into a 10% market share because IBM said, dude, we're not going to just rely on intel anymore. We need a second supplier. That's 30 years ago. And the way it unfolded is intel did well, Microsoft did better, and AMD got a little bit of money and IBM faded away. Fast forward to today. The company that's dominating everything is OpenAI. They're the Microsoft of today. They have the consumers, they have the eyeballs. They're building this new monopoly. And the equivalent of intel is now Nvidia. In other words, the only other company that OpenAI needs to make all this shit happen is the chip guys. If you've got chips and you've got these guys, you're golden and obviously capital. So Nvidia occupies the role of the dominant, other part of the do a verret, the two armed people running the thing. In other words, you've got OpenAI and Nvidia. But bizarrely enough, you still need the second source. In this case, OpenAI is driving that agenda. But up comes AMD again 30 years later with exactly the same shtick. We're not as good as intel, we're not as good as Nvidia, but we're here with the second source. Give us some money and history repeats itself. And then, just to say it, the role of IBM has been played by Microsoft. They set this viper in motion and they've allowed it to exist. And in one sense, for a while, it looked like Microsoft got a good deal because they got access to OpenAI's technology early on and they got a little bit of buzz. Brutal comment here. Just like IBM got a buzz when they shipped the first PC because they got a product out the door. But they let this competitor emerge in their midst. And I think OpenAI going back to. It's uncanny how similar it is. And if you're sitting there and now and you're Microsoft, did we just create a monster?

Did IBM own a large chunk of the monster they created in the same way?

No, look, exactly. History. As someone wisely said, history doesn't repeat. It rhymes. IBM does not own. It's a good point. Does not own a big slug of OpenAI. But as we've discussed, you don't get points for venture capital when you're a dominant monopoly. You got to just stay a monopoly. So, yes, better to own 10 or 30% of it than nothing. So great. As I said, what we said, great corporate. Corporate development deal for Microsoft. Far better corporate development deal for Microsoft than IBM did 30 years ago when it didn't take any ownership. So as we said, the corp dev guy at Microsoft, he also gets a bonus this year. But from a business perspective, I mean, we're going to talk in a second about Developer Day. What you saw is OpenAI basically saying, here's the place in which you should run your other apps. Now, I'm not sure that vision sticks, but if you're Microsoft, you're like, what? Wtf? We're the place where you should run your other apps. That's what we do. Who the hell are you? So you're right, Harry. It's not a complete parallel, but there's a lot going on here that feels uncannily similar and you kind of got to think about it.

Can we just stay on the deal itself before we move to the Developer Day? If you're Nvidia, are you not thinking, Hang on a minute. I thought we had this trusted relationship, this wonderful partnership. We just gave you a ton of money. We just invested, what a strategic relationship and now you're turning and biting the hand that feeds you. How do Nvidia feel?

Sam is again, we've said a million times, I learn a lot watching what he says because he is thoughtful and direct. He was very careful to be complimentary to Nvidia and be clear that they were his number one vendor. Right. Here's my view. I don't know what you guys think. I mean, Roy's made the point. The only person making any money in AI is Nvidia. Even Oracle isn't making any money. OpenAI certainly isn't making any money. Nvidia is making so much money, it's almost incomprehensible. So I think Jensen knows he's got to give up some of it. And I think there's this, this elaborate dance of chipping away. He's got to give a little market share. He's got to be a little polite in these deals. As long as the end of day he knows he's going to have 90% market share. They're all playing it very carefully so that he can minimize his price erosion, which he has to deal with and maximize his market share without creating a huge conflagration. But I think it was very carefully orchestrated. You can't. This may end up being very little. Right. If AMD isn't fully competitive, no one may end up using these chips, except that the minimum they need to maintain competitive. Right. So I thought it was very thoughtful about everybody. I thought it was sequenced in the right order. AMD didn't come before Nvidia did. It certainly wasn't announced first. And everyone showed up to pay homage to Jensen and he referenced it when he did the Nvidia AMD deal. So I think it was as what we can see from Elon is being impolite has consequences in this space. I mean, that Elon guy, he hates Sam, doesn't he? I don't know if XAI would exist if it wasn't for his bone to pick with Sam Altman. He might not have bothered. He might have just gone to Mars faster.

Staying with the dynamics of the deal and what it reveals on the chip side, it reveals they're a wildly powerful company, they can shed a little. They're going to have a lot of other issues eroding them. No one's going to see a $4.5 trillion market cap, 200 billion revenue, 50% operating margin company, and do anything other than say, get me some of that. So he's brilliant and playing out his hand. I mean, the interesting is not the perception of leverage that Nvidia has, because the leverage is real and obvious. They allocate the chips. The interesting thing is the leverage that OpenAI has, even though they're losing a shit ton of money precisely because they have the users, when you have the users, even if you're burning cash, there's no place Nvidia can put chips other than to a customer who themselves has enough users to use all those damn chips. And therefore the stunning thing here is the asset is you can be sitting there losing money like hand over fist, and still you get credit for committing hundreds of billions of dollars you don't have. You can bestow market cap on your vendors, for God's sake, just because you're willing to buy from them. Simply because the whole world right now believes, rightly or wrongly, that that 12 billion revenue line is going to get to 200 billion and it's going to take 100 billion a year in chips to do it. And therefore selling shit to OpenAI is a business so good that you're willing to give up 10% of your company for free for the privilege.

But here's the weird thing, because I have actually, in my first startup, I sold components. Nvidia is selling components, and then it's a crappy place to be on the stack. You know what everyone does when you sell in components? Everyone's nice to you because they need you. And they bring you into the conference room and they bring you coffee. And you know what they all say, Harry? Cost plus 20%. Now, you can laugh about that, but when you look at Nvidia with 50% margins, okay, and you're buying from them, you can't help but feel that's the number one place I'd like to attack if I could. I'm fine If Nvidia makes 20 cents on a dollar, 15 cents, right? But 50 cents, I mean, F me. And there used to be competition in the GPU market. There just isn't today, right? So it is this weird dynamic where normally you'd be beating up on your vendor, your vendor would have lower margins than the software provider. Here. It's highly inverted to play it out.

Because I thought I was going to disagree with you, but in the end, I'm in sync. Because what you're saying is this. Normally components businesses are hard because everyone understands the cost structure. You typically only have a few customers. It's like selling telco equipment to the telcos. There's only 20 big telcos. They know they have you over a barrel. And therefore those businesses become pretty tough, right? Because you're right. They just calculate costs and work back in. But two comments. One is the only thing that defeats that is an architectural lock in where you have a monopoly. And what you're seeing is this is a monopoly competing against an oligopoly and the monopoly provider being Nvidia. And as long as they're a monopoly, you know, the buyer from an OpenAI can sit, or Microsoft can sit there and go, you bastards. You only paying $50 a chip to TSMC and you're charging me 300. I hate you. I'd like to do it for less. And Nvidia sits there and go, well, we won't. And you've got no other choices.

We will. But we're sold out, Rory.

We're sold out.

Yeah, I mean, even 2031, we could provide you with some of those chips.

I mean, the fun thing about this semic business is it was about 20 years ago, Venture effectively walked away with one or two exceptions from semiconductors. And they were probably correct because from a startup perspective, it got really hard around 2003, 2004. Ish. There's been a few since then. Actually, one of my colleagues did the deal, not me, but we had one of the last monolithic power, which was a success about 2007 and 08. Since there's been almost no Venture exits in Ventureland at the same time, in Public land. It's been wildly profitable. You've got Nvidia, you've got Broadcast, you got a bunch of others. They've basically consolidated to your point, Jason, so that the remaining providers have significant leverage. If you're going to only have six or eight customers, you better be sure you only have none or one competitor. Like, for example, Memory, for example, which is a chip market where there's three or four competitors that tends to be wildly cyclical and prices go to shit in the downturn. If the GPU market ever turned into the memory market, which I'm not saying it will because of the complexity, then that business looks very sad. And just take a look at how Samsung and Micron trade versus how Nvidia trades. Everyone left them alone for 30 years and they built a monopoly, and now he's picking up the check from it.

So if we progress this forward, then to Dev day, which we touched on slightly there. And why don't we start on. One of the major announcements was the opening up of apps into ChatGPT. So you can essentially use your Figmas, your Canvas, your Spotify easily and natively within ChatGPT. I'd love to understand from your perspective. Jason, why don't we start with you? We touched on it a little bit beforehand, but you left me with a cliffhanger if we'll save it for the show. Jason, were you impressed by this?

I was underwhelmed because first of all, let me step back. We had Marc Benioff on the show a few weeks back, and I told him this is what I wanted. I wanted to talk to my apps, remember? And Mark at the time, I mean, we love Mark, right? He was like, you don't want to. That doesn't make sense. And you don't want to do Vibe coding. Now they're doing Vibe coding at Dreamforce. The world changes in the four weeks since he's been on the show. I'm like, I want this. I don't want to log into to Salesforce. Okay? I want to go to chat GDB or Claude and say, tell me how Harry and Rory are doing this month. I've literally been a Salesforce customer for 20 years and haven't logged in in a decade. Okay? I want my Salesforce in chat GPT. But I had two thoughts watching this one. This canva Spotify. I didn't see an aha moment. I didn't see magic. I didn't see something that was so great my jaw dropped and I would copy it. The second thing I thought as B2B guys is. This is like Slack 2.0. Slack was our chatgpt until 2020 four months ago. This is why Marc Benioff bought it for 27 billion. It was our OS, right? We didn't know how to communicate. We didn't know how to work Async. And everyone's in Slack all day long. Even today we still use it. It's just not like it was chatgpt took a lot of that mind share and we would be. We'd be sharing in Slack and. And every app has a Slack integration. It's actually now that I'm. I don't know, Harry. I don't know if you know, I've been vibe coding lately and I will tell you, of all the things that that are easy, some stuff is hard to do, some stuff is easy to do. OpenAI is really easy. Zapier is really easy. But Slack is super easy. It is still the easiest software to like, push updates and do and work bidirectionally. But where are all the apps in Slack? The connectors are there. How often in Slack are you creating a Spotify playlist or creating a Canva image or even pulling up a CRM record, which you can do. How often do you do it? I bet never. Do you track deals in Slack? You probably could. So I thought, this is great. It's like Slack, but what do we do in Slack? So I was hoping this aha moment where Sam would show one or two use cases where my jaw dropped. I'm like, holy crap. This is integrating my memory, my data, my learnings. It's combining apps in ways you can't without an API or without a zap. Like, I just didn't see the great use case. Right? And I'm hoping it comes because someone's going to figure it out and build a huge business out of it. But I don't know if there'll be a thousand. I'm also not sure we need another app marketplace for the other side of the announcement. I'm not sure we need the 10th App Marketplace. Maybe we do. We'll find out. I didn't fall out of my seat for a magic moment, and maybe that's because they built it in eight weeks.

My question was especially around Agent Kit, which you mentioned, which is, you know, the ability for people to build pretty good quality agents very, very quickly. They did it in eight minutes in a demo. Does that kill a litany of companies like your N8Ns who promise the same in terms of customer delivery?

That's a Harder one to assess. I don't know. I can envisage the kind of agents you're going to be building for. Enterprises probably are going to require a lot of orchestration, a lot of management. There's a lot of product surface area that a software company just focus on that has to do if it's a trivial problem and it's easily integrated with OpenAI. Maybe they do kill some of these companies, but my guess is there's more complexity involved. And over the next two years, will OpenAI spend the time on that because they've got bigger fish to fry? Will they just make it easy to connect and move on?

I think the thing that worries me, I do want to make sure we move away just from OpenAI because the thing that worries me is I saw these crazy rounds and two that stood out to me. Naveen Rao, who was VP of AI at Databricks, raising a billion at 5 billion pre. Does this just break venture though? A billion at 5 billion. For me to get a 10x it needs to be $100 billion company with dilution.

No, it means 50 billion with dilution. Okay, I was worried you were unclear on 10x math, Harry. That was a bad moment. So.

No, no, I wasn't counting. Accounting for dilution, thinking 50% given the stage and the company style, be 50%. Does this just break venture math?

These deals are unusual. If you think about what kind of deals get this most early stage startups, definitely consumer, definitely. I believe in apps in particular are a little bit voyages of discovery. You don't know if the market's there. You're trying to get product market fit. Even if the executive, the CEO is really good. You don't get that automatic right to win. Where you do get it is in these hard infrastructure markets. The number of people who can credibly say I can solve this level of technical problem that we're now facing is much smaller. So you do have that kind of star effect in raising. I mean you're seeing it in thinking machines. You saw in safe superintelligence and you're seeing the same kind of thing there. The number of proven people who have the magic in this space is low. And we should add that Naveen has successfully built two companies, one of them broadly, interestingly from my recollection, a hardware company back in the day. I was sold to intel and then. And the second one obviously was sold to databricks. Another clever infrastructure company around LLM. This is someone who has twice built a successful deep tech company in precisely the hottest Space on the planet today knows everyone has a proven record of success. I can totally see why he gets that money. What you can do is you can stipulate he'll probably pick the right problem and he'll probably get the answer right. So really, you've kind of compressed a bunch of the venture questions and then you're right, you're only left with the third one, which is, does it make economic sense? In other words, if he picks the right problem, if he solves that problem, is the market big enough to justify, as you say, at least a 50 billion outcome from your, what is it, $5 billion? Whatever it was pre money. And the answer is clearly right now, people believe these infrastructure markets are having those kind of outcomes. We'll see if there's room for everyone. I at the margin, may be skeptical, but I can totally see each step of the logic chain that gets you there. Proven person, hard. Hard problems are getting rewarded. Would I prefer to back him versus two Com Sci graduates out of a really good school who might figure it out a priori, hell yes, I'd prefer to back him. Now, once the two Com Sci graduates actually get the work done, you can go, oh, that might be a far more attractive bet. And that's most of what we would do. But I can totally see the proven person saying, you can deploy capital at scale with me. Remember, especially for these bigger funds, I'll probably solve the problem. I'll probably pick the right problem. You'll be in a good deal. So I can totally see how it happens. I can totally see why. Especially folks who've backed them before where they know they have the relationship, I think Lux gives them credit. I think it backed them twice. If you'd backed someone twice in a row to build complex technical problems, and one took a long time and you showed grit, and then the second one took a short time and you made him a ton of money. When he comes into your office the third time, believe me, he gets a nice coffee and a nice seat and you're like, what do you need? Quick decisions. In all those partner meetings, I think.

Some of it I had two thoughts. One is, it is a confidence game. Venture has changed to Harry's point was the question, right?

1.

If you're Naveen Seen, you're at databricks, you've seen a hundred billion dollars and more going up, right? So 5 to 100 seems plausible. I'm not as great a founder as any of these guys are, but back in the day when I met Rory, it was really hard to see north of a billion dollar outcome for a lot of these startups, it was just hard to see it. And so my whole life and the reason I sold was I was probability. It's like, wow man, I own 30% but if I get to IPO bill, like it's just I can't even make more money. Like, like you couldn't see it, right? And then quickly you could see 10 billion. And now it's very easy if you, if you are a data bricks alum to see 100 billion or more because you were just there last week and that round wasn't hard to close, was it? I mean everyone in there and their uncle and aunt wanted to get in at 100 billion. So it's all become ventures. Always been a game, but for founders, man, it's a super game today, right? It is nothing but we walk out of YC demo day and as an investor you feel gamed. So if the game is 100 billion and you've already played it once, going to Rory's point, like, like when you start off as a vc, it really helps if you have a few hits in your first few days deals because then you have the confidence. I wouldn't have the confidence to raise it 5 billion in my seed round, but if I was the CTO of databricks, I probably would, right?

I just interviewed Mike Cannon Brooks from Atlassian and he said, listen, the trouble is there'll be a load of shit that will lose money, but there will still be some Amazons in this AI wave. Yes, but Amazon was priced as Amazon was and that generated Amazon level returns. These are not priced in any universe of Amazon level returns. And so actually even if you have Amazon level plus plus plus outcomes, they're still not venture style returns.

Well, the IRR could be tolerable if you put enough money to work. Right? Put a half billion into the round.

If your time to value is much quicker, then sure, yeah, yes.

I mean let's state the banal. A lot more has to go. Right? Watch this. So you can laugh. 5 billion pre then at 8 post, right? Did I really say that and think I'm going to get value from that? But yeah, Natoli looks, I can give a bunch of examples. I mean you look at what the striped seed round that Elad and others did was dirt cheap. The Airbnb round that Sequoia did was compellingly cheap. I look back and we have very successful 09 and 201314 funds and you can see it when I'm talking to the Younger partners, the thing in their eyes is, dude, you were able to buy so cheap, even a moron like you could make money, right? You should try making money today, big guy. Entry price has an impact. It's not the only thing. The wonderful thing about venture is there's a positive component. Comment. It is the most forgiving equity business of getting the price wrong. Pe, if you get the price wrong, they're low variance assets. If you overpay by 50%, you're toast because they're 3x assets and they're not going to ever be 7x right. Your degrees of freedom as well. Same thing in the public markets. The great thing about venture, it has maximum variance, which means that it is the most forgiving of getting the price wrong. Because you can get. Because you have exponential growth on your side now. Now I think we all rely on that and then sometimes we rely on it too much. And we find that just because you're maximally forgiving on overpaying doesn't mean you're entirely forgiving on overpaying. And to your point, Harry, you can push a theory to destruction. And what you're saying is if you pay for everything where you've got a 5x return, if you do something wildly amazing and only 1 in 3 of the companies or 1 in 5 of the companies does something wildly amazing, because that's just the way wildly amazing runs in this world. You don't have a bunch of return. And that's a fair comment.

I think it's another clear example though of the Alex Wang changing venture mindsets on entry price acceptance. Because we all go, well, if Alex is worth 14.8, Jesus, Ilya's worth 30 and Mira, and it justifies these prices on the acquisition.

And by the way, that's why whenever anyone uses comps to discuss what we should pay for a deal, I want to bludgeon them to death. Because the problem with comps is they tell you what company A is worth relative relative to what company B and C is worth today in the public markets and the privates too, you're exactly right. If scale AI is worth 14 and then you're like that, you're worth 15, so you can pay 15. And it's a logical way for a banker to relatively rank things today. But it turns out as investors, we're trying to answer a slightly different question, which is what are they going to be worth in seven years? The problem with comps is if you use the comps, you would buy in 2021 a whole bunch of Assets that were only priced at 50 times revenue because the other shit was priced at 80. And you're getting a good deal. And that turns out to be a very bad way to invest. You can't rely on nearest neighbor comps type analysis to do investing. And we all do to some extent, because it's easy to be a comparison shopper. But you're exactly right, Howie, is that you have to have a view that says not only is scale AI worth 14 today, to take your example, but that you believe on a sustaining basis that Companies worth doing 5, 6,700 million in this kind of business can trade at 20 times revenues over an extended period of time. That includes the next decade. That's a lot harder story to believe.

Slight variant question on here is, let's assume you can. Your LPs will support you. Like you can do these deals, right? Like this deal. There's only. You got to deploy the capital. Let's assume you have access to a lot of capital like Andreessen or others, right? How fast people are trying to Deploy these funds? 18 months or something like that, right. How many candidates are there? Like, like these, how many of these generational founders? Even if you have to hold your nose when you make the investment, even if you have to hope and pray, even if you see Rory's Math, it's like 80% of these have to work out for the math to work. There always is pressure for 90% of VCs, there's pressure to deploy it. Right?

Let's actually take that drill down because I think that's really important, which is that, you know, let's look at Andreessen's new fund, you know, six billion now expanded to seven and a half, reportedly. Seven and a half billion. Say you're putting in 300 million, 400 million of this billion raise. Gosh, you've got to find 15 of these in, let's say a two year period.

22, but that's okay. Depend. Yeah, 300 times 20 is 6 billion. Keep, keep rolling.

You gotta find. You gotta find them, right?

You got fees, my friend, and reserves.

Okay, I agree. 15 to 20.

How many are there?

Right?

Not to interrupt. How many of these candidates are there out there?

Is there eight a year? Because that's kind of the seven and a half a year. If I'm being really precise, Rory, we can cut Naveen in half and then you have seven and a half.

Yes, but you've also got to say, I mean, look, we're all Pavlovian. We do the things that Feel good. Once they start feeling good, you keep doing until something hurts. Right? And based on I saw the leaked Andreessen numbers. You gotta say they're excellent. They've earned the right to throw 7 billion on the table. And the truth is, we're human. We'll just keep doing this until Mr. Market delivers a sad lesson that says you've overreached. And so far that hasn't happened.

But I don't think it will happen. They're about to get them payday of paydays in Ventureland with a minimum of 40 billion back from databricks.

Totally. Look, at some point, what it takes to change is externally driven.

We're jumping around here, but the people that determine whether it's allowed to continue or not are the LPs, the people who put us in business. I thought it was a really interesting one, Jason, that you highlighted was Brown and Northwestern selling VC stakes. We saw Yale and Harvard sell VC stakes earlier this year. Will this be the new normal? Is this a new wave of LP liquidity that we just will continue to see more and more of?

We can talk about illiquid assets and whether they're getting an adequate premium over liquid assets. That's one discussion and that's a good discussion. And then on top of that, you have the extra phenomenon of university endowments under particular pressure because of the political pressure and the push on universities for a whole bunch of changes. That means they feel the need to be more literally. I think for those guys, it's not going to be the new normal in the sense of you're not going to be doing this because it's not going to persist for a long time. Because by definition, if you're selling a lot of venture assets, you're probably not going to buy a whole load more. So it will tail off. I think it's a readjustment. What you're probably seeing is some reassessment of the Yale endowment model. And exactly how much liquidity do you want to have in your portfolio?

I just went through first and hopefully the last time I had an LP sell position, the first time. I mean, I only have so many LPs, I don't have as much money as as either of you do. It was interesting to watch it and ever this firm, Evercore manage it. But even though the process was handled very poorly and frictionfully, what I thought at the end of it was there should be a lot more of this. Because what I didn't know, I never read. I never read the LPAC. My LPs have no rights to sell at all. Like literally nothing. There's no exceptions for if you're struggling or if you're. It's just, it's just I'm shocked because a lot of stuff is LP friend. This one is absolute. You have no rights to sell. And so I thought in today's world where it could be 20 years until even good funds wind down when, when founders want to go longer and longer and longer, some LPs don't care, right? Some LPs literally. But if the Harvards of the world care and everyone, everyone that says to me it would be nice if there was more LP liquidity in a way that wasn't bad for gps. It would, I think it would be a positive outcome. What I saw is it's a, a pretty broken friction, weird corner of the market, right? Because they need my permission so they're trying to manipulate me. And then these guys claim they had the rights to do it, but they were lying because they didn't want to. They didn't have the balls to ask for my consent. It was very interesting from like a games and I'm believe it or not, I try to be a nice guy. I'm like, well if you have the rights, do whatever you want. And then. We didn't mean to say we have the rights. What we mean to say is we have the moral authority to, to sell your position. I'm like what, what?

I mean you might be over sharing.

Here dude, but I'll keep sharing. I'll share everything except the name of the lp.

I'm happy to share because I do think stepping back better liquidity is of advantage to both sides, especially as these funds drag on. So yes, we've been supportive of some of our very good LPs who've continued to reopen new funds say after 10 or 12 years. If you've got a tail end residual one company left, does it make sense for them to clean up their books and sell to a secondary? So there's going to be a lot of this kind of process happening because it just makes sense. It's just like the company staying private longer. The consequence of that is that you end up having to facilitate secondary shares for employees. When your time period of private is longer than half your working life, you probably want to get some equity money in the same way for any of these companies, even if they have a long term perspective, which obviously LPs should if you're entering venture given the thing sometimes you thought long term was eight years and it turns out to be 12 years. I think it's just healthy to be able to conduct those sales. And even if they were efficient, and sounds like you were, the truth is no matter how efficient they are, there's still a drag to it. There's still a price discount. And therefore it's not going to be the new norm in the sense that people aren't going to run into it saying, I love to do this, but either because you need capital or you want to close out an old fund, it's going to be a part of the world. I mean, there's already a substantial secondary business with big players. There's always going to be secondary and it's probably going to increase over time. Quick summary.

We're acting like there's infinite liquidity. It appears there is for OpenAI and the secondaries. But this is a world of scarce liquidity outside of a few names. And so my learning from this process is everything would be better if there was more liquidity down the stack. No matter what the disc, who cares? The market can decide the discount. Everything would be better in an age where companies are longer to exit, it'd be better for more liquidity for all players.

Agreed. And that's also true, I think implicitly you're saying, for companies, which of course is why they should go public. Because you're exactly right. I mean, I always say to people, when people say there'll always be liquidity because there's lots of money.

Money.

I'm just going to say it so we can remember it in a year or two when it happens. Liquidity doesn't evaporate because people run out of money. Liquidity evaporates because people get scared and want to keep their money. And at some point when that happens, you'll go, oh, that's what the public markets were for. So you have a little more opportunity than this.

People should just ipo, right, Roy?

Yeah, they probably should.

And then you've got a company like Sneak, which has slown down growth to now 26%. I think it's about 300 million in aero. It's down from 150 in 2022. So big growth hit.

First of all, I would actually go with the more conventional English has slowed down rather than has slowen down. I just. You're sticking with the Queen, slowing down.

It's slowing down, I think.

But that was just me being mean, Harry. Sorry. You know, I have to do it once per show.

Yeah, you corrected me on every sentence.

Harry may have this weird accent, but he's one of the most Welsh spoken people I know.

Yes.

Pretty good, right? Okay, I'm full of malpropism in every paragraph and Harry just nails it in every question. I don't know how he does it.

I was just being snug.

Beating me up.

I will admit you can truncate almost. You can calibrate everything by coffee consumption before show. And this is a three coffee day, so. So it's just going to be tough. I'm sorry about that. Normally a one coffee day, it's easy, but I got a lot going on. So sorry about that. So what are you saying about SNCC? Just go back to the task at hand at 26%.

What I'm saying about Snake is like, hey, has growth slowed down to the extent that they are now no longer able to IPO because there are rumors now growth down to 26% revenues at 300. PE buyers circling and PE is the option. Are they at a stage now where they're looking for a PE buyer and IPO off the table?

The interesting thing is 300 ARR and 26% is about the low bar. We were just looking at this now. There's been 15 IPOs year to date and the median IPO this year was a stunning. Get ready for this $931 million revenue run rate. 931. So the median blew me away. And the cutoff there was a couple of two or 300 growing at around 30%. The first comment, just to put it out there is it's not like they're miles away from it. Those are in fact the numbers. But yeah, if it's below that line, then yes, you've got to do. There's three routes and we discussed one of them last time. You have pe, if you're lucky, a strategic buyer. But if you're not in the AI world, I don't think people are buying strategic stuff at this point. Or you have to consolidate like DBT and FiveTrans to get to scale.

What price does that go for? They raised it 7.2 last time.

I mean that's a tough thing because pe buyers are six to eight plus or minus. So you multiply 300 by eight and you just end up with a different number.

Number I'd say in the twos based on. I'm using Netscope as a rough comp. Right. Netscope's at 8. It was at 700 million. Growing 33% at IPO. So this is 300 million growing 25%. I. I'm just, I'm using the roughest VC math, but if that's worth 8, this is worth in the mid twos to something. If it IPOs, if there's appetite for an iconic company, right? Just not a whiz, right? An iconic company. I'm using a security comp. It's not, I know it's not the same application. It's the last security ipo, netscope, which is. Is S tier, but it's not quite rubric. And then the problem is we start to see this triage, right, and sneaker sink or whatever, it's great, but it's not netscope, which isn't rubric. And so you can just look at the. I don't have your skills, Rory, but I can just pull up the valuations and the numbers and spitball it. At 2/ Something Billion would be its IPO valuation, right?

So the question to play it out is there's two. One is, does that fall just below or just above the line? Can you get a public deal done at that size? And if you can't, are you in private land? And then obviously instead of all the preferred, converting to common and cleaning up the cap table, the whole preferred stack. And then the next question is, how much have you raised and what does that mean for all the folks? So you got all that drama to do now and do you.

Even if you can't, let's say you can't ipo, because it's at the edge, right? It's at the low edge. Do you want to, do you want to deal with that crap and be ignored by Wall Street? If you're, if you're a rung and a half below netscope, is it worth it to be one of these invisible public companies?

I'm just going to put it out there because I, I really don't like the, oh, these companies are no good because they're not worth 7 billion. I mean, stepping back one. Because the other alternative you have is compound for a couple more years at 30%, if you've got the stomach for the holding period, try and do some acquisitions, build the thing up. Because at 400 million at 30%, it's a little more compelling. You're well above the threshold line. So that is one option. And then you got to assess, obviously, do you have obsolescence in your future? The point I'm making is this. Every single one of our, quote, successful companies other than the most successful are dealing with this reality. I can think of plus or minus eight or nine companies in our much smaller portfolio where we're all at this kind of stage and having these dynamics. I think I said there's just a whole bunch of cutting and wood to chop to figure out what these companies become over the next two to three years. And how do you get liquidity? Is it private to private? So there's just a ton here. So I suppose I'm saying is we're picking on Snyk, but it's a high class company. 300 million is the high end of great. 30 is the high end of pre IPO critical mass. I mean we see lots of companies at 150 going 10 or 15. Right.

It's not just a crime of price, which is overly, overly exuberant capital markets. I think cash down a company.

I think it's worse than that though. I'm curious to see what you see in your portfolio. But I only I have three companies I would say are different errors but are in the same bucket that you're talking about.

Okay.

What I'm worried about is 0 have had PE offers, 0 of these three. Now if this was 2021, your phone would be ringing off the hook even into late, even into early 20, 20, 2023, pre AI your phone. Now the valuations might have gone down into early 23, but these deals were none of these. I, I can think of, you know, one basically at sneak scale one, one about a third and one about a tenth. But they all should have gotten PE offers. Right? They all have the, the right rule of 40 numbers. The right this, the NRS. Right. Why not buy them? They're not going to IPO, but they're good companies. Crickets. Crickets from the PEs. Crickets. Are you, is your phone ringing off the hook from these PE firms? Are they out there? Can I, can I see them over there? Are they banging the door to get in this morning? You got to get off the podcast to sell a few portfolio companies at 8x.

I think you're spot on, Jason. Which is why if I was sitting on that board, as I always say to people, when you're private, the liquidity window opens only rarely. Whenever it opens, you should pay attention. You can decide. No, but you should pay attention. And you're exactly right. I would say the same. You're not seeing infinite demand. It's not like PE is dying to do this. They've got lots of capital, but they're not in any rush to buy scub scale assets that aren't defendable market niches. The number one thing I'd say to these companies, including Ours is you got to take control of your destiny. What does that mean? It means a couple of things, probably three things, maybe four. One, probably the most important thing is you got to make sure the management and founding team is excited and have something to play for. If the team doesn't think that they can build value here, then you know what to do do and you should incent them to build value. And we've done a fair number of these for these kind of companies. I call them efgs. Equity for Growth. You say to someone you're fully vested, you've long since been fully vested, but you're the founder, you own 7% or 8%. Conventional wisdom says that's it, let's just all keep working. But he's like, I'm not getting any more for more time. And I've done significant equity grants that are linked to delivering growth so they have something to fight for again because these guys are fighters and that's what you want them to do. I want the founder to say, I thought I was on an eight year journey, I'm on a 15 year journey, but fuck it, I've got another seven years of equity ahead of me. So I take 3% or 4% dilution. But the guy who's in the trenches is incented and so is his team. That's the first thing, make sure the team are excited to keep going. The second thing is make sure you have control of your destiny by being profitable. Then probably the third thing is figure out a second act. Typically it should be a second product or typically something that links to the AI trend. We're saying this to our companies. You should link to the zeitgeist if at all possible. If you're in somewhere like financial services or Fintech, it's not really that relevant. You'll use it for the back office, but it's not going to change your product. But a lot of these software companies, you have to assume you need a second act. You have to assume it gives you seven more years of growth. It's almost certainly going to be related to what's going on in AI and how workflows become agents. I think if you do those things, then play out the being in the company. If you have those things in hand, then as a board member you feel a lot more secure. Because you know, I have a plan. I have a plan that doesn't rely on the kindness of Thoma Brava or the kindness of anyone. Right. I'm building my independent company here and everyone's aligned so that to me is the job of the board right now. And we've done that, you know, a couple of companies. Sorry, that was a lot. Again, too much time.

That's good. And what's the first one? You called it a faf. What's the efg?

Equity for Growth.

Yeah. No, you inspired me. I just proactively did one of these for that, for that reason. You learn a lot from the process, but you got to do. It's. It's not enough, but you got to do it right. You got to do it right. Especially because a lot of folks won't ask. It's one of these. Some founders are very aggressive in asking, where's my, where's my next 10%? Rory? But a lot of folks just want to ask. It's good to be. I think I learned it's good to be proactive.

And in return, it's the only time you get the right to say in return for this, you've got to dream big again. But you know, if we're going to be at 20, going to 15, going to 10, then with dilution, you're way below my cost of capital, let's admit that and let's go for a sale and then you get what you get and you don't make a fuss. But if, if you think you can keep it at 20 and walk it up to 25 or 30 and keep going for three more years, hey, that's value creating at a very different level.

The astonishing thing for me about your Aaron Levy's or your Drew Houstons or your Mike Cannon Brooks is the longevity. You know, we mentioned sneak there, but how few actually really do the 15 year journey?

Because it's hard, you know, and look, I am.

Can I ask you, both of you, you've seen more than me. When the founder leaves and there's the CEO brought in, what percent of the time does growth re accelerate the positive.

Outcomes Come break it up into two categories. If you have product market fit and you have a CEO who's very entrepreneurial but just not a great manager, then it can work because they've done the entrepreneurial act, but they're not great at the manager and maybe they're so bad at the management that a competent manager stepping into a Pokemon can give it a lift. It's not ideal. I'd much prefer to err on the side of making that founder work by surrounding them with good people. But it's not crazy if, on the other hand, you don't have product market fit. The founder's not working out and you think you're going to hire someone to get the product market fit, you're deluding yourself because it's just too hard and too unlikely. You are what's called wrong and you should sell for what you get and move on. That's not an act that a professional manager does us. Because if they were capable of doing that, they'd be founders. The answer is zero in that case.

I think it's bad in all cases. But the first one, I just think back when Andreessen wrote these handcrafted blog posts themselves. But their point was, we always bet on the founder. Sometimes the founder doesn't stay and we have good outcomes there, but the best outcomes are when they stay. So we do everything we can to surround the founders with other executives to help them. But. But if they don't, if they can't finish the journey, we'll support them either way. That's my answer, right? I never want the CO ever to leave. Good God. Right? But if they, if they raise their hand and. And you've given them the fast thing or whatever you call it, the re up and you've had the conversations and you've begged them to stay and they're still just don't want to do it, there's no point, right? Most humans should take the millions and relax, right? They may be dissatisfied.

Which is why the Most useless question VCs ask founders is Rory, Rory, if you were offered 500 million for the business today, would you take it? And then when they go, mm, VCs, like, I told you, he's not here for the long term, or she's not here for the long term.

So first of all, I gotta say, to be clear, I never asked that question. I think it's a stupid question on its face, on multiple dimensions. Let me give you just two ways in which it's a stupid question. The first thing is, and I said this before, people's opinion on what they'll do if they're offered $500 million at a point in time when they haven't been offered $500 million is meaningless because it's a purely theoretical discussion. I've seen people go both ways. I've seen, hell, I'll never sell people when they're offered the money. Shit, I'm out of here. And I've seen people where I thought they were mercilessly like, no, we can keep going. So I literally don't ask that question because there was zero information content to it. And the idea that you wouldn't back a quote really good founder just because you're afraid they might sell in a good outcome, that doesn't become great. That's just so low down the list of things that you're worried about when you're doing a deal. You want to know, is the market good? Is the founder want to build a big company? If they start on the journey to doing that and some of them get intercepted, it's a high class problem. There's a couple who I look back and go, I wish we'd run that longer. But in the list of things that will reduce the return of my venture career versus backing B level people who don't even make it happen, it's a concern, but it's also to make it actionable.

I also think that you can tell your best and your worst within the first, the messy middle. You don't know there's a tbd. But the ones where you're like, shit, we regret that one. You tell pretty quickly. And same with the God, they're on it. That first update, the first board meeting. Yeah.

I do agree that at the 70% level on all my best deals, there's been a moment somewhere in the first year where I remember sitting around the board table going, oh, Rory, you clever boy, you're going to make money here. And all I have to do now is cheer them on and and not have to do a lot because this is just humming. You're exactly right. That's always a good feeling.

Speaking of those moments where you go, wow, well done. I'm in a great company. There are a couple of standout raises that I wanted to talk about. One is Vercel raising 300 million at $9.3 billion. Jason again highlighted this, announced pretty quickly after the post from Guillermo, the founder, which we're not getting into because we don't do politics. But the timing is interesting. Interesting to bring up. One, I want to hear your thoughts on the timing. And then two, I've heard these described before as suicide rounds, but just because it's like a super high price with actually not such a huge amount going in. 300 million. And so it sets a huge expectation with not massive capital injection. How do we feel about those two? The timing and the suicide round status?

The suicide one is an interesting one. The Vercel thing. I don't claim to be a total expert, but I am 200 hours into my vibe coding journey. I think Vercel and Supabase are actually tied in a sense, which is that these are not the most profound Bets that the world of software development has completely changed, that everyone that's going to build a web app going forward is going to build on Supabase. It's. It is the default choice to how to host and manage Postgres in this world. And when folks want to host host apps live, right, they're going to use Vercel. It's super easy to use. People do love Vercel and you've gotta, you've got to host this app and you need a database. Like these are two structural components and that the number of apps is also exploding, which it is. So if this is the future of hosting management database and it's exploding, you got. These are good bets to make. These are the leaders. These are two leaders. You could debate the valuation, whether it's a suicide round, but I think in of terms, terms of valuation aside, these are actually Captain obvious bets. I think they're both Captain obvious bets because this is where developers are going like that's how you make money. I mean Michael Cannon Brooks would probably iterate that from a few years back. Like follow where the developers are going. If you become the leader, bet there you're going to make money because those markets are pretty, pretty damn large if they're growing beyond the suicide round. I think these are, these are good bets. Just vercel is at 9 billion. It's still a lot of money. Hopefully you have more than one of Those bets at 9 billion to roaring.

First of all, I agree Jason, what you're saying. I was talking to one of my partners yesterday, we were just talking about it and we're just saying the more you do this, the more you just say to yourself you just need to do big exciting deals in trends that are absolutely obvious and every time you try and make it harder than that, you lose money. Both of these things are exactly right. They are on trend. Captain Obvious for the There's a new wave of people building apps and these are two parts of the infrastructure that people will use to build those apps. Both of these companies have done a brilliant job who were pre Just as a reminder, Vercel and Supabase were our infrastructure components that existed pre OpenAI pre the AI trend, pre vibe coding, but just have inserted themselves into relevance as kind of components to build these next generation of apps and are just riding the train because of that. They just have momentum, they have growth on their side. And yes, the price might have doubled in six or so months. It may also be the company doubled in six months. So the revenue multiple is the Same. Which is actually a super interesting discussion. What you're effectively saying is normally you figure you start with high revenue multiples because by definition, your revenue multiple is infinity on the seed round, and Your multiple is 6x when you get to 30% growth. And your idea is your revenue multiple is coming down as the rounds go up. But what you're seeing in some of these AI companies is people are effectively saying, when they were doing 100 million, I paid 20 times or 50 times. When they're doing a billion, I'm going to pay 20 or 50 times because the growth is still the same. And it's logically correct. There was a market size question jumping at the end of it, but from a growth rate perspective, I'm willing to bet that you look at those two rounds on the. They're not wildly different in terms of.

Is that logical? Because actually it depends where you intersect with it on the growth curve.

It does.

You can have the same growth rate, but actually you only believe they've got 20% left of the market to go.

Totally agree. That's why you said it correctly, Harry. And you're agreeing with me. Exactly. And it applies even though in Tropic the growth rates remaining the same, and normally you expect growth rates to decline. So you kind of have this mental model, and we talked about growth persistence, but they're not declining here. So when you do these rounds at the same multiple, but with an order of magnitude more in the valuation, the thing that can go wrong is you hit a market size wall or some kind of wall, and they decelerate rapidly. And then you're wildly wrong at scale, that's the risk. If the vercel market or super based market is finite and can't support a 10 or $20 billion valuation, even if you have 100% share of Vibe coding, then you could see very abrupt valuation change. And I'm not discounting that. I'm simply saying I know how they get to doing these quick rounds because the underlying growth's so quick. We've been looking at some markets where we've seen two and maybe even three rounds within the year. And part of me goes, that's crazy. And part of me then goes, the B was at the same multiple as the A. Maybe, Rory, you need to update your priors to the world as we see it now and accept that if you're getting the growth rate and these growth rates are. And I really. Jason, you called the discussion a while back. It. Well, being on a triple, triple, double, double, double, maybe you can Lean in. And maybe it does make sense to have these rounds, but I definitely wouldn't call them suicide rounds, Harry, because the growth might justify. And B, the other part of what you said is, are they raising enough? Yeah, they are. Because if you think about it, take super based, where they did two rounds, someone smart dudes at Excel looked at a 2 billion and said you need whatever $300 million, and then six months later they pick up another 100. They still have the 300. So it's only a suicide round if two things happen. One, you decelerate quickly, and two, you start losing money such that you're forced back into the market in the next period of time where you would have to take a down round. So I don't think it's wildly, outrageously, stupidly risky. If you want to talk about risk, there's a lot of riskier things going on in infrastructure land than vercel raising at 300 million. At 900 billion. I don't think that will be the problem. That brings the whole thing to its knees.

I totally get you. I think an interesting thing for me is like, this is like one lesson for me is king making, which is like when you obviously have very quick rounds and a lot of money going into categories does absolutely exist in this space. Yes, it does, but it doesn't enlarge enough categories is what I'm seeing. And what I mean by that is, in law, for example, there are many who have got a lot of funding and a lot of traction. Same in healthcare, same in customer service, same in coding. But then as you go smaller markets, king making really becomes more prevalent. And the smaller the tam, the more prominent the kingmaker ability is.

I'm not sure I buy that at all. It's obviously easier to be a kingmaker in a small market because it takes less money and more people have small money than big money. It's the Julius Caesar quote, I'd rather be first in a village than second in Rome, which indicated he was a psychopath, by the way. But we can come back to that. But I disagree, because I think kingmaking is going on in the biggest markets. I think to some extent, everything OpenAI done has been both brilliant technically and financial kingmaking. I think in many of the markets.

You just pause on that. What do you mean by that? They have not been king made, so to speak. They have many competitors. It's by no means a monopoly.

I think it's a duopoly. I think their capital strategy has been to the point where it's Going to be very hard for anyone else to attract that kind of capital. I mean if you take someone like X, if they really do need 100 billion and they've locked it up, I can't remember how much X is already owned but there's a lot more ways to do that. So I think that is a king making strategy.

Don't think that Anthropic could and Grok couldn't. I think they both.

I think it falls away very quickly. I don't think it's a monopoly but I think it's definitely an oligopoly. So I think that yes, the number two at Tropic clearly can. It's a differentiated number two with an overlapping strategy but not one is winning in consumer, one is winning business. Do I think all of the other recent very high profile startups are going to be able to attract the kind of capital it takes? No, I don't because there's not that much capital out there. So that's an example I would say of the largest market kingmaking.

There is so much more capital in venture but it's so stratified right into 20, however we define it, 20 companies, 50, 100, we could go down, down a lot. You know it was one thing back in the day when you would king make with a twenty million dollar round or a fifty million dollar round, right? Or king make very late stage. But now even though there's more venture than imaginable, you, you really can exhaust the capital in a category, the nine figures or more. How many of these categories can support 200, 300, 400 million dollar rounds? And then you, if it is capital intensive, it's tough to compete. I mean it's crazy. I mean if base 44 has 10% of the vibe coding market, right as part of a wix, if that's accurate, it's crazy. But work would they have afforded those tokens? I mean if Replit and Lovable are losing some money, where would this poor guy in Israel with 8 developers get 50 million of tokens? Like I don't know. I mean there is king making happening here, right?

I've been thinking about it too and I'm actually going to change some of what I said. Jason, actually listening to what you said, I think I don't like the word king making. I've decided because I think what's. Because it imputes way too much value to venture like as if we're making the difference and I think there's often mild versions of that. You see something where oh my God, Sequoia led this round. Maybe people back off the other competitors, but in general the entrepreneur is the king and the entrepreneur makes the good company. And then with so much capital available, they can get into this virtuous circle of getting the prestige names, prestige amounts and significant amounts of capital that help build barriers to entry and deter invaders. So, so the fundamental act of creation that allows that to happen is the entrepreneur and the revenue success.

But that's just not true. I'm sorry, I don't mean it in the nicest way. A the cash enables that execution and execution wouldn't happen without cash. And then two, what you've seen is king making pre revenue, which is companies that are at 3, 4, 5 million dollars in revenue, which is great, but bluntly not a huge scale, getting 50 to $200 million. Successive rounds on the back of a tier one, one with an iconic or you name your multistage fund coming in very quickly afterwards. And at that point it actually is the venture investor that is doing it.

First of all, I agree what you're describing as a phenomenon. We've seen it in a bunch of markets, we've looked at those markets, we struggle to find a way to compete in those markets and figure out what to do to be really doing right.

But this is my point and everyone knows them and goes, oh fuck, we don't want to go in after Sequoia and Icon Hornik into a company that competes with a rillid of the world.

That's exactly. But I think that going back to king making, I think in every one of those cases we may just be arguing semantics, but it's an important comment. You start with the company doing an excellent job. You're right, they get to 2 or 3 million dollars in revenue. In other words, the moment of gestation is the company doing a really great job and having a small early lead. And then you're right, the wall of money allows you to build on that lead and defend it. The brand name firm allows you to raise a follow on round very quickly. Arguably the growth allows you to do it. So there is this self reinforcing thing going on. I think we're describing the same phenomenon.

I'm just saying it's earlier and earlier because I don't even agree in some cases literally, Rory, it is pre execution. Its founder has unique insight on gtf, on a product, insight on you name it and that is enough to catalyze the fire.

Yes, but in most cases I think you'd agree, you described more correctly. It's A couple of million dollars in run rate revenue with prestige customers. A strong founder growing quickly has done One seed raises a good A from a top tier firm, gets a B six weeks later. Now you've got perceived momentum and yet we struggle with those and frankly both struggle to know should we compete and then second struggle to compete. Because once you have the top tier firm, you get a whole bunch of people willing to pay up.

And I'm meeting a lot of founders who are going, my God, I did not realize quite how powerful kingmaking is because I'm like everyone is just saying, whoa, we don't want to compete against that.

Well, I always remind people it's a long way from here to 300 million in ARR and a public offering. I don't know if it's the right attitude to say I just can't compete. I mean, you just got to say it here. Harvey looked like they'd been king made, if that indeed is the past tense of it. Right? And then Ligora came in from Sweden, for God's sake, and killed it. They did really well. They shipped that product. They took what looked like a monopoly and took it into a doo wop. Those two companies playing aggressively in the legal space. So there's an example of they were second to the market. Harvey had established a lot of Mindshare plus capital. They had Sequoia, they had convention, they had really strong people and give Legora credit. They shipped the good products, a very good product. They got benchmark in. They've just done a third follow on round with, I want to say Bessemer after taking Redpoint. So there was room for a second person to be kingmaker. And by definition if you have two people being kings, it can't be a king.

Which goes to my original statement of the size of the market does impact the ability to kingmake law health. Difficult to kingmake smaller markets. Absolutely. More plausible to kingmake. Validating my original statement. Mr. O', Driscoll, thank you.

I'm not sure I agree, but you said that so confidently. I'm just going to give it to you. The question is, would you do a third in that market in the law software for corporate law firms? I think it's hard. I think there's other markets in law equally interesting that we'd like to play in. But you're right, at some point it gets cooked.

I remember when Michael Cannon Brooks came to Saster, which was a long time ago, Saster Annual. We had the CEO of Trello interview him right after they got acquired, it was interesting. It was like a board meeting kind of at Saster annual and he asked him, could you do Atlassian today? It's like no way I could do Atlassian the same way today because I had five years to be left alone.

Correct.

That's the way why bootstrapping worked is because everything was so slow the first five years. The flip side today I think is if a lot of the AI startups we're seeing start off very, very low capital demanding, right? Two, three folks, some free tokens, some free Google cloud, it costs nothing, but then they consume a lot of capital. And if the question is if you could be a new entrant to the market and number three, number four, choose to be capital light, that's great. But if the space requires capital to win or the founders believe it, then king making becomes a prophecy because you just bow out. If I believe I need 100 million to scale base 44 to compete with Rapid and Lovable, then I'm going to bow out and sell the wicks because there's no option. That's what a little bit different than classic 80% gross margin software is. If you were lucky there was a third path and if you were lucky, someone out of left field, you didn't hear they got to 100 million. Yeah, well it took five years longer in the early days, but they caught up, they, they would, we used to catch up around 10 or 20 million ARR. And actually in some cases in SAS you would lose your, your capital advantage around 20 million ARR because you would catch up. Right. Like, like in the last year Qualtrics. I'm not sure that's true. In the age of AI, I'm not sure that you lose the capital. I think it's often is inverted where that capital is more helpful. Right. In the age of AI, that's what makes it harder to invest on number three or number four. And you might be like, listen, yeah, but those guys only need 10 million and we'll see how it goes. If they're going to need 200 million, it's not as fun to invest on the number three or the number four player, is it?

I agree with that. I think what you're saying is exactly right. Which is, is that you could do Atlassian and bootstrap it for five years because no one was going at it and you had an uninterrupted run today. I think the direction is obvious and the capital is available and therefore even if you don't want to do it, someone else will do it. So therefore you have to do it. It's like nuking the cities. I didn't want to do it, but I knew they were going to do it, so I had to do it. And pretty soon everyone's launched $50 million Series A checks at each other. That's what's happening. Because anyway, that money can either go forward or, I mean, it can either go because you need it to build the product or deliver the product at scale. If you have a token cost, it can go because you need distribution, or it can go just because the other side have it and you feel the need for credibility. I know in some of these wars, having looked at some of these deals in kind of the ERP space and some of the other spaces where you're dealing with enterprise customers, the balance sheet becomes a criteria for qualification. There's a whole bunch of reasons to say this is the way the game's been played now. And I'll admit I've taken a while to process and internalize that.

So, Jason, you're in a portfolio company, you get one of the big funds who is trying to kingmate with one of your companies. Do you say, take the money, Fantastic. When the money's on the table, take it at a high price, or do you go, this is a good company, that's a lot of money that could distract them and defocus plan pragmatically in.

This market, I think if you have something that's working and even if you don't know where you're going to put the money, if it's on attractive terms, you probably err on the side of taking it because. Because if you're in a reasonably big market, you're going to have to grow and you're going to take capital. So I think you err on the side of aggression precisely because you have to play the. You have to do the game theory. It's not just what do you think, but what are they going to do where they is your competitor? And you can say you're going to be careful and slow and rational, but if they're not careful, slow and rational, then you just end up outclassed. As I say, I've resisted the kingmaker word, but. But I think where you are correct, Harry, is that capital has a consequence. It has a consequence to customers, it has a consequence for hiring. I think one of the biggest drivers of when you take capital and don't is unfortunately you have to look at the competitive dynamic, which I don't love because you want to Steer your own ship. But if you're in a competitive market, it's hard to take the money.

Jason, I think what I've learned, that has changed over the years. There's so much more information, there's so many more founders, there's so many more quickly growing companies. Founders have already made their own decisions. Decision now. I haven't had these conversations in a while, Harry. I think two of my best current portfolio companies, one will consume an infinite amount of capital. The other has 60 years of Runway. It is DNA. I could argue one is overspending and I could argue the other is underspending. That'd be a very easy argument to make. Right. Don't matter what I think. Their DNA is different, their customer is different, the market is different, all of it, but especially their DNA is different. Some folks want it and they understand the downside or they don't, but they get it. They get that there's some risk, but they're effing going for it. Or it's what their friends are doing. Is one of many topics that it no longer matters what I think. I can't influence it. So the best I can be is if someone asks me, I can tell them at the last minute and the first minute and I can try and influence it, but I can't change how they're going for it.

Chaps, any other topics before we do a quick fire that you would like to cover or think we should cover?

Oh, okay, I'm just gonna say it here. Chamat's terms are almost legit. There you go. It's like the new SPAC. I mean, I will say the new SPAC terms. SPACs, which were an alternative mechanism for going public in 2021. They've been around for a long time but exploded in 2021. Subsequent return of those investments was miserable. It became obvious that one of not the only, but one of the primary reasons for that was the incentives between the person sponsoring the SPAC and the investors in the back were misaligned and the sponsor made money simply by getting a deal done. It's like a venture capitalist getting paid your 20% just for investing money in the ground. And turns out that if you do that, money gets invested. And now the terms are still not cheap. But you only make it if the stock. If you make it, there's the 50% uptick on your stock. So it is a more rational structure. I still think there's issues with it around incentives, uncertainty. I still am skeptical. It'll be an amazing replacement to IPOs. But it definitely is less egregious and less misaligned than the last time.

Does it prevent Chamath from having the ability to pump and dump like he is accused of doing?

That's nothing to do with that. You used the wrong word. Prevent. Prevent. There's two words used. Pump and then dump. Pump is an interesting. In the context of SPACs, the whole thing about SPACs is entirely separately. The SEC has really tight laws about what you can say about an ipo. Really, really tight. And you can't make any future leading statements at all. But bizarrely enough, SPACs are exempt from that. So you're allowed because it's a merger from a legal perspective. So you're allowed articulate any future leading story you like. So anyone. Let's not pick and poach a matt. Anyone can pump all they want because you can. I mean, it's such a weird difference. You have one company going public in an S1 and you can say nothing about the future and then you have the other one going public in a SPAC where you can say it's going to be freaking amazing. The next 10 years are going to be enormous. I'm tweeting like crazy. So the pumping takes place because of the regulatory thing. But you're right, the dumping here now you can still dump, but at least you have to get the stock up before you can dump it. Before literally you had the odd circumstances. The investor could come in at 10, the stock could go to 5, but the sponsor got their stocks at a penny. So even at 5 they could dump. And the investors lost half their money and the sponsors made money. That's not a thing anymore. Now the investor comes in at 10 until the stock gets to 15, the sponsor gets nothing. But once it gets to 15, they get a 30% promote. So it's not cheap, but it's a little better than before. This probably makes SPAC a marginally more attractive competitor to the ipo. But I still think a well run IPO beats it by a head.

Can I just add one last to crazy deals? The reason it comes up is SPACs are back, right? It's really sign of the times. We'll run out of time related to that. Good God. The New York stock exchange invests $2 billion in poly market, which was essentially illegal. Illegal. Last year it was essentially illegal and the Biden administration decided this was gambling, offshore gambling, and was going to, as I understand it was going to shut down Polymarket Trump. And listen, no politics here, okay? But it is interesting. The world changed Trump comes in, his son joins the board and invests in the company. David Sachs, who I am a fan of as a SAS founder, we go back trying to remove all the regulations from crypto and all this and now you go from something that was essentially illegal last year in the US to now something that Trump Jr owns a significant share of. And now the New York Stock Exchange is investing 2 billion at a $9 billion valuation. I mean if that isn't a sign like SPACs being back, if that isn't a sign sign of the times that is such a change. Forget about me. AI isn't the only thing in the world just removing all this regulation and now that Polymarkets on the inside and the New York Stock Exchange is investing, to me that's quietly the craziest story and the legitimized self dealing in it. It's just a different world, right? I don't know if it's better or worse. No politics, but it sure, it sure is different.

I think the deregulation is great. To be clear. I think the fact that the Biden administration chose that hill to die on was I think both probably wrong, indefinitely stupid. Which is the low quadrant and goes a long way to explaining their terrible polling numbers among the 20 to 30 year old male demographic. I actually give credit. I think the deregulation is one of the few joyous parts of the rest of us coming out of current administration. I think it's great. Right? Go team. Whether or not I'm not gonna comment on what interpersonal relationship it takes to get something done, I don't think it impacts the deregulation. But that's a morass that I have no doubt will be unpicked on another day by someone other than us with judicial powers. I think the interesting thing about businesses is if you look at the volume and I didn't check, I think I checked calce, it's still 70, 80% sports betting. But the real question is can you build prediction markets for other things? And you're seeing that. And to the extent that you can do predictions for other things like the questions we're going to be asked, like I just saw it, who's going to be the next prime minister of Japan was running because the election thing, whether or not there's a quote legitimate non sports gambling business there that someone like it was the nyse, which is really Intercontinental Continental Futures, that Atlanta company is the core owner of that. Whether or not that's a non sporting business is tbd. But I think it's super Interesting. I think those are two really interesting companies. And credit to the venture investors who stuck with it during the regulatory time. I think you go, you got a really nice asset now.

I totally agree. The thing that I did just find a little bit confusing, $2 billion is a huge amount of money. Again, comparing that to the Vercel's $300 million, I don't know. But there is not a computer infrastructure spend. I guess there's a right spend in a lot of cases places. But $2 billion, I mean did you.

I think it's. We have to see the details. I think there's some level of implicit exclusivity here. There's data sharing. Right. You invest 2 billion for it to be in essence an affiliate of the company. Right. There may be some vague similarities to the beginning with OpenAI and AMD. It's a. This is a bonding investment. Right. This is buying a quarter of the company or 20 some odd percent and someone's putting something in here more than money in return. They want to own a lot. Right.

These guys are strategic investors. They're not doing it for a 2x return. They're doing it because they own. I can never remember is it NYSE or the nasdaq. I should have checked. They own a bunch of market making.

Intercontinental Exchange. Owner of the New York Stock Exchange.

Yes. And they are called ice. And I was going to say ice, but of course that would be confusing to the average reader. Listener. Right? Yeah. Intercontinental Exchange. They bought London financial futures like 20 years years ago. They're like if there's an exciting and interesting financial market where people buy and sell electronically, really interesting shit, we like to own some of that. So it totally makes sense strategically Good for them.

We're going to do a quick fight. Good addition there, Jason, by the way. I totally agree with you. Fucking nuts. Deal. Nuts. Okay, so number one, this is an official cauchy. Tim Cook leaves Apple this year. Yes. $100 turns into 879. No, 100 turns into 107. I mean, is he already confirmed? Those odds are terrible.

Agreed. But leaves is the word. Right? I mean again, I hate these things because I'm riffing and Jason can do it in real time and look things up. But wasn't there some kind of succession planning announcement? I can't remember that the VP of Engineering would. In time. I should have looked it up. I didn't. So there's clearly a succession plat here. As one would expect if you're a computer competent board and you've got A chief executive of 60 but leaving. I think the only reason I think leaving this year is a very tight bet. So the only way that would happen if you thought things were failing. So I know why it's a very modest payout because it's very unlikely, which is different than saying separate comment. The board is starting to think about what's the skills required for the next leader. I think again I could be just imagining this. I've been so crazy this week. But I think it was the SVP engine engineering. So it's very much.

Yeah, that was a leaked rumor that he was a successor. He's 50 and Tim Cook's turning 65. So it's their job. But there's no way it's this year. Unless it's a health issue, there's no way it's going to be this year.

You're exactly right, Jason. I think both sides are adequate. It's not this year, but it's exactly their job. If you were, if you're on the board of the most valuable, second or third most valuable company on the planet, your CEO is hitting 65 and you're not thinking about succession, then just call yourself the Disney board and give up.

Roy, you still a whole.

I'm still a holder. I trimmed a little when Warren did. I got in before him. But I'm like, I pay attention to that.

You trimmed a level 99%.

No, no, no, no, no, no, no, no, no. And a lot. And continue to worry about the growth rate and continue to worry about the AI story. But fundamentally you need instantiated physical products to consume all this stuff and they're the platform of choice for middle class consumer on up worldwide. So it's still been good. It's bounced back nicely from where it was. I mean there was a little low there and I'm like, ooh, maybe I was wrong.

I don't get these VCs that invest in the public markets. But it's good content.

I feel the need to find myself. I have almost no individual public stocks other than companies that I get distributed to. But I also wisely bought in 2009 and my basis is so low now that I just can't bring myself to pay the 37% tax.

Don't sell it. Don't sell it until you move to Puerto Rico or whatever.

No, I'm not going to move out of California, but I just can't bear to give it up. But maybe I'm just stupid.

Okay, next one. Rattling and lovable over under 250 million ARR by end of year. They're both in the 160 range now. 160, 170.

Is there, is there a cow she or you just. Is this a binary question?

This is a binary question. This is a. Harry, I'll tell you.

The only interesting thing. So I would say over. Over 250, but barely. There was an interesting report this week. It wasn't Bloomberg, it was someone at Barclays. Barclays tracked what they believe the web traffic was to all the categories. And what was interesting was it, it looked very accurate in the sense it had base 44 hitting the numbers that tied to what WIX publicly disclosed. So we can assume that's accurate. Right. And it had replit tying to when they launched V3 which was a big boost and then they had bolts numbers which roughly tied to what I think they are. And so what it said is look, traffic has flattened. Flattened to down. Okay? And so initially you might say oh my God, sell your, sell your, sell your stock. But I actually think it's a good thing because the looky lose aren't going to renew. The problem with these products is you have to segment churn. There's folks like me, I'll never turn off replit. Okay? I'm 200 hours in, I've got eight apps into production. It's impossible to leave the odds that I'm going to spend somewhere between 300 and $3,000 a month for a long, long time. Okay? But Abigail that wanted to build her own CRM and was told you could do it in, in 60 seconds and it didn't work. She's going to churn, right? Or he's going to churn. So it's good to get rid of the looky lose because even though they got these guys to 100 million, they ain't going to get them to a billion. We've all had companies where this is the case where we had a segment of customers that were very high churn and a segment that's very sticky. So I think it's okay that interest is flat because it'll be higher value, but it is something to reflect on. It looked right to me that, that we've seen at least a temporary plateau in interest in these platforms. And it makes sense to me because a lot of use cases they're not viable. Like I love repla to death. But it's a, all of this is a. Is the edge of marketing misrepresentation so rambly answer. I think they'll hit it. But, but I, I do think there's deceleration in. In. It's not like ChatGPT. There's going to be deceleration in lay users wanting to use these platforms.

For the record, there's deceleration in ChatGPT too. It goes back to what I said earlier. What rate of deacceleration gets you from 10? How much DE acceleration can you do at 12 billion to make sure you still take 100 billion is my question. But we don't have time for that today. But I'm thinking about it. I don't have anything to add. And lovable in replit. I defer to Jason entirely.

But I will tell you just one thing. I don't spend all the time. They're getting better. I'm almost 100 days into vibe coding. The platforms are so much better than 100 days ago. So it's like a lot of things in venture startups, you got to be careful how you predict. This is not SaaS of 2016. Okay. The rate of improvement is so high that that's why I feel pretty good about the arrow our numbers, even if I think the prosumers may fade.

Let's wrap it guys. Thank you so much. This has been awesome. All right.

Rock on. Harry, thank you for the time. Thanks for doing this for us.

Totally.

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