Jason Lemkin: Crowdstrike, WTF Happens From Here? Wiz Rejects Google’s $23BN Acquisition Offer|E1181

In venture, we're all pretending. You know, early stage folks have never worried about liquidity. And the late stage guys got to deploy money. The time's taking on these funds, so you got to deploy them. We're praying. We're hoping liquidity comes back. We're investing, Harry. Like, there's almost as much liquidity as 20, 21 ready to go.

I am so excited for this, dude. When I told the team that we were going to do this today, they were like, oh, yes, Jason episodes are our favorite. So thank you so much for doing this with me, dude.

It is so great. It's such a. I feel like we went through a time when the news was trivial and now it's all over the place. Right? I guess that's the way it works. Right?

We're going to start with item one on the agenda. Okay. I'm going to read the title. Wiz rejects Google's $23 billion offer. Eyes IPO. I just want to start with, first off, what do you think of the acquisition price? 23,500,000,000 ARR growing 120% year on year. It's a 46x ARR multiple.

Well, I think it's, you know, it's not expensive. A couple things first. It's not expensive. And what I mean is this is a company that has gone from nothing to 500 million in four years. Okay? So you. You have to be careful. Look, in the old days of SaaS, we all kind of grew at the same rate, so we used AR multip. Okay. But now you have to use forward ARR multiples, forward revenue multiples. This company will be at a billion in a blink of an eye. So let's just value it at a billion. It's going to be there in 12 months, 14 months, nine months, it's a billion forward until this little issue of Crowdstrike grounding the world's air fleet and a few other issues which we'll get to. You know, CrowdStrike traded at almost 30x in today's world, well over 20x. So 20x times a billion for Wiz. And you can't buy CrowdStrike, right? I mean, maybe you can today, but. So I don't think, ironically it's. I don't think it was overpriced. I do think it might have been a good deal for the investors because you avoid so much dilution and risk. I22, I think, is 30 for the investors. I think it's 30 billion to the investors in a sense because of dilution. But I don't think it was as overpriced as this growth rate. 0 to 500 million in four years. You got to, you got to draw a line and say this is the top of the top of the top of the public comps. But I had until again, until CrowdStrike had a little bit of an implosion, in fact dropped almost 40%. It was consistent with CrowdStrike's forward growth and growing much, much, much faster. So I don't think it's as crazy as it sounds. I don't think it was that expensive. And I think that's why they could comfortably say no, because it was a very good deal, but it wasn't, it wasn't insane.

Before we dive into like the actual decision to say no from Google's perspective in making the offer, why do you think it was so att? To them, it's the almost two exercises of their largest acquisition state, which was Nokia for 12 and a half billion. And knowing the strong antitrust pressure on the Magnificent Seven, why do you think they pursued it?

I think you don't totally get it until you've worked at a big tech company, which I did as an SEV for a little while, which is that when times are tough, everyone's hyper conservative. Like doing an M and a north of 100 million was almost impossible in tougher times. Okay, when times are good and Google Cloud is the fastest growing of the three biggies, but it's also number three. Okay, it's the fastest growing, but number three, things are so good at Google Cloud right now. They're so good. They're the best ever. We saw growth decelerate through 2021 and then boom. Like, the amount of acceleration we've seen at Google Cloud and Azure is breathtaking. And so what do you do as a leader? You get a chip. And literally when I was an SVP at a big tech company, each divisional head had a chip. It had a big chip and a small ch. Okay, now if you're Thomas Curry and you probably get a couple chips, But I think 23 billion would eat up all your chips. Okay? But you go around the room and you say, what do you want to buy that's big? And what do you want to buy that's small so that good times don't rest in peace. It is natural. And I think they went around the room and they may well have said HubSpot six months ago. Right. If that actually happened, we don't know. But. But it would make sense to me that it was A chip. It was a big chip, but this is AI. And the growth of Google Cloud is generate, like it's awesome. And so yeah, it's a big number, but it's much bigger than Nest. The opportunity here is much bigger and it's fueling Google Cloud. So it's chips. And I honestly think someone who's incredibly smart and experienced, like Thomas Crane, who's done so much M and A, they know exactly what they're doing, they want scale and they want to keep the good times going. And these were their two best ideas. Maybe HubSpot, maybe not, we don't know. And obviously Wiz best idea and you got to do it. It's fuel for the engine. And worst case, you write off 11 billion in 11 or 12 years from goodwill. It doesn't even cost you anything if you can afford the cash.

If this had have progressed, do you think it would have faced pressure from antitrust given Google's lack of dominance in security already as their core business?

Honestly, it has to, because Figma wasn't even competitive with Adobe. You'd have to have. Not ever. You have to have never used either product or understand it to think Figma was competitive with Adobe. No, Adobe should not, should be blocked from buying canva. Arguably. Okay, I'm not a big antitrust blocker, but Canva is directly destroying Creative Cloud. Okay. Figma was directly destroying a $30 million product line that Adobe had abandoned. Okay. With XD Sketch or whatever it's called. It's like it's. This is the problem with tech. We all talk about things we don't understand, like cybersecurity. We talk out of our rears. And so if Figma could be blocked, I actually think Wiz is, is more competitive to. There's more antitrust, even though I don't think it should be blocked remotely. Security is a big deal as part of the cloud providers. Google's already done a $5 billion acquisition. Okay? They're all competing with, they're all competing with each other. And this is a way to go to an enterprise when you have three slightly fungible products. Aws, Azure, Google Cloud, they're all different, but they're slightly fungible. And now you can say, we've got Wiz as part of this package, the dominant next generation cloud security player. You might just pick that, pick Google Cloud just for that.

Why does Karen do it then? They're smart people.

Why did he do it?

Yeah, why would you even bother?

No, no, he. Listen, we only can guess from what we've Read. And I think what, I think what we read is usually about 80% true in this situation, especially since we saw Sops email to his team at Wiz and TechCrunch so we can put the pieces together. Look again, he's got a chip. Maybe he went HubSpot first, maybe not. Right? Maybe there was even another one before. We don't know about it, but he's got to go big. Google Cloud is so big. And so the next shot is whiz. And the press said he reached out directly on his own. Okay, and he's like, and it all makes sense. What was the last round at? 11 and a half. Okay, well, if we're going to do this, it has to be at least 2x the last round, folks. That's how you get to 23. It's always that way in these deals. Okay? So there's no issue on price. And then he says, well, we want to do this and we want to lock you up. And then they say no. And he's like, fine. And then it's real and it becomes a one paragraph term sheet at this, at this size. And then they've got to sit down and say, okay, the price cleared. So it's not about money, it's not about price anymore. We'd have to IPO well north of 30 billion for it to be worth it. Which, which you can believe. But then you look and you're like, man, if there's even more than a 10%, 20% antitrust rate putting that. The distraction is so heavy. And I remember Ben Chestnut from mailchimp came to Saster Annual a couple of years ago right after Intuit. And he said it was the most distracting year he'd ever seen. And he said, Ben said, whatever you do, whatever you do, if you do M and a commit 110%. And they had a deal before Mailchimp, he said, I mean, before Intuit. And it fell apart. And he said it wrecked his management team, it almost destroyed his company, whoever was going to buy him before. So they waited. And the Intuit deal took a year of dancing. Not a week like Wiz and Google took a year of dancing until he was sure it would happen because he didn't want to wreck his team. And this could easily, this could be the biggest distraction in the world for the team. How do you keep momentum up when you've got to deal with this too? Right? So I think, I think unless you're like 90% sure, it can close to the 2 billion, let's assume there was a 2 or $3 billion termination fee. Who cares? They don't need the money.

So do you believe that Wiz walked away because they did not think that it would go through because they felt that's the number one?

I think the offer was real, like in the press. I think Thomas Graham called them up. I think they had a. He probably offered 10 billion. There was a quick back and forth and it quickly became 2x the last round. Right? I mean, literally when I sold my first startup, the acquirer went, got our Certificate of Incorporation, Delaware and offered us 3x last round before we even met. He's like, this is the clearing price, three extra last round. So they offered it before the first meeting. Okay. So that took like 48 hours because you have to offer less or you'll look like he's. He's not the CEO of Google. He's just running Google Cloud. They offer 22 bill 23 billion. And it's interesting they talk about it with the team and then this was over in a week and a half. I think because it wasn't worth the risk. I don't think it was worth the risk. I don't think it was worth the risk. Not for founders that are already wanted to go IPO with the growth they've had and guys that have already made eight figures. It wasn't worth the risk. I think it was a quick no. I think it was actually a quick no is what I think happened.

Do you think crowdstrike impacted their opinion to say no?

Look, I think they had some interest because they got a price. I just think they realized it was just too. Too risky to close. Too risky on the journey. Too risky. Like, I don't think it would be fun to run a company for 18 months hoping you get through not just US antitrust anymore. You got to get through London and Europe. And it's like, I just don't think that's. I'm just guessing, but I don't think that's the journey that the team wanted to go on like this. This just trapped for 18 to 24 months. And I bet he called Dylan at Figma and he said, Dylan, how was it? And Dylan said it was terrible. It was the worst 24 months waiting for that Adobe. Like it made sense at the time, but if I could do it over again, of course I wouldn't do it. I just go raise 2 billion from Tiger in a week.

Okay. But this makes me think of this old test in the UK to determine whether you were a witch in the medieval Times it would throw you in a lake and tie your hands to your feet. If you drowned, you were a witch. If you rose. So if you drowned, you weren't a witch and you were free, but you were obviously dead. And if you rose, you were a witch and would burn you at the stake. It makes me think of that because do you want to go through the worst regulatory antitrust process that could kill your company with distractions, or do you want to go through a long road to ipo? IPO and then be under the intense scrutiny of public markets, have lockup periods, have short sellers, activist funds and all the shit that comes with being public? Is this not two equally options?

Well, I. Listen, I think it's the right question. I'm sure they had that discussion last week, right? As successful repeat founding team. A successful repeat team. They. They had to do we really want. We want to. We. They're clearly. It's hard but probably having their times, their lives at a personal level, it's. It's an incredible run. But yeah, is it worth it? Is it worth the going public and seeing the variability and things and just dealing with the headaches and the stress Is, is it worth it or should we. Should we leave the keys on the table? And I think 99.99% of us should leave the keys on the table. And that's why I've decided forever. I've changed my mind. We talked about this before. Since 2021, every founder with a decent exit, I tell them to take it now 100%. I tell them to take it for this reason. And, and listen, if they don't, if they push back, that's great, then I just help them get to the right conclusion. But I no longer am neutral when I talk to. I tell. If a soft CEO called me and I say take it. Not because I think it's 0 to 500 million, there's any need to, but that's how I challenge founders now. Because look, it's just this distress of dealing with these activists and the drama and you know, the other stressful thing we're finally seeing is, you know, we never believed 10 years ago that so many SaaS companies could get to a billion in revenue. We didn't believe there was enough market for cloud software. It turns out there is. But now we're seeing that it, that we, that folks are eventually exhausting these markets. Right. It's not that fun to be at Dropbox at two and a half billion growing six percent. It's not that fun to see salesforce now decelerating to 7%. So if I was looking at a song and listen Wiz is the next generation, it would give me pause in a way in 2021 it didn't but I don't think listen going IPO for them. I think it'll be no big deal. Like they can go IPO anytime. They can go IPO in 90 days if they're, if their financials are clean and they'll get a good valuation. It'll be fun that it'll be a non event. It's just all the years of hitting the numbers. Right.

Question for you. You're on the W. Well done. Congrats. Would you have voted to do it or to not do it?

The boards are funny and, and you know the, the actors have so, so many different. Like you know, if you're an earlier stage investor you can almost be neutral because this will create another secondary round at 23 billion and anyone that wanted to do it will be able to sell at the exact price. Right. This is the old Groupon play. When they said no to Google then there was very dramatic back in the day for 6 billion they created a secondary round one. It was harder back then and everyone that wanted out got out. Except you know, probably poor Andrew Mason, you know, founder of the script. But everyone got out that wanted out and I think everyone that wants to get out. And look, if you and I, Harry invested from a small fund at six and there was an app, these are second time founders. But if it was early we might, and we might say there's no difference between another 2x. If I'm a late stage investor, the next, the next card is the good card, right? It's the next card's the good card. So. Or frankly if we were early stage investors, you know what I would do with Wiz Harry? I would actually distribute to my share. If I could get stock somehow I would distribute to my shareholders but keep my personal stock as a GP is what I would do. I would go long but book the 20 or 30X fund and call it a day because it's enough. Right. But I think the late stage guys will they have a strong incentive to double down. Right. The difference between 2x on that last round and 4 or 5x, you know it, that's. It's huge, right? You got to do it.

I do think it's important in terms of just liquidity in the venture ecosystem. I know a lot of LPs and institutions who had a lot of money either in funds that are in wiz or actually direct in wiz through SPVs, or direct themselves. And they were suddenly getting quite excited about liquidity.

No liquidity adventure today. It's a disaster. It's three years of no liquidity. There's none. It's. It's dried up. It's. There's a little oasis out in the desert from these random deals. You can't, you know, Brian Halligan, I think, right. When Figma struggled, said on. On Twitter that this is the end of big M A. Right? And I thought he was being a little dramatic, but he was right. You know, it really is. And, and so if this big M A is blocked, you know, the majority of the liquidity is blocked. It's not even, it's not even just multiples, it's just blocked.

But that liquidity bulge has to, it has to burst in some way.

Yeah, I don't know. I think we're all, Honestly, Harry, I think in venture, we're all pretending. I think we're all pretending today. The early stage folks are just, you know, early stage folks have never worried about liquidity. It'll come in the next 18 years of the fund and the late stage guys, you know, you've. It's been said many times on 20VC, but I've heard it many times from others. And we, you know, it's year three. We got it. We got to deploy money, right? We. I had Logan, Logan from Redpoint did our little workshop, our workshop Wednesday at Sasser, and he's like, yeah, we're doing, I think he's doing. They're doing like 10 growth deals this year already. Three the year before and one the year before. And he's like, some of it is, we're seeing great deals, right? He's like, but across the industry, the time's ticking on these funds, so you got to deploy them. So I, I wonder if we're pretending that, that we're, we're praying, we're hoping liquidity comes back. But we're investing. We're investing, Harry. Like, there's almost as much liquidity as 2021, and arguably it makes no sense, right? You can go through a year in venture with no liquidity. No one cares. No LP cares. No GP cares. A year we're on liquidity ended December 2021.

You're saying you have to deploy. You don't have to deploy is actually the truth. Your LPs are not pressuring you to deploy. If you've managed your capital base well or your outgoings well and don't have Ridiculous teams. You can draw fees for many years and pay those outgoings sufficiently. It is not a game of getting cash out the door.

So I think it's true to some extent. I think it's true. But at the end of the day, mega funds are all in the business of raising funds every two to three years. And can you stretch it to four? Sure. Right. And these are funds that get 40 to 50% of their revenue from fees. And. And also you have to maintain momentum in venture. You've done an incredible job, Harry, of maintaining momentum and building it. If you go five years without raising a new fund, and Andreessen's raised three, even if it's totally logical, all right, people forget about you. Right? You may. Your insiders won't forget about. Like your existing LPs may say, good job, Jason, Harry. But guys will be like, you're out of the game. Right.

I genuinely think we have a cheat with the content business because actually we're able to sustain momentum without doing deals where our competitors have to do deals to sustain momentum.

You know, I think that's all true. But here's the thing, Harry is the. In some ways, this is the hardest times of my entire career. In some ways. In tech, multiples are down, liquidity is tough. But then you look at a whiz and you know what the job of venture is, Harry? There's only one job. It's to find wizards. And you know what? When the Wiz founders had their second at bat in 2020, they didn't care it was 2020, 2024. They're going to found Wiz the same whether, whatever, whether it was an upturn, downturn, left turn, right turn. And your only. Your job in venture is not to modulate your pace. Your job is to step up the game. There is a whiz every year. There's a whiz every year. Why weren't you in whiz? That's the question every LP should ask every gp. Why weren't you in whiz?

I was with one of the founders of the greatest firms in the world the other day and I said to him, how do you think about this world of venture? How do you navigate it? Just help me. And he said, harry, Harry, the venture game is the same as it's always been. There are one or two entrepreneurs that will change an industry every year. Your job is to invest in them. It's very simple. It's very hard.

You just define them. The investing, you know, it's that. I would agree with that Almost like we are. Venture is so well established as an industry now. You know when you find the 100x entrepreneur, like you want to invest the next hour, like that's not the investing. Stop this investing used to be the hard part when I started. Now it's finding because you know you want to invest.

Well, I would argue that if you find them, that's not enough. We can all find them. But then there's 12 people around it.

Sure, sure. But, but, but yeah, I'm just having a little fun. I don't think it's about investing. Right. You got to find them and then you got to convince them to take your money for sure. But, but that, but I just don't think that the best founders start the company when they're ready. They don't up, down, liquidity, humidity. So on the one hand it makes sense to slow down your investing pace. On the other hand, it's an excuse. It's an excuse. If I was, if I was an lp, I would be asking every manager this jerky question, why aren't. Why aren't you in whiz? From the air earlier, why aren't you in whiz? That'd be my question. And I'd want to know, why aren't you in wiz?

Last one on whiz. So we're going to have a secondary now or in the next months or so. Totally agree with you there. They IPO in 12 months, 36 months. What do you think and what do they go out at?

When I look at my own portfolio, this debate of do you need 500 million to go public. I do think it's true. We could talk about it. This uberquet, this really interesting one of the canvas at two and a half billion and the. And databricks at two and a half billion. And wherever stripe is, how them optimizing the IPO path is super interesting because they all could have IPO'd a long time ago. Right. And even Canva has been profitable. Right. So it's not even. It's not. Databricks is probably managing their bottom line. Right. On the way to ipo, I don't think Canva has to care. So there's this next level game of everybody trying to perfectly optimize this. In a world where for the best, there appears to be infinite secondaries. Right. For the moment. Right. So there really is an incentive. Everyone on the cap table can optimize what's best for them. And so I don't know. But when the CEO's in, in the letter to the team says we're going to go public instead, you got to do it in the next 18 months or so.

Can I, can I just jump in there and ask you mentioned. I, I don't. I think you need 500 million in revenue to go public. That is against what Bill Gurley, Brad Gerstner say before. Why do you believe you need 500 million? Just so I understand.

Okay, so let me be nuanced. There's the public market folks will say you can't get analyst attention and the markets are too thin and bubble. And I'm sure that's all true. Right. I think the real reason is I'm simple, I'm using too much shorthand. I think you need 500 million growing 30%. The problem is everyone at 200 million for the most part is not growing the 50 to 60%. You need to land at 30% at 500 million. Right. And so absolutely that's, I mean the new, the next one's one stream, right. They're going to IPO at 500 million in revenue growing 30 some odd percent, 34%. And so I absolutely think you can I in today's world at 200 million. But you probably have to be growing north of 50 to 60% and there's just not enough of those candidates. A really tough part in SAS is there's so many folks at 100 to 200 million growing less than 30%. And I don't, this is one I don't have the answer to. I did never thought this would happen when I started in SaaS. I just didn't think this. You could get to this level of scale and then see the type of deceleration we're seeing in so many unicorns, 100 million plus companies. And if you're 200 million growing 60% you're probably going to wait to IPO a little longer in today's world, that's all right. You're probably going to wait.

You mentioned CrowdStrike there they have had more impact on, you know, international travel than the Taylor Swift World tour. So I first want to start on CEO came out, actually had him on the show but CEO came out and did a little video. Was the situation managed well?

Well look, no, of course it wasn't. We did not. It's even not in my opinion like I was literally looking on their on CrowdStrike website they have a page called the Falcon Content update. It only had this morning. Didn't even have an update from today. It was still yesterday. Now I checked it does have an update. There still isn't a great root cause analysis on their website that says what really happened. Listen, we get you did this content update. We get that it failed. But why. Just tell me what, like why do we not have a root cause analysis up on their website today? And it is great that he went on. He was clearly exhausted. Right. Couldn't even talk. Needed the water. But you got to come up with a real root cause analysis, not a technical one. Right. We did a content patch in the morning and it brought down the world. Know what happened at a human level. And so many cloud leaders don't do much better than this. Okay. They don't. They may do worse. But for CrowdStrike at its $100 billion valuation and being. And even worse being. Here's the thing about CrowdStrike that is. We didn't. You know that that is so obvious now. It's. It's a sole source solution, sole vendor, single point of failure. If you're a single point of failure, I think you owe more root cause analysis and transparency than we've gotten. So I give them a C plus. We're going to have a fun case study to watch. I don't think anyone's going to churn.

I thought, listen, if it shows one thing, it shows that it's incredibly important to global security and infrastructure. And the numbers are still fucking amazing.

Amazing. Growing 33% at almost 4 billion in revenue.

Yeah. And you said it won't churn. So are you saying.

But it's not. It's not as good as it sounds. Okay. Because the amount of energy and time it takes to deploy CrowdStrike is so huge that it would take three to five years to churn out. For real. Okay. You have to test Sentinel 1 or whatever you're going to do in a small group. You have to do it on staging. You have to make sure it doesn't break. You have to learn. Like that is a three to five year initiative to move a core infrastructure. Okay. If it happens at all. So even if there is Churn, it's going to be so far out we're not going to see it. But. And talk is cheap. People talk about Churn, but then we're on to the next thing. Right. The airlines were terrible. Like this is a, a destructive brand moment. But. But not everyone was impacted the same way or the same extent. Right. And some people are just don't. If it didn't really bring down my business, it's. It's problem to deal with. Right. So we don't know. But here's the problem. CrowdStrike relies on selling 30 products. Talking about multi product, they have 30 products. When CrowdStrike brought my company down, Harry, how's the sales team gonna. How the, how the upsell is going to go this week? Hi, Harry, It's Jason from CrowdStrike. I've got a couple more security modules to sell you and you know you're going to get the call and you're just going to get your head cut off for an hour. Right. So I think almost upsells are going to have to go on hold for like, you know, three quarters, you know, it's not just going multi product, Harry. What it is, this is what Datadog perfected. It's having folks love your product so much that they want to buy more products from you. It's not just multi products, not enough multi product when they don't like you. You know, it can work, but it's brute forcing. It's, I mean, I would say 2018, 2019, no one loved a product more than Datadog and now it's an 8 or 10 product company. Right. So how CrowdStrike has benefited, I believe from some of that. So it's going to be a rough NRR year. It's going to be a rough. The GRR is going to stay high, the logo retention, but the, but the upsell is going to be just brutal.

Okay. So I just wanted to kind of separate the two camps. If we move forward then and we think about a bull case and a bear case for crowdst. If we start on the bull case, let's start optimistic. What is the bull case for CrowdStrike from here?

Well, two things. First of all, even with CrowdStrike arguably the most attractive SaaS and cloud company through last week in terms of multiples, everything, full package, everything, cash flow. So you're held to the highest standard. Having said that, everyone gets one pass. And I do think what CrowdStrike kept saying is very important, even though no one was listening at the time, which was, this was not a security incident. Everything was, this is not a security incident. We screwed up. You know, we did this, we did this. Upload this release that was bad, this content release, whatever it was, but our security was not breached. You have 200 SaaS apps running your company. So many threat vectors in security, there's so much threat, right. If CrowdStrike has been knocked down a peg on your list, but you still believe it is the best solution, including effort and work to rip and replace and do Something, you get one pass, you don't get three. And it wasn't a security incident. So outrageous. You know, the cost to send an angry tweet is so low. It's so low to be outraged on Twitter. Right. We're all on to new things. There's, you know, we can see it in politics. We stop caring a week, you know, and so how much Delta is going to care? I mean, Delta is going to be upset for quite some time. Right. I was at my gym yesterday, Harry. It's still down for crowdstrike. I put it on Twitter. It's still down. My gym is down for crowdstrike. It's so hilarious. Half the monitors are the blue screen of death across this huge gym. But you got to give, you know, this cloud stuff is hard and you got to give folks a pass. And the fact that it wasn't a security breach is important. It is important. And so do I think more folks are going to buy more modules this week? No. Do I think the sales team is going to have a tough go of it for a little while? Yes. Do I think the existing base will give them a. A pucker to pass? Yes, because everyone's got one.

Okay, so it wasn't a security breach. There's different people impacted in different magnitudes. A lot aren't as impacted as Delta is for examp. And then people get a pass for a mistake or two. And this is one of the first that they've made severely.

That's why I think the communications is so bad, because they're not. It was a. It was a nominal apology, but they weren't asking for a pass. They weren't explaining that this is why it happened and why, Harry, it will never happen again. That's what we need to hear. To really get a pass. You need to hear that. I think if they have no issues for a year, nothing, nothing, Delta aside, they will get a pass. You gotta let your vendors screw up once every five years. Again, if this was a. If this was a material security breach, I think it's existential for this company. That's why they also subtly said be alert. Like. Like threats are going to be higher. Folks are going to be trying to take advantage of the situation. Like they were carefully placing their words to talk about what really matters.

Which comes to the other side of this equation, which is the bear case.

Yeah.

Could this be the end for CrowdStrike? They have fines. There's going to be legals. This. There's going to be subsequent security attacks.

It could snowball the irony is, you know, some folks are saying this is exactly what happened with McAfee when George Kurtz was CEO there, that they had such a meltdown, they had to sell the company. They were unable to recover. I, I guess it could happen. That's top of mind, right, Is making sure that the company sustains. I just think there's so many, it's, there's so many great people working on this issue. I think maybe the bigger issue is they just become too conservative after this. They may become too conservative. We do need CrowdStrike. It's done a pretty incredible service since 2011. That's 13 years in it went. In 13 years it built a 4 billion dollar business growing 33%. It's, it has, it is a service and we'll give them one pass. I don't think it will bring them down.

Final element on CrowdStrike. CrowdStrike's market cap today is 66 billion.

Yeah, it was 100 last week.

It was.

But if the growth has been like, forget about the drama. This, this may be the most, the only rational thing I've seen in the stock market. If growth is going to be cut 40 because of upsell, because of lengthening sales cycles, maybe that sounds about right.

Okay, we're gonna have this chat at Christmas time. Where is CrowdStrike then?

You know, here's the thing. I'll tell you why it may rebound because I just wrote it up for tomorrow. They were on, they were, they have extremely conservative projections for next year. They said they're only going to grow in the teens from 33% this year. Super conservative is what they already told Wall Street. So they have a big buffer. Like they may still. All the analysts downgraded them. I'm sure you saw it right. They all downgraded him and said growth is going to be lower. But they had such a big buffer because they projected such a seller growth that they may well be able to still make their number even with all these issues. It's a little thing. So I would be careful to, to, to bet against them because they just put, they just, they just put such a buffer in hitting the numbers.

So you've got, you've got to give it a number and I'll give it a number. 2. As I said, it's 66 today.

I'm gonna guess it, it bridges 50 of the gap. So it was at 100. Today it's at 66. So I'm gonna guess it makes back 17 half of that. So what does that bring us up to 80. 83. I'll go 83. I don't know if the public markets are fully logical, but there's logic in what I just said is make up half the gap because they're gonna.

There's absolutely logic in what you just said. I, I wouldn't go too similar. I. It was at 74. Yeah. So I would go, I'm going to go for 75. I don't think it'll take such a rebound.

I don't think it's going to take.

Such a rebound, but I think legals and fines are going to be real and I think it's going to be an interesting enough story, it's touched enough consumer lives that actually it's had serious negative brand damage.

It does just listen, it's true, the legal and fines, you take a reserve and the truth is it doesn't really matter because it's, it's not a forward impact. It doesn't really tell you where crowdstrike is going to be in five years. So the markets usually shrug it off even though, again, it's, it's a lot of drama.

Can you imagine when this shit happens? You're like, you know, having dinner with your family and you're like, you what? We're down.

Fuck. You know, Harry was the number one thing reason I wanted to sell my startup was for these issues. Every outage was so. It took so much out of me. You. It's so, so much out of me. It just killed me. Every single one just, just killed me. And trying to align the team around it, always being the front. On the front line on pager duty, the first one up all night long when there were issues, whenever we would like, making sure no matter what, we were up by 5am Pacific right before any issues came up. But we were big in the uk, so we had other issues. So we would see. Back in the day, we would see waves of issues because we had so many customers in the UK because of BT&G Europe, we. They would be our canary in the coal mine. When we had an issue, we would go down in Europe before we could see it in the US. And so I was up at 3am and it's not that I needed the sleep, it's just never being able to sleep. I was never able to sleep as a founder because of these issues. And I don't know if I'm happier today, but that was the number one thing I was so glad to have behind me. I still have these flashbacks when I saw George on the Twitter. Couldn't breathe in his hair and he had to drink the water. I'm like, that was me in 2010. Terrible. The worst, the worst feeling. The worst feeling. And, and you just watch time tick and you're like, okay, if we can go back up in five minutes and then it's 10 minutes and then, then your entire support is just lit up and then you go into half an hour and then people don't believe you're ever coming back a half an hour in. Right? It's just, it's just the worst, the worst feeling in sass.

Now listen, final segment before we wrap up, but we saw two today. A billion dollars going into legal tech with Clio. Raises 903 billion valuation. First off, it's quite a lot of dilution I thought for around at that.

Scale and size, most of IT secondary. It's 303 billion post. So let's call that two and a half billion to like whatever. I mean a lot of it's secondary and they're at 200 million in revenue and accelerating. 200 million ARR. So it's a 10x ARR. Deal 2 billion ish. Pre right to something B high for today's world. But not, not out of line. Let's assume they're growing more than 30% today. Right. This whole payments fintech thing is their big acceleran. Right? This is a company founded in 2007 with a great CEO. Everyone in legal tech loves this guy, Jack Newton. He never quit since 2007. But if they were doing 100 million two years, they're doing it. Said they went from 100 million to 2 million two years. Okay. Which is why they raised the money. That's pretty good growth in today's world. But if they're. They're found in 2007 got to 100 million two years ago. That was. Help me Harry. 2022. That's 15 years to 100 million. That's not a rocket ship, is it? I think the fun one about this one, this one will be like bill.com that took forever to get to 100 million. And then when the stars align, just like Bill didn't really align until they got into payments and payment management. The same thing happened with Cleo. Now that they're managing legal payments, they were able to double in two years. And when it took them whatever 2007 to 2022, 15 years to get to 100 million, it was not a rocket ship until. So I think the numbers, the growth and the numbers justify it. And I do believe the majority I don't think is that much. I bet it's 100 million of dilution. 200 million the majority. I know a lot of the early guys sold their positions, maybe in their entirety.

Sorry. The secondaries went to early investors, early operators, early.

And employees too. I know but I. I do know that someone told me this. An LP told me this comment the other day. I didn't realize it was Cleo. But then it was that one of their LPs had sold all their stake in the round one of their GPs.

Does this not answer your question on liquidity that you had earlier?

Yeah, but there's not enough of these there. There were one of these a week in 2021. Harry, listen. Here's the problem with venture. This is a listen a plus CEO. I love them. The company was founded in 2007. So let's imagine you like okay, the VCs came in later but let imagine mess in 2007. So you're waiting and now it's 2024. How many years you have to wait for liquidity? Sorry, four. Sorry, I'm getting. I guess I'm entire. How many years? What am I missing here? 17 years for liquidity. How long's the nominal fun life? 10 years. It doesn't match up. Up. Doesn't match up. Yeah, you get two one year extensions. So look, and there's nothing as a founder, in a way there's nothing more heartening than these late. These ones that accelerate late in life, right? The. The clios, the bills, even drama side the UI paths, right? These ones that block these late blossomers give us all hope that if you're 110 committed to the space, right? Like Cleo was really early in doing web practice management for lawyers. Like. Like let me tell you, trying to sell the legal back in 2007 was impossible. They didn't trust the Internet for a signature for a document. I'm out of here, Harry. I'm not. Forget it. I'm out of here. The fact that he could commit as the founder for this long and finally hit it. It is just heartening because we want to believe this as founders that we don't all have to be whiz to have a great outcome, right? It's a great. It's a better story in some ways than Wiz. In some ways, right? Most of us can't be wiz, but Clio is to us is like listen, if we're great founders and we never quit for 20 years, maybe we can be Cleo, maybe we can be Cleo.

I agree. And going back to a couple of different points earlier, but like, who would have thought actually that you could get this big company in purely legal tech and, you know, practice management in legals.

That's exactly. Well, maybe you can't without managing the payments. You know, we kind of, we kind of crap. Fintech's going through some tough times right now because of low margins and fraud and other issues. But when you combine payments and software just right, like a Shopify man, it's powerful. There are too many cynical folks bolting payments onto software with 0% margin and claiming it was SaaS revenue that was at the edge of fraud, but doing, but doing the high margin version like Clio and Bill and, and, and some others. It's epic. If it works, right? I mean, 70% of Spotify, Shopify's revenue is from payments and merchant services, not from SaaS. 70%.

Dude, I sent you the Germany deal that we did Alo because I wanted your thoughts on it. Which incorporate the POS provider. It's POS provider for, you know, ethnic restaurants under a certain size. That's exactly the. The.

So.

Totally agree. But when we look at that in context, Jason.

Yeah.

We then have Harvey AI for lawyers, which raised 100 million at a 1.5 billion valuation. They say they tripled ARR from December, implying that they are at 30 million ARR today. Two years from founding.

Yes.

What are the thoughts on that sustainability of revenue, how that just compares compared to maybe Clio in the same space? What are your thoughts when you hear that? That.

Well, first of all, it is, you know, the rate at which some folks can grow in AI today. It really is breathtaking. It breaks the models. But then the, you know, when I talk with folks in legal tech that I know the objection and it's. I, I don't think it's totally the Harvey. It's with. It's with a lot of folks in the, in the groups in the category which is that look, we're all going to do the same stuff. We all can review NDAs and we all can do basic document review and we all can even do E discovery and like stuff that is big categories. We're all going to have parity on this. Like it's hard to really break out. And I think 2025 will be the year of SaaS AI parody. Everything's going to be parody in 2025. Not total parody, but, but close to parity. Right?

What do you mean, what do you mean by that, Jason? Sorry.

All every legal tech product will have the same AI features. It's already happening in Contact center where I've done a lot of investing. If you look at the, if you look at, look at Zendesk Gorgeous Intercom, front customer, look at their website, their homepages, all say the same thing. And they basically all. Now they're all very different. Okay. Like gorgeous rum on the board. It owns e commerce Contact center. Okay. But they all basically do the same thing. They automate 30% of your of your contact center issues with AI. Again, they do it different ways. How could you have a one, how could you have a contact center product with 0% AI today? You'll lose every deal. Right, right. But on the other hand, you can't say 30% is game changing because they all can do 30 now. Is Zendesk as good as Gorgeous? Maybe Roman will tell you not, you know, is Intercom the best? You know, Owen's going to tell you shouting from the rooftops that there's is their fin is the best. But you, how do you. From a check the box perspective, they're all hitting that 30 to 40% level, right? And so I remember when, when legal started to blow up and I asked Andy from Logical, that was my first legal tech investment that sold for 300 million last year. I'm like, like, wow. My mind was just blown with all this NDA review and document review. He's like, man, like everyone, it's all going to be the same. Give it six months ever. Like, yeah, it's great. But I know 2020 legal tech CEOs who all just bolting this in now. I don't, I, I'm not saying someone won't break out and it might not be Harvey, right? But this, I do think when we get excited and venture, there's one issue which is this experimentation budget, right? Will this stuff stick? Which people talk about, right? Especially in the CEO's office. The other question I really think is AI parity. And that's why I think in B2B AI is going to really calm down in a year. Right. Like you invested in this German company, right? I invested in owner, right. Which is adjacent, right? Owner. Owner. Owner builds these like incredibly powerful websites through using AI for restaurants now. Okay. And they're not the only one. But when it came out, it was, it's jaw dropping how good it is. But in 2025, everyone's gonna have this feature and owner's gonna have to have 20 more features because everyone's gonna copy it back to copying. We fell away from copying for a while in sas, right? And now we're all back to everybody quickly copying each other in AI. And I think in a way when I say that AI parity, I actually think the more vertical you are in SaaS and the more niche you are actually, the more differentiated it'll be. Right? Because when you're still competing with spreadsheets and paper, right, Automating workflow is great, but then automating humans out is next level, right? It's just in the most competitive spaces, you know, outreach, gong sales, loft, all these. You're not going to be able to tell the difference any of their AI products next year. Gorgeous Intercom Zenda. You're not going to be at a detail level. You can, but superficially, you're not going to be able to tell the difference. And Andy's point from logical is legal. Legal gets it. This is disrupt. There's no question. This is the first thing that's been disruptive in legal tech in a long time. Right? But here's the point about AI. Everyone gets it. Like you didn't figure this out on your own. You're not the only legal tech company who said in 2024, wow, what if we added AI to this? Right? And I'm not saying Harvey didn't get 30 million of revenue. The rest didn't. But is that sustainable? And I hate the defensible word in league in vc, but it does matter. Is that defensible when the entire industry is doing that in 2025? We'll see. We'll just see, right? We'll just see.

Quick fire around, my friend.

Yeah.

What is no one saying that you're willing to say, like you said earlier, we're all pretending. What other thing is no one saying that we're all feeling?

This one isn't like epic, but I just think we're sitting on a ton of 1x funds in venture. Just so many 1x funds. They'll never get out of 1x. A whole generation. And listen, I barely saw I. When I was. When I first joined Venture, I could see the tail end of the 2,000 funds. I mean, I wasn't there in Venture, but I could see what they looked like 14, 15 years out. And just doing 1x in a 2000 vintage fund was like top decile. I think. Think. I'm not saying we're going through that, but there is such a. There are. There are so many funds that will end up a whole generation of 1x funds. And how. It's just founders aren't yet paying the price or not getting the benefits. But that's one thing people aren't touched. You know, I wouldn't be surprised if the majority of funds from the last few years are 1x funds.

Tell me, what is the most underappreciated public company?

Jason, I'm still going to say Klaviyo for a variety of reasons and I'll tell you why. Klaviyo for folks that don't know is basically the HubSpot for E Commerce. Okay? They are coming up on a billion in revenue. In fact, they are bigger in marketing revenue than HubSpot. They're actually bigger but they're very specialized on Shopify. 7070 of revenues on Shopify. This is a company that was almost bootstrapped right as you talked with Andrew. But here's what's interesting. Here's just like data. Everyone loved Datadog back in the day, right? People love Wiz. Look at it. I know, I know a bit about the B2B E commerce space until there was a little bit hiccup recently when they increased prices at Klaviyo. But until then this was a grab you on the street and tell you how much you love the company. Coming up on a billion and ARR growing approaching you know, 40 to 50% growth. It's a magical story that's not understood well enough. In fact no one, I don't think anyone outside of E Commerce had even heard of this company before it filed to go public. Right? Everyone in E Commerce. It's the giant, right? It was the giant, right? That 150 millionaire CEO I was talking about that I talked with yesterday. Like half the conversation was about I wish I was Klaviyo or Klaviyo this and he's at 150 million. The fact that that isn't a 20x era like CrowdStrike was were worries a lot of us. It worry. It worries a lot of us. The multiple. The multiple. There, there's. There's nothing but love for Klaviyo. Nothing but great. I mean you could, you know, you could say oh the revenue is decelerating a little bit. But it's, you know, it's decelerating for a lot. This is still a top 5% public company and it's only worth 6.9 billion. These are the kind of stories that Wiz obscures. Klavi in my mind should be 12 to $13 billion company minimum penultimate one.

For you my friend. What's the most over appreciated public company today?

I mean I don't want to Pick on anybody. But I think the one we're trying to understand is how was Snowflake vulnerable when it appeared invulnerable? Snowflake was, you know, the whiz of its day. Right all the way through. Like it would just. We'd never. Not only had we never seen metrics like this, it was sucking up data, sucking up budget like we'd never seen before. Then it became mortal. Now the most legendary CEO of in SAS quit. Quit. I mean, it's pretty bad that Frank Slootman quit. We're in a quitter culture. Everyone's quitting now, Harry. It's not just the kids. Everyone's quitting. And I listen. I mean, the man deserves his rest. Okay, so like, I. But, you know, we're, We're. We're down. It's now a mortal company. It is now a mortal company. It is growing. Look, it is. It is until, you know, we'll see what happens. But it's just as good as Crowdstrike now. Same, same ARR. Same growth basically, right? It's almost the same ARR. Almost the same growth.

Well, then it's a buy. Because it's priced at 44.

It's a buy, but it's mortal. It seemed like Snowflake was going to be the next great platform, but is databricks. I know it's not completely fungible product, but it's growing even faster at 2.5 billion. Right. It's just mortal databricks, I think proves Snowflake was mortal. So I just think we. We. No one ever talked about Klaviyo until a couple months ago. We all talked about Snowflake. Like Snowflake, Snowflake. Snowflake. Right. It was just. It could. It could do. And it still has done no wrong. But it is now. It is now real. Merely one of the best.

I agree with you. I interviewed our from Service Titan recently.

Yes.

Incredible.

Incredible, incredible, incredible.

That is a fire business.

Fire. One of the. I told you that would be the first IPO of the year. I was wrong. But it might be the best. Right? Yeah.

Final one. What private company are you not in that you would most like to be in? So you tweeted earlier about Revolut and Tiger. I would most like to be in Revolut of all private companies right now.

I don't know. I would take those too. I would take. I would take Wiz and Service Tight. And if I were my LPs, I'd be very critical. I'm like, these are two CEOs that were Sasser super fans from day zero. They know Sasser well. Why aren't you an investor? I would beat myself up as an LP too. These are great CEOs. These are. These are salt of the earth folks that will go forever. That are great humans. These are both great humans. The thing, one thing I learned from Mamoon Hamid, is if you can maybe, maybe don't invest in jerks because it just burns you out.

Why aren't you invested in those two if they are both superfans?

Yeah. No, they didn't ask me to. I would have invested. Invested.

Do you not think you should, Chase?

I think I. I think that it would. It would be a good idea. I think it would be a good idea. I definitely think it would be. I think. I think I'll do okay. I think if I'd been more of an outbound guy than an inbound guy, I think I could have more money investing.

Oh, my God. I told you. Remember that. You know that I mentioned it. Tech wolves Wolf, incredible business. And I invested $6 million. And the founders, like, I just wanted Jason. I just wanted Jason. Last round, the round before. These are my 10 messages to him.

I'm like, yeah, yeah, I gotta do more.

Yeah.

Well, it's all, you know what the meta thing is? It's all. It's. It's a good criticism and I've said that. I have shared that with some of my lps. The reason and my feeling, if you want the challenge to anybody that's actually gotten this far, if it still makes it to the podcast, is, listen, some of it's my DNA, right. I do make a lot of. I. I spend 99 of my time trying to help and hope that a few things come in that bounce the right way. It's probably a mistake, but this is why I've written about this constantly for more than a decade. I'd like. I wish I was a better recruiter, Harry. It's my number one regret in life in tech, is not being a better.

Recruiter of investing talent. Of.

Yes. Whatever version of it is. I'm not. It's not like I'm a bat. The world's worst recruiter. But you have. You should spend. All of. You should spend 20% of your time. I know you have like three partners, Harry, or whatever. You should spend 20% of your time finding the one that. That will get you these deals that you weren't in. Relentless. And as executive, you should just be relentless about building your management team. Relentless. Like, stop wasting your time on this other thing. Find the guy that will make sure that you don't have the outage of crowdstrike. Stop trying to fix the issues yourself founders and go find the person to fix it. And I should have built, I should have built a better set of folks under me investing so that I, I didn't have to be full stacked. You're right. I mean, not to spend all the time on it, but it's the right question. And so, you know, again, I was talking with another CEO the other day, north of 100 million and we were criticizing a friend of ours, company like in a friendly way. We were just, we were both know this company well, that that's a stage behind them but doing well. And, and we're talking about. I'm like the biggest. This is such a great founder. But they're just so slow to hire their management team. Is like this guy at 100 is like, well, you can't find anybody good these days. I'm like, at 100, you can't find anybody good. You know, growing almost 50%. I'm like, that's ultimately, it's your only job after you have product market fit is finding the best people for the team. Right. And so I think as an investor, I've, I have failed to expand my surface area and it sort of, it does haunt me a bit. And I just wish, I wish I had an answer to being a better recruiter than I am.

Dude, thank you so much for doing this. I always love doing these shows. You are my hero. We have a GIF internally which is you doing this. I think I've shown you. And it's literally whenever anyone does anything great, everyone's like, jason.

Well, it's got some forced perspective. Right?

There you go.