20VC: Brex Acquired for $5.15BN | a16z Companies are 2/3 AI Revenues | Anthropic Inference Costs Skyrocket | OpenEvidence Raises at $12BN Valuation | The IPO Market: EquipmentShare, Wealthfront and Ethos Insurance

AGENDA: 03:36 Brex Acquisition by Capital One for $5.15BN 10:54 Does Brex's Acquisition Help or Hurt Ramp? 16:28 TikTok Deal Completed: Who Won & Who Lost: Analysis 19:30 Anthropic Inference Costs Higher Than Expected 37:50 Open Evidence Raises at $12BN from Thrive and DST 53:56 Wealthront IPO Disaster: Is $1.5BN IPO Too Small? 01:07:27 Salesforce Wins $5BN Army Contract: The Last Laugh for SaaS

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  The bad feelings last for a day. The five billion lasts forever. I worry this is the next final act. At some point Nvidia puts will be a great buy because every semiconductor cycle for the last forty years has ended up in a massive downswing. I ain't buying them today. Most of the time, we sit around here waiting, reading and thinking. And I thought, hmm, that's a real investor. SaaS is not dead and now SaaS has an army. I love it.

• 0:27Harry Stebbings?

  This is 20 VC with me, Harry Stebbings, and it's my favorite show of the week. Rory O'Driscoll, Jason Lemkin analyzing the biggest news in tech. This week, Anthropic's inference costs skyrocket, Brex's $5.15 billion deal with Capital One analyzed, and the $12 billion priced open evidence round. Who wins and who loses in this tech market? All to come in today's episode. But before we dive into the show today, are you a founder working nonstop to raise your next round? Are you an investor doing all you can for your portfolio companies to help them stand out? Funding and scaling a vision is challenging. Banking should not be. HSBC Innovation Banking caters to tech and healthcare founders all over the world

• 1:10Harry Stebbings?

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• 1:55Harry Stebbings?

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• 2:10Harry Stebbings?

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• 2:52Harry Stebbings?

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• 3:36Harry Stebbings?

  changes go live in seconds with one click. Publish, without relying on engineering. Plus, Framer is built for scale, with premium hosting, enterprise-grade security, and 99.99% uptime SLAs. Whether you want to launch a new site, test a few landing pages, or migrate your full dot com, Framer has programs for startups, scale-ups, and large enterprises to make going from idea to live site fast. Learn how you can get more out of your dot com from a Framer specialist, or get started building for free today at framer.com/20vc for 30% off. 30% off a Framer Pro Annual Plan. That's framer.com/20vc for 30% off.

• 4:20Harry Stebbings?

  Framer.com/20vc. Rules and restrictions may apply. You have now arrived at your destination. Boys, it has been a big week of news. Now, I was super, super happy when this news came out because I got tagged on so many being like, can you do an emergency pod? And I was like, well, that is a great sign of product market fit for what we do. And so we're going to start on Brex's acquisition by Capital One. 5.15 billion, 50% cash, 50% shares. Diving right into it, how did we analyze the announcement of this, which did come as quite a surprise to many of us?

• 4:55Speaker 00

  I thought it was a great outcome for the company. You know, obviously, everyone who's on this pod has probably heard all the thread. You have the, first of all, you have the great outcome people. Then you have the people staring, saying, oh, that's a disappointment from where they were. Then you have the counterparts saying, grow up, kids. Anyone who built something from nothing to $5 billion, it's a great outcome. Shut the up. And which, by the way, I think is the right outcome. So let's assume everyone's already caught up on that. So we can kind of engage from there. Going back to the first thing, I think it was a great outcome. Yeah, you built something from nothing to a $5 billion outcome before you're 30. Heroic result. Absolutely be praised. Think it's a smart acquisition for, yeah, for Cap One too, by the way, and we can come back to that later. But that's kind of the first big picture comment here.

• 5:38Speaker 00

  And then on the second thing, and I really, I think there's three different sets of comments. There's the, is it a great outcome in the abstract? Of course it is. Second big picture question, is it a great outcome relative to the $12 billion raise in 2021? And there actually, my co-podcaster, Jason, I thought, did an awesome piece on that, and we should talk about that next, you know, hubristic financings. And then, by the way, the last thing we'll circle back to is, is it a great outcome relative to ramp and the competitive dynamics? So I'd like to throw it to Jason and say, I thought your post on hubristic financing and, you know, the pros and cons of raising at 12 and selling at 5 was actually really good. So over to you to get your thoughts.

• 6:17Speaker 02

  Look, I don't know everybody like Harry does, but someone that was a smaller investor in the company, I asked what, what, what, what she thought. And the outcome was, well, given where we are in the world in 2026, it's a good outcome. And that qualified answer kind of was interesting. And so that was my thought. It's like, some folks are taking potshots on the, on X, that's, that's the way it is. But why do we have? These these weird feelings. Why are we not sure if this is a good exit at 5.1 billion in eight years? I mean, I would have loved to have led the seed round, right? Maybe it's not good enough for Harry, but Rory and I would have been happy to have led the round, right? So why do we do we have this feeling? And look, this is nothing new. I just this is the era. I called it, you know, hubricic financing. You've got to keep doing these Harveys and Legoris

• 7:01Speaker 02

  and want open evidence from one to 12 to keep up. And if you don't, you put yourself at a competitive disadvantage, but then you set yourself up for disappointment because these companies that are fundraising to the nth degree, the thinking machines today, the Brex's back then, they are promising, as Rory says, this 0.1% growth ad infinitum, not just a couple of years of sustained growth. Brex was basically promising it would own all of business finance at some point, and that was the bet at 12. And so it leaves us with a weird feeling when, put the late-stage investors aside, on paper, all other stakeholders have a great outcome. Even the liquidation preference, it's not like it ruined the deal, right? They raised like a billion, something equity in depth. This wasn't one of the grouchy deals

• 7:46Speaker 02

  where 7 billion went into the company. This was a great outcome for everyone on paper except the late-stage, but versus the promise, the commitment made to everybody, customers, late employees for four years, it's, do you have to make these promises to win today? Do you have to make them to win today?

• 8:03Speaker 00

  When you take money at a high price, you run this risk of subsequently exiting at a lower price and having this weird, odd feeling for a day. But I think the wider level comment is, step away from the weird feeling. Going back to 2021, who's going to say, investors are offering you money at 12? No, I'd prefer to take it at 6. Thank you very much. I'm an idiot. No, you raise the money because you needed the capital. If they had, I mean, it's one through the logic here. If they haven't raised the money, they would have run out of money. That would be dumb. Once you need the money, you're going to raise it at a market price. So I thought what you said is, look, there's pros and cons to that. You get the buzz, you get the momentum, you get the employees, you get to compete in a world where other people are doing it, right? And in return, you pay this weird one-day tax.

• 8:45Speaker 00

  The day you exit, which is you've just had a heroic world-changing, you know, life-changing event, and then you just feel weird. But given what's on the field, there's no way to avoid that because you had to raise the money in 21. Therefore, you did market price at the time. The bad feelings last for a day. The 5 billion lasts forever, right? So you'll get over it.

• 9:05Speaker 02

  No, we're gonna, we're actually, I'm gonna get a Capital One card in the mail as soon as this deal closes. We're gonna forget about Brex in 24 months. We're gonna even forget whether it was two X's or how to spell it. This is, this is our world. We'll forget, right? I will say just one thing on the topic. Look, great outcome for the founders, right, on many levels. Great outcome for early employees. Not what they thought they'd make in 2021, but a great out, great outcome for Ribbit. The one thing in addition to my post, I, I, I saw that not too long ago, but a while back, Ollie from Databricks said, which is one of the most successful companies, at this strategy, Hubridics, he said, "I never wanted to raise more than two years ahead of the valuation I was confident I could hit." The VC side is, hey, listen, two years, one year ahead for a hot company, two years ahead for a great company, maybe thinking machines 28 years ahead. I don't

• 9:50Speaker 02

  know. But that's a thoughtful response. Like, if you believe it. Did Brex believe they'd be worth 100 billion? Probably. I don't know. I don't know. But, but things were loopy in 2021, and maybe they're loopy in 2026.

• 10:03Speaker 00

  Yeah, I mean, they probably did. Because, look, it's the sin of extrapolation. The growth rate was probably 200, 300%. You extrapolate. I mean, it's, it's, it's the age-old truth. Most of these quote-unquote insane valuations can be explained, actually by the Ali comment, "Provided I keep the growth rate up for two years, then I will have grown into this valuation on a revenue multiple basis." It's a perfectly innocuous sentence, but buried in it is a whole debt trap. Because the minute 22 came on, the growth rate faded, right? Then your capital gets more scarce, so you have to try and converge on profitability. So growth rate goes down even more. And, you know, what was a totally legitimate belief in 2021, which is three more years of 300% growth and I'm worth 12 billion, becomes

• 10:44Speaker 00

  utterly insane in 2024. It's just the cost of doing business in this crazy game that everyone plays. For example, for the late-stage investors, if you played a game of paying up massively for hypergrowth. And it doesn't work, you get a one X, right? Now, as long as maybe thirty, forty percent of my other one X, and you don't do any major whoopsies where you actually get a loss, and you get a three, four, five, six X on your good ones, then overall, the math works. And even in a mediocre year like twenty one, you end up with a sub two X, but still perfectly fine fund. In other words, I go back to my comment. It's just the nature of the business. And things, it's one of my things that I've said a lot in this part. Things prove up in the end for what they really are, not what you delusionally think they are at one point in time.

• 11:27Speaker 00

  A financial services company was always going to trade at a financial services multiple adjusted for growth. And that's what happened here. So growth came down to still very impressive, but normalized levels. Cap one leaned in and said, you know, seven hundred million in growth, plus or minus seven times revenues. That's a good deal for me. Done.

• 11:46Harry Stebbings?

  How does this change the game for Ramp? Ramp obviously raised at thirty two. Does this help or hurt them?

• 11:52Speaker 00

  I think this is a great question. Because remember, I said there's three things. There's the, there's the, is it standard on a great outcome? And then, of course, is it a great outcome for the investors versus two thousand and twenty one? You're raising the third one, which to me is the interesting one. The CEO of Ramp did a fairly classy post. It's like, hey, congratulations. He had sold the company to Cap One. It wasn't awful, right? The founders fund guy did a dance on your grave post.

• 12:13Harry Stebbings?

  Dude, I love Eric and I do, yeah, I like the peanut. It was a dig. I know some good long.

• 12:19Speaker 00

  It was a dig, but it wasn't a, perhaps as is so often the case in America today, I'm judging quality by the opposition. The founders fund did a straight dance on your grave. If I'm Ramp, you know, from an operate, I mean, the two things are true here, guys. From an operational perspective, this is further validation that quote unquote, I've won. I started later and I'm doing a billion. They started earlier, they're doing seven hundred million. Good news, you've won. But the bad news that you just can't ignore with a tweet is when real money decided not to buy two percent of this thing in a, in a secondary sale, but to actually write a check for the asset, they said, we're going to multiply by seven, right? And if you multiply Ramp's billion dollar run rate by seven, you get seven billion. Now, they're growing faster than Ramp, maybe double it, fifteen.

• 13:02Speaker 00

  What it points to is, you know, we live in this crazy land. Of VC valuations where they're made once a year when only one person buys, no one can stop to resell. They're very thin markets and you know, we hope they're roughly right. And sometimes we're surprised to the upside when they go public and then sometimes we're surprised to the downside. Hard comment here, if you're doing your mark to market on ramp right now, how do you factor in a recent transaction at seven times to your multiple of 30 times? I'm not saying it's dispositive because your fast are growing and you did, as you put it, win. But it does make you think maybe when you go public in two years and you want to monetize, let's say at that stage, $2 billion revenue company, maybe you're still going a little faster. Maybe you get 10 times. I don't know.

• 13:45Speaker 00

  Or if I was the investor who just wrote the $32 billion check, I'd at least pause and go, hmm, let me check my assumptions one last time here, right? Maybe it can still work, but I gotta be a big company. You ain't going to get the M and A outcome anymore. You've just got to be the big company and trade in the public markets at a significantly higher multiple than the other financial services companies. The only way you can do it is if you keep the growth up, if you keep the growth up. So it's not like it's impossible, but it's just a significant data point that weighs the other way as you think about value.

• 14:15Speaker 02

  If I'm the Brex founders, right? If I'm Pedro especially, ramp, we talk about ramp, but we also look at Navon public. And I have another comp going to Rory's point. And I'd be like, let's say the three of us were the founders. I'd be like, Jesus, we have a comp that's basically worth the same as us, basically the same revenue. Now it's got debt, it's got other issues, but I'm like, my God, guys, we could work for three more years to an IPO, suffer lots of dilution in the IPO, stress, basically economically be the same place in three years. Now that's cool if the three of us want to build something much bigger than this, right? But I don't even know if 10 billion is worth it. If we don't want to do it, if we don't want to build this as a generational company on our own for a decade,

• 15:00Speaker 02

  because the Navon comp is a tough one. It sort of says to me, we're going to grind it out for two to three years and be worth the same. So we better want it and all my public company CEOs, they're pretty grouchy today. I would say 80% of the public companies, B2B CEOs, now they may be thrilled. When the next generation IPOs, but this isn't the happiest cast of characters, is it? The public company CEOs, they're not happy today.

• 15:22Speaker 00

  But it's a super good out. I think Capital One have played a very shrewd hand here. Because remember, all of these businesses, Ramp, Divvy, which my former company, I was formerly involved with, Billboard, Brex, they all monetize on interchange. And most interchange is Visa and Mastercard, which is a third-party network. You have Visa, the issuer bank, and the accepting bank. Capital One bought Discover Card. Discover Card has a closed network where they get all the money in the interchange. So that's a really powerful asset for them now with, now that they have Brex. They will probably be directing as much of that money flow onto their own rails, as the bankers call it, as they can. And what that means is they'll be able to extract a lot more of the value from it.

• 16:02Speaker 00

  So this could be an example where the asset is worth more to Capital One than it was on a standalone basis. So I think it's a very shrewd acquisition for Capital One. In the last, forget, in the last five or six months, they bought Discover less than six months ago. I think it closed just recently, like for 35 billion, that announcement, 50 billion, it closed. And now they bought Brex, which they can fall down to Discover. So they're making a real push into this space, which is another thing you think about as the independents. You're sitting there going, hmm, I'm going to be playing against the A-team now with a structural cost advantage. You had three pieces of news today, investors in Ramp. You clearly won, and the other guy said you won. That's good news. Put that in the positive comment. Second piece of information, people think a company growing a little bit slower than you,

• 16:46Speaker 00

  and roughly the same business is worth seven times, and you think yours is worth 30x. Hmm, put that in the negative. And then last, a well-funded public company competitor is directly entering your space with a structural cost advantage. Now, you can hit total on that and decide, my impulse at the end of that is to tweet and say, well done. But deep in your soul, you kind of go, hmm, not sure that was the best day out there for my stock.

• 17:07Speaker 02

  At least stay private longer.

• 17:10Speaker 00

  You're gonna have to, guy.

• 17:11Speaker 02

  At least, at least, live in the dream world of private. Let's, let's do it, let's do another secondary, boys, lads. Let's do another secondary, lads.

• 17:19Harry Stebbings?

  Moving on, boys, another very, very significant bit of news that we've all been waiting for for a long period.

• 17:23Speaker 02

  Yes.

• 17:23Harry Stebbings?

  Is TikTok deal finally done? U.S. investors will own 80% of the company. Algorithm retains in control of Chinese owners, which is interesting. How did we analyze this deal getting done now? And how did we think about it?

• 17:37Speaker 00

  You can't approach this deal economically. It's a political slash geopolitical decision to force TikTok to divest when you have that and then have a very directed purchaser program. So let's do the economics first of all. It looks like a very attractive deal. I think the company's doing 15 or 16 billion dollars in the U.S. revenue. They bought it for like one, one times revenue plus or minus. That's a wildly cheap deal compared to anything else. Now, there's a term that says some portion of the, of the OpEx is a license fee or some payment back to the Chinese parent. So you don't know the full economics, but my sense is that it's a wildly accretive deal

• 18:18Speaker 00

  for the lucky chosen investors in the new oligopolistic capitalism that we now practice. So fundamentally, ignoring any other questions, I wish I had some of that in my 401K. The most addictive, popular application in the United States social media marketplace at one times revenue. Hmm, put me down for some.

• 18:37Speaker 02

  At first, when I saw this deal, I thought, and Rory can, can play historian here, it hearkened back to me to when Andreessen got off the ground doing Skype.

• 18:45Speaker 00

  Yes.

• 18:45Speaker 02

  And the reason it, it was a structurally weird deal where they got a good deal. Now, they took risks. Skype was a aging platform, but they bought it from eBay, right? Is that eBay needed to divest it? They had enough of it.

• 18:57Speaker 00

  Very shrewd deal.

• 18:58Speaker 02

  There was no synergy and Andreessen went all in. They didn't have that management bad end. They went all in and 3X net their money in like 12 or 14 months. This felt like another moment in time where you could get a great deal. The only thing I don't get is why didn't those guys show up? Why isn't Andreessen and Sequoia and Lightspeed in this deal? And you have weird ones, Oracle, which Is also has infrastructure. You have UAE sovereign wealth funds. Where are Sequoia and Andreessen? That's the only thing that made me pause and like, maybe it's not such a great deal. Cause those guys are just in the business of minting money now. Why didn't they each at least throw in a billion or two into this deal? They put it into everything else.

• 19:34Speaker 00

  I don't know. Yes, because at one point they were in it and then they were not.

• 19:37Speaker 02

  There's a reason they're not in that deal. It's free money. Otherwise, right?

• 19:41Harry Stebbings?

  They're not averse to structurally challenging deals like Axe with Elon taking over, which they all engaged.

• 19:46Speaker 00

  No, totally. And I, and I think you, I remember them doing the Skype deal. That was a very shrewd deal. And I want to say that the PE firm brought them in because they had kind of venture expertise, which was again, I don't quote. I think this PE firm was in fact Silver Lake again, but I'm going from memory there. But I remember, as you say, Andreessen came in on the deal. It was spun out from eBay. There were some issues around licenses and IP and it was a little bit risky. They cleaned it up for 12 to 24 months and then sold it to Microsoft and made three times the money on a ton of money in their first fund. So super shrewd that was. And if someone does the same thing here, it'll be interesting.

• 20:20Harry Stebbings?

  Let's move on and let's discuss Anthropic. Anthropic inference costs 23% higher than expected. Are there economies of scale in AI after all? And how did we read this?

• 20:32Speaker 02

  You know, look, there's a lot here, but I think this is so important for, for, for B2B companies. I was at a board meeting of a, of a B2B company with a powerful AI agent costing a hundred million and just seeing some of the dumb points in this board meeting of saying, hey, guys, in 2026, we've really got to drive down inference costs now. And I'm like, do you realize you have six mega funded competitors and a huge amount of your, like, the only differentiation is who has the best agent? Now you're going to cut back your inference? It doesn't make sense, right? And this is the point Amjad was making so many times. I'm sure Anton from Lovables made his own version, but Amjad's always been like, no, you're, it's going to, everything's going to get more expensive because as soon as we figure out how to do this stuff, we're going to burn even more tokens. We will actually burn an infinite amount of tokens if we can.

• 21:15Speaker 02

  It even happened to Anthropic, right? It happened to everybody. And I think for a lot of, a lot of folks, especially folks that aren't quite growing it at the open evidence levels today or ramp are thinking, God, I gotta, what am I going to do with these inference costs? And I gotta tell you, the idea that you can use cheap models and cut back on your inference and still be competitive? That's the thing. Still be competitive with the hot Andreessen funded company? Like no chance you can be competitive without that inference.

• 21:42Speaker 00

  Yes, but I do think it's important not to lose sight of the fight that for even though, I mean, you asked the question, oh, my God, the anthropic inference costs were higher than expected. Is there any leverage with your rhetorical economies of scale, Harry, right? The truth is, remember, last year, they had a negative 94% gross margin, and this year, they have a 40% plus or minus gross margin. Now, it's not 50. So clearly, the gross margins are improving substantially. So I think the real kind of in the middle boring comment is there is significant leverage in inference costs, and the P and L is getting a lot better. But it may not go all the way to the, you know, it may take longer. We thought we'd be at 50. Now you're at 40. It may take two years to get to 70. You may

• 22:24Speaker 00

  never get there. You may asymptot out at 60. I think it's just the nature of the beast and, you know, you're dealing with this totally new business product, totally new market. You have a hypothesis where things kind of shake out, but it may take a while to get there. Fundamentally, however, I don't doubt the fact that a profitable and defined by that as free cash flow, operating income business will emerge from something like, I mean, Anthropic is not going to not have a profitable business model because this clearly is converging. It's just a question of, you know, what scale does it converge at and what operating model does it converge at? Is it a 10% operating margin business or a 30%? So it's getting better. It's getting there. It's getting there a little more slowly than you might like, but it's still massive. I mean, from negative 94% margins last year to positive 40 this year, that's a big move.

• 23:07Harry Stebbings?

  Can I ask, Jason, specifically to you, you know, you said at the end of the year when we did our kind of quiz show on like Roundup, you said that 2026 would be the year where we would see inference running for 24 hours a day for a small portion of the knowledge economy. And I thought that was a really interesting takeaway.

• 23:22Speaker 02

  I actually tried to build it over the weekend.

• 23:23Harry Stebbings?

  When you think about that, combined with these increased inference costs and being more than expected, how do you think about those two together?

• 23:31Speaker 02

  It's easy to say we're going to use three orders of magnitude more inference in 24 months. It's easy to say it's more than an order of magnitude by the end of the year, potentially. You know, the the cost decline that we're also seeing despite the anthropic thing, it's hard. The token consumption is increasing the deflation in the per token cost. So we've seen that improvement, I think, in Anthropic to our response. And I might be getting it wrong, but we haven't seen this breakpoint where we're catching a break. We maybe the margins are getting better, but we're going to keep burning more. So I'm waiting for the moment. But you know, we've talked about memory, but chat GPT and Claude don't have that much memory. If you try it, don't remember much, does it? It remembers this little bit. So I built a version of Claude over the weekend called Ren. You can try it at Ren, W R E N chat.ai. It remembers everything.

• 24:15Speaker 02

  So it never forgets anything and I learned a lot of things, but one of them is it's going to burn a lot of tokens. If you want to save every chat you've ever had, every discussion over all time and reference it for years. And what if that runs 24/7? Maybe I'm rambling and not answering your question, but I don't see. I just see it accelerating. And again, my biggest concern for founders out there, especially for folks that are not quite in the top 0.01%, right? Especially folks in ops on their team or folks that aren't close to AI that they're mismodeling this. You need to model in your inference costs are going up this year, not down. If you walked into your board meeting and said, hey, good news, guys. Inference costs are are going down 30% this year because our our IT team is really good at managing costs. I would throw my mouse at the monitor.

• 25:00Speaker 00

  You are right, but I have two zoom out comments on that. First of all, when you look at the problems you'd like to be wrestling with as a business, an individual business or an industry. The problem of I have infinite demand for this digital good, which is still quite expensive to produce. So we're going to have to figure out how much to charge for it and how to ration it is a wonderful problem compared to no one wants to buy this digital good. I don't know what to do. So the big, you're right. The demand for inference, the demand for tokens can be once they almost, almost unlimited in some cases. Because the more you can deliver, the more you can do. So metering that demand relative to the cost to produce is, as it were, the business challenge. And you're seeing that across the board. I mean, in a topic, you're seeing all these, yeah, their $200 plan, the $20 plan.

• 25:45Speaker 00

  And then they have those few people who are doing $1,000 of tokens on their $200 plan. And what do you do about that? So, but again, so that's what's happening out here, which is everyone's trying. And that's if you, the model produces. If you're a SaaS vendor, like you and I are investing in an AI apps vendor, and you know what? Is one of your biggest costs now. It used to be five years ago. AWS would be one of your biggest costs. It would hit 10% and everyone would lose their shit in the board meeting. And you'd say, let's get it down. And you know, you'd manage the process and get it down to eight or nine with efficiencies. Now you're right. It's inference is the big cost. If you're a high priced app, maybe it's 10 or 15%. If you're a coding type app, maybe it's 50, 60, 70% of your revenue. And if you don't manage that correctly, you don't have a business.

• 26:29Speaker 02

  I do want to get your thoughts. At a practical level, I worry there's this middle category. These are mature company, not hyper mature, 50, 100, 200 million ARR, okay, B2B companies. And they've finally got a decent agent built. Okay, it's taken them for a while. They have 10,000 happy customers and they're pushing this agent out. They got to break even last year because scale and 20 VC aren't going to put any more money in, even though they're supported. Because the growth's not there, right? They've got 30 million left in the bank. They're break even at 40, 50 million ARR. Now I'm competing with Decagon or Lagora or whoever, and I need 20 more million of inference this year. It's game over because I can't compete because the way I've deployed it is great, but it's $2 per interaction, Rory.

• 27:11Speaker 02

  It's $2.50 per interaction. I need 50 million interactions this year. That means I need 100 million. Now I bring it in 50. What do I do, Rory? I can be competitive. You told me to, you told me to get break even. I did that. Thank you, guys. Now you told me I gotta be more AI. Thank you, guys. Now I built it. How am I going to fund the 50 million inference? Open evidence has the money.

• 27:35Speaker 00

  You have the irritating habit of asking exactly the right question. No, I totally, like, I'm mentally thinking of some companies that have gone through that. You're exactly right. It's like, hey, your SaaS comp product isn't enough. Let's get profitable. Okay, you got profitable, nobody cares. You need an AI product. Oh, my God, you've delivered an AI product. Your customers love it. And now you're at the next shoe to drop is how are you going to finance this thing? Because you're up against people who can raise $200 million on a dream. And I acknowledge that. And rather than telling you, I have the answer. It's an issue I'm wrestling with. I can think of two boardrooms in the next two months, right? Maybe one month as we do annual planning, right? How aggressive can you be? This market because if you play deep, I mean, if you try and meter it to your cash constraints,

• 28:16Speaker 00

  you're going to get left behind. So the gut level comes, and this is how capitalism was supposed to work. The gut level test comes, if your customers are getting value from your AI agent that they can't get anywhere else, and you can make that value clear, then you can charge enough to pay for your tokens and yay you. If you're not giving value, or if you're locked in a war with someone else who has infinite capital and is willing to give it away longer than you, then you're probably going to lose and you should figure out how to exit now. And to some extent, you had the mid-year kind of coding wars where, oh my gosh, when surf looked to exit, there was a little bit of that dynamic going on. Is this war escalating with a level of token intensity that you just can't keep up at? And I acknowledge that at the app level, as I say,

• 29:00Speaker 00

  a couple of my companies are wrestling with those issues right now.

• 29:03Speaker 02

  Yeah, I'm just, I'm honestly worried. We talk about is SaaS dead or what's going on? I worry this is the next final act, is that you checked, you did all the right things, right?

• 29:12Speaker 00

  I did everything you told me to do.

• 29:13Speaker 02

  You did it. You did. You're not growing 0%. Your customers don't hate you. You built an agent, and the final nail in the coffin is we just can't afford the inference. We just can't build a competitive product. And even, you know, earlier on this podcast, in essence, even Canva, which will be one of the great IPOs, even Cliff teased at that. I could build Gamma, but I can't, I can't burn the way Gamma burns those tokens. Now, maybe he'd say something different today, but it was the same point that echoed in my head that now we're seeing across boardrooms, across B2B companies. I think it's the final nail.

• 29:45Harry Stebbings?

  Is there a way out then? If you can't raise the money to compete, but you can't not spend?

• 29:51Speaker 02

  Well, we already hit the way out. There is a simple way out, which is you build an epically good agent, typically one, maybe that's, let's say your product's $5,000 a year, $10,000 a year, and you're able to charge $20,000 a month for your agent, $10,000 a month because it replaces 20 people. It's that good. It's not pretend that good. It's not that good on a sales pitch. It's literally so good that the ROI is measured in weeks, right? That's your way out. But the problem is a lot of B2B companies, they're just struggling to get parity. The bar is so high. And so it's exhausting because it was so much work just to get here, to get to profitability, to get to agent. Now you have to beat the agent that Open Evidence, Lagora, Harvey, whoever we're going to talk

• 30:34Speaker 02

  about rapidly, you have to have a better agent than them to earn the 20 grand a month? Your team better be the best.

• 30:40Speaker 00

  To take another example that probably applies to even a large public company like Salesforce, who, yes, has infinite money, but also doesn't want to dip in the red. Or you make sure that the combination of you have the advantage of the data that you possess to make it a better agent, to make it a more efficient agent. Maybe you have to do less processing. Maybe another thing is, I've seen some of these companies using the open source models for a lot of it, so you can leverage that and get cheaper processing. Yeah, you've got to do all those things. But more than anything, I think, Jason, you're right. You've got to deliver value such that you can charge for it. But in the end, I mean, look, the dirty little secret is, in the end, everyone's going to have to deliver value. They're going to have to be able to charge more than the amount of money it costs to make the thing. I mean, OpenAI may get to do that for longer than anyone else, but in the end, the wheels

• 31:23Speaker 00

  of capitalism do grind fine, and we're all going to have to pony up in cash flow positive.

• 31:27Speaker 02

  Listen, I don't have everybody's numbers, for sure. The other advantage that the new entrants have is that if you have the best agent and you have the kind of market demand we see, then for you, your inference costs are a marketing cost. The established players don't have that luxury. They're already spending massive amounts on traditional sales and marketing.

• 31:46Speaker 00

  Yeah, I hear you.

• 31:46Speaker 02

  Versus, you know, if, I mean, Harry's had Harvey and Lagor on. If Harvey went to 200 million last year, Open Evidence 100 million a year. Often, they have no sales and market, very little sales. Maybe Harvey does, but I can think of plenty of AI leaders that have four people in sales. And I can think of some that just hired a marketer at 200 million in revenue. So inference is your marketing, sales and marketing team, in essence, right? Because you just throw all the money into making the agent great. Salesforce is one of the few that can do it with its resources, and even there, it's stressful. If you talk to folks at Salesforce today, they'll tell you this is the most stressful time they've ever worked at Salesforce in history of the company.

• 32:23Speaker 00

  One of the aha's from this is just the demand for inference and just by extension, the demand for compute and what does this say about it, right? And I always think, this is going to sound cool, I always discard, not discard, I always apply a certain discount factor to what, you know, people running the large AI model companies say about demand because they're talking their book. And even the poor fools like Oracle who are investing to chase that demand and sell them compute services. Like, maybe you're getting fooled by these other guys. But I always think the guys running TSMC are sharp. And they've been around a long time. You know, they're cynical, which I mean, you know, you, I'm sure you all saw that piece about 12 months ago. They were fairly skeptical when Altman's talking about, we're going to need to raise a trillion dollars.

• 33:07Speaker 00

  They're like, yeah, yeah, yeah, go, go away, AI boy, right? They just did their earnings call. And the comment was basically demand for compute is effectively infinite right now. And they're raising their capex. And remember, these, these are not kind of, these are folks who say, I'm going to spend $50 billion. You know, peak before was 40, so low was 22 billion two years ago. They're raising their capex budget for next year. And they're basically saying, we think the demand is real right now. And to me, that's the, you know, because there's been a lot of, we've all been wrestling with it. Is there going to be a day when everyone says, well, we're not going to invest as much anymore? We're going to slow down just a little because you're so far out there on the, going back to the Brexit comment in 21.

• 33:49Speaker 00

  We're so underwriting hypergrowth that even the slightest slowdown would be kind of pretty brutal for the markets. And this was the biggest tell of all, because these are the guys who spend the capex with a two or three year lead cycle. That, you know, services Nvidia, that services the hyperscalers, that service OpenAI, that service the AI companies. So it's the first step in the AI pyramid. And the guys running that are saying, we're going to need a whole bunch more capex. And it was just interesting because I think keeping an eye on TSMC as the, the people who would own the problem if they over invest. You know, you can cut employees, you can turn off your GPU. But if you dig a big, deep hole in the ground in Phoenix and a big, deep hole in the ground in Japan and put a fab in there. And no one uses it, you know, you're out 20 billion bucks. And they're leaning in right now.

• 34:34Speaker 00

  So that inference demand is pretty clearly there, according to all the tells.

• 34:40Harry Stebbings?

  For those that think about the AI bubble, does that not completely denigrate those risks of an AI bubble bursting? When you look at them, when you look at the improvements, when you look at Dario coming out today saying, hey, when you look at the improvements, we'll be replacing everyone's job in under five years.

• 34:56Speaker 00

  Not every statement that says it's going to go on now has to be equally correct. A bunch of people who have the money, starting with foundries, going to the chip companies and going to the hyperscale, have all said, we're going to spend this money this year. So I think it's highly unlikely that you, this is not going to be the year when people get terrified and say, I'm not going to do it. At some point, I think they will, because I think we probably are over investing at some level. But right now, people are saying, I can see logic to this thing for the next 12, 24 months. Despite the massive gap between the, you know, the huge, the capex is now 600 billion, the apps revenue, you know, squinting is 100 billion. So you're still, you know, 500 billion a year in the hole, but right now, people are saying the return is there. That's all you can conclude right now.

• 35:38Speaker 00

  If you knew when it was going to happen to the day, you'd be trading Nvidia puts and you wouldn't be talking to Harry Stebbings.

• 35:43Harry Stebbings?

  I'm so sorry, I'm the least intelligent on this call, which is why I love doing it. When you look at the cost of inference maintaining its high price, and when you look at Jason, I think quite rightly, saying that inference will be running 24/7 for more and more of the knowledge worker population, why is that not just continuing evidence that Nvidia has so much more room to run and is actually underpriced today?

• 36:05Speaker 00

  Because, I mean, to take, for example, that statement, the, the cost of inference, the cost per token is, goes down enormously quickly, and it's just that, that demand expands and just people use more and more tokens to get to the same dollar amount, right? Just to be precise. I think the only argument against what you're saying is some version of, as the numbers get bigger and bigger, you start encountering, oh, GDP type limits. So your total US capex is X and you're now 30% of the total capex. Can, can we really stop building tractors, buildings? And can we put all our money into great big data centers? And, you know, some people articulate that vision, the people who articulate in the trillion dollar data center. Well, maybe. I'm not sure that happens, but I don't think I have to solve that problem now. All you have to say is, does it look like? I don't think you have to believe in the trillion dollar data center, or the, all

• 36:50Speaker 00

  human beings are going to be unemployed by AI, to believe in the, at the margin for the next 12 months, it looks more likely than not that people will continue on roughly the same investment trajectory. Those are both statements that have the same conclusion for the next 12 months, but are very different in terms of their grandeur. And I'm not making the grandiose statement. I'm just saying, let me make it really tangible. At some point, Nvidia puts will be a great buy because every semiconductor cycle for the last forty years has ended up in a massive downswing. I ain't buying them today. That's when the rubber hits the road, when people are done talking and then they want to say they believe. And I don't have that conviction yet because people who have money and conviction are saying they're going to spend.

• 37:30Speaker 02

  Look, we all know that some version of the bubble will pop, even if it's well after SpaceX IPOs and we have a thousand data centers in space, which is Elon's dream. And there's so much interesting things coming, twenty-four seven inference. It will pop someday. If we can't see it reasonably popping in the next twenty-four months, I don't know that as investors, as employees, as management team members, we can have dinner conversations, but I'm not sure there's much we should change. And I guess we all got caught around December twenty twenty-one, where ninety percent of tech thought this was going to last longer and then bam, we got, it just bit us, right? And like the HashiCorp went public and then it just stopped for two years. This is different and if, you know, there's just, there's no upside in betting this is going to slow in the next twenty-four months.

• 38:13Speaker 02

  There's literally, at least for ninety-nine point nine percent of us, there's no upside.

• 38:16Speaker 00

  To ground it in practicalities, the only thing you can advise people is think about a scenario plan. Think about, would you have a plan if it were to change? Think about your funding strategy, especially if money is cheap, to make sure, going back to the Wex thing, you're really glad you raised that money in two thousand and twenty-one, right? All you can do is play to the current scenario, but have a plan that if the, you know, if the world changes, you'll know how to change and that you've raised money to be able to survive that. That's all you can do.

• 38:42Harry Stebbings?

  Playing the game on the field, we mentioned them a couple of times. Open Evidence raises at twelve billion dollars, led by Thriving DST. It's a twelve X valuation step up to where they raised at a billion dollars from Secor at the start of the year. Revenue growth has been amazing. Pharmaceuticals ad spend in the US on media is twenty-two billion a year. If you think about the transition of that to their business model and assuming a reasonable take, you can see them being a four to five billion dollar revenue business and that alone doesn't feel crazy, but then in other aspects it does. How did you guys read this one?

• 39:16Speaker 00

  I think it's start, it's a great company. It's a perfect use case for AI. It's one of the use cases where, yeah, the general models are good, but the combination of specific relationships with Journal of New England Medicine and all that, plus restricting access only to medical professions, plus HIPAA compliance means you've got this really nice product to allow doctors to do decision support, which is, you know, go and check online. What's the recommended treatment for some obscure disease I haven't seen, right? And then the obvious thing you do with that is you sell them ads, right? And the obvious people to advertise to those doctors are the drug companies, because they want to sell to the doctors, right? So it's a perfect business and they've escalated to, I believe, 150 million in revenue.

• 40:00Speaker 00

  So I was actually impressed that you led with the market size. So the things that are clear here is they're the winner in the space, right? Doximity is the old pre-HNAI competitor, but in terms of think about doctor media mind share for doctor-like things, Doximity helps you a lot with, you know, thinking about salary, thinking about job. But I have a medical question to which I want a highly technical medical answer. They appear to have commanding market share. So you've won that business. So the only question is how big is the market? And you're right, you can say total media, total drug company spend on quote-unquote drugs, drug advertising is 20 to 30 billion. But, Harry, a good half of that is TV ads to consumers, right? So for a lot of these drugs, especially the long-term conditions, the advertising is not going to the doctors.

• 40:44Speaker 00

  It's actually going to the individuals who are wrestling with the disease so they can build consumer preference. So that halves the market, right? And on top of that, if you look at pharma companies spend on trying to reach medical professionals, actual direct-to-doctor advertising is $2 or $3 billion marketplace, which is now getting a little bit smaller. And you then have a whole bunch of these, you know, infamous pharmaceutical reps. So a lot of this marketing is done in person. So, you know, you have the folks just calling on doctors, bringing donuts, saying, hey, here's a sample pack of my nice new arthritic drug, give it to your consumers. So for Open Evidence to get to that valuation, what they have to do is one of two things. Either A, they have to blow open some of that budget away for

• 41:26Speaker 00

  From pharma reps calling on doctors and move more of that budget online, which by the way is a totally credible thing to do. But that's what they have to do, or they have to expand into other services to doctors. And just like, I think Doximity, for example, Doximity, a product they added that was really clever product is a scheduling app with a kind of phone number that doctors could use that wasn't their personal cell. Because doctors want to give out their cell so people can reach it, but they don't want to give out their personal cell. So some nice little doctor product. So to get three acts from 12 billion, you probably have to do some significant TAM expansion. It's credible they do it, but they gotta do it.

• 42:02Harry Stebbings?

  You've got to be at $5 billion in revenue, don't you, on a seven X multiple?

• 42:05Speaker 00

  To 35, that's a bit sober.

• 42:07Speaker 02

  Based on what I do know about Open Evidence, if the deal was priced right, anyone would want to do it.

• 42:11Speaker 00

  Yeah.

• 42:11Speaker 02

  It's got the market share, it's very valued by physicians. They haven't figured out that the true TAM, but the notional TAM is about as big as it gets. Of course, you'd want to do this deal at the right price.

• 42:21Harry Stebbings?

  If you were a growth investor, would you do it at 12, Jason?

• 42:24Speaker 02

  This is the back to hubristic fundraising in the Brex round.

• 42:27Speaker 00

  I love it.

• 42:27Speaker 02

  Who at Open Evidence is going to do the Brex round at 12 billion at Open Evidence and 11 Labs? And Legora and Harvey, who's, when is that round? Is this that round? Or is it the round in March at 30? Because it's this hubristic fundraising, Open Evidence will probably do a round at 30 or 40 next year. I'm actually going to suggest that Thrive is very smart and they've probably done the math. And this is the right insertion point for them and they believe in it. And someone else is going to do it at 30 to 40 next year as it goes to 400 next year or 500. Someone's going to do that. Who does the $12 billion Brex round here? Where nothing, nothing but greatness, but gets caught with the tail end of hubristic fundraising.

• 43:06Speaker 00

  The first line really resonates with me. This is such an obviously good deal and such an obviously good market with a wildly quality founder who's had a win before. He sold Kenshu to S and P, Big Brain, PhD, you know, AI native for his first deal, which was a financial AI company. This impeccable background here, great connections, there's nothing not to like here. And so you're right, it's a, let me give you a clue, you're not going to find the discount here, people.

• 43:32Harry Stebbings?

  But you don't think this will be the $12 billion price round at Brex? Where the music stopped and it's that last time.

• 43:39Speaker 00

  It's always a tricky question because you go, if you played back, remember they had a round at three and I think around the six. So this is the fourth time in and every one of those rounds, you'd have said, hmm, maybe this is the one that's going too far. But when you step back, they 10x the revenue this year and they 10x their valuation plus or minus. So the revenue multiple is the same. That's the market we're in now. And at some point, someone's going to be left tied. It's, it's, you're right, Jason. You're running the Brex risk, which is the tide goes out, it's still an amazing company. But maybe you're, you know, you're doomed to a 1x. And is that, is this the round that happens? I might've said the six billion round was just given the core time market size.

• 44:15Harry Stebbings?

  What's so hard is in the moment, it never feels that hubristic. And like we just said, it's a no brainer deal. Great market, great market share, great founders. Likewise, I remember with Brex, I had Enrique and Pedro on the show back in 2020, 2021. And they were talking about Amex and the fragility and how they could build a hundred billion dollar business. And 12 billion did not seem that crazy.

• 44:36Speaker 00

  Hubris is like that. I mean.

• 44:38Speaker 02

  And even more of these late stage deals of great companies, they're very easy to talk yourself into when times are good. When times are tough, they're still hard to talk yourself into. But I mean, times are mixed today, but the good stuff is so good. It's so easy to walk into the partners meeting and advocate for open evidence, isn't it? It's just so easy. Guys, it's, yes, it's a little expensive at 50,000 times revenue or whatever it is. But I mean, you can't argue that this is a, this is a generational company. And Mark Andreessen says we do generational companies at any price. We just buy as much as we can. They only go up overall, not, not all of them, but they only go up overall. This is, this is a generational company. I know it was 12 billion last week, but I propose 1 billion at 35 billion, guys. This week, it's a generational company.

• 45:22Harry Stebbings?

  You said Mark Andreessen proposed that. They released a report this week, which I thought was astounding for a couple of different things. But most importantly, one, they put out $8 billion invested in 2025. This is Andreessen's report, by the way. So to give context, Andreessen did a report. Incredible slides, I thought, actually. I thought their man Avanir did great reports this week. But in Andreessen's, they said about 8 billion invested in 2025. And the stat that blew me away, two thirds of private AI revenue is generated by Andreessen backed companies. OpenAI, Databricks, Cursor, Harvey, Replit, list continues. I was astounded by that. I don't know if you have takeaways from it, but I thought it was interesting for the audience to hear.

• 46:03Speaker 00

  I thought it was an excellent report and I thought there's a lot of substantive, good economic analysis up and down the report. I thought that slide was probably the least astounding one when you think about it for longer than clearly you did. Because, yeah, it was a great soundbite and those guys are best market. It's a great soundbite, right? But objectively speaking, if you kind of add up all the AI revenue, you know, you're going to get 13 billion for OpenAI, 4 billion for Anthropic and everything else is in the noise. 200 million for Harvey, whoop-de-doo, you know, they're amazing companies, they're going to be great. And then actually, if you were to lump a third one in, it would be Databricks, which they have a massive market share in. So that's worth it. So to a rounding error, another way of saying the same slide is OpenAI, we have money in OpenAI

• 46:46Speaker 00

  and OpenAI is 40, 50% of total revenue.

• 46:50Speaker 02

  I'll tell you what I found interesting about it. This and then Gary Tan again saying that venture should be 10 times bigger. Smart guys, right? Is this really an asset class, finally? You know, the classic take in venture is it's not really an asset class, it's a weird niche of PE. Yes, the top quartile, certainly the top decile performed, but the rest is a disaster. So it's not an asset class if the bottom 75% isn't even worth getting out of bed for. If Andreessen has proven this, penetration and AUM is repeatable, right? Like clockwork, and YC is doing it at the low end, is venture finally an asset class? If it is, that's Gary's point. Put 10 times as much money in, we have access to the early-stage funnels, right? Andreessen's saying we have 2/3 of private AI revenue.

• 47:35Speaker 02

  There's an asterisk and a dagger to Rory's point, right? Because it's weighted on two names. But still, the point is, if it is an asset class, then you can deploy the maximum amount of practical capital into it efficiently.

• 47:47Speaker 00

  I could agree with your conclusion on it being at some level an asset class. I might even argue two asset classes. I'm not sure that I agree with your conclusion that therefore you deploy more.

• 47:57Speaker 02

  Well, Gary said that, not me.

• 47:58Speaker 00

  Got it. Because, no, actually, at the Gary level, I agree, right? To be clear. Because now we're going to jump in a lot, but let's digress off on the Y Combinator. The slogan of Y Combinator from the day one is to make it easy, make it easier for startups to start, right? I had some more elegant Of that, right? At the margin, there's no meaningful capital cost to giving someone 250 grand or 500 grand to have a go. The more people who start and try and do companies at the margin, it's a great thing for everyone, including the people involved. Worst case, you know, people talk about risk, but worst case is you do it for two years, you fold up and you go back to your mag. You're back to college. That's exactly right. And you're golden, you're fine. So as far as my company is concerned, and encouraging startups, the more the merrier.

• 48:42Speaker 00

  Where I disagree with you is in terms of, I think venture is actually two asset classes. It's the traditional early-stage venture that's existed for 20, 30 years and this new late and later-stage venture asset class that used to be called small-cap growth and is now, it is now privately held. So it's two asset classes. I don't think in either case they benefit from excess capital because I do believe that, you know, Martin Biggs has said it before. There's no investing business so good that excess capital won't ruin it, right? And I do think that excess capital will make this business harder and to some extent it erodes the returns. And you're seeing that 2020, I mean, it's funny. They said that, you know, 2021 was a very active year. I think 25 for increase was the most active year since 2021.

• 49:24Speaker 00

  We had a reasonably active year in 21, not nearly as different. We do roughly the same number of deals every year. In retrospect, I wish I'd just gone home, right? You know, if you didn't do, because if you think everything in 2021 was either priced wrong and makes a 1X or early and just totally wrong and makes, you know, less than a 1X, let's just say, right? Other than a few companies that were the early precursors of AI. Excess activity is, you know, not necessarily the best thing in an investing class. I'm, I'm, I saw the Druckenmiller quote, and it's for public investing, but it's been sticking with me all week. Where he said something like, most of the time, we sit around here waiting, reading and thinking. And I thought, hmm, that's a real investor. Understands that, you know, activity is not everything.

• 50:07Speaker 00

  What is true for them is, is that what they figured out is that the bundled product of doing early stage really well would allow you to bundle three or four X more dollars later stage. And the combination of the two could be effectively managed and would be disruptive up and down the chain. That's the aha from them. I did the math two weeks ago and I'm doing it again. If they're 18% of the funding last year advertised out over two years, they're 10% of the series A's, they got to be 10% of the good deals, they got to be 10% of the great deals. And they've structurally figured out a way to make that happen. And that's the victory lap from this. So that was probably one of the thing about them that struck me the most. And then the other stuff was all about, you know, some version of what Jason was saying,

• 50:49Speaker 00

  which is we're all still fine, the valuations are fine, it's expensive, but not 99 levels. Yeah, we'll see.

• 50:55Speaker 02

  Not to be a little glum, but what happens if Mark or Ben stepped down, especially Mark for a variety of reasons? That another, another option is to wait them out. This is an eponymous firm and things happen.

• 51:08Speaker 00

  Good word.

• 51:09Speaker 02

  Even health scares, even health scares happen. They do happen. A lot of people get tired, people, you think people are all, are all excited and then Duskin Moskowitz quits the sauna out of the blue, right? You don't know, smiles, everyone smiles, you just don't know. Ken and Dresden Horowitz, I know everyone's going to say there's, there's Martin and there's all these great people, but can it survive at this level, going to Harry's point, at this elite level, a generational transition, right? Can it, can it survive that? Or is it always going to end up being those three generations to the gutter?

• 51:40Speaker 00

  Yes, I would assert vigorously the answer is can it survive? Of course it can. I mean, one of my favorite quotes, I think I've said it before, is the, and the graveyards are full of those indispensable men. And, you know, let me just recite the names for you. Kleiner, Perkins, Caulfield and Byers.

• 51:55Speaker 02

  Yeah.

• 51:55Speaker 00

  Kleiner still exists. Mamoun's doing a nice job. He's not Kleiner, or Perkins, or Caulfield, or Byers. You know, firms that proactively manage succession planning can make it happen. I mean, they've gone through two or three generations.

• 52:07Speaker 02

  But this one is so, like the world's changed, right? This one's so iconic.

• 52:11Speaker 00

  Yes, but in a weird kind of way. I'm actually going to push back. It's actually, and this is, I think, one of Andreessen's big insights. It's harder to be someone like Benchmark, small and brilliant, and manage generational transition, which is why it's awesome that they do it, because the asset is the brains of four or five individual people. The beauty of what Andreessen are clearly trying to do, and why I think they'll be able to manage it is, they're basically trying to transcend the individual by just being an institution. Their fundamental bet has been that venture capital is going to go the same way as investment banking. It used to be dominated by individuals and small partnerships, and now it's dominated by Mr. Goldman, Mr. Sachs, and it used to be Mr. Solomon Brothers. And they all went public, and they're all just a very different business. That's the bet they're making.

• 52:56Speaker 00

  So cynical comment, if anyone has a rational economic incentive to manage generational transition, it's that firm, because Mr. Kravis and Mr. Roberts can settle into a comfortable retirement, drawing off the management scene from K K and R, provided those fine forty-something Ivy League graduates that they've hired to run their firm can keep it on a straight and narrow. And the economics to anyone building that kind of equivalent of the investment bank that is, that goes public, they have every incentive to do it.

• 53:26Speaker 02

  Oh, yeah, yeah. I'm not saying that if there was an unexpected transition that people wouldn't make money, right? The question that Harry had, this apparent dominance right now, could that survive the loss of Mr. Beast, right? Could it survive the loss of Elon Musk, right? The core, the iconic core, and I'm not sure.

• 53:46Speaker 00

  I would not like to think of the Tesla stock price if Mr. Musk decided to move back to South Africa and retire.

• 53:52Speaker 02

  The shadow of Mark Andreessen, even when he's quiet on social media, it's a long one.

• 53:55Harry Stebbings?

  Which generational transition would be harder for a firm, Andreessen Horowitz or Coastal Ventures?

• 54:00Speaker 02

  Look, there's an insider baseball thing here that I don't, I'm not gossiping enough to know. I honestly don't know if Vinod wants to build a generational fund. When I'm just guessing, as a brand guy, when I look how it's named and I look some of the, I mean, has the best, some of the best talent on the bench.

• 54:15Speaker 00

  I thought Vinod's plan was not to die, so none of this matters.

• 54:19Speaker 02

  It might not matter. It's a good plan.

• 54:20Speaker 00

  Yeah, it's a great plan. I'm with him, and if he can figure it out.

• 54:23Speaker 02

  It's a good. Either for real or in the GPUs, one way or another, to not die.

• 54:27Speaker 00

  If anyone will, he will. So there, we're not, so Harry, we're going to avoid your question. Because I think we have a sense of what the answer would be. So I'm avoiding the question by stupid.

• 54:36Speaker 02

  You're never gonna die and you love the game.

• 54:38Speaker 00

  Never gonna die, so it doesn't matter.

• 54:39Speaker 02

  And he could just invest his own capital infinitely if anyone disagrees. Like he has, if he's on, he's gonna live to 300 and he can just invest his own billions, worst case, right? You don't need any LPs.

• 54:48Harry Stebbings?

  I do want to discuss public markets because we saw Equipment Share IPO, pop 33%, $8 billion market cap, growing 47% at $4 billion in revenue. Great IPO. IPO market's open. We feeling great about this?

• 55:04Speaker 00

  I think it's a good IPO. I think it points to the need for scale, profitability, and it's a very different IPO, obviously. Just for everyone's background, Equipment Share is a kind of technology-enabled equipment rental company for construction. So if you're a builder, a construction, a builder in, you know, pick a, any US city and you need, you're doing a job and you need to rent diggers, conveyors, whatever else, other equipment you need, these are the guys to go to. A great story, 10-year story, real critical mass, making money, not, it's not, it's inherently a physical business with a digital overlay. And the end of the day, there's nothing digital about a construct, piece of construction equipment. It's a large, yellow or green painted thing that digs up dirt and moves it around.

• 55:44Speaker 00

  So it's a grounded business, but they seem to have built kind of, you know, in, in large part, using digital technology to become more efficient. They seem to have built a pretty compelling business. So it's probably good news for the, all the other $2 billion digital construction companies out there.

• 55:58Speaker 02

  Growing 47% at that scale and profitable.

• 56:00Speaker 00

  Growing 47%.

• 56:02Speaker 02

  If you're at billions in revenue, growing 40% and profitable, right? And outlier margins for your segment, then you can IPO in an effortless fashion. I, I view this as an effortless IPO, which was an interesting, it was effortless. Really oversubscribed, you just IPO, you trade up, there's no drama, it's just, this is what an IPO is supposed to be.

• 56:22Speaker 00

  And fun to see, it was a Y Combinator company from 2015. I, I would love to go back and look at everyone's notes as they set through demo day 2015 and what they said about the. You know, equipment rental company from the heartland.

• 56:36Harry Stebbings?

  Y Z and Lead Edge both made a lot of money on that one. Does this start a floodgate of this size of outcomes going public? And do they see the 33% pop and a good IPO as Jason said and say, okay, market's ready now for us. Will this start a flood?

• 56:53Speaker 02

  Well, we're going to say it. When I pointed out in the notes, I thought the contrast to Wealthfront was here's one that wasn't good enough for the markets. And a very good company, a company whose software we admire, who has done a good deal, some good deeds in the world, made more efficient investing, very, very easy for people, doesn't seem to rip consumers off in a lot of ways, a lot of. This was an IPO that the market said shouldn't have happened. It's a deeply broken IPO. You know, it's trading down, what, 30 or 40% from its IPO? And it's subscale, like it's worse, it's subscale, right? The markets are saying, first of all, this wasn't worth remotely what we IPO'd it at. It's only worth 1.3 billion, not 2. something billion. It's down 36%, which sounds bad, but it's also subscale.

• 57:33Speaker 02

  A billion dollars, you know, that's nothing for open evidence or friends, but that is not. You're barely public, you lose the liquidity, you lose analysts. We can say they IPO'd, but it's going to be a long haul for everybody to get their money out of this company, right? For employees, maybe it's fine, but it's barely public.

• 57:50Speaker 00

  I still have a more than vestigial affection for this company. It does kind of suck and you know, some part of it may be tampering, but it does point to the low end of the market cap space is a perilous one because you fall a little below it and you do end up in that, you know, 1.2. 1.2, but there are companies doing 5 million in ARR that are raising at 1.2 billion. And here's, you know, poor Wealthsimple, hundreds of millions in revenue, billions on the management at the same space. I think they will compound out. I actually like the company and have a mental note here to go check on it and see the valuation and maybe buy some. But Jason is right, it's not going to be a liquidity event in the short term because it's just not going to be the liquidity.

• 58:28Speaker 00

  Again, it gets back to the, you can say it's fortunate or unfortunate, but it doesn't matter what your kind of subjective opinions are of it. The objective fact is 3 billion plus or minus appears to be the point at which you're, you know, it's easy to go public and it gets a lot. The more you go up from there, maybe three is a cutoff. And when you do something at two and then you slip even a little bit, you're down into who cares land, which sucks.

• 58:52Harry Stebbings?

  My worry is honestly, if companies are created, maintained, grown by the people within them. Do the best talent really want to go to Wealthfront in a thirty to forty percent down IPO? I didn't mean that horribly, but it's just, is that a magnet for the best talent today? Given the many options they have, and if not.

• 59:09Speaker 00

  Look, if you're an AI engineer, no. If you're actually interested in finance and investing, I think it's a very compelling space to go because I think the things they're doing are super interesting. You know.

• 59:19Harry Stebbings?

  Do you really? Is it, is it, is it a top five place? Like, no offense?

• 59:22Speaker 02

  Well, I think two things could happen. If you have a deeply driven and charismatic CEO on a mission, you will at least find a way to attract a handful of leaders to even accompany with that struggle. You will find a way if you're utterly tenacious. I believe you will. They may be failed founders themselves, which is like the hottest recruiting category in tech right now, failed founders.

• 59:40Speaker 00

  Yep.

• 59:41Speaker 02

  You may find them other places, but you will find two or three folks that can move the needle. And it's all you need. You only need two or three leaders at a company of any scale. The best ones will find two or three. At the same time, I have to tell you, when I talk to companies like this, and I've done like several of them recently for the start of the year. I feel like people are just blinking at the camera. Like, they join these companies to not work. They join these companies so that I had to argue with one of these companies that I'm just friends with. You know, they didn't want to get, get a big release out this year. There was a lot going on to get a big release out this. You're going to get destroyed by the competition. So on the one hand, you can do it, but you better be, in my opinion, you better be this CEO on a mission and reboot the company and find those folks.

• 1:00:25Speaker 02

  But realize ninety percent of your folks, if you're not careful, they're just going to be blinking at the camera. Oh, we need to slip that release. Well, these next quarters look soft, actually, Harry. But Q four is looking great at the end of the year. This year, I know, I know Q one and Q two are going to be down, but we'll make it all up in December.

• 1:00:41Speaker 00

  I'm going to push back on this because we live in a power law out in terms of outcomes. We say only a few outcomes matter, therefore all the other outcomes don't matter. Right. Which is mathematically true about company results because that's the distribution curve for outcomes, but the distribution curve for humans, just for the record, is actually pretty much a bell curve. So the idea that even in a good company, not everyone's going to be exceptional, right? There's an implied statement behind what you're doing, Jason, which is all the great people are in a great company and everyone in the okay companies is mediocre. I actually think they're two different distributions, right? Probably the great companies skew a little better than the average, but most of the time, once you're up to a thousand people, you have a fairly representative subsegment

• 1:01:25Speaker 00

  of whatever class of people you're hiring. Harry's got his confused face on and I can't explain it better right now, but I don't believe all the people in something like, well, a solid outcome company like a wealth fund or even an equipment share are mediocre and not trying. I don't think that's, I think it's overgeneralization.

• 1:01:43Speaker 02

  And of course you're right. The reality is even at the best, 80% of folks are not contributing significant value mathematically, but you've got to have these epic leaders in ICs to compete today.

• 1:01:54Speaker 00

  You've got to have a great leader.

• 1:01:55Speaker 02

  It's so competitive.

• 1:01:56Speaker 00

  I totally agree, but great leaders are everywhere.

• 1:01:59Speaker 02

  You better find this founder that can truly bring this talent in in a magical way. And it does happen. We've all invested in a company and often it's a company that like plateaued and then re-accelerated. The CEOs find a way to hire through that plateau, right? That crappy six months. So we've all seen it, but you better not pray it's there because you like the product or you like, like how you used it in 2023 because it's brutal.

• 1:02:22Harry Stebbings?

  We said about small and subscale IPOs. Ethos, the Intuit tech provider funded by your Sequoias, your Exels, provider of life insurance, going public today when this show airs on the 29th, valued at 1.3 billion, high end of the range. Last valuation privately was 2.7 billion in a peak valuation. Is that subscale? And as a result, should they not be going public?

• 1:02:45Speaker 00

  They should. What do you mean by should, Harry? Why shouldn't it? What's your alternative plan for this company if it does not go public? Just curious.

• 1:02:53Harry Stebbings?

  Continue being funded by its existing investors.

• 1:02:56Speaker 00

  But if its existing investors think that the return profile from here is more akin to what a public investor would want, then they can go public.

• 1:03:04Harry Stebbings?

  Sure, but does this not slightly feel like being fed to dogs?

• 1:03:08Speaker 00

  No, Harry, again, this boils down, it's a discussion we have every frickin' week.

• 1:03:13Harry Stebbings?

  It's below the line for Chamath, he doesn't care.

• 1:03:16Speaker 00

  Yeah, despite his $4 billion, I don't plan to run my life on where Chamath's lines are. I think it's true.

• 1:03:22Harry Stebbings?

  That's a good tweet.

• 1:03:23Speaker 00

  Yeah, please don't. I'm not trying to be argumentative, I'm actually being complimentary. Look, I think what is true is that at this kind of valuation, at this kind of market cap, it is harder to get liquidity, it's what Jason said, but you don't know what's going to price, you don't know what's going to trade, and you know, maybe they don't want liquidity now, maybe it's a process of starting and over the next one or two years, they perform, they grow, you grow 20% year on year, whatever it is, 30%, and you just, over time, build up your market cap. I don't think we can all stay private forever, being passed around amongst us, especially if we're not growing at, you know, I mean, the venture cost of capital should be around 30%, and the public cost of capital should be around 11%, there does come a point when you're better off in the public markets. And if it's subscale and cheap, let me tell you what will happen, people will buy it,

• 1:04:08Speaker 00

  and they'll make what's called a capital gain. I mean, if I have the courage of my convictions, I should go away, look at the wealth fund numbers and say, I believe it's cheap at 1.2, I should buy, because in the end, value will come from.

• 1:04:18Harry Stebbings?

  This is going to go out on the 29th, Jason, so we can ask Rory now, because he's just said about a capital gain that could come. Will this have a pop, or will it have a drop?

• 1:04:27Speaker 02

  Well, I think it's going to have a drop. Notwithstanding Bill Gurley, my personal view is IPO should be engineered, things matter, just like the start of the conversation on Brexit, it does matter to feel, there's a lot of benefits to feeling good about the IPO. I think it won't, but I do think the interesting question is, maybe this is what you're asking in a sense, Harry, Rory may disagree, but in a sense, this is a capitulation by the investors, saying we're not getting back to that $3 billion valuation, or $2.7 billion valuation of years ago. It's okay, we need liquidity, there needs to be an exit path, no one's offered to buy us for a good price in the last three to four years, or they would have taken it. So it's time, it's time, boys, to IPO. If this one works, will we see a flood of these, even if they're like Wealthfront or others, and trade down, if the market will absorb them, will it be time to flush our

• 1:05:11Speaker 02

  2021 unicorns out the door, and down the drain, but out the door in 2026 and 2027? Maybe it's time to just let these, let them go, no matter what price it's at.

• 1:05:21Speaker 00

  You're veering on doing the thing you condemn others to do, which is sneering at a $1, $2, and $3 billion outcome, right? It's the low end of the public company market cap, but it's a perfectly good outcome. And to be congratulated to start a company from nothing and get to $1 or $2 billion in value, get it public, have the chance to compound for five or 10 years. It's an awesome achievement. And you're right. Look, we will look back and go, the winners were the ones who got a crazy valuation in 2021, and then were able to get out from under that valuation via a down round, a down IPO, or a down M&A. The bad ones are the guys who are still sitting there looking at their 21 valuation and thinking that's ever coming back. I give anyone credit who's making progress and clearing the logjam and doing what it takes.

• 1:06:04Speaker 00

  Yeah, I think, is there going to be a lot more of this? I remind it, there's 700, 800 unicorns, you know, valued at more than a billion, and SVB did that analysis, I think something like 30% of them have a decent growth profile and scale. Call it 200. Jason's point, at one a business day, it'll take a year. I was 2021. At one a week, it'll take four years. So yeah, I think this has to start happening. And you know, one of the things that's true, Harry, is price clears all markets. In other words, there's a price at which public investors will say, yeah, I'll buy that. And maybe it's not 2.1, maybe it's not the price you wanted in 2021, but if it's, I mean, you call it being fed to the dogs, which kind of clearly was a buried pejorative statement, maybe it's just figuring out what price it takes to sell the product.

• 1:06:46Speaker 02

  I guess, just on a related note, I'm an advisor to a unicorn, hundreds of millions growing pretty good growth, right? Not being killed by AI, but not necessarily benefiting from it, but enough, right? To be, to eventually compound to a better IPO than that, but not at open evidence. And we did an M&A review a little while ago, and I was shocked who's on the block. I mean, everyone's for sale. And I was shocked that folks worth less, I mean, worth more, much more, are willing to be acquired by someone with a fraction of their revenue. And these are, I didn't see Databricks, the ones that were passed around the room virtually, but I was shocked of folks that have been on 20VC that I did not know were in market that are looking for, aggressively looking for an exit.

• 1:07:29Speaker 00

  Which is why, when you see people pull off an IPO or pull off a fricking $5 billion exit, the correct response is, yay, well done, and then be, goddamn, I wish all the mine guys could do that. That'd be great. It's a great outcome. Right?

• 1:07:42Harry Stebbings?

  Yeah. You know what, if we're gonna end, I do think a hat tip deserves to be given to our friend of the show, Mr. Mark Benioff, who Army just awarded Salesforce a $5.6 billion contract over 10 years. Mr. Benioff, hat tip. Well done.

• 1:08:00Speaker 00

  Totally. Yeah. SaaS is not dead and now SaaS has an army. I love it. SaaS has the army. Right. Yeah. Take that. Take that, Darius. No, I, it was first of all, you exactly right. Great outcome and someone, some sales rep in Salesforce is getting the mother of all commissions here and good luck to them. But I also think it speaks to the, you know, the whole zeitgeist of AI is going to eat everything. And I think the correct pushback has been, I think the people have been saying all these systems of record like Salesforce are going to get replaced are obviously wrong because that's not what's going to happen because it would be an incredible waste of talent to do that. You should just lay off the systems that have. And I think this is an example of that. It's a separate piece, comment, the

• 1:08:41Speaker 00

  avenue piece is how much value can you build in the AI first world as a system of record? That's a totally legitimate question. Can Salesforce get its mojo and growth back? Or is it a, the utility of SaaS stocks for the next five years? That's a fair question. But I think deals like this put to rest the, anyone who thinks that they're going to vibe code their way to a product that can replace a $500 million army order.

• 1:09:05Harry Stebbings?

  I'm really sorry, I'm dumb as rocks still after many shows with you. My question to you is when AI sales reps work and you have distribution to the scale that Salesforce does, I don't see how they don't regain growth and be a dominant force again.

• 1:09:20Speaker 00

  Look, the market is saying, again, right now, the market is saying, oh my God, SaaS is dead, you know, the trade, the multiples are down. And you're saying almost the exact opposite. Again, I would remind you that you can take some of your ill-gotten gains and bet them on the public markets if you want to. I'm kind of in the middle. I don't think they go away, but I think it's what Jason said. They don't go away, but it is hard to do that innovation that gets that new product out the door.

• 1:09:41Speaker 02

  One thing that we do get confused about is we think it's all directly AI and AI is the biggest issue because the lion's share of the new CIO's budget is going to AI. That's where all the discretionary budget is and price increases. Okay. And price increases is almost self-defeating because it only works so long. And so if you're not tapping into the AI budget, you know, Mark, when he was on this show and his own show was saying how much better a deal Palantir got, I think that was echoed in some of these army contracts because maybe he had to take a haircut on those deals and get the budget where it is. And so it's there, it's just, there are so many other issues unfortunately that are attacking SaaS. They are seat contractions are existential. Workday said seats are perpetually under pressure.

• 1:10:23Speaker 02

  Shopify has held headcount flat for three years and grown 40 something percent in that time. We're not hiring anybody and we're going to hire less people. Price increases have become destructive because SaaS price products are up 40% the last three to four years. And that's great for a CRO to make their plan this quarter, but it crowds everything out. There's no room to upsell or anything when price increases take up everything. And so there's like all these different issues. If we're not buying as many seats and we're radically increasing pricing, there's just multiple ways the old model's getting attacked. And if it were just as simple as adding an agent, that'd be hard enough, but it's not. And our workforces are shrinking and what we expect from our workforces is shrinking.

• 1:11:07Speaker 02

  And so SaaS will adapt, but just magically charging per token doesn't necessarily change the fact for many providers. Tweaking pricing models doesn't change how much folks want to spend for a product. That's a fallacy. That's, that's what consultants do. They're pricing consultants. It's great, but if no one wants to pay more than 20 grand a year for your product, you can't force them to with a clever pricing model. There's a lot of issues to deal with that the new guys don't have to deal with today.

• 1:11:31Speaker 00

  So you end up in that boring kind of quadrant of it ain't going away, but it ain't exploding.

• 1:11:35Speaker 02

  If it was just AI and it was nothing else, you put 2,000 people like Mark did on agent force and it works or it doesn't, but it mostly works. Right. But at the same time, folks are contracting seats. Right. If at the same time they're cutting budget for existing investors. Right. You're beholden to price increases to make your plan. I worry for all but the best. It's too many daggers out. It's just being attacked from so many sides that it's hard. We just got used to these 130, 120% NRR years that were magical, that often didn't even rely on price increases. Right? Slack never raised prices and still grew at 140% NRR. I don't know those days are ever coming back, no matter how good our agents are. Okay, boys. I'm the rap, baby.

• 1:12:21Harry Stebbings?

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