20VC: Benchmark vs a16z: Why Stage Specific Firms Win | Windsurf Sells For $3BN | Decagon Raises at 100x ARR | Do Mega Funds Win the Future of VC | What Does Harvard's Losing Their For-Profit Status Mean for VC

Today’s Topics: 04:44 Analysis of $3 Billion Windsurf Acquisition 12:39 Will Mega Funds Win the Future of Venture Capital 18:39 Does Every Fund Have to do Pre-Seed to Win Series A and B Today 27:53 Why AI Will Create Massive Unemployment 31:06 The $100,000 Bet on the Future of Work 35:52 Why Venture Has Become a Bundled Good 37:52 Why Stage Specific Firms Will Win: a16z vs Benchmark 40:16 What Does Harvard Losing It’s For Profit Status Mean for Venture 42:57 Why AI is Maiming and Not Killing Growth Companies on the Path to IPO 45:41 Decagon Raises 100x ARR: The Breakdown 52:50 Why VCs Are Upside Junkies and What That Means Today 01:03:37 Olo Looking to Sell: What Happens When Public Companies Want to Sell

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

• 0:00Speaker 00

  Benchmark did something like sixty-three Series As and had a ten percent hit rate across fifteen years. And recent did a four hundred and fifty-four Series As and had a two percent hit rate. Now, in absolute numbers, they had ten five billion hits and Benchmark had six. In those numbers is exactly the dilemma of the mega fund versus the focus fund. The focus fund is better at hit rate, has more as a percentage and lower as an absolute number than the guys cranking through four hundred and fifty-four As. That's all you need to know.

• 0:31Harry Stebbings?

  This is Twenty VC with me, Harry Stebbings. We are back for my favourite show of the week. We're back with Jason Lemkin and Rory O'Driscoll, and we have some big news to discuss this week. We have news on will mega funds win the future of venture? Do you have to do pre-seed to win Series A today? Windsurf and the three billion dollar deal that's just gone down and so much more. This was an incredible and always fun discussion with Rory taking the piss out of me. Me and Jason ganging up on Rory. It was one of my favourites to do and a lot of fun. But before we dive in today, here are two fun facts about our newest brand sponsor, Kajabi. First, their customers just crossed a collective eight billion dollars in total revenue. Wow.

• 1:14Harry Stebbings?

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• 1:54Harry Stebbings?

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• 2:39Harry Stebbings?

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• 3:24Harry Stebbings?

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• 4:08Harry Stebbings?

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• 4:23Speaker 00

  You have now arrived at your destination.

• 4:26Harry Stebbings?

  Boys, this is the highlight of my week. I love these chats. It's terrible. The team are like, Harry, why do you enter these ones so much more excited than the others? And I tell them it's because Rory's gonna call me a hypocrite and bash me again, and it's gonna be so fun. So, thank you both for joining me again today. And we're just gonna dive straight in. Windsurf, potentially confirmed acquisition of $3 billion. Literally like half an hour ago, tweets going out. How do we feel about this? What changes? What does it mean? What should we take from it?

• 4:59Speaker 02

  Well, Rory, you probably have better thoughts than me. I'll tell you, it's funny. The world is changing so quickly these days, right? I mean, I can't keep up. When we talked about this a little while ago, I thought $3 billion was a lot. This is, I'm not being facetious. I thought $3 billion was a lot. When I saw the tweets again, I thought, it's not that much. Everyone is just hunting these mega outcomes, right? Every junior engineer from OpenAI is raising at $10 billion pre. And I'm like, $3 billion sounds like, and listen, best product, best CO, best everything. There's nothing new with the company. I'm just, I'm just so a nerd to these numbers. It's like 2021 when you would say no to a $3 billion acquisition from a project management tool, right? That was Kanban. It's like, I'm anesthetized to these numbers now that aren't like in the tens of billions.

• 5:38Speaker 00

  You know, I just think it's a great country and a great business. This is a place where you can go and three or four years ago, do a startup. Two years ago, kind of half pivot into a visual studio, kind of fork, crank like crazy, and build something that gets sold for $3 billion bucks. Isn't that amazing? I mean, it's why this business is fun. All you have to do is just get it right. Bob's your uncle, $3 billion quid. It's a great outcome. Good for them. It makes sense for both sides. Jason's entire analysis last time is correct. It's 1% of the market cap to play in one of the largest use cases for AI and one that the core constituency of developers loves. It just makes whole sense for OpenAI. So congratulations for the team and for everyone involved.

• 6:22Harry Stebbings?

  Do you worry if you're a shareholder in Curse now? Obviously, you've just paid $10 billion. Distribution is everything. Touchpoints to end consumers is everything. I do not wanna stand in front of the OpenAI train. Do you suddenly slightly worry if you're Curse?

• 6:36Speaker 00

  If you're going to worry now, you might have thought of that before you turned down the offer, if there in fact was such an offer. It's too late to worry now. The time to have checked your manhood was before you turned down the big number. Whenever you turn down a big number, whenever you do that, whenever you get to that point where you're turning down a big offer, one of the questions you always ask yourself is exactly your one, Harry. How will we feel when it crosses the tape that they bought the number two and now we're hanging out there? So whatever regrets they're having or not having now, it would have been more useful a while back. My guess is they're probably using the following logic. When you're the number two and you get the heavy squeeze from the adjacent acquirer, it often makes sense to fold because otherwise they might buy the number one and then you're done. When you are the number one, you might be able to say to yourself, you know, I'm still the independent winner.

• 7:21Speaker 00

  I can create value. There's other acquirers. So they're probably bravely going forward, saying this is the bet we're taking. But yeah, it takes real courage to turn down whatever was offered and say, we're going to compete against these guys instead.

• 7:34Speaker 02

  You know what's funny? It's funny when these deals happen and it's funny to talk about them. They're like the routine, but what is very interesting is how, especially when it's right after an investment, how the different investors react up and down the valuation stack, right? It is, and it's not always exactly what you think in my limited, you have more experience with me, it's not always what you'd think, but the advice you get and the feedback and pushback, it's like wildly divergent, isn't it? Yeah, if I just put in at 10 billion and this was a risk factor in my prospectus or my internal diligence, I'm pretty zen. If I did the $1 billion round at cursor, I might be thinking, oh, this is the worst idea ever not selling, right? And then the seed folks that were like friends with the CEO, they might be like, kumbaya. I already sold half in my secondary anyway. Like I put, I sold half and I love you guys and you, you be you, right?

• 8:19Speaker 02

  It's just so different, the feedback. It's not that you can't trust the advice, it's just it's so biased, right?

• 8:25Speaker 00

  Tony, I think everyone talks their book. They sometimes don't always talk their book in a way that you think makes logical sense, but we're just human. Everyone comes to these M and A discussions around the boardroom table, mentally running their internal cap table and saying, what does it mean for me, right? And that's why, one of the things I always tell CEOs is when you get this kind of offer, understand those numbers forever and understand where people are coming from.

• 8:47Speaker 02

  There's a vibe check I've seen change as funds have gotten bigger and raised faster, right? Which is that for someone that just invested at a mega round, if they just get a 1X in a year or two, like, it's okay. You and I met when I sold and there was so much drama around every exit. But when I look at like, I first saw this when Loom sold and Andreessen invested at 1.3 and they got their 1X back in a year and they're like, that's cool, guys. Go, you know, do, let's do the next one together. And you used to say, let's do the next one together when you did the pre-seed. Now it feels like, let's do the next one together at the growth stage. And I think it's a good thing if it takes a little pressure off.

• 9:19Speaker 00

  It is, and I'll give you a different example of that that actually sticks in my mind more. Thrive invested in Instagram and like literally four or five days later, it sold for 2X. In one sense, 2X, not the target return. But if you look at the PR for that, that is the soundbite that leads almost every Wall Street Journal description of them, right? Because it just looks so amazingly savvy. You paid 500, everyone thinks you're an idiot, and two days later, someone sells for a billion. So it's not just about the numbers sometime, it's about how it's perceived and what it does for you as a firm at that particular point in time. I think that was an amazing entree for those guys. They looked so sharp and then obviously they built an amazing franchise on it. I think the Loom example, it's a different one. I think that was, oh my God, we paid a high price in 2021 and I'm going to be saved in 2023.

• 10:04Speaker 00

  Thank you, God.

• 10:05Harry Stebbings?

  Loom was a great exit. I mean, that one, I was like, kumbaya, guys, well done getting that out the door. I think I messaged Scott at Atlassian being like, dude, you could have paid 35 more. Just give them a billion, like you did like 965, come on, come on.

• 10:19Speaker 02

  Some weird story there. Maybe they're careful not to push too far, Harry.

• 10:22Harry Stebbings?

  Maybe a billion would have been gauche.

• 10:24Speaker 02

  I also think you asked Harry a while ago, when we do this, about how many 10X deals you've done, right? And I think part of it, when I think a lot about these conversations and I think if you're a seed investor, yeah, in the early days, it's all good, right? The checks are smaller, but once you have a 10Xer, you do become risk averse. Because it's material. If you have a double-digit millions fund, that's a big deal and you don't want to lose it.

• 10:46Speaker 00

  But as I think some more, that may be true, but I look back and I go, letting the winners run is the first golden rule. That's probably a mistake then, being overly risk averse on my winners. I mean, I look back and I When something is working, it's the military doctrine, reinforce success, starve failure. If you've just had a big 10x markup, if you've got Sequoia late stage in, provided you don't know something they, you know, about the deal. Remember, a 2x from here turns your 10x into a 30x. Riding your winners is one of the key parts of making the math work. I've been both sides of that. I know the fear of, oh my God, I remember my first big win. I'm like, oh my God, let nothing go wrong. You lie awake at night the night before the IPO, literally thinking everything's going to end. Will this fricko get done?

• 11:27Speaker 00

  And then it does. But, you know, you look back and you go, I'm thinking of a specific deal. We took some money off the table early. I look back and I go, I probably could have 2x to 10x, which to state the obvious is a 20x. And that's a big difference.

• 11:38Harry Stebbings?

  Funny, Brian Singer always taught me the value of the final double or the next double. Six to 12 billion in company trajectory actually can be 12 months of work. That is double your returns in a portfolio often.

• 11:51Speaker 00

  He's exactly right. Almost everything about PE is better in terms of making money than what we do. And the only thing we have in our favor is that every once in a while, maybe once every five years, you find yourself with a 10% ownership in a thing that's already worth billions of dollars and is compounding like crazy. And you've just got to lie back and say, how far is this going to take me all the way to tens or hundreds of billions of dollars? And that's the outlier that you just don't get in PE that you do so occasionally get in venture. And he's exactly right. That double from there, so much easier than grunting it out from a million to 5 million in ARR. Jason, you did it as a CEO to 10 million in ARR, then the shitty year where you only go to 16. Then you re-accelerate a little, oh my God, and now you've taken 10 million and turned it into 25 million of value.

• 12:36Speaker 00

  Whoop-de-doo. It's let your winners run.

• 12:39Harry Stebbings?

  We mentioned that kind of the sheer size of returns needed. Since our conversations have started, I have completely changed my mind on who is going to win venture in the next 10 years. And just roll with me. Fundamentally, we see this shift from public markets and IPOs to private markets with mega funds like Lightspeed, GC, Thrive, you name it. Okay, there will not be many more of those. The majority of your sovereign wealth funds, mega players have chosen their provider, their partner at that stage. And there are five to seven. Seven of them. And so there are very few places for the anthropics, gleens, riplings of the world to go. And the outcome scenarios are bigger than we've ever seen with trillion dollar companies becoming more normal than ever. These guys are going to print billions is my takeaway. And on top of that, their cost of capital is so low.

• 13:24Harry Stebbings?

  They can shit on me and you and do ten on a hundred for a seed round, as they've done twice in the last year to me. I think multi-stage win the next ten years.

• 13:33Speaker 00

  There's a lot in there and I have the advantage which our listeners don't of seeing your agenda. And Harry, I love your start here, changing your mind at the last minute. It's good to change your mind with the facts changed, so I respect that. But the agenda is intellectually incoherent then, because you have this one, which is the mega funds are going to win. And then the next thing we're going to talk about is Josh Kopelman's wonderful piece on venture arrogance score, which would kind of argue for the opposite side. They're going to talk later about, you know, secondaries being the only liquidity, which would also argue against. So we're oscillating on this question a lot, but it's actually okay because it is actually the biggest question. So it's okay that we're no one at this bone and even changing our mind week to week as we think about it. But because I got exactly half an hour's heads up that you were changing your mind, I think my summary would be on your thing, are they going to win?

• 14:15Speaker 00

  I'm going to say three things and then we'll probably end up pulling them apart over the course of the conversation. One, I think they already have one because they have the money. Step one into winning is if you've got seven billion dollars to invest from two thousand and twenty four on, forget we'll win, you have one and you're in an excellent place. So first is winning by having the money. Then the second thing is can they invest it profitably? And look, they're all excellent investors. They have between fifty and sixty percent of the capital. Provided they don't under-index the rest of the industry, they're going to have sixty percent of the wins. So when someone says, oh, my God, all these people have all the wins, I'm like, well, dude, they have all the money. If you have all the money and you do all the deals, you get all the wins. It's just math. So for a long time to come, I think you described it exactly correctly, which is because they can do those later rounds,

• 14:58Speaker 00

  they're going to be able to option value a seed deal and even option value an A and a B. That's just the dynamic you're in for a while. The interesting question over the long term, and it's only over the long term, is will that winning be enough? The Kopelman question. In other words, if six or eight people each have a ten to eight to ten million dollar pool of capital, can they all make money over the Medium term, they will, in the process of figuring that out, trample on a lot of other people's economics. But the long term question, when the verdict will go back to the LP is, do those funds make enough of a return to warrant re-upping in three and five and 10 years' time? To me, that's not as clear, right? So my operating assumption as a mid-tier firm in terms of size is, for the next three to five years, there's great big walls of capital that will make a lot of investing very difficult.

• 15:42Speaker 00

  And even if it doesn't work out quite as well for those firms over the medium term, not because they're not great firms, they are, but because there mightn't just be enough money to go around. Even if that's the ultimate outcome, it's going to be rocky and it'll be very direct. A pain in the ass for the next five or six years, when you're competing against people who literally look at your Series A and, you know, it's like the mafia guy, you know? That's a really nice Series A you got there, be a shame if it got broken. They're coming in on your Series A business and your seed business saying, you know, hey, we can just roll over this thing. So a lot going on in that, right? So you think on winning, I think in some elements they've won. In some elements TBD, and it's going to be a long, interesting sorting out period.

• 16:20Speaker 02

  Listen, whenever I get an email from a founder that has what appears to be those metrics, right? That on their seed, they're going to get 10 million at 100, right, 10, 15. I just email them back, I'm like, I can't compete. I don't take the meeting, I don't talk about it, I just say, you look amazing, I can't do the deal. And once in a while, they'll email me back and say, well, what would it take? And I'll just always offer the maximum that I structurally can. And that's worked out a few times, but I've given up instantly. I fold before the first hand, because I agree with you, I don't have the answer. There's obviously the not obvious ones, because this money, it has to be attracted to the obvious candidates. But, you know, that's why, I think that's why so many people glamorize inception investing, which I ain't gonna do. I'm, there's one thing I ain't gonna do. This is the other thing you have the most respect for is true inception investors that aren't bucket chops,

• 17:05Speaker 02

  that aren't trying to get a thousand founders to go through and take 10% of their company. Because picking those inception guys, I mean.

• 17:12Harry Stebbings?

  They are doing inception investing harder than ever before. I actually lost an inception investing check this week to the two big ones. 10 on 50 for some good people out of a good company.

• 17:21Speaker 02

  Well, good people, I don't know that I would, when I think about inception investing, it's good people out of a good company with lots of box chats. It is technically inception, but they've already checked several of the boxes. The real inception is finding the guy down the street from you, Harry, at the carriage house that didn't go to college, didn't come out of Stripe, didn't go to YC and spending months with them, getting to know them and saying, here's 800K. That's too much work. No one works that hard these days, do they? No one works that hard in venture. I've known a few people over the years that work that hard. Most folks are not working that hard. It's easier to just pay 30% more than Harry. That's the easiest way to do venture. Get a big fund, wait until you have a trip with Harry and spend five minutes out bidding him.

• 18:00Speaker 00

  Look, turns out getting a big fund in itself is hard work, to be fair to them. But within the smart ass comment, the true comment that you're making, Jason, is exactly right. The easiest way to win, if you've got $8 billion, is not try and pretend to be anyone's bestie, just to be willing to pay a price that gets you the deal. If you're not making your economics on the going in round, then you've just got more degrees of freedom to do it. I'm not saying every firm does that, but you're exactly right. The advantage of a wall of money is it means in those early situations, you can price the thing, think of, we've become a bundled good. And the seed and even the Series A is a loss leading product. It's like milk at the grocery store. Come on in, buy your cheap milk, but we're going to upsell you all the strawberries you can buy, baby. You'll wait till you see the Series C and D. So that's where you're up against.

• 18:43Speaker 00

  To your point, Harry, there's lots of reasons why those big firms can win. It's also, I mean, I saw your podcast earlier this week. It's like, there's all the other wonderful things that they bring in terms of platform and all that, but the most wonderful thing an $8 billion firm brings is $8 billion.

• 18:58Harry Stebbings?

  My question is, can you even do multi-stage if you don't do pre-seed today? We have Series A ambassadors here and they're like, for fuck's sake, Neil Maitre doing the seed and the pre-seed for Windsurf, Escoia, Lightspeed, General Catalyst, do more pre-seeds than anything. You won't see the A if you don't do the pre-seed. Is how bundled a good we are today, Rory, is my thinking. I don't think you can actually do the As and the Bs in the best unless you do pre-seed.

• 19:28Speaker 00

  We're wrestling with that. I hear you. It gets to the thing. We've become a bundled good at the widest level where the people, when you can go all the way from a hundred million dollars to two million dollars and that product is on offer. If that product and every other dimension is just as good as a single-stage investment, you're up against it. So you have to think about how you see those seed deals. Do you want to, do you have to do lots of them in order to see the As and Bs? Yeah, it's a legitimate question. How much bundling do you have to do?

• 19:53Harry Stebbings?

  Rory, why do you not do it with scale? I have so many LPs message me their love for you after our shows.

• 19:58Speaker 00

  We thought about it. Look, we've wrestled internally and I would say actually we're thinking about it. I just lost a deal a couple of months back where I would say the number one thing was the other investors had a relationship from the seed. And what we won't do is bullshit and say we're going to do a whole bunch of seeds and then not do it. So I just don't think that's fair in the entrepreneur. So we're wrestling with that because if you're going to say you're doing it, you got to do it. But it's a legitimate question. In this market where so much is changing and so much of this bundling is taking place, you have to figure out how up and down the stack you have to go. A zoom out insight I had is this. I think about it a lot. It's that to the founder, they don't give a damn about your nuanced stage-specific strategy. A founder wants two things from his venture

• 20:39Speaker 00

  investor. He wants money, lots of it, with the minimum amount of hassle and perhaps the maximum amount of help. So from the founder perspective, they actually don't care if you're crap at seed. They don't care if you're crap at A. So there's no override from the founder's side based on are you executing your investment strategy well. To a rounding error, if some firm has a we literally do every fricking deal investment strategy. Now, the LP should be paying attention to that because they're going to lose money. But from the founder perspective, someone who's loosey-goosey drunk with money is their best friend. So I don't think this bundling thing is not going to stop because the founders don't like it. They're going to love it. It's only going to stop if the returns from it. Are subpar relative to the returns of people who are more specialized.

• 21:23Speaker 00

  But even if it is true, it's going to take five to seven years to become obvious.

• 21:28Harry Stebbings?

  Let me push back on that just briefly. I have a lot of founders in the process of like courting who ask me, how many deals do you do per year? And I know full well that they don't want me to say 12. They want me to say two to three because they want to feel the love. They want to feel when they want my attention, they get it.

• 21:46Speaker 00

  But but that doesn't reconcile. Again, bullshit Harry, I do two deals a year. Shockingly, I've been in this business 30 years, I've done 60 deals. I'm a pretty consistent guy. No one gives a shit. The odd thing is that the founder might want you to be focused on him. But the truth is, if the firm is doing lots of deals, and many of these people are, I think realistically, as someone who does, we do as a firm, eight to nine deals a year and have done so consistently for the last 15 odd years. There is a big advantage in terms of news flow of doing 20, 30 deals a year. There's always something good in the portfolio. So again, it's all part of the same theme. There is no forcing function between the founder and the investor that worries about investment return quality. That's a dynamic between the investor and the LP.

• 22:30Speaker 00

  And as long as either those funds are working or people don't think they're working, that money's going to be there. Kurt Rotman at DST did an excellent piece on series As, just a really great analysis on just the volume of As that some of these firms are doing. And then the hit rate and the success rate, which we can talk about later. But firms that are doing well are doing 20, 30 series A deals a year.

• 22:49Harry Stebbings?

  I saw Benchmark had a 33% hit rate on $5 billion companies from 2013 to 2018.

• 22:57Speaker 00

  Yes, I looked at it and there's two facts on it. One is Benchmark had a 10% hit rate. And then all the other 19 investors listed here, 18 investors, had a hit rate between 1 and 3%. Let me repeat that very carefully. So let's call it an average of two. They have a sample set of 20 and it gets right back to your comment about the firm that has chosen to be most successful on one stage had a hit rate of 10% across 14 years. And the firms that have chosen to do everything. Have a 2% hit rate. That's probably not a coincidence. What it said to me is contrary to the thing they've just been talking about, the focus firm pulled it off better. And let's stipulate four of those firms are amazing and all the people there are wildly smart. Let's just stipulate that it's therefore we're just comparing strategies.

• 23:41Speaker 00

  And then we have to figure out which is the best. You know, Benchmark did something like 63 Series As and had a 10% hit rate across 15 years. And recent did a 454 Series As and had a 2% hit rate across the same period of time. Now, in absolute numbers, they had 10 5 billion hits and Benchmark had six. In those numbers is exactly the dilemma of the mega fund versus the focus fund. It's all right there. The focus fund is better at hit rate, has more as a percentage and lower as an absolute number than the guys cranking through 454 As. That's all you need to know. It just shows clearly that if you scale the thing up, your quality does slip, but the aggregate numbers keep going up.

• 24:26Speaker 00

  The only question therefore is which of those strategies makes the most money, you know, and does the larger volume strategy, which your five or six other firms are pursuing as well, is that going to pass the return threshold? And if it is, that bigger strategy works. That's the guts of the question. It was great analysis. I've never met this guy, but I printed it off. I read it for like two or three hours. I'm like, there's a ton of information in there.

• 24:48Speaker 02

  Those deals also were a while ago too, right? It was such a different time. And I'm not saying they won't reproduce it, but when I look back, that was when I started to invest. It's nothing like today. Like there's nothing in common. There's nothing in common 2013 to 2018 when I started, nothing.

• 25:02Speaker 00

  You're exactly right, but there's potentially two consequences of that. Let me give you, the first is to say, hey, it wasn't as easy as that, right? It's going to be harder now, agreed?

• 25:10Speaker 02

  Yeah, for a lot of reasons, for a lot of reasons.

• 25:12Speaker 00

  But if it's harder now, let's move from hit rate, which is how many times you got it right, to what percentage of the best outcomes you got. In a less competitive time, the best firm in terms of percentage of total outcomes was in recent. They got 10% of the good outcomes. Benchmark got six and everyone else bunches in the two, three, four, five percent rate. In other words, when there was less money than there was today, the most aggressive firm only, and I say only with parents because it's an amazing outcome, got into 10% of the great numbers of the great deals. Now you circle back to the Josh Koppelman thing and you realize it's really hard to build a fund that says in 2026, you're going to get into 20% of all the good deals.

• 25:53Speaker 00

  Then I say to you, Andreessen, the most aggressive firm in a less competitive market, only got into 10% of the deals and all the other firms did less than that. It might be possible for one $8 billion fund to be fricking amazing. It's going to be very damn hard for six or seven $8 billion funds to be fricking amazing at the early stage, to the extent required to make the math work.

• 26:14Harry Stebbings?

  It's just about the multitude of trillion dollar companies that will exist. And if there's two, then you're right, they're fucked. If there's 10, there's a difference.

• 26:23Speaker 00

  I totally agree. To the extent that the big strategies work, it won't be because they get more Series As than 10%. They won't get better market share in 2025 than they did in 2014. It will work exactly what you said, Harry, to be clear. The deciding between does this strategy work or not is other companies that compound from 100 billion to 400 billion in the private markets before they go public. And right now, there's two. There's SpaceX, there's OpenAI. You know, if you have four or five more of those, the math works for everybody, provided you end them.

• 26:56Speaker 02

  Can I ask you a really simple question on this? I mean, Harry's trying to count how many dozen trillion dollar exits he's going to have and commit to his LPs. The global economy, the world domestic product, what's the acronym here? The global economy is 100 trillion, okay? I don't know what revenue multiple we put on everything, including grass and dirt, but how many, out of 100 trillion, how many trillion dollar exits can we have in a 100 trillion dollar world, like excluding Mars?

• 27:21Speaker 00

  I'm going to ground this, in fact, because Harry uses trillion because that's his Harry, right? The US GDP is around 30 billion. The US stock market trades at roughly 2X GDP, so 60, 65 billion. Noah Schmidt wrote the great piece on not conflating income and market cap, but around 60 trillion. The more important point is every decade, there's roughly, there's roughly a trillion dollars per decade of new value created, plus or minus. And that's been true in the past. And the real question is, does that one go to two? It's roughly of that order of magnitude we're dealing with here.

• 27:52Speaker 02

  Help me do the math. If half of all tech labor force is replaced by AI, which I did not believe 90 days ago, now I'm 100% convinced of, how much trillions does that create for tech companies? Like if half the knowledge workers are turned into AI, which I think is going to start to happen next year, like so fast. How many trillion dollar startups do we get out of that math?

• 28:10Speaker 00

  I think talking about trillion dollar startups is not useful. Even though, let me make the following sentence. There are six companies with a trillion dollar market cap. All of them but Berkshire were founded by VCs and founded within my lifetime at least. So to the extent trillion dollars is possible, it's only possible in venture. That's just as a reminder to all our PE friends that in the end, we are better. Let's not focus on a trillion because it's just too public marketing. I think a hundred billion is the kind of mental high end of good. So now to your question on kind of AI. Look, if you're selling the thing that allows your companies to be more efficient and allows the rest of corporate America to be more efficient, it's got to be pretty damn good for you. I mean, simple economics says you're selling the thing that can cut costs and make companies more efficient.

• 28:54Speaker 00

  No, I look, AI and the ability of AI to unlock value is clearly the big lift. I mean, witness the acquisition we started talking about.

• 29:02Speaker 02

  Yeah, but these mega funds, I think they're predicated on this. And Vinod's been saying this for years, and I didn't get it until 90 days ago, 1690, until we ran our own AI with 130,000 conversations through it. I didn't get it. Now I get it. Half of all these knowledge workers are going to be gone in 24 months. And can software capture 10% of that, 5% of that? Because what is the average knowledge worker worth? $200,000 a year and how many of them are there times point one?

• 29:26Speaker 00

  I'm going to take the counter on that. I think that the past is the best predictor of the future. AI is exciting. There'll be lots of savings. It's the new, new thing. We're investing in it. As yet, economics, it's hard to move macro dials. If it lifts the GDP growth from one of the half to two, you'll barely notice. It's like going to be like PCs in the internet. It takes a long time to show up in the numbers. So it's not going to be some step function change. But that doesn't mean you can't make, you know, many multi-billion dollar outcomes from it. I don't buy the mass unemployment in 12, 24 months.

• 29:57Speaker 02

  I'm not smart enough to even know what's going to happen to GDP. In fact, you know, I'm pretty skeptical that most software that increases efficiency really contributes much to growth. I mean, come on, we've all CRM, all this stuff, it hasn't really. But I got to tell you, Rory, we do not need SMB sales reps next year. We do not need marketing managers. We need almost no one in customer success. We need no mediocre QA engineers. We need, we need almost none of the mediocre product managers. I will bet you $100,000 that more of these people are unemployed 12 months ago than you think. A hundred grand and it's already happening. I mean, I'm slow. I didn't get it. I mean, literally even at SaaS, we've gotten rid of five people in our team in the last 90 days due to AI. Five people off our team and it's not just efficiency Rory.

• 30:40Speaker 02

  It's better and two, they don't complain about the job. They don't complain about the job. As soon as AI is even 80% as good as a human, they'll all be gone. No one, you can't get anyone to work at these boring SaaS companies. Literally, I talked with an old marketing manager I worked with. It's not even that senior. Okay. She's been out of work for six months Rory, six months. And she says, I need to make at least 300K. I just want to attend meetings. That's what she said to me. I've known her for years. I want to make at least 300K in tech. Cause that's what she did in 2021. She went to meetings and made 300K. I'm like, I'll keep my ears out is what I said to her. I'll keep my ears out for that 300K meetings only, hands off keyboard role. They're all going to be gone in a year. They're going to be gone.

• 31:19Speaker 00

  You love extremes and naturally you're correct. It'll take longer. I predict to you, even your business, I, yeah, you're saving a bunch in OpEx. And I think you're doing, you'll be super focused on this. You'll save a bunch more in OpEx.

• 31:30Speaker 02

  But it's not even OpEx. Do you know what the problem is? There's nobody to do the, Rory is going to agree with me. There's no one to do the work. That's the problem Rory that VCs are missing. It's not OpEx or CapEx or XX or Nexx. We are missing the fact that no one wants to work. And this is an honesty that people are not like, you know, who says it? Fiverr, Shopify, like if you squint at what these emails, that what they're really saying is no one wants to work. So you're out of a job Rory, you're a better investor than I'll ever be. But at least Harry and I are managing teams that aren't just investors. I can't pay somebody $250,000 to do anything at SaaS Rory. They will do strategy. They'll write a memo that takes 90 days. They will do something late. Okay. No one wants to work.

• 32:11Speaker 00

  And look, there are a whole bunch of jobs that will be happily automated by AI. I agree. You know, I'm not fighting that trend. We're investing in that trend. I don't think your profits are going quadruple. Take Klarna as the public example. I mean, they talked about all the people that said, and they probably did save those people. But I think in the end, you'll discover it'll have roughly the same profits as other lenders. It'll be marginally more efficient. It won't be a step function change.

• 32:35Speaker 02

  I agree. I think this is a misnumber. I think what's happening is we just can't hire people that are worth it. So we're just gonna turn the AI on. No one wants to work. E- even every Rory, like my son goes to a school for founder privileged children. 10% of the boys in his class just didn't want to go to college or work. It wasn't that they had a trust fund. It's just they were just fine doing nothing. You go on LinkedIn and you know that little circle that says open to a job? Talk to one of those people. They're unwilling to work. Okay, I know this is gonna make some people mad. But that circle means I'm unwilling to work. And I need 300K and I'll do three meetings a week. That's what that blue circle means, open to work.

• 33:11Speaker 00

  I'm not gonna argue with grizzled cynicism for the front lines of the hiring.

• 33:14Speaker 02

  You think it's cynicism? I'm actually bullish on it. I'm excited about the future now. Because I'm burnt out trying to hire people that want six figures to do no work. I'm burnt out on it.

• 33:25Harry Stebbings?

  Rory, I think, you know, I actually agree 100% sorry with Jason. Then come to London where it's even harder, or Europe, it's even harder. As we know, it has a baguette culture according to Jason, or red wine culture, whichever one that was. That went down well in the European office. Thanks, Jason. But you use the analogy of a PC and the internet. There is fundamental installation, infrastructure, hardware that goes into that era of technology adoption. We'd now press deep research on a model that we were already using and we can get rid of three researchers. There is no installation, there's no fibre, there's no PC buying, there's no implementation. It's completely different. I think the timeline to seeing.

• 34:05Speaker 00

  I'm just gonna say a zoom out comment first of all. I simply don't think you're correct. I think GDP growth and productivity growth has been roughly 2% since the dawn of the industrial revolution. And I'm willing to lean into the fact that it'll be 2% for the next 20 years. We all like to think the era that we live in is exceptional. In that, we're just 250 years into compounding free market capitalism. Thank God. And while I think deep research is cool, I'm willing to bet that if you compare it to. Oh my god, we don't have to pump this water out by hand. We've now got an automatic pump and we can help pump out the mine with a steam engine. Or, oh my god, we've got electricity. We can now, don't have to work in the dark. I think it's probable, at best, the inventions are equivalent.

• 34:47Speaker 00

  That's kind of my macro comment that I can prove in detail, but I know I'm right on. Now to the specifics. To your point, yeah, you're right, you're gonna, those researchers, deep researchers, amazing. Just love it for what we do here. Every time you're looking at a deal, if you're not running that out of the gate and doing a whole bunch of really great queries, you're toast. But we're not gonna get rid of all the associates. We're gonna make them more efficient, you know, and you're gonna be able to say, we can look at more deals. We can know more, we can get some leverage from it. And maybe you lose one or two. So my point is merely, it's a great trend, it's a wonderful trend, but it's not going to be the step function change. It takes time to diffuse any technology, even AI. It will be interesting to see the adoption of AI in enterprises over the next three to five years. If you had a step function adoption, then you guys would be correct.

• 35:31Speaker 00

  If everyone went, in the space of 12 or 24 months, from, you know, pre-AI to top of the range, all it can do, AI, then maybe you'd be right. I think humans just don't work like that. And, you know, there's still people running DOS PC software out there.

• 35:47Speaker 02

  There are, but there's no question, the overall adoption curve for AI in deep enterprise is gonna be slow. The thing is, the early adopter phase is so large in AI. And two, all of tech is becoming an early adopter. When we started investing, tech was not the largest segment of the economy. Today it is. So if these old manufacturing guys take six years, but all of tech fires half their team? I mean, Mark Banyoff, you know, the greatest generation, said, listen, I've got 6,000 people in support. I plan to repurpose them into sales. I, I love Mark, I love all of it. How you repurpose 6,000 people from AI, right?

• 36:21Speaker 00

  First of all, the first part of that comment is really great. The second part's really great and fun, let's wake it up. I will give you that. I think what you're right is the sectoral composition of the US economy in 2024 means that the early adopters are now a bigger percentage of the total. Obviously, with administration that would much prefer us all to be manufacturing toys at home so our kids could have three dolls. But given that we're not making dolls at home in America, you're right. It's tech, it's biotech. There's a bigger percentage of the US GDP that will probably lean into AI more quickly than, say, in the 1980s and 90s, a more manufacturing-centric economy leaned into computers. I will give you that. So you're right. And as I think this through, you probably have some accelerated returns to scale from AI that you mightn't have seen in the PC or the internet. It

• 37:05Speaker 00

  might, it might be boomy or quicker. I will give you that.

• 37:08Speaker 02

  Yeah, I don't know how to draw the curve, but that early adopter plus tech is so large that in our industry, it's going to lead to massive human disruption. Just as many founders, just as many VCs. But man, if you're a hands-off keyboard middle manager, you're, you're going to be gone in a year.

• 37:23Speaker 00

  And closing the loop, because I am a nerd, is what you probably will see is massively productivity in those sectors. And then you'll have the Baumol disease of inefficiency in health, education, and some of the other stuff. If the overall GDP remains, and I'm correct, at 2%, you might have massive productivity gains at Salesforce and utterly no productivity gains at healthcare, maybe education, maybe some government sectors. So I think that the adoption within the tech sector will be super fast. Now to your second point, hmm, yeah, what happens to those 9,000 people? I don't know. I think you might.

• 37:56Speaker 02

  The note said this so many times. EF did a demo day out here, and I watched the note again after building our AI with 130,000. He said, half these people are going to be gone. There will be no jobs for them. So taxes will go up. We have to pay for them, and we will all be better. And you can laugh at this, but when I heard this say a year ago, I'm like, this is the guy that invested in OpenAI. Today, I see it in my own AI. Like, there is no, those 6,000 people at Salesforce with benefits and taxes, they probably cost six figures. There will be no jobs for them. They, they may have to work at Subway, and it's terrible. There is no tech jobs for these roles. There is no job. And every CEO that I know that's at growth scale has some version of a hiring freeze going on. Unless the growth is insane, and it's all, you can hire, but you got to get rid of.

• 38:36Speaker 02

  It's all AI first. So it's even worse for these folks because everyone's got some sort of soft freeze, even if it's just a quality freeze. And so who's going to hire these people?

• 38:46Harry Stebbings?

  To what he said is it's not just like Adam Smith's invisible hand, which is one of the biggest shortages in labor markets today. It's ambulance drivers, it's fire engines, it's truck drivers, it's plumbers, it's roofers.

• 38:57Speaker 00

  Agreed. I was gonna say, again, always willing to change my mind when I hear new data. Thinking about what you said. I saw the journal article on just graduate unemployment creeping up. You know, there's definitely overproduction of some skills and underproduction, as you say, Harry, of some of the vocational skills. I do think that's a thing. I think, give Peter Thiel credit, 10, 15 years ago, he said, I think the return on college is pretty good for the good student. It's pretty good for the STEM student. But the marginal return on the marginal entrant to college in the last 10 years is profoundly negative. You've got the set of skills that don't have market value and you owe 150 grand. So I do think you're right there and those folks are looking for the soft jobs.

• 39:39Speaker 00

  Not soft as in easy, but soft as in marketing. It's not STEM skills and it's just really hard. I buy that. That said, if you've got three really smart friends at STEM and you can crank out a visual studio fork, you too can have $3 billion in 24 months if you could just get shit done. There's always gonna be room at the top, baby.

• 39:56Speaker 02

  There's a limited element of college that's already UBI. Like Harvard's $200,000 a year or less you don't pay in Stanford, I think. They raised it from 100 to 200, you pay nothing. That's it. You know, Harvard, even though it may become for profit soon, they can pay for this. But when every college is that way, it's just, it's UBI. You gotta do something with these kids. Well, that's where we're going.

• 40:13Harry Stebbings?

  Can I ask you guys, you mentioned that Harvard might be a for-profit. I mean, that was absolutely in the news. I put it as one of the number ones. When you look, we're gonna be taking away Harvard's tax exempt status. It's what they deserve. Trump posted to Truth Social. Listen, yes, I care about Harvard. I like them very much. They're great to work with. I also worry intensely that this is gonna happen to every endowment fund. And if it does, what happens then? Help me understand, is this the start of a much bigger wave? And how will this impact commitments to venture?

• 40:44Speaker 00

  The end of civilization, what does it mean for me? Said Harry Stubbs. Which, by the way, I actually totally respect. Because if we go off into some kind of blather about, you know, what we think about Harvard, I'm no more qualified than you or any of us. Yeah, I'm just a man in the street when it comes to that.

• 41:00Harry Stebbings?

  Also, Roy, when you think about who listens, no one cares what we think about Harvard.

• 41:05Speaker 00

  Unfortunately, going right back to the first thing is if it turns out that there is pressure on endowments, this is going to be huge pressure and precautionary cash planning in all the endowments. And going right back to our discussion at the start, unfortunately, those are the LP of choice for the small, early innovative funds. It's another thing that's going to reinforce, you know, the big will get bigger and it'll be harder to be new. It's not a great trend because, you know, if you're raising eight billion, you've long since stopped talking to Harvard in a meaningful way. You're actually talking to Pick Yourself a Wealth Fund. If you're raising 150 million for your first fund, those are the people you'd be going to. So it's bad news within venture investing. And then I do think we're in the business in venture of funding the things where the

• 41:50Speaker 00

  US has a massive comparative advantage. And that comparative advantage is typically caused by high intellectual property, high knowledge worker industries like biotech, like software, like robotics. That won't be possible if we don't have a well-funded higher education sector. So we can talk about all the old dumb things Harvard did and did not do over the last 10 years, particularly with that report that came out on antisemitism. There's a ton they have to be ashamed of. But sticking back on my venture hat, avoiding kind of trying to be Mr. Political, for our industry, one of the non-negotiable ingredients is a strong and vibrant technology,

• 42:31Speaker 00

  university system that generates graduates and research that have kick-started the whole thing. So I don't want to lose Harvard. They may be arrogant asses, they may do this whole I was at school in Boston thing, whatever. They turned me down 30 years ago, I'm still going about that. But I don't want to lose them. You don't want to kill the golden goose. We have a good thing going here in venture and a huge amount of it is the smart, talented, young people that come out of these colleges, educated and ready to go. Don't blow it.

• 42:57Harry Stebbings?

  One piece of news that really struck me was, and it kind of went under the radar, but I called it an aqua ouch because I remember one of the hottest companies at the time, a couple of years ago, was Census. This company was super fricking hot. Everyone wanted to invest. Sequoia did it. They did a next round and they got acquired by Five Tran, super under the radar. They'd raised 80 million from Sequoia and I was like, wow, that didn't happen how we planned it. And I guess my question to you is, how did you guys think about this? And is this the wave of a series of companies that was supposed to be high flyers just getting bought for sense?

• 43:35Speaker 02

  Well, these are deals for what it's worth where as a seed investor, I'm that guy that you talked about at the beginning. I'm the grouchy guy. I'm the grouchy guy. The last guy, whatever, but for me, where that was my high flyer, that was my fund returner. And now I'm getting like eight shares in Five Tran. I'm like, I'm not so happy. I have one of those deals. I was pretty grouchy about it. Now I have shares in a deck of corn, right? That will never IPO. Hooray. But it looked great on the press release. I was that grouchy guy for, for good reasons, for good reasons. Unlike me, I don't know the details of this deal, but yeah, that's where it makes you, you put all the time and it does. If you're in it for a year and showed up as a board observer, it's not your only hot deal. It's, but as a seed guy, it makes you grouchy.

• 44:09Speaker 00

  I mean, I don't know how to break it to you, but some deals don't work. I mean, it sucks. Maybe it hasn't happened yet, but when it does, hold their thought. You asked what I thought of that. Honestly, I didn't even notice because it's going to be one of five, 600 of these that's going to have to happen. You know, there's somewhere between 800 and a thousand unicorns and a couple of hundred of them are going to get public and the rest of them are going to have to be squished into other companies. And this is what that's going to look like.

• 44:35Speaker 02

  You know, the craziest one, even though it's not brand new was Lacework, right? It seemed like it was as hot as Wiz, especially me. I'm not a real security expert. I thought it was like the number two, just behind Wiz. When I was at Reinvent and it, you know, it had 7,000 square, it had like a $4 million booth. I'm like, this thing is, it's neck and neck with Wiz, right? And then it sells for nickels, right?

• 44:55Speaker 00

  Well, I think yes, for Nichols in terms of the enterprise value, but I think it was a significant portion of cash on the table. The investors, maybe rightly, maybe wrongly, I've heard both sides, looked at each other and said, you know, if we could get fifty, sixty, seventy cents on the dollar back from the cash that we put in here, rather than keeping going, maybe that's the right thing to do. Now, I don't know, I don't have the specifics. But it wasn't like they took a billion and a half and burnt it all up. It's that they just said, two years ago, we thought this was awesome. We've reflected, we spent a hundred million, we have eight hundred left, let's just call it a day. Which might be a shrewd call.

• 45:27Speaker 02

  I'm sure it was objectively, it's just, again, the stress for different folks in the investor stack can vary. So some folks will be like, whatever, I'm on twenty boards, I don't care. And for someone, it could be their only winner. It's just, the impacts are varied, right? It's never that great for the employees, though.

• 45:41Harry Stebbings?

  Speaking of investor exuberance, we saw that with Census. I'm sorry that you didn't notice it, Rory. You're clearly much busier than me. I'm just a humble podcaster, what can I say? My question to you on the back of that is, we also see Decagon then raising at a hundred X in a similar style to twenty twenty one. It was even fifteen million of error at one point five billion. My question on the back of that is, how did you guys analyze that? Returned twenty one, incredibly strategic.

• 46:10Speaker 00

  It's not wholly crazy at all. If you run through the logic tape, is that if you look at the top two or three use cases of AI, the number one is just personal chat, the number two is coding, and the number three is customer service. Of all the areas, to Jason's point earlier, it's the one where the ROI, hear me out, the ROI is the clearest. In the sense that, you know, we talked to people who said, and I had an investment in this space pre Gen AI, where the resolution rate was roughly thirty, thirty-five percent. In other words, one in three calls got solved. We did a bunch of references around this space and around the impact of Gen AI. And the conclusion over and over again was, with Gen AI, you can get that resolution rate to sixty to seventy percent.

• 46:52Speaker 00

  In other words, you can handle most of your calls without humans. And customer success, customer support is a massive, massive, you know, people sick. So it's just a great big market. So you start with that. Then the only question therefore is, is it going to be a winner take most market? Is there going to be more winners? And that's where it gets kind of tricky. I think Decagon's done an amazing job with Sierra. They've established an interesting lead and the kind of, I think there's going to be a lot more competitors than that, but it wasn't crazy. You know, you're leaning into growth. You've got a lot more runway ahead of you than many of the 21 companies. So I don't think it was wholly crazy.

• 47:27Harry Stebbings?

  I don't understand it. I'm sorry. I know Dez Trainer very well at Intercom. Fantastic product guy. Intercom is an amazing story to not a huge enterprise value today for 17 years. I know two billion's a lot. I know it's a lot, but they're fucking brilliant. And it's taken a lot of money and a lot of time. And they are one of 10. You mentioned Sierra. You want to go against Brett Taylor? Good luck. And Neil made it bankrolling him? And then you want to go against the 50 others coming out of Y C all for individual verdict lies solutions? Seriously?

• 48:00Speaker 00

  Yeah, that's the con case. You're exactly right. We've agonized about this market a lot. You have the pre-gen AI people, and I think you're exactly right. Intercom is by far the best of those. They've done an amazing job of adding AI, their little fin. If there's anything that a pre-gen AI company could do to get relevant in gen AI for customer success, I think Intercom have done it. So they get an A++ and they're Irish. So that gives me double votes. I think that the problem is you're, whenever you're one of the more mature business, you're encumbered by facts, right? You have a scale, you have a growth rate that you can kind of project off that. If you're doing, I don't know the numbers. I'm going to put 400 million growing at 20%, whatever. You can value that and it's kind

• 48:41Speaker 00

  of bounded. When you're selling quadrupling and 5Xing year on year from, you know, 3 million to 15, or was it 5 to 25, people just are more willing to lean in and say the future's unbounded. You can treble for three more years and suddenly the math works and you work one and a half. I know how it happens. Venture guys love new shit with option value over old shit with intrinsic value. It's as simple as that. We don't do intrinsic value. You know why? There's no upside in intrinsic value. We are upside junkies.

• 49:11Harry Stebbings?

  Can you just break that down for those that don't understand? Why is there no option value and intrinsic value?

• 49:15Speaker 00

  Because if something is, if something is 400 million, growing at 20%, and it's been doing that for the last three years, you're probably going to grow at 20% for the next three years, plus or minus. Now, there's a price at which you'd love that asset, but it's not going to trade at that price. It's going to trade at six times today. It's going to grow at 20%, and it's going to trade at six times when you exit. So it's a pretty bound, there's no magic pixie dust upside. If you buy it six times and sell it six times, you can double your money if it compounds for four years at 20%. With low growth, there's just no way to tell a story where something magic happens. Conversely, a new deal that's one or two million dollars, three million going to 25 million. Well, shit, maybe it'll 5X next year as well. Maybe it'll go to 50, followed by 150, followed by 300.

• 49:59Speaker 00

  And oh my god, that's still worth 20 times. It could be the next fill in the blank. That could be worth 20 times 300, which is 6 billion. We can pay one and a half billion now. There, you got your 4X. Because you're selling futures and you're selling upside hope. Now, people may be massively mispricing that option, which is what you're saying, and you could be right. In other words, the probability of that working might only be one in 100, and they're pricing as if it's one in two. You know, they're pricing it as if it's certainly going to work, and in fact, it just might work. And that's where these kind of bets go up.

• 50:30Harry Stebbings?

  One of the hailed pieces that I always go back to is Bill Gurley's 10X piece.

• 50:34Speaker 00

  10X, yeah.

• 50:35Harry Stebbings?

  Yeah, and you know what he said there about kind of global GDP and, you know, 2X? Yeah, well, you know what? 10X. And I look at that, I'm like, getting to 150 million an hour from 15 is, that's a journey. You're paying for it.

• 50:48Speaker 00

  It is a journey. We had some internal discussions. Should we be one of the 100 people pleading to put money into Dagigan at one and a half? And we had some interesting discussions.

• 50:56Harry Stebbings?

  That is not a scaled deal.

• 50:57Speaker 00

  No, it's not. That was my comment. But my point is merely, you know, we, look, going back to the thing that you said, Harry, is the market is changing so much that if every day you're not saying to yourself, are we doing it right? Are there things we should be thinking of that feel unnatural to us? And if you're not even asking that question, you're missing the point. Conversely, on the other extreme, if you start drifting off and doing every new thing, you'll probably also screw up because you'll lose what you have. But that's the challenge of being an investing manager in 2025. If you just stick to the same old boring shit, you could be done. And if you lose the plot entirely, you could blow all the money. And you gotta thread the needle.

• 51:31Harry Stebbings?

  I've just led a deal for a vertical SaaS for dentists, Rory. So I'm at the cutting edge of AI. Thank you very much.

• 51:38Speaker 00

  You know, good market. They have the whole imaging stuff.

• 51:42Harry Stebbings?

  Oh, yeah. Yeah, I'll show you the A because you're so nice.

• 51:44Speaker 00

  You're all sweet. You're all. I know there has to be something good come out of this.

• 51:48Speaker 02

  You know, the one about Decagon, the meta question, I have done a lot of invested in support and know a lot about AI in it. It is like this true of Windsurf 2, but the defense ability is confusing. But I think what they're good at is doing strong enterprise deployments, like getting it done. Get doing the heavy lifting, I think, is I just tried the one on Notion and Substack were on it. It couldn't answer my generic question, but that's not, it's not its strength, right? I asked Notion how to embed my AI in Notion and it said, the team will get back to you in a day. Okay? So I have a lot of the data. I'm on the board of this company called Gorgeous, which is the biggest support in e-commerce. And I see all the data and they have all the data for all the vendors. Gorgeous's biggest challenge is that objectively they are the best, but the gaps are narrow.

• 52:31Speaker 02

  The gaps narrow and I, and listen, ripping out a support test is a big deal. It's not going to happen in the enterprise over years, right? But I do this moats versus momentum thing, even though it's venture nomenclature. I think about this a lot, moats versus momentum. Decagon is cool, but if, if a Quadracon or Do-Decagon is better next year, I don't know. I just don't know, right?

• 52:50Speaker 00

  I hear you, but the argument I'd make is this, there are times when market windows open. And there's a couple of years where you scurry through and there's no moat at that particular point in time. But momentum begets its own moat. I do believe, let's just say, fast forward two or three years. I'm going to argue the following, that the state of the customer service market will be like this. Gorgeous or one or two of the old guard will add enough AI and be really relevant. Intercom Gorgeous, a few of those, there'll be 50 new companies trying to do it. But I'm going to say Decagon and Sierra, we have observed in the phone side of it. Two or three of them make critical mass and explode. I think at some point when you become the safe choice, windows shut and the opportunity to walk through it.

• 53:32Speaker 00

  So I don't think that those companies will get eroded because I don't think three years from now, Decagon will be at 100 and NewCo will start taking their stuff away. I think this is a point in time, like Salesforce, where you have the chance to grab a 10 or 15 year market slot.

• 53:47Speaker 02

  It's not that I don't think you can get the momentum today. What I worry is just that when there's so much competition, I think everyone's going to be less durable. It's not your 10-year-old SaaS company that is seeing less durability. I think this is new, this less durable revenue. And I don't see any reason why the new guys, if you listen to Varun at Windsurf, he's like, "Our only moat is working harder than everybody else in speed." He's not claiming he's building any moat. This product didn't even exist 90 days ago.

• 54:13Speaker 00

  You're exactly right. I do think in enterprises, the truth is, once you're installed, it's hard to take out. For exactly the reasons you said, the shit doesn't work so well unless it's trained and tuned. You just have a bias to be there. And then the other thing is, once you're the perceived leader, you do have all that kind of positive reference value. I mean, I don't think Salesforce was winning in 2010 because it was the best CRM. It was winning because it was the default option.

• 54:36Speaker 02

  Yeah, but I just worry that with so much great competition, it's not just that your revenue is going to go to zero. I just worry there's going to be more churn, more downgrades, and harder-to-win deals. Like, those benefits to hitting scale, I think, are less than they used to be. Even if the budgets are exciting, and I just, I don't know how to predict where the future of anyone will be. There's going to be so many shiny pennies in AI and so much change that, like, these chat apps are great, but when chat, voice, bots, like, you know what's just starting right now? It's just starting, is having real digital people join support. Not dumb cartoons or Bumble with the audio that doesn't match the video. I'm talking about people better than a human joining it.

• 55:19Speaker 02

  Now, maybe that's not Sierra or Decagon or Intercom or Gorgeous or Zendesk. It may, it may come from another place. And then these spaces, it's not once a decade disruption, or once every five years. Now, it's literally every five-week disruption. So, this lack of stability is where I think that the Decagon revenue growth justifies 100x. It's the stability that I worry about. If it's stable, I'm all in. If 1 to 15 in 12 months, I'm all in.

• 55:45Speaker 00

  That is fair in the sense that you have significantly more variance in product-market fit in these AI products than you saw in SaaS. I would still assert that enterprise-grade, big installs with lots of integration will be way stickier than most. It'll also be slower to build than most. But yes, I think across the board in AI, how are you looking, Payne? Say it.

• 56:04Harry Stebbings?

  Well, I'm just saying AI is the greatest friend for verticalization, which is like we led the series A for a company called Solve. It's AI for patent lawyers. If you think patent lawyers are switching software tools often, you are high. It's a once every 10 year switch, difficult thing to do. There is no way the churn is what it is with horizontal developer audiences like it would be with Curser or Codium.

• 56:29Speaker 02

  And I agree, but I think there's a bit of VC old school hubris here, which is that it's killed versus maimed. I think once you're embedded in a workflow, once you're core, once you're core, it could be an SMB, it could be mid-market. When you're core, it's hard to rip out. Okay. It takes time. But what's happening with AI is people are looking more often and deals are more competitive. And there's more pressure on pricing at downgrades. Anyone that says there's not, when some new AI competitor comes in and says, we will do this at half the price and it's 10 times better. Even if folks take a look, everyone thinks their sales team is so great at resisting pricing pressures. You know what happens when they cancel? They'll do the deal for half price. It's just these, we're missing the fact that AI can maim leaders, even if it doesn't kill them.

• 57:14Speaker 02

  And that can take them off the IPO track. That can destroy venture investing. Instead of 50% at 500 million, you're growing 30% at 300 million because you got maimed. You didn't die. But man, you no longer can IPO. That's terrible. And that's what's, that's where people that are hiding their ostriches in the dirt. I think their startups are going to fail because they're, they're not realizing they're getting these knife, these knife cuts.

• 57:36Speaker 00

  I think it's more the ostriches are hiding rather than people hiding their ostriches, but I did get the metaphor.

• 57:41Speaker 02

  That Decagon 15 million came from somewhere. It might've come from Intercom. It might've come from Zendesk. And if it, and, and they notice, right? You'll notice.

• 57:49Speaker 00

  I hear your point. I do agree that, yeah, the both competition and churn are significantly greater now. Cause like I said, I think the world is in flux. It was locked in for 15 years in SaaS land. It's been in flux for the last two years and for the next two or three years in enterprise land. But, and this is where I could be wrong, but I'm just going to put it out there. I think that what a successful set of products in AI starts to Over the next couple of years and the people who are in the lead at that point in time, get a similar 10 year run, the 10 year runs you and I both benefited from in SaaS, Jason, and that risk of churn and that 60 people shakes out to three or four.

• 58:30Speaker 00

  And in the end, market formation evolves in the same way as it did in the enterprise space, which is, you know, typically any enterprise apps marketplace tends to be a modest oligopoly of three to four players where, you know, you have steady market share. That's the vision. If you're wrong in that vision, then these assets all work 10 times revenues. They only work five times and everyone is so horribly wrong, my head hurts.

• 58:52Speaker 02

  I at least think it's much riskier than I thought 100 days ago, much riskier. Not being binary, I'm saying it's much riskier that there isn't this stable state at the 14th electron or whatever it is, like the stable state no longer exists. I don't believe it exists anymore.

• 59:06Speaker 00

  I hear you and, you know, I will say I'm on, I'm lucky enough to be on one board with an executive. I won't name him, but he's a very senior technologist in one of the model companies and really understands. And I just shut up and listened to that. And really, you would say, really do I shut up? But I just shut up and listened to him talk when he talks about, you know, model trajectory. And his comment over and over again is you just have to internalize what the models are going to do in the next two or three years and you might be able to do that because it's going to be done for you. So that is the argument for on your side, Jason, which is, is that the more the model can do, the more of that software stack gets sucked in. So I do agree it's a countervailing force. I don't have clarity on it, but until you get a handle on that, you're right.

• 59:48Speaker 00

  You are at the risk of more disruption than we've seen in, you know, SaaS in 15 years.

• 59:54Speaker 02

  I just, I just think we should be honest. Portfolio companies, founders, if they're seeing a little bit of elevation insurance, more pricing pressure on renewal, decagon in a couple of deals, whatever it is, okay? They should see this as a canary in a coal mine. Their CRO should not come to the board meeting and say, ah, it's just a little, yeah, we lost a couple. We're seeing a little pressure on downgrades, like this is not a bump. This exponential change in terms of risk and I just think of nothing else. Maybe VCs will take the risk, but fatter should jump on this. Like when you see a little bit of this start, you better. You better be all over it because I mean, literally, I talked with Yamini Rangan from HubSpot last week. This is HubSpot. She said now at HubSpot with cursor, they are pushing out so many features, they can't put them into production anymore.

• 1:00:35Speaker 02

  She wasn't kidding. They're said they're 50% 50% more productive at HubSpot's a big F and deal. Okay. The fact that HubSpot now has developed more features than they can push out. Think about that when you think you have a stable state in your 50 person startup or that you can rest at 50 million ARR. HubSpot has more features than they can put into production for the first time ever. And she's not Darmesh, but I'm sure it's 100% accurate. I mean, she's looking at it and she's measuring this by code commits. It's too much business process change. You know, it's just that's to build HubSpot was so stable for years. Oh, we'll add CRM at 100. I mean, where are you guys invested? It was, you know, a generation of it. I'll add Sierra at 100 and I'll add service at 300 and I'll just, I'll just keep layering this beast and I'll drive NRR from 85 to 100, 110.

• 1:01:18Speaker 02

  And it was just this, this check the box. But if they can build more software than they can push out, what about everybody else?

• 1:01:23Harry Stebbings?

  Can I just touch on one final element before we wrap? You mentioned like Mame Not Killed there, and we've said about the companies that may be derailed in going to IPO. Olo, a public company now for sale, the reverse of what we're talking about of struggling to get companies out, a company that needs to sell. How did we think about and analyze this one?

• 1:01:44Speaker 02

  I think I'd rather be Seven Rooms, which DoorDash just bought for 1.2 billion. My advice to folks that are being eclipsed today is, is take the offer.

• 1:01:53Speaker 00

  Yeah.

• 1:01:54Speaker 02

  Take the F and offer. I'm not an expert in Seven Rooms, but I think Seven Rooms conceptually has the same challenge Olo is, which is you're focused on the enterprise end of an SMB market. Although great founder, trying to do big chains of restaurants, but restaurant is as a VSB space, not a VSB. It's very small business. Seven Rooms is the same thing, you know, complex reservation management software for chains. And I think they got the money. They got the 1.2 billion and Olo didn't. I mean, at some level, it's true. It may not literally be true. So my only thing I can say is if you're losing, this is always true in venture, right? But especially these moments, take the deal.

• 1:02:26Harry Stebbings?

  I mean, the crazy announcement today was actually Deliveroo is also getting bought by DoorDash for 2.9 billion. Just to put that in context for you guys, and I don't mean that rudely, but I'm sure you're not aware of public markets in the UK. It was valued at between 1.4 and 1.5 billion. That is a $1.4 billion delta between how DoorDash valued it and how UK public markets valued it.

• 1:02:52Speaker 00

  And it may well be, and I can say this having lived in the UK, it may be that you guys are just crap at valuing tech companies. I mean, and it's a genuine comment.

• 1:03:00Harry Stebbings?

  Yeah, I agree.

• 1:03:01Speaker 00

  Look, DoorDash is the machine. They're the, I don't know, sixty billion dollar market cap. They've done the US, you get out the little map, you start coloring it, you say, oh, Western Europe, we can pick this one up and be just be done. You pay a premium, it's in the noise and you win. I mean, once you have the US domestic market as your core starting point, you just end up with the biggest version of everything, except possibly something to domestic China, and then you can just pick off your acquisition at a time. Totally makes sense.

• 1:03:27Harry Stebbings?

  We're not going into China. I don't want to upset.

• 1:03:29Speaker 00

  No, we're not doing that.

• 1:03:30Harry Stebbings?

  No, we're not going to China.

• 1:03:31Speaker 00

  There are other podcasts that will happily cover politics until we're blue in the face.

• 1:03:35Harry Stebbings?

  Final, final one, I do just have to ask it. Koppelmann's Venture Arrogant School, what did you guys make of this?

• 1:03:42Speaker 00

  I totally understood it. Yeah, we want something, I wouldn't call it the Venture Arrogant School, but it's the right question everyone should ask. Is there enough market share for me to execute my business model? What do I have to achieve to achieve my business model? I mean, you're taking away the arrogance, which is just Josh being fun. I think Josh is amazing, obviously. He's done really well. Clearly, when you get towards the tail end, you can, you can have a quick sneer at everyone. But the analysis itself was spot on. Every single firm should have to say to themselves, is there enough deals of the size and stage I want to do to make the math work for me? And obviously, if you're a hundred and fifty million dollar seed firm, you know without even doing the math that you're fine. There's lots of companies out there, you just got to make sure you find them. What is implicitly saying is, it gets back to where we started.

• 1:04:24Speaker 00

  If you have a five or ten billion dollar firm, what percentage of total value do you need to make the model work? And that's why, when I was preparing for this, that's why I got that other analysis I talked about much earlier on, the Corey Ratman stuff about. The summary is, you take Josh's analysis on what percentage of total value do you need to make the math work? And then you take Corey's historical analysis on what people have done in easier times. And the conclusion is, no one has achieved the market share that it would require to make this math work for venture investing. You look at that and you go, that's a sobering statistic. Now, I'm not saying the model doesn't work, because Jason said the right answer, which is, you won't get there on doing more Series As. Let me repeat, the best firm got ten percent of the Series As, the next best got six.

• 1:05:09Speaker 00

  So eight firms aren't each gonna get 10%. So the only way all those firms can quote make their model work is stuffing huge amounts of money into late-stage deals, which gets back to the same thing every frickin' week, which is if people go with the stay private for longer, then you can own and compound these assets, probably at a lower return, but probably over the hurdle rate. That's what the bet is.

• 1:05:31Harry Stebbings?

  I thought his comment on duration was amazing.

• 1:05:33Speaker 00

  Yes.

• 1:05:34Harry Stebbings?

  Being that two X in 10 years is relatively similar in terms of VAR to the four X in 17.

• 1:05:39Speaker 00

  Yes, time value of money is a bitch. Yes, it was spot on the analysis and you know, you should know for your firm and we even go one level down to, okay, this is what you need. How many of them do you see? How often do you get the picking right? They gotta exist, then you gotta multiply that by how many of them you see, then how many you pick.

• 1:05:54Harry Stebbings?

  Rory, are you doing a coverage play?

• 1:05:56Speaker 00

  Everyone's doing a coverage play. It's just a question of what kind of coverage. Some people are trying to cover just the 10 best deals, some people are trying to cover 100 bills to win them. But everyone at some level has to monitor some version of coverage to get there.

• 1:06:06Harry Stebbings?

  I think he said one thing and then we can finish, but he said one thing I did disagree with. He said like activity in terms of deals drives relevance. And of course he's right, but it felt relatively binary and it actually missed for the fundamental reason why I do content, which is content is the most effective way to stay relevant without having to put dollars out the door in deals that you maybe don't want to do.

• 1:06:26Speaker 00

  Yes, and even though talking with you isn't fun, Harry, I'd prefer to talk to you than piss away 20 million bucks.

• 1:06:32Harry Stebbings?

  There we go. So you see Rory, even though you have to do this on a weekly basis, at least it's better than pissing 20 million dollars out the door on a Decagon 100X.

• 1:06:41Speaker 00

  I'm not gonna conflate those two things. I think Decagon is genuinely an amazing company, but I agree with you. And I think Josh, Josh is so shrewd. As long as firms have a lot of money, they can do a lot of deals. The person who does 10 good deals a year struggles to be relevant versus the person who has 100 good deals a year. Josh is exactly right. We've all gotta pick our way to win in this market, because it ain't going away soon. This is the game on the field right now. It mightn't be the game that is a stable long-term equilibrium. We might find 10 years later, some of this was a horrible mistake and some of this money gets withdrawn, but it's the game on the field for the next five years. So quit bitching and play it. And now I gotta go chase a deal.

• 1:07:17Harry Stebbings?

  On that note, Rory, I know you love our visuals that we do for each show. And the visual that we're gonna do for this show, thanks to Jason, is no one wants to work these days.

• 1:07:27Speaker 00

  Oh, no! With your face like... With my face right in there. You are not doing that. Look, I have even, I was telling Jason this before you got on, I have even switched from a PC to a Mac to make this work. So I'm trying my best, Harry. So come on.

• 1:07:42Harry Stebbings?

  Rory, I think you're doing a brilliant job. I think the world is learning. I so appreciate you. Jason, man, it's so lovely to see you.

• 1:07:52Harry Stebbings?

  I cannot tell you the fun we have in those shows. They are my favorite shows to do. They're just great. I learn from Rory and Jason so much. You can find them on YouTube by searching for 20VC. That's 20VC on YouTube. But before we leave you today, here are two fun facts about our newest brand sponsor, Kajabi. First, their customers just crossed a collective $8 billion in total revenue. Wow. Second, Kajabi's users keep 100% of their earnings, with the average Kajabi creator bringing in over $30,000 per year. In case you didn't know, Kajabi is the leading creator commerce platform with an all-in-one suite of tools, including websites, email marketing, digital products, payment processing, and analytics for as low as $69 per month. Whether

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• 1:09:20Harry Stebbings?

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• 1:10:46Harry Stebbings?

  recognized by Deloitte as 2023's fastest-growing software company in North America. And here's why I'm excited: Mode's equity offerings have raised over $30 million from 20,000-plus retail investors, one of 2025's standout public raises. And you can now join me as a shareholder with as little as $1,000 at invest模dmobile.com/20vc. For a limited time, unlock up to 100% bonus shares and a free Earn Phone. Email us for the investor brief at 20vc@模dmobile.com or check out invest模dmobile.com/20vc. As always, I so appreciate all your support and stay tuned for an incredible episode tomorrow

• 1:11:28Harry Stebbings?

  with one of the fastest-growing companies in Europe: Eleanor at Pigment.