20VC: SpaceX Buys Cursor for $60BN | Stripe's $8BN OpenRouter Bet | Anthropic's First Profit & The Math Behind Reaching $600BN in Revenue? | Lovable and Higgsfield Raise Mega Rounds

AGENDA: 04:20 Elon's Deal of the Decade: SpaceX Buys Cursor for $60BN 06:10 Why Cursor Was Surprisingly Cheap at $60BN 07:00 Why Zuckerberg Failed to Buy the AI Prize Elon Secured 12:00 Elon vs Zuck: Who Would You Rather Work For? 14:00 Will Microsoft or Amazon Now Race to Buy Cognition? 17:05 Stripe's $7BN OpenRouter Deal Creates Huge VC Winners 25:00 OpenRouter's Fatal Risk: Enterprises Don't Want 10 Models 28:15 Anthropic Turns Its First Profit on $11.5BN of Quarterly Revenue 32:15 Can Anthropic Really Reach $600BN in Revenue? 37:00 Why Every Elite Engineer Could Soon Get $100K in AI Tokens 39:30 Would Rory Buy Anthropic at a $2.5TN Valuation? 44:50 Silver Lake's $43BN Workday Bet: SaaS Isn't Dead, It's Mature 53:00 How Silver Lake Could Make $30BN From Workday 57:00 Lovable vs Higgsfield: Similar Revenue, Radically Different Valuations 58:00 Is Lovable's $13.3BN Price Actually Cheap? 63:30 Why the DOJ Is Coming After Andreessen Horowitz 69:00 Why A16Z Has "50 Legal Battles" Happening at Once

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

• 0:00Speaker 00

  Your gross margin problem is my revenue opportunity for my colossus cluster. Pessimists sound smart, optimists die rich. Only a fool denies that Elon Musk is wildly effective.

• 0:11Speaker 01

  I would much rather initially work for Elon than for Zuck. I think it'll be like the scale acquisition. I don't even think this product will exist in five years.

• 0:18Speaker 00

  You can't add expenses below the line fast enough to stop yourself making money. The only thing that matters will be the growth rate and the 27 and 28 projected revenue. Someone who was hired with a million dollar package in 23 ended up making 51 million four years later. A billion knowledge workers in the world, absolute bollocks.

• 0:37Speaker 01

  I think we'll give each of our best engineers $100,000 of tokens. I had two board meetings in the last week where they finished the roadmap for the year. They're into 2027. If you're not into your 2027 roadmap, deep into it by August of 2026 in the agentic world, your team is not good enough to survive today.

• 0:55Harry Stebbings?

  This is 20 VC with me, Harry Steppinson. Stay, it's my favorite show of the week. Rory O'Driscoll, Jason Lemkin coming together to discuss the biggest, best news that's happened in the last seven days. This is the only podcast that you need to listen to every week to stay up to date on what matters in tech. But before we dive into the show today, you have the idea, but with most AI tools, you hit a wall. The setup, the config, the gap between what you pictured and what you actually ship. Well, Base44 is where that wall disappears. You describe it, yeah, Base44 builds it. Apps, websites, AI agents, real working products built in minutes using nothing but plain language. And it's all batteries included, the backend, the database, the authentication, the hosting, the heavy lifting is handled. So you just really stay in the flow.

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• 2:20Harry Stebbings?

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• 4:16Speaker 00

  You have now arrived at your destination.

• 4:19Harry Stebbings?

  Boys, we are back. We have some mega news this week. SpaceX closes the $60 billion all-stock takeover of Cursor, minting 1,000x returns for the likes of Annie Partovia Neo. OpenAI's startup fund is a mega winner who invested $6 to $8 million very early, which Rory, I thought of you when you said before about Elon Musk giving Sam billions of dollars through gritted teeth. And many others thrive in Andreessen, most importantly, netting huge returns. What do we have to say on this one? It's the closing of an already announced deal. Thoughts?

• 4:55Speaker 01

  I just had three things. One is it's just super, you know, we've been doing this show about 70 something weeks, you know, or so on. So much has changed in the middle of it, or maybe a third of the way in, it almost seemed like Cursor was dead. You know, no one's portfolio companies were using it. I don't even remember if Claude Code existed when we started this show or not, right? It might not have, it, it sounds so crazy. I'm not sure it had launched, right? So Cursor was super easy, rockets to half a billion in revenue. Claude Code comes out and it seems like everybody's moved, like Cursor's dead. Cursor goes multimodal really early. It changes everything and rockets to a 60 billion outcome. I mean, forget about that it started as an email client, right? That fun little thing from Hacker News. I can't imagine what a roller coaster it was on behind the scenes. This was not actually 100% linear progress to 60 billion.

• 5:40Speaker 01

  Pretty, pretty crazy, I think, the rate of, the rate of change. And the one thing I just kept thinking is, and it's tough, it's how important it is to be beyond agile. Because I think so many teams would have given up on that journey, right? Oh my God, fucking Claude Code came out? I gotta build my old L L M, I gotta do the, like, and it's just, it's so hard to keep up with the rate of change. And there's probably been three different cursors since we started other than the email client. That was my main thought. The second one is how it ended up not even being that expensive by the time the deal closed.

• 6:08Harry Stebbings?

  And you say that because it's going to be at 6 billion end of year and then you're paying 10x? Or you mean it because you're...

• 6:13Speaker 01

  Yeah, paying 10x forward revenues, if, you know, and it went from something earlier in the show. It looked like it would be gross margin negative, right? When we started the show, be like, well, Cursor is a joke because they're selling a dollar's worth of tokens for 80 cents or 50 cents to, to the world. Of course it works, right? This was the classic thing that VCs would mock when we started this show. And it was true, right? Turn around everything from open weights and everything. It's a pretty darn good business model selling at 10 times forward revenue. I mean, that's a, Elon was a shrewd buyer, a shrewd buyer.

• 6:43Harry Stebbings?

  I'm intrigued why Zuck didn't buy it. He's building the model capabilities with Alex and Co. He's missing the enterprise capabilities. This would have solved that in a similar way that it solved it for Elon.

• 6:54Speaker 00

  Yeah, interesting tangent. And yes, if, if the logic is, hey, you've got a whole bunch of compute, but not an obvious business on top. The two people for whom that's true are Meta and SpaceX. And you're right, SpaceX did it and Meta did not, right? So that's, yeah, at a high level, it's a fair point. But one of the things we, we pointed out in the agenda is SpaceX could move a little more expert. They didn't do one of these weird aqua hire things. They just bought it like a regular old corporation. They didn't have any anti-trust. I mean, they actually filed for anti-trust, they got quick clearance. They didn't have any compelling issues with that. I don't know if the seller would have had the same confidence that Meta would have gotten through, right? Just given their DOJ, they just, they just probably are going to have the DOJ more kind of crawling through what they do. So that would be one argument.

• 7:37Speaker 00

  It may also be, to be very direct, no one else had the stomach for the bet in the way Elon does. And I mean, yes, Meta is relevant here in terms of fitting the characteristics of lots of compute, no compute business on top. But Elon has the biggest advantage, which is his stock is trading high. They're doing what, 20, I mean, it's 8 billion last quarter in revenues, call it 30 billion growing, round up to 50. What the hell, you know, right? It's still 40 times revenues. Picking up a big asset, as Jason says, at 15 times current revenues, maybe less than 10 times year-end revenues, dirt cheap for him, right? A net accord of day one, in a way that probably wouldn't be as true for Meta. I haven't thought about it all that much because frankly, until you mentioned it, I hadn't thought of that.

• 8:20Speaker 00

  But one of the things for me is if you zoom out, and just reflecting back on Jason's comment on the gross margin negativity, right? That's true. That story was true when it happened and it's still true today. There are, there are challenging margin issues, right? And when you reflect on the journey, you kind of, the negatives that you can cite along the way tend to be true. They're correct. Those were real. And when you look at an investment, the positives in terms of market trajectory just outweighed the negatives. I mean, it, it's easy to sound very kind of financially smart and say, oh, in the end, everything has to generate free cash flow. This doesn't have gross margins, so quote, in the end, it's worthless. But it's wrong because along the way, when you have a market that's exploding like coding, that's a huge market. Remember, this is the biggest market for AI.

• 9:03Speaker 00

  70, 80% of Entropix's trillion dollar market cap is predicated on this. If you have the number two player in that space and you're growing hyper fast, then even though, yeah, you got gross margin challenges, especially in a kind of optimistic, forward-looking market, the buyer's going to look past that and say, there's only one or two ways to play in this space at a meaningful level. And it was just a perfect fit. Frankly, in a very different capital markets, it could have been a very different story. You know, oh my God, there's no capital, oh my God, the gross margins, oh, no free cash flow. Maybe you have to slow down and do a very different trajectory as Cursor. But in this market, they were able to go balls out, for lack of a better word, have those tough gross margin stories and then find a buyer who not only was willing to look through it,

• 9:47Speaker 00

  but actually had every ability to solve it. Because it's like, your gross margin problem is my revenue opportunity for my colossus cluster. So it just shows, the negative issues didn't go away. They just got swamped by the optimistic take. And that's why, you know, it's the old cliche we talk about pessimists sound smart, optimists die rich. Jason said it, there was probably some very tough days, but they had the guts to keep moving forward. And because the market's huge and because frankly, the environment is risk on, they've had an amazing result. Good luck to them.

• 10:16Speaker 01

  And on the Meta thing, it's just a detail. I guess it's a parallel universe question, but I mean, Zuck would have had to pay 80 billion, 70 billion in like a week. That'd have to be very core because don't forget what happened was Cursor was about to close around 2 billion at 50 billion, right? From Andreessen and Friends. And Elon did what you have to do in that situation. What does it take? So he bid 10 billion more, right? You've got a deal at 50. I mean, Zuck did Instagram and WhatsApp like in an hour on the back of a napkin and paid high, right? But I think Elon did even better. What's it going to take? They were already working together with Cursor, right? They're already working together. We're going to do the round of 50. Would it? How about 51? No. How about 50, 60? How about 60? Okay. And well, the deal might not happen. Well, what if we pay you 10 billion if it doesn't happen?

• 11:00Speaker 01

  Well, okay, I've removed all the objections from the deal and, and I'll let you run the company the way you want, right? I think it was three points and they shook hands and did the deal. I mean, Zuck can do the same thing. He's done it at least twice, but you got to want it bad to do it, right? At 80 billion and he would have had to move even faster. I mean, Rory's of course right. Elon had the ultimate stock and currency to do this deal, right? And the ultimate match. But to do any of these deals, I think you've got to be Elon or Zuck because you've got to just strike this deal in a week at 60 billion. I mean, it's only a handful of people can do this, right? Only a handful.

• 11:32Speaker 00

  Agreed. And you know, I chose reading, you know, a Smith, who's kind of a Dem left to center, but moderate centrist blogger, who's not an Elon fan, just wrote a great piece about a year ago that says, only a fool denies that Elon Musk is wildly effective. You know, regardless of your opinion on the merits of it, but he's one of possibly the most effective person on the planet at getting shit done when it comes to industrialization, physical AI and AI. And you know, from a standing start a year ago, he built the cluster and then he bought the product to stay on top of it. And he took SpaceX from literally a year ago, being a really amazing rocket and satellite connectivity story to being, as the S1 says, at least in terms of the quote, future prospects, 89% an AI story.

• 12:16Speaker 00

  I mean, you saw his tweet, you mentioned it a year ago. You know, I've underestimated, some person underestimated AI time to go. He went from a standing start to owning more compute than anyone, pretty much anyone else and owning the most important product to fill that compute in less than a year, just over a year. That's just wildly effective management. It's a world class in getting shit done.

• 12:37Speaker 01

  The other small factor, just thinking about it, we can move on, but imagine you are Michael Cursor, right? And things are going pretty well. You've got, you've got a term sheet from your, what, 24? You're a paper deck of billionaire and Nvidia and Thrive want to put in money at 50, right? You're not that cash motivated. You could take out a billion, right? Or 500 million, right? Things are going okay. These are very rare deals, but even though working with Elon in a year might turn out to be terrible, I would much rather initially work for Elon than for Zuck personally. I would do it. Like I would be like Elon is the guy I want. If I had to work for someone to be Elon, I mean, he is better than me. This guy is fucking rockets, electric, he does everything and, and Zuck's firing everybody and going crazy because he doesn't have an LLM.

• 13:20Speaker 01

  Not that he isn't one of the greatest entrepreneurs, but I wouldn't want to work for Zuck, but I would want to work for Elon and, and that actually matters. It may be a mistake in M and A as a target, as a CEO, because we've all, when we've been founders on the other side, we've made mistakes here, right? I, I tell founders to ignore it. Ignore the brand. Ignore what you think the job is today because you have no idea in 24 months, what the hell you're going to be doing. But it is incredibly emotionally important to founders to land in something they want to land in. And I would not want to land at Meta today. If I was Alex at scale and I got 24 billion and I had a tough business, maybe, but this one, man, I'll, I'll take Elon over that one.

• 13:54Harry Stebbings?

  Do you think Amazon or Meta go, eh, we'll take cognition instead? Is there a knock on effect for the second player in market, which I think arguably now would be cognition?

• 14:04Speaker 00

  I think it's interesting you cite those two. There's actually a quality of absolute imperative to do something, you know, who has to? And I think SpaceX had to because they had all this compute and it looked like they had to fill it. Now subsequently, they've also been able to rent that compute to Anthropic and Google. I don't think it's nearly as existential for different reasons to the two you named, and I'll name one for whom it is. For Amazon, you know, they're in the AWS business. They got lots of contracts with Anthropic. They basically have the compute for Claude Code. So they're basically getting the inference side revenue for that. They don't own the model, but it's important, but not imperative. They've never done a $60 billion deal, doubt they're starting now. And Meta, that to me is more a, again, unlikely.

• 14:46Speaker 00

  And the reason they didn't do it earlier is their core businesses and ads business, it's fricking amazing. This is literally, I have a wonderful ads business. It kicks off north of 100 billion. I've chosen to do this new AI thing. We can pretend it's strategic, but it's really, I just fricking really interested in it. I don't know if you have to do another 60 billion deal on top of that one. So not as imperative. I think just to put it out there, I'm going to name the one, the company for whom this market matters is Microsoft. Because you remember, he's now long since gone and owns a basketball team, but Steve Barmer would jump around the stage sweating, screaming, it's developers, developers, developers. And the fact that they've lost that connection with developers, that GitHub is now a trailing edge product is to me, over the medium term, a pretty significant loss. I mean, operationally, the numbers are fine.

• 15:31Speaker 00

  It's a well-run company. But if you wanted to name people who should want to own a leading state of the art coding product in this brave new world, clearly the number one person is Microsoft. Now, the antitrust issues would be a longer discussion, but I don't think, in other words, I don't think owning the developer is existential for AWS. I definitely don't think it's existential for Meta. It's a hundred percent existential over the medium term for Microsoft.

• 15:55Harry Stebbings?

  I've got a fantastic tweet that said Satya should buy it and then make Scott Wu CEO of Microsoft. I thought that would be a rather ridiculous thing to replace himself, but I actually thought Scott would be a rather brilliant CEO of Microsoft.

• 16:06Speaker 01

  My experience with big company M and A is that the idea that, Harry, what did you say that someone else feels like, you feel like they've got to, other folks have to jump in to respond to Cursor that everyone else?

• 16:15Harry Stebbings?

  Yeah.

• 16:16Speaker 01

  My experience is that doesn't happen. It doesn't actually get everyone else to say, hey, I've got to go buy cognition. My experience is that usually the other thing happens. I wanted to buy Cursor. I lost Cursor or I didn't even know I lost Cursor because Elon swooped in. Now it pushes it up my existing priority list. That's how number two and number three get bought, not because there's a panic for land grab, but because I didn't get what I wanted. That's when you got to be really thoughtful as number two, because that, that's when you get bought as number two and number three, really, when just number one just gets taken off the table. It's not so much a land rush. A lot of times the acquirers are like, I thought I had more time. Maybe Satya's like, I thought I had more time with Cursor. Andreessen was going to do it at 50. I could do it at 100 billion next year. I wanted to wait and see. And they thought I had more time and they didn't. So then they go buy number two.

• 17:00Speaker 01

  The couple of times I've said on the other side, I don't know that it creates such a strategic arm race that everyone just gets picked off instantly. That, that might be a VC partial myth.

• 17:08Harry Stebbings?

  There's another mega acquisition that happened this week. It's not quite the $10 billion that was reported, but OpenRouter, $7 billion acquisition by the Irish Polson Brothers, bro, your brethren. I mean, what an incredible journey. Alex Atala, CEO, who I just had on the show, he founded OpenSea before. It's obviously the leading LLM routing company. Raised a series B that was at $1.3 billion valuation just four months ago. So it's five X that, or capital G. It's a 12 X for Menlo and Andreessen. How do we think about this? It's widely reported, now it's confirmed.

• 17:43Speaker 00

  You, you can see intuitively how Stripe get there from here, right? Is that, you know, when you look at their existing business, they get paid a small percentage of the money flow to manage complexities in collecting cash via cards and also by ACH now. And here they're going to get a small amount of the money flow to manage the complexities of picking models and running, you know, as an enterprise, using a single API to run, you know, tens and maybe hundreds of different models. So kind of, I can see at the conceptual level, it, it totally makes sense. And a lot of their lift recently has come from, even on their payments business, has come from just their customer base being so AI forward that every time you spend money with OpenAI or Anthropic on a credit card, they get some of that money. So I can totally see how they get there.

• 18:27Speaker 00

  And again, it's, it's some version of the same thing as the Cursor comment. You can do the old intellectual, oh, what are the barriers to entry for this business? Oh, over the medium term, there'll be lots of people. And there's a ton of weenie router companies out there and everyone's building one. But it turns out in an early land grab, when people are moving, you know, remember the meta market here is growing 10x year on year. If you take Anthropic's growth rate as the big picture comment here, right? If you move early and you build a useful part of the infrastructure, you will probably find an acquisition at a price that doesn't make any sense on a DCF to you basis, but makes huge sense to the acquirer. Cause just like Elon will turn Cursor into money, cash flow far quicker than Cursor could have turned Cursor into cash flow.

• 19:09Speaker 00

  I'm willing to bet Stripe will turn Open Router into money, probably quicker than Open Router could do on a standalone basis. This is what happens in a crazy market is that if things slowed down, a lot of these, you, the acquirer would run the buy versus build and say, there's no hurry. We've got five years. When things are moving as fast as they are now, you're going to see, in my view, until such time as you see the correction and the acquirer currency diminishes, you're going to see a whole bunch of people like Anthropic say, screw it. I want to be in world models. I'm just going to buy the card. I don't have time. Screw it. I want to be in, you know, Stripe. It's good. I'm huge in payments. I want to be in the AI inference flow. Quickest thing I can do is spend $7 billion, some of it stock, get these guys and be rolling in a week. This is what you see.

• 19:53Speaker 00

  You saw it at early in that stage. You thought back in times even before that, that would make you cry, Harry, if I even mention it, right? When things are moving really quickly in a build out, you just see these kind of amazing acquisitions where the value to the acquirer dictates a very healthy price. And it's one of the reasons why venture works. You go right out there on the risk continuum, but if you time it right, you know, you can get these kind of returns and you know, well done, A16, well done, Menlo, well, well done, capital G.

• 20:20Speaker 01

  It's a reminder, you know, how weird revenue is in M and A. Because if you're bought by PE, top and bottom line are incredibly important, down to the significant digit, down to sell G38, okay? If Workday goes private, exactly what its DCF will look like in 2030. Two is so important. The weirdest thing about M and A with big companies is revenue is so important to argue over multiples and the price. Like it's so important to price, but it's irrelevant because it's all about what Stripe can make out of Open Router. It's such a weird thing that your revenue going into big M and A actually doesn't matter at all, even though it's probably the biggest input to price. But then it's like Stripe, what's Open Router doing 70 million, 80 million today? Stripe does not care for that money. And so you often see acquirers will abandon even the existing revenue, right?

• 21:05Speaker 01

  To do the revenue. It's just, it's such a weird paradigm. Two things. Rory is right. Stripe actually appears to be very good at acquisitions. It's how accelerated into crypto and otherwise they're good at it. The flip side you could say is maybe they should be better at building these themselves, right? That's the grouchy version. Why didn't you build it? But if you're good at M and A, and this is 5% of your market cap plus cash, and you want it tomorrow, it makes sense. If you're good, you have to be good at M and A though, and then you do it. The counterpoint is I love Open Router. I talked about it on the show like six months ago. I'm a customer. I'm a user. It was brilliant. It was one of these pieces of software like 11 Labs, which is just instantly easier to deploy. It's just elegant. It was just a beautiful piece of software, but it's pretty niche.

• 21:46Speaker 00

  In what sense, Jason? Just a genuine curiosity.

• 21:48Speaker 01

  Okay, so Open Router, as I understand it, and I think it's right, is really strong in sort of developer type tools where you want a simple way to pick a model. Okay. Because you can pick any model. You don't need to get on fireworks. You don't need to set up anything. And it's really, really, really strong with chatbots where like they don't have to be perfect. When you're talking with my digital Harry or digital Rory, you don't need perfect outputs, right? You could route between models based on availability and those are their two niches. Now, let's talk about workflows with a lot of reasoning for B and B when it has to be accurate. You're going to down spec to one or two models because you can't have model drift. You can't be routing from Kimi to Quinn to four, six to Fable.

• 22:29Speaker 01

  And all of a sudden you're like B to B workflow that has to be perfect drifts from all of them. It drifts even just going from like one OPUS model to another. You see drift. You have to QA it, requalify it, fix it, test it. So for high reasoning models, people do frontier-esque outputs, right? People don't rotate through 11 models and I don't think Open Router is the right product for that. And that's fine. They get that too. But I think Stripe is, hey, listen, any transaction on planet earth, we can take 2. something percent of, right? But it's not going to be true for Open Router. It's a niche. It's a wonderful niche product. But in the world of routing, which everybody does, Databricks does, Replit does it, Lovable does it, Vercel does it. It's a niche product with two really good niches, but this is the risk to Stripe is that they end up owning a niche, a successful niche product.

• 23:14Speaker 01

  And that's not their, their DNA is not niche. It's just not.

• 23:18Speaker 00

  First of all, I do think that's fair because you know, we internally agonize about this space and that was exactly what we're angsty about. And your framing is exactly correct. Like the positive, let's spell out the positive trend is as long as you have the frontier models trying to extract 100 billion in revenue from you this year, and you're an enterprise, you're going to want a plan B, right? At least to keep the thing honest. So you are going to want some kind of routing, but it's, it's what you said that resonated with Jason a little bit, which is remember when cloud was starting, people were like, oh, I want to be multi-cloud. It's really hard to be multi-cloud. Here, maybe I want to be multi-model, but maybe I only want two or three models. And therefore I don't need this kind of routing functionality. That is the risk. If your enterprise customer decides I need to flick between three models, but not 10, then you're right. Your value here goes down.

• 24:03Speaker 00

  I would imagine the positive spin is your value here goes up to the enterprise. If you can build on top of just picking a whole bunch of normalization of all those options and try and commodify the models. So that's the kind of tension part. The more you can do that and the more you can service to people who don't care all that much, the better your business. But you're right. If JP Morgan says, I want more than just Anthropic, but I'm not going to qualify 10 models. I'm just going to work with pool side as my plan B and then offload the rest to something else, then you're right. Then you have niche and you don't get that revenue.

• 24:36Speaker 01

  Yeah, like for example, like this week, Rippling posted their view as a B to B player of what models they use, right? And they, they had it all and they said, in the world across Rippling, we looked at two things that were best for us. OPUS 4.8, it's an N minus one model, but it's well-trained with their harness. And then there's like, there's price, performance and speed. And then I think they picked whatever GPT 5.5 medium or something. And they said, the rest isn't worth it for Rippling today. Now that could change in 60, 90 days. So they down spec to two at a time and then they have to manage the outputs from these. And you may tune one set of workflows here, right? That are long reasoning another. And even if you're Rippling scale, managing 12 models is too much. If you're a dev tool and let people pick, so be it, right? That's great for Open Router. Or if you want to build into your own product, a fallback, Open Router is a 10 out of 10 for this.

• 25:22Speaker 01

  Like, let's say something's down, right? Open Router automatically falls back, but I think it's a niche product, but it could be a massive niche, you know?

• 25:29Speaker 00

  Yeah, I'm remembering the conversations now because you are right. The great thing about the core Stripe product is all payments are equal. And Visa is the rails for everything. That might be the case. I'm going to check out that post because I mean, one of the big questions will be how much pricing pressure enterprises can put on the closed foundation model companies? And how do they put that pressure on? Because I think it impacts a lot. Sorry, Harry, go on.

• 25:50Harry Stebbings?

  In five years' time, will this be considered a successful acquisition or not? Betson prediction.

• 25:56Speaker 01

  I think it'll be like the scale acquisition. It will be the start of something that gets bigger. Whether this brand exists or whether even this product exists five years, I don't even think this product will exist in five years. But I think there's a high chance, more than 51% chance, it builds into a 20 or 30% revenue stream for Stripe and that's enough. But does Open Router as part of Stripe exist in five years? I'll bet you dollars to donuts, five years is so much time and it's such a niche product. This, this product itself, if it does exist, it'll be deep in a dropdown menu on the top of Stripe, like 11 layers down. Because it'll be subsumed into the whole sort of token management platform, right? Their T M P.

• 26:32Speaker 00

  I don't know. I think that's, I think Jason's answer resonates with me is if it works, it'll be a, it'll be seen as a TAM expansion play. What's fun about Stripe right now is they're doing that acquisition, which is very much a, hey, we don't play in this space. Let's put a stake in the new ground. And at the same time, they're talking about a PayPal acquisition, which is very much, we own this space already. Let's buy these guys, fold them into what we already have and just make a shit ton of money consolidating, right? And actually I think that's a clever strategy. I mean, I think they're actually playing a very clever hand. There's probably a one in three chance that they have a massive AI routing business in five years. But if they do, that's a big second leg. While at the same time, if they get the PayPal deal done, that's the kind of deal you have a high, to Jason's point about

• 27:14Speaker 00

  if you're good at M and A and good at consolidation, you probably have a high degree of visibility that you keep those revenues. That you remove the entire G and A, you get more of a two-sided network because you have consumer wallets, which Stripe doesn't have. And you know, you've done core consolidation acquisitions, doing them both together, provided you can pull them off is yeah, super interesting in terms of building enterprise value. And they're doing it all private. Again, back to the comment, doing what looked like public company size M and A and pulling it off while private. I know they got the investors to take Stripe stock in the Open Router deal. I think some portion of it was stock. And you know, the PayPal deal is more complex and probably requires more thought.

• 27:53Speaker 00

  But again, being able to do a, what is I think a 40, $50 billion deal and a $7 billion deal issuing paper while private is pretty impressive.

• 28:02Harry Stebbings?

  Stripe's core dev team need a bonus at Christmas time. They are busy this year.

• 28:06Speaker 00

  They are busy this year, but isn't everybody?

• 28:08Harry Stebbings?

  We mentioned margin pressure on foundation models. Anthropic turns its first profit on 11 and a half billion dollars of Q2 revenue. The business is getting better for Dario. This is also in a week where Gavin Baker said about Dario saying he believes that they will be the final private company. Did you see this?

• 28:29Speaker 00

  We did. And let's separate the hyperbole and the future from the facts and the present. It's not surprising them making money, right? If you just go back to last year, they did four and a half billion last year. And I think the gross margins went from negative blah the year before to like positive 30 or something like that, right? On track, I think end of the year roughly 40, right? When you have decent operating margins, like 40%, and you go from four and a half billion in a year to 10 billion in a quarter. That means you have 4 billion of gross margin, right? And that's literally in two quarters. You can't add expenses below the line fast enough to stop yourself making money. So it's inevitable.

• 29:08Speaker 00

  I mean, yeah, they 12x'd growth, which means they probably 14x'd gross margin if it continued to increase even slightly. And the trajectory has been increasing. You're not going to 14x headcount or below the line training costs in six months. So yes, I'm totally not surprised they are operating in composite. We had run numbers at the start of the year and it kind of came to that conclusion. I mean, the interesting thing will be as they continue to grow, as they buy that expensive compute from Elon, if you remember, that has a big price increase two months in, I doubt they will forecast for their IPO a base case of continuing profitability. I could be wrong. But this profit didn't surprise me. I mean, it's amazing performance. It's amazing revenue. I mean, revenue with any kind of decent gross margin cures almost all ills.

• 29:51Speaker 01

  I think the other question is, is we gear up for an IPO, which could be very imminent, right? Is what numbers does Anthropic get away with, right? You've got off balance sheet liabilities, right? You've got massive commits. You've got probably stock-based compensation like we've never seen in the history of mankind. So if you get asterisks and daggers on your numbers, they will be jaw dropping, right? If they have to, if they have to fully account for that, and some of that's non-GAAP, these off balance sheets. If they're going to be hammered like, like a poor Wix or someone for SBC or, and everyone's going to write up the horrific downside, right? But I, I think everyone's going to look through all the nerdy negative things you could see in the numbers. They're just going to ignore it, right? But I do think it's important that it get ignored. I think it's important for Anthropic to get ignored.

• 30:33Speaker 00

  And I think none of that shit will matter, to use a technical term. The only thing that matters will be the growth rate and the 27 and 28 projected revenue. Provided the revenue comes, everything else will be fine. If the revenue comes, then you'll need the off balance sheet stuff and you'll have the revenue to buy it. In other words, all these off balance sheet stuff are basically, I promise to buy a whole load of compute from you in two years' time. Cause if my revenue grows 10x for two more years, I'm going to need all that compute. Well, if the revenue grows, you need the compute, you're happy to have it. In fact, you're insisting you get it. If the revenue slows down, then you don't need the compute, it all gets hard. So almost everything is going to boil down to what number do you underwrite for the next two or three years? And then, as you said, the stock-based comp, no one's going to care because the reason you worry about stock-based comp,

• 31:16Speaker 00

  it's because in a steady state, like Workday, we can talk about that in a second. If you're giving someone 500 grand every year to show up and be a middle manager, they're probably mentally putting those RSUs into their comp and they think to themselves, I'm paid 400 in cash and 500 in RSUs. And if you start giving them the RSUs, they're going to want cash. So it really is a cash number. So in a mature business, it's totally correct to worry about SBC. But the SBC numbers are here are going to be huge because all these people got grants and then it turned out to be worth way more than they ever thought. And yeah, the classic example, someone who was hired with a million dollar package in 23, ended up making 51 million four years later. That doesn't mean you'd have to pay the next guy 51 million.

• 31:57Speaker 00

  If that person had gotten the million they signed up for, that's all the real economic stock-based comp it takes. The other 50 million is just dumb luck. You got lucky, it's not a run rate. I actually think it is okay in a hyper-growth company to look back past a good slug of the SBC and normalize it out. And conversely, it's not okay in a mature company. That SBC stock-based comp in Workday or Salesforce, that's real money that people are spending. And it's a little bit unfair because you're kind of giving the hyper-growth company a free pass. But they get a free pass. You get a free pass and it's like, it's the same thing we said about Cursor. You get a free pass on margin, you get a free pass on off balance sheet, you get a free pass on SBC, provided revenue go up. Once revenue stop go up, all bets off.

• 32:39Harry Stebbings?

  Once revenue goes up, all bets are off. What would it take in usage for Anthropic to hit the $200 billion in ARR plan for 2028? And then 600 billion in the next year?

• 32:50Speaker 01

  The simple version is how many knowledge workers are in the world, right? How many folks can take a subscription? Being generous, is it a billion human beings, right? You know, if Anthropic has 100% market share at 200 bucks, that's 200 billion. If Anthropic has 300% market share, that's 600 billion. I don't know, Rory's thought more, the 600 billion seems complicated, but you know, our demand for, for AI is only just begun.

• 33:15Speaker 00

  You can see 200 billion, which is a number, right? Once you start getting just the 600 billion number, it gets really hard. Cause no one ever looks at the big number, and I've just been doing some work on this, right? No one ever steps back and looks at the big numbers. I mean, you said a billion knowledge workers in the world, absolute bollocks. Hard-nosed comment here, US is typically 50% of the world's software budget. Cause we're 50% of the world's high-end knowledge workers. You know, we're 25% of the world's GDP. So at a minimum, if spend tracks GDP, it's only 4x the US. But every software company is typically 2x US. Why? Because the rest of the world can't afford the same software we do because they're poorer and they have more people at lower wages and less software. That's why we have crappy internet when we go to Europe.

• 33:56Speaker 00

  So the truth is, the hard-nosed comment is this, you probably take the US knowledge worker's spend and double it. There are 83 million knowledge workers in the US and then roughly 86 physical labor workers. So that's what you start with. And you start cutting it down and I literally was doing the math this weekend, thinking about it. You start cutting it down real quickly. The truth is, you know, knowledge workers includes everyone in healthcare. I don't think we're, you know, we're not going to replace the nurses. It includes the teachers, right? The sweet spot, the ur sweet spot of the whole damn thing is there are about 1.8 million people doing coding in the US. And then including then QA and all the other people. There's around 5 million people that do software-related shit, systems admin stuff, all the rest of that.

• 34:38Speaker 00

  And they get paid in total grossing up about 600 billion a year. 200 billion means you're replacing a third of them. That's a lot. And remember we said this before, the single most important ratio, and I asked you about what you thought it was, Jason, is in a steady state, what's the ratio of salary dollars to AI dollars? Cause if it's 50% of salary dollars, you can easily get to 200 billion. 600 billion is hard in coding, where you can't get there. If it's 10%, then it's hard to get 200 billion across the whole thing. So it really boils down to, in the steady state, how much software? Cause if software is the tip of the spear in terms of max adoption, what do you think for every hundred thousand dollars you spend on an engineer or 200,000 dollars you spend on an engineer?

• 35:19Speaker 00

  Are you going to be spending 100K on AI, 50K on AI or 200K on AI? That's the number.

• 35:24Speaker 01

  Yeah, we're testing it. The last 60 days are every single scale up is capping their AI budget for real. It's not just Ubers of the world. Everyone's capping it because it's, it's grown truly exponentially, right? Everyone's capping it at 6 million a year, 8 million a year, right? I think it'll land at 100 grand per engineer equivalent. I think that's what we'll, I think we'll give each of our best engineers 100,000 dollars of tokens. And in return, we'll cut the size of our dev teams 30, 40% effectively. It won't exactly work out that way, but close enough is how it's going to work out. So there, there's 100 grand here for running inference 24/7 with 10 agents in parallel.

• 36:01Speaker 00

  For what it's worth, I actually agree with, that's, that's what was my mental model too. And that points to a total, and it's assumed it's not just dev engineers. Give the sysadmins, the QA guys, let's do the same thing for everybody. Same thing for everybody. You are, you get 200 grand of wages, fully loaded, including all the benefits and 100 grand worth of AI, but we cut 30% of you. That turns out to be terrifyingly about a 200 billion plus or minus market in the US.

• 36:25Speaker 01

  Next year.

• 36:26Speaker 00

  No, ever.

• 36:27Speaker 01

  Well, yeah, I mean, that's Anthro, sorry, that's Anthropic's estimate for next year.

• 36:30Speaker 00

  I know, yeah, too. But my point is this, if you count all the heads and apply the Jason math, you get 200 billion in the US, which probably means you struggle to get 350 billion worldwide. That's the town. And then you've got to go beyond software. And there is obviously revenue beyond software, but it's nowhere near as fertile. And the percentage isn't going to be anywhere near as high. Yeah, but I, it's funny, it's exactly the number I came out with. Cause you see the ramp data that says, you know, the top 1% of their sample, which in turn obviously is a biased sample of tech-forward people are spending 7K. And then the median is spending like 100. It's amazing, the dispersion. And 7K times 12 is only 84K. So the top 1% of the most curated group you can imagine in terms of tech spend is spending.

• 37:14Speaker 00

  I know, that's 1% for all employees. So you, you, I did, that, that's the pointy edge of the most optimistic spend is 50 cents of salary dollar.

• 37:23Speaker 01

  I think we're going to get to 100,000 in the investments I've made that are the best ones, the ones growing faster, especially the ones that are pre 2022, 23. So they have a frame of reference. They literally are shipping two to three times faster, only recently, only recently. That was kind of bullshit last year, right? People would say that, but it was all performative like token maxing. I had two board meetings in the last week where they finished the roadmap for the year. They're into 2027. These are my fastest growing, two fastest growing, but not brand new companies. They finished the roadmap, they're well into the 2027 roadmap. So you're going to spend 100 grand on your team to do that, but it's adding up to so many millions, it's overwhelming. So I do really think there's some, this 100,000 makes a lot of sense. You could justify more or less, people will ratchet it, but I think it'll be, it'll be the new normal

• 38:07Speaker 01

  and you'll cap your team and it'll all be, that's just what the CFOs will do. 100 grand of inference and you get to hire this many engineers. But the idea that they're pulling their 2027 roadmaps and it's not just performative, it's not just PRs. You want to invest in that up until the maximum where it works, right? But the absolute numbers are just getting really big.

• 38:25Speaker 00

  Yes.

• 38:26Speaker 01

  I gotta say, man, if you're not that way, you're losing today. If, no, if you're not into your 2027 roadmap, deep into it by August of 2026 in the Agentic world, your team is not good enough to survive today. This is your last chance to make changes. Listen, if you're, if you're OpenRouter, you didn't even have a 27 roadmap. It didn't even mean anything because you're, you're, you're just remaking it day by day. But if you're running the classic playbooks of these, I can get this much done each quarter, this much done each month, and you're not into 2027, you're going to lose to the competition. You've got to be, be honest. How deep into 27 are you? Not deep enough.

• 38:59Speaker 00

  Yeah, Jason always gives me these terrifying soundbites that I go back and think about. Cause yeah, you know, we did this survey, you know, we tend to be fact-based people. We did the survey of all our companies and we saw similar to the ramp dispersion, which is some companies all in, some companies adopting, but still, you know, dramatically less spend per head. I can't, I can't remember the average, but it was dramatically less. And you know, what I didn't do, and actually now that I think about it, I should do and I will do, is go back and see, you know, if you could touch a strong correlation, which you believe you should be able to, between output and, you know, can you justify the spend? Then you should be saying to the laggards, you're just going to fall behind.

• 39:34Harry Stebbings?

  If it goes out at two to two and a half trillion, would you be a buyer?

• 39:38Speaker 00

  First of all, I want to be clear, I don't think the software market is definitionally the end of the TAM. I think the average knowledge worker won't have 50% of salary and thing, but they'll have a meaningful percentage. So the TAM is significantly bigger than just developers. Cause you have lawyers, but I think lawyers won't, look, the K and E guy who's pulling 2 million a year as a partner isn't going to be doing 200K's worth of tokens. He's definitely not going to be doing a million dollars worth of tokens. A lawyer would die before they gave a million dollars of tokens instead of a million dollars of take-home pay. So the market is bigger than software, but there's nowhere else that's such a sweet spot of software. So I don't want to be limited to 200. But I think the really challenging thing, I, I definitely want to be first out rather than second out

• 40:19Speaker 00

  in terms of going public, especially if you have a, some kind of near profitability story or bouncing around profitability. I think it's a far more attractive strategic position to be going out as Anthropic in the fall with a, we've been profitable, okay, we're on profitable again, but we're the winner in the enterprise. Then going out next year where maybe the growth rates have started to slow both for Anthropic and the public markets. And if you're OpenAI trying to access the markets then, I definitely think they're in a strategically more challenging situation.

• 40:47Speaker 01

  I think they've just capitulated to it. Of course you want to be first to your point, right? I think OpenAI has had to get their house together, more executive turmoil. Apparently a great last 30 days, right? But first half of the year slower than its previously junior competitor, right? And they've had to do so much to say, listen, we're going to go public second, and then we're going to have a comp out there, and the comp is what it is. And we may not trade with the hype that SpaceX and Anthropic did, and the world will not end. Like, we will trade at a very precise number. We will know what we're going to go out at. And the world will not end if we trade at 1.3 trillion. I just think that they've given up on worrying about that, because ultimately, Rory's right, it's much better to be first, but in the long run, it doesn't matter, right? You're just, if you don't need the capital, it just is what it is. It is what it is.

• 41:29Speaker 00

  But Jason, that's the sentence. My, I'm gonna push a little. That is the sentence. There are no two companies on the planet that need more capital than these guys. In a world where you do need the capital, being second sucks. Because I agree, in general, you are correct. It doesn't matter, you know, two companies go public, plus or minus a year, and a decade later, no one cares. Right? We've definitely seen that over the years. The thing that's challenging in this particular case is both companies still have enormous, many hundred million, billion dollar capital needs. In that situation, I would much prefer to be, I do, I'm putting an asterisk around fear there.

• 42:00Speaker 01

  I think you're right, but the thing is, let's say, and pick your number. Let's say Anthropic is public at 2 trillion, it really doesn't matter, right? OpenAI is going to be able to sell stock at a discount to its implicit valuation before it goes public. There's, there's some, there's still enough capital. Let's say they're both worth 2 trillion, right, implicitly. OpenAI is going to be able to sell stock next year at 1.8. People will do it, and especially if you have no stock as CEO in your own company, it's okay to sell at a small discount.

• 42:23Speaker 00

  Yes, I agree. And look, I'm not catastrophizing here, but I think the interesting thing is, if you're the smaller market cap company, and you have the bigger capital need, which right now OpenAI does, because they have a more ambitious capital need target. Now, would you prefer to be the guy trading at 1.5 trillion, who only needs to raise 100 billion, or the guy trading at a trillion, who needs to raise 300 trillion? At some point, these things become troubling. And yeah, price clears all markets. This is the best new technology market we've seen in, ever perhaps. And if you are the founder in that market, and even now the number two, you're going to be attracted capital, but you just don't know the terms under which it happens. And going back to my comment, I think you will regret not being able to access the capital markets this year.

• 43:03Speaker 01

  No, no, of course I agree, and I don't want to spend too much. My only point is, the media and social media make a big deal out of this, right? Who goes public first, and who does better? I just think Sam and the OpenAI team have said, this is, this is our fate. They could go public tomorrow, right? There is enough people to buy these shares to go public. They've decided that, while this isn't perfect, right? This is the best on the board, and we're going to live with the doubt, like, it's not the end of the world. Like, you can't solve every problem tonight. They gotta solve bigger problems, right? The cards are the way they are, right?

• 43:31Harry Stebbings?

  Jason, you said about management team churn. The churn, for those that don't know, most recently was Denise Dresser, who was the CRO, who left, and Dali Rajic has replaced her. For those that don't know, Dali, he's one of the most respected CROs. He was a frickin' master at Wiz. And I think the best CRO or sales leader in the business, who's Chad Peets, says he's the best of the best. So I'm feeling a little bit more confident for their Codex and Enterprise Division today.

• 43:58Speaker 01

  Yeah, it's just a lot of change. I don't know anything inside. I just think Greg Brockman took over, right? And brought in the Wiz guy. This had enough of the Salesforce crap, right or wrong? Actually, if you look across all of AI, a ton of Salesforce executives have been recruited, right? To come in and help. And you can make fun of it. Like, I used to make fun of how back in the day Salesforce hired Oracle executives because they took shots at Oracle. But you need folks to know how to scale. What is Salesforce at? 45 billion run rate, 50 billion run rate? I mean, Anthropic's past that now, right? OpenAI is past that. So you don't want to hire kids. You want to hire someone that has some idea how to play. So Salesforce is about it, right? But if you step back from it, I'd rather have someone from Wiz that is close to technology, that is in a hyper-competitive space, rather than asking how many seats of Slack you want.

• 44:41Speaker 01

  It's just a very different go-to-market motion, right? It's very different.

• 44:44Harry Stebbings?

  Jason, you said, if you have not already hit your end-of-year goal in terms of product, and you're not well into 2027, you're behind. I'm making assumptions. I don't imagine Workday is quite at the cutting edge, like two of your companies at 2027, already hitting those goals. And Silver Lake circles a $43 billion take-private bid for Workday, one of the biggest SaaS buyouts ever. We've got two of the best SaaS minds in the business here. Guys, what should we take from this? SaaS isn't dead, one of the biggest firms, one of the biggest buyouts. The stock popped 18% afterwards. Wow.

• 45:22Speaker 00

  I think what you can take from this, because the SaaS isn't dead thing is just too simplistic. I think what you can take that is a very financially oriented, wildly savvy buyer, is willing to bet money that they can buy this at a constrained price, lever it, and generate a return because the revenues are sticky enough to allow them to pay down the debt over five years, and with, you know, reasonable multiple stability, sell it on and make a 20% IRR, plus or minus. I mean, I ran the numbers. That's the bet. So it's not, quote, dead, but what it is not is wildly exciting. What it says is, this is the mature phase of an industry. When it's not about wild growth, it's not even about untempered growth. It's literally about someone saying, this thing is growing at 13% year-on-year.

• 46:05Speaker 00

  We can buy this thing for, was it roughly five times revenues, 16 times trailing EBITDA? We'll probably leverage it, you know, two or three times, and four or five times EBITDA, but it's going to be a big equity check. And then you run the LBO model, and you say, you know, you keep at a 35% operating margins for five years, you use all that cash. It's roughly 10 billion a year in revenue. So it's like 3 billion a year of cash, you pay down the debt and the interest. And, you know, provided you buy right, you can make 20% in almost a 2X over four or five years. I look at that deal and I go, I'm torn, because first of all, I think Silver Lake are wildly smart. It's very interesting when you run the sensitivities. If you pay like 20% too much, and it dips down into the mid-teens, it's almost the exact opposite of venture.

• 46:50Speaker 00

  In venture deals, if you're in the right thing, it almost doesn't matter what you paid. You see Cursor for details, see Open Router for details, right? This is the exact opposite. This is fine, precise financial engineering. If you're wrong by 20%, 30% on price, you know, your IRR dips from 20, which is totally acceptable at scale, to low teens, in which case you wish you hadn't done the deal.

• 47:14Harry Stebbings?

  Can I ask a question? Precise financial engineering for a four-to-six-year hold period. Six years ago, ChatGPT didn't exist. Are you able to do fine, precise financial engineering in a world where we move so fast?

• 47:30Speaker 01

  I don't think system of record is, I think it's a moat, but I don't think it's a ticket to growth. This is, I think, super important, and it's something that everyone on X gets wrong. It's great to have a system of record, which Workday has. Even with AI, and it, it helps, it's very hard to churn, or you just don't want to churn. But it sure as hell doesn't mean I want to spend more money with that vendor. That's their challenge. But it sure as hell means the five years are far more predictable than 95% than poor Monday, which we love, or others. We have no idea where Monday, or even HubSpot, will be in five years at the SMB level. We know pretty much where Workday is going to be, 10 years, right? And so I think this growth versus retention is misunderstood. There is a little bit of upside in this deal, which may, I don't know if it's part of Silver Lake's calculation.

• 48:13Speaker 01

  The CEO came back. One of the co-founders came back, and Neil came back. He came back, he hired his successor when times were easy, just before AI. He brought in a great knobs and dials co-CEO, you know, like our friends at Daniel at UiPath and others, and realized if I ain't go to work today, came back. So I don't think Silver Lake is planning on, on a Neil, like, radically changing it. But I think if he does, there's real upside to that. Maybe instead of their 20% IRR, it could be a game changer. If he creates the agentic version of Workday, they at least have the founder back in the saddle doing it. And that would make me feel a lot better if I were Silver Lake, that I have upside.

• 48:46Speaker 00

  But it wouldn't be in the damn base case. And Jason, you framed the base case exactly correctly. It's 5.3 times trailing. In other words, what this says is, financial minds will pay five times revenues for system of record, growing at 13%. Anything that's not a system of record, anything that's not growing as fast, price accordingly. Because you're right, there's no way you'd apply the same kind of leverage to, for example, a to-do, or a task management, or a project management software, or a website-building software. What this gives you is a sense of what the baseline is for best-in-class LBO takeouts. If the airtable bending spoons give you an idea of what it is, if you just, you know, if you don't have that kind of system of record, you get 2.7.

• 49:28Speaker 00

  If you're vaguely profitable, and in a space where, as Jason says, you can predict five years, you get 2.7. And what Workday says is, if you've got 30% operating margins, modest growth, but you're a system of record where you really can believe in the next five years, then if you're lucky, you get 5.3 times revenues. That's the bid ask spread right now. Contrast that with the game for Open Router, where they're going to get, I think a trailing revenue, plus or minus 100. You know, you're going to get 70 times trailing revenues. Which game would you prefer to play?

• 49:58Speaker 01

  Workday has something that makes it a better deal for PE than I think than anybody else on the target list, which is that it is a somewhat closed system of record. Now, Salesforce is out there working their friggin' tails off, because there are a muchly open platform. You can build your own agents on top of Salesforce tomorrow. And a lot of the hot GTM startups are built on top of Salesforce. They're not necessarily only on Salesforce, but it's open. Try building on Workday. It ain't so easy, right? It is like LinkedIn, right? It is intentionally, uh, barely open. So there are negatives to that, right? But it also means you're going to capture more budget overall in your ecosystem than you would for others. So I, it has more of a buffer against agentic damage to your growth than an open ecosystem has, right?

• 50:42Speaker 01

  Open has negatives today, and so I would want system of record, churn impossible, closed AF. I want the most closed system that can't churn because the reason system of records aren't that great is because you need your system record. But if you're remotely open and you can produce a better agent yourself or a third party, the value will extract to the agent, even if the system of record is retained. But Workday is so closed, they've got a leg up, right?

• 51:08Harry Stebbings?

  Jason, how open is Salesforce?

• 51:10Speaker 01

  They are a toll keeper, like a Shopify, but they're pretty open. Shopify and Salesforce are pretty open. The three of us, we can use Oath to ship a Salesforce app tomorrow.

• 51:18Speaker 00

  Just to prove that, Harry, really quickly, is that, look, there's a bunch of companies, even in pre LLM world, like Gong, Outreach, Salesforce, that are all effectively built on top of the Salesforce platform. You can't name the equivalent with any ease in Workday. There's a few, but it's much harder. Some of the planning tools, but pretty much most, and it makes sense. Within the financial accounting system, everything gets sucked into the gravitational pull that is the GL and the accounting system, right? So I agree, it's a good point, Jason. Whatever dollars are in that ecosystem, if they're careful and shrewd, Workday will get most of them. And from the other hand, if they get too greedy and they don't invest enough, then the customers start thinking, oh, my God, this is just not advancing. Over five years, maybe I do need more of this agentic workflow on top.

• 52:01Speaker 00

  Maybe the smaller customers start evaluating that sweep, start evaluating the next generation. Even at the very small end, you know, you've got the Willis, you've got the Campfires, you've got the people like that. You can't be such a greedy bastard in your ecosystem that you incent people to start trying to move out, right? But Silver Lake are smart, and Neil's smart. You could have this be a profitable, self-contained universe. But remember, the most exciting version of that is you pay down all the debt in five years and you double your money for a 20%. That's as good as it gets now. It's on a lot of money. You're probably putting in plus or minus a $20 billion to $30 billion equity check because you're not going to get infinite debt. You know, maybe 20 billion, you might get 18, 15 billion of debt, which means you need a $25 billion to $30 billion equity check.

• 52:45Speaker 00

  So you're going to turn 30 billion into 60 billion, which on a multiple basis is not amazing, but it means you've generated 30 billion in gains and 20% of that in carry. So someone's about to make $6 billion if they can pay down this debt and just knuckle down for the next six years. Go team.

• 53:01Speaker 01

  Yeah. And then Neil gets to rebuild his company outside of the public company eye, which is slightly overrated because he has to hit the underlying numbers, but it's much better.

• 53:09Speaker 00

  Instead of large numbers of stupid comments, he will get one very focused comment from one of the world's smartest investors. It's probably a trade up.

• 53:17Speaker 01

  Just one last thing on this versus Salesforce. I just, it's just interesting. So we run Salesforce entirely headless. So we have our own agent, 10K, our own AI VP of revenue. It runs Salesforce under the hood. Pro is it makes Salesforce much more powerful than it ever was. Like, I didn't log into Salesforce for seven years. Now I log in every day because I have an agent. Con, it can connect anything, the agent. It literally can connect to any other agent, including competitors, including other data sources, data lakes, data, everything. The agent doesn't care. It's really a weird world as a system of record or a course system. Do you want to be extensible and open, right? Salesforce has said you can be headless. Risks and opportunities, because you make it much easier to abstract you away or to compete with you, even while you may retain a few seats, right?

• 54:02Speaker 01

  The logo retention may be high, but it makes you have to run faster. Workday doesn't have to run that fast. Everyone can't run it headless and integrate any single thing or pull out all your employee data and push it into my own ATS or my own system or own financials. It's a shrewd deal because it's the best, it's the best mode out there with the system of record.

• 54:19Speaker 00

  And I go back to my comment, if it is a shrewd deal, it also by definition means it's the high watermark of what deals are going to look like. Plan accordingly, people. You get 2.7 from the Ben Spoon and you get 5.7 from the Silver Lake guys and you pays your money, it takes your choice.

• 54:34Harry Stebbings?

  Lampkin, you have a buyout firm. Which other asset would you buy next?

• 54:38Speaker 00

  I'd want to know who gave Jason money for buyout. I would give Jason money for venture, but I don't see him as the spreadsheet guy.

• 54:45Speaker 01

  I don't, Harry, I just think more and more about the fact that systems of record are going to retain their customers, but I think we just underestimate, that's just not enough to grow. It's grow or die today, right? It's grow or die. This whole show, everything, grow or die. Who cares about that stock-based comp or anything at Anthropic? My God, it's Open Router, 192x revenue. Just because your customers are prisoners does not mean in today's world, they will spend one more dollar with you. In fact, the CIOs want to cut what they spend when they're hostage, right? They're like, okay, I want to spend 90%, 80% of last year. What can we cut from our bill from the vendors we're stuck with? It's a, I got to think, but yeah, Rory's right, I'm not the best at the spreadsheet.

• 55:25Speaker 00

  You know, I'm actually going to, I'm going to cancel my comment and disagree with myself. Actually, I think it'd be great because I'll tell you what you would bring to the table that I think a lot of these P buyers missed. It's this idea of mission clarity around growth. If you don't have growth of some sort, you're in a desperate race against the debt and the best you can get is a mid-teens IRR if you work day and you buy cheap. And remember, that's when you buy at 5.7x revenues. Some of these PE deals were done four, five years ago at 10 or 12x revenues for not as good a quality asset as Workday today. The PE firm should hire you as their operating partner, where for every new deal they do, you explain the facts of life. It's really clear here, people. The only thing that matters, you can't just stick it to your customers. If you don't give them value, you're going to get shafted in the end.

• 56:10Harry Stebbings?

  Rory, for me, the death spiral here is the exec high who's got no idea about AI and has a load of logos and has a load of middle management. And I think Jason would be the fricking best.

• 56:20Speaker 00

  I agree. I changed my mind because you're done if you don't.

• 56:24Harry Stebbings?

  By the way, you can click the link below to donate to Silver Lake Lampkin Ventures for the buyout firm.

• 56:29Speaker 01

  I don't want to spend money on the positive side. If you look at it like a more SMB version, I'm not saying how widespread this, but if you look on social media, a lot of folks are like, okay, I'm lifting off Airtable now. And they're like, bending spoons is going to raise my prices 3X, right? Let me start doing it now. And so it's just an extreme version of what you have to be careful with everywhere, right? I mean, bending spoons may lose 20% of Airtable's customers who finally spend a week lifting off of Airtable, but when they triple prices, it's a good deal for bending spoons, but it's going to happen a lot faster than Workday.

• 56:58Harry Stebbings?

  Growth at all costs on the consumer application side. Two big fundraisers from Higgs Field, who raised at a $5.5 billion price from DST and they hit 700 million in ARR. And then you have Lovable, who raised a new round from Menlo. They're around the 600, 700 million ARR range too, raising at a $13.3 billion price. Big price divergence for very similar revenue numbers, which I find interesting. Guys, we've talked about these companies a lot. How do we think about them?

• 57:28Speaker 01

  Well, you know, on the Lovable thing, the thing I was thinking, I mean, it's so crazy since when we started the show, right? And Lovable and Replit were both raising like 2 billion and were really terrible products when we started the show. Now they're great products. They're truly generationally great. I do think today, engineers and developers will mock me for saying this, but I do think that they deserve us arguably a somewhat similar to be in the cursor conversation in terms of stickiness, strength, capabilities. They were not when we started the show. Did Menlo pay up a little bit as an existing investor, right? It was already in at four, maybe. But is that multiple that far off the cursor multiple that we just saw? It's not radically off, is it?

• 58:03Speaker 00

  Yeah, a lot of it at the end of the year. It's probably a little price here, but whatever.

• 58:07Speaker 01

  But it's not as out of whack as it might have seemed with cursor as a comp. These platforms are becoming, one thing is they're becoming very rich. They're very good now, right? Cursor, they're very good. They can do so much more than they could six months ago. There's so much more complexity. I mean, Cursor launched Origin, right? Which would bought Graphite or whatever. It's going to become a GitHub entire workflow replacement in a couple of months, right? I'm closer to Lovable, but they both just launched automatic deep pen penetration as part of their products, right? So you can go really deep on security. So these aren't just little, like little hacks a year ago. And it also makes the startups harder to beat them out, right? As these become, these cursor and Lovable, Replits become true platforms. They're great software today. So I, when the cursor deal was announced, our jaws dropped. Now it's a comp. It's just a comp.

• 58:50Speaker 01

  And I don't think this is such a bad comp for Lovable to cursor. I mean, maybe, maybe that sounds wacky, but that was the one one I thought. You know, Higgs Field's cheap, although when the deal was done, it was at 500. So it's funny, in today's world, by the time the deal announced, it's at 700 million. So it's still cheap, but like, that's what happens if you don't announce a deal the hour the term sheet is inked, right?

• 59:10Speaker 00

  And you guys know, what both of them have done really well is parlay that kind of massive bottom end demand for AI, in Lovable's case, for website building and coding, in Higgs Field's case for video. You know, start with a PLG motion and then, you know, add mid-market and enterprise products on top. It's a well-trodden path. It was well-trodden in, in kind of the SaaS days. We did a bunch of that, it all works. You build your top of funnel and then over time you just add the enterprise features. But they've both done it really well. And you're right, Lovable have punched their way into being a big picture coding alternative. There's different ways of going out. You've got the cognition style, you've got the cursor style, you've got the Lovable Replit style. They're not direct comparables, but in the big picture comment of the thing AI does best is write code.

• 59:54Speaker 00

  Lovable is a tool that uses that to write a lot of code. So it's got a lot of lift. And yeah, so I think they've both built good enterprise businesses on top of your good consumers. It's not as, Higgs Field, and I know you guys are in them, so you know much better than me. I think there is clearly a market for enterprise video. It's a good market. It's, it's not as perhaps deep as the coding market, but you know, great to see them do it.

• 1:00:16Speaker 01

  The one meta learning for me is I do think, it took me a little while to see this, I do think these products today, not forever, maybe only for six months, right? Or who knows? I do think they now are defensible and have moats. I mean, for example, Higgs field, I was one of the first 10 customers, I think. What could you do? Make a four second video using Kimmy or Quinn, who cares? It was a great way to do it because I didn't even know how to use a Chinese model. Okay? But that wasn't particularly defensible. Now you can make a full length motion picture and you can do it another way. It's just so hard. And now that on Lovable, which we, even though I'm a user for you, you could have made fun of these products when Harry invested, when we started the show. Now they really can almost build production grade, highly secure apps with everything across like it's just some,

• 1:00:57Speaker 01

  I know we're building so quickly and you better be into your 28, 29 roadmap or you're failing. But they are starting to get these layers of moats and the folks that work at these companies are so smart, right? Higgs field is like the smartest mathematicians in Kazakhstan. Lovable and Repli have become talent magnets. I mean, I know the team at Repli better. You walk in, I mean, these are the smartest people that Amjad could recruit for years. And so these layers are not impenetrable, but they start to get thick and crusty, this crust around them, right?

• 1:01:26Speaker 00

  Staying with that, because I think you had that mode comment, I think you're, because there was a whole bunch of, oh, what's the mode? I think the truth is in any new software market, out of the gate, moats are light. But the companies that execute and get traction, you accrete mode over time. I mean, just to give two historical examples, the Netscape browser wasn't that early on, it wasn't that hard. But as yet you parlay that into other things that ultimately you only got acquired for 10 billion, which at the time feel like a failure oddly enough. But the initial thing was relatively simple. It got complex. I mean, the MS DAS product, and the classic example is Margaret, the MS DAS product was mind blowing this simple. But over time you just accrete more and more value and the same thing's going to happen here. Yeah. I mean, will there be some guys who stumble along the way? Of course there will.

• 1:02:09Speaker 00

  But you're right, Jason, if two years ago, it is probable that someone could have built a lovable competitor with the features that they had had relatively quickly. As they add more and more features, that just gets harder and harder.

• 1:02:20Speaker 01

  Yeah, I don't know that that was obvious six months ago that this would happen. I don't even know it was obvious to these companies we're talking about that it was obvious, right?

• 1:02:27Speaker 00

  Yeah. I think it, going back to my, it just shows, just push on forward, add more stuff for your customers. Revenues grow, good things happen.

• 1:02:36Speaker 01

  If you're faster than everybody else.

• 1:02:37Speaker 00

  Yeah.

• 1:02:38Speaker 01

  You just have to be faster and better. That's all. Just faster and better, then it will accrete.

• 1:02:42Speaker 00

  Faster and better is a more tangible thing than thinking some kind of, I mean, yeah, there are businesses that are much more moat central, right? You know, massively high IP, you know, some obviously the model companies to some extent, and definitely things like the bioinformatics companies there. But there are also businesses that will become wonderful businesses where the mode is, as you say, Jason, faster and better. And you just gotta know which game you're playing.

• 1:03:04Harry Stebbings?

  Speaking of high IP businesses, literally like three weeks ago, Etched raised at 10 billion. Today they have announced they've raised 700 million at 21 billion from Jane Street, Kleiner, Sequoia, Andreessen. Four weeks after, double the price.

• 1:03:18Speaker 01

  It was a good month, Harry. You only need one great month to raise today, whether you precede or north of 30. You used to need three to four good months to raise. Now, now you just raise on the one. Listen, I don't know the details of the deal. I mean, Jane Street wants to be a customer too or something, right? It's not that they're suspect. It's just you never quite know how it's all tied together. So that was the only asterix I had in the deal, but I don't, I don't know the details.

• 1:03:40Harry Stebbings?

  Boys, or have I missed that we should discuss?

• 1:03:42Speaker 00

  There's one that I don't know if you missed while you were vacating there, Harry, but the Department of Justice is picking on Paul Andreessen because of these overlapping boards.

• 1:03:51Harry Stebbings?

  I put it in, it's in my schedule. Thank you for mentioning the vacation, but.

• 1:03:56Speaker 01

  But what's, why is it? What's the story behind the story? There must be.

• 1:03:59Speaker 00

  And I did the story because yeah, I, you know, I often think one of the jobs we try and do here is let everyone and not, you know, people who listen know what's interesting this week, right? And I will admit, this time yesterday, I knew exactly Jack. I was like, huh? What gives? I looked at this and I'm like, why is, let me say something cynical and then retract it. Why is the Trump administration picking on Andreessen Horowitz? One would have thought that there is, you know, honor among thieves and gratitude, you know? The definition of an honest politician is when he gets bought, he stays bought.

• 1:04:28Speaker 01

  Yeah. Elon got his deal done in weeks, his $60 billion deal done.

• 1:04:31Speaker 00

  So I did the research and it turns out that this initiative, no surprise, was actually kicked off in the prior administration, which frankly was much more willing to quote unquote, you know, get involved in business and kind of try and tell them what to do. What's happening here is zoom out, there's something called the Clayton Act, which I think is the early 1900s, an antitrust act, section eight that basically says, individuals can sit on two boards of companies that are competing. And there's all sorts of definition of highly defined compete, there's a de minimis threshold, and that's on the statute books. It turns out under the Biden administration, the DOJ, I think it's the FTC within the DOJ, but don't quote me, had actually made some actions on that. There was a couple of kind of general business folks who were in overlapping boards.

• 1:05:12Speaker 00

  And interestingly, Tomo Brava, they had a couple of companies where in one case, they, I think they'd spun off a separate company from the existing company. So they had a lot of overlapping boards, the DOJ kind of got on them and eventually they said, we just take the board members off, right? It was, so this is a thing, right? This is apparent and it's like, it's a low consequence thing. Cause what invariably happens is if the department just comes around, you, you just pick the less interesting board and you come off it. And what sounds like what happened here is even though you, as I say, you'd have thought the administration change would have killed this. Apparently as part, remember when FiveTran and DBT were merging? The kind of DOJ had to look at that because there was antitrust issues and that got true and it was passed. But as part of that, it kind of, the light went on and someone in the Department of Justice head that says, hmm,

• 1:05:56Speaker 00

  do we have a section eight Clayton Act violation here? Cause Andreessen's on the board of Databricks and they're also on the board of, I think it's FiveTran, right? And now they're competitors. So now this has been percolating and now they're investigating, right? You know, this is one of those things where I know why the law originally exists. It's all back to JP Morgan and overlapping boards and the antitrust and whatever. You look at this and you go, really? Is this the biggest fish you have to fry? But my guess is it peters out into some version of the venture firms just saying, we'll take off the board member on FiveTran's whatever. Now there are, it's interesting, there are ways you could contest it. If you, if you gave a shit and wanted to litigate, there's all sorts of things, because it actually said, the legislation says individuals can't be on two boards,

• 1:06:40Speaker 00

  but it's not as clear on can two separate individuals be on two separate boards? There's a whole bunch of reasons why you could decide if you had the stomach for it to litigate and see would the Department of Justice back off. But the truth is no one's going to bother. I shouldn't say no one's going to bother. It's, it feels to me like if this thing rumbles on and the Department of Justice doesn't back off, or they don't decide the competition issue with the minimus at some point, if it got really serious is my point. No one's going to get into trouble for this. If it gets really serious, they'll go, okay, we'll take a board member off.

• 1:07:10Speaker 01

  Yeah, it's probably a non-story in the end, thinking through it more, right?

• 1:07:13Speaker 00

  Pin the ass story.

• 1:07:13Speaker 01

  There is a remedy here. You resign, right?

• 1:07:15Speaker 00

  Yeah. If you're the compliance officer on Andreessen, you're, you're wasting a lot of your time on this, but you might, a non-story is a.

• 1:07:21Speaker 01

  The only weird niche thing, but classically you might ask the founders if they're okay with it of each company. Maybe that's not even a permissible out under the Clayton Act.

• 1:07:29Speaker 00

  It's not actually, the funny thing is to your point, you're exactly right. And this is, it's a very interesting example, Jason, because it's an example of you and I both know that that's the asset test. Because we would be worried about, is founder A pissed about founder B? Cause they're, are we shitting here? Are we damaging the other company by disinformation? But the classic antitrust thing is all about consumer damage. And what they're hypothesizing absurdly is that the Databricks guy and the FiveTran guy get together and they say, why don't we raise the price of tools, of AI tools? And we'll stick it to all our consumers like JP Morgan and B of A and, you know, whatever, right? And that's so far from what's happening.

• 1:08:09Speaker 00

  And this is the problem. You pass a law for one reason, to prevent US Steel from raising prices in 1909. And here we are in 2025, 2026. And do we really think that Databricks and FiveTran are, are DBT are colluding about the price of data tools? You're right. The logical test would be founder A, are you cool with this for founder B? And if they're cool, we're cool. But it turns out that's not the way we write laws.

• 1:08:33Speaker 01

  Yeah. I mean, if Martin Cazado had to step off the board of FiveTran after exiting Curse at 60 billion, it's probably okay, given their position in Databricks. Like it's all right. That guy just got us a $60 billion exit. We're sitting on 200 billion at Databricks. FiveTran, good luck. We'll switch to an observer seat.

• 1:08:48Speaker 00

  Yeah, anytime you want.

• 1:08:49Speaker 01

  Not the, I'm going to move to observer status. Like that doesn't work either. You got it.

• 1:08:54Speaker 00

  They've actually thought of that. They're literally like, Mr. JP Morgan can't bring his big banker nose in 1909 into any of the meetings. Yeah, I know. That's what we're trying to solve.

• 1:09:02Speaker 01

  So be it. Just CC me on the updates.

• 1:09:04Speaker 00

  Genuine comment here. It's why, and this is a serious comment. It's why when we talk about all these regulatory regimes for other things, you have to remind yourself, these regimes go on forever, right? And if we pass some law about AI regulation now, you've got to be really careful, the unintended consequences, you know, months, years and decades later, these, once the regulatory law is passed, it doesn't leave.

• 1:09:26Speaker 01

  You know what? One last thing in all seriousness, at Andreessen's scale and everyone has to take the series 62 and you're broke. There's probably 40 or 50 legal things going on in the background at any given time, right? It's probably not even four. It's probably like 40. They don't even talk about this one, right? It's, it's mentioned it. Let, let me know if I gotta do anything. I gotta, I gotta go to that pasta lunch with Michael for, for the closing lunch.

• 1:09:48Harry Stebbings?

  For $12, $12.

• 1:09:50Speaker 01

  $12. Yeah. Let me know if there's an issue because there's like 50 other lawsuits. Everyone's coming after Andreessen, right?

• 1:09:55Speaker 00

  Yeah. It's the old no conflict, no interest comment. Exactly. They have lots of interests, so they have lots of conflicts. It'll be fine.

• 1:10:02Harry Stebbings?

  Boys, thank you so much. That was awesome. I loved that.

• 1:10:07Harry Stebbings?

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