20VC: SpaceX Launches Largest Ever IPO | OpenAI Files to Go Public | Uber Cuts 23% of HR | Lovable Hits $500M ARR | Founders Revolt Against VCs: The Fundraising Horror Stories Going Viral

AGENDA: 00:00 – SpaceX Launches the Largest IPO Roadshow in History at $1.77T Valuation 05:00 – Did Elon Break the IPO Playbook? The High-Risk Pricing Strategy Explained 12:00 – Will SpaceX Create a New Generation of Venture Billionaires? 17:00 – OpenAI Files to Go Public as the AI IPO Race Officially Begins 19:00 – Sam Altman's Vision: Why AI Is Becoming Always-On Infrastructure 22:00 – Apple Admits Defeat on Siri and Turns to Google AI 25:00 – Uber Cuts 23% of HR as AI Reshapes White-Collar Work 31:00 – Founders Revolt Against VCs: The Fundraising Horror Stories Going Viral 38:00 – Lovable Hits $500M ARR: The Rise of the 100-Person Billion-Dollar Company 48:00 – Elon's Masterstroke: Why the Cursor Acquisition Could Be the Deal of the Year

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

• 0:00Speaker 00

  But the one thing we know about Elon for the last thirty years is when he hears the word more risks, he says, yes, please, I'll have two.

• 0:07Speaker 01

  I think the IPO nominally will be a dud. I don't think it will trade up dramatically.

• 0:11Speaker 00

  There's always money when people aren't afraid. When things get scary, it's not that money runs out, it's that money gets scared.

• 0:18Speaker 01

  I'm kind of contentious of startups that need to be fat. I'm like, what's your excuse?

• 0:22Speaker 00

  In any business, there's only two things that happen. People are either making stuff or selling stuff.

• 0:28Speaker 01

  If AOL becomes the becomes the the next hot thing, I mean, these guys are fucking geniuses.

• 0:32Speaker 00

  Anyone who hasn't churned from AOL now ain't churned until they die.

• 0:37Harry Stebbings?

  We are back. The favorite show of the week, the two OGs of SaaS and a posh British podcaster. It's Rory O'Driscoll, Jason Lemkin and me analyzing the biggest news in tech this week. So what do we have on the cards? We have the largest IPO in history. SpaceX begins their seventy five billion dollar IPO roadshow at a whopping one point seven seven trillion dollar valuation. Is the future of AI always on as Sam Altman thinks? OpenAI ships Dreaming V3. Apple rebuilds Siri on Google. Thank God, Siri being what it is is a disgrace as it turns on on my device. And then finally, we have Ramp raising their latest round at forty four billion dollars. This and so much more. This was a great show to do.

• 1:22Harry Stebbings?

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• 2:07Harry Stebbings?

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• 2:51Harry Stebbings?

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• 3:35Harry Stebbings?

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• 4:20Harry Stebbings?

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• 5:02Speaker 00

  You have now arrived at your destination.

• 5:05Harry Stebbings?

  Okay, we are back, and what a week it is. We have the largest IPO roadshow in history. We have to start with SpaceX. We're speaking, and this is important to say, Rory's gonna have a fit, because we're speaking on Tuesday, and obviously SpaceX is going out on Thursday, and so there is gonna be some time discrepancy there. And so what we say will be able to be scrutinized in intense detail by the time you're probably listening.

• 5:31Speaker 00

  True. Though, one of the things is, there's usually two questions you're asking at this point. What's it gonna price at, and what it gonna trade at? And the funny thing is, unlike 99% of IPOs, the first question's already been answered. Elon has decided that instead of doing price discovery, where the bankers build the book, and then they pick the price, and they announce the price, you know, right at the end, the night before. The IPO pricing typically takes place the night before the trade opens, so then everybody gets to buy who participates in the IPO at that price, and then it opens next day at whatever price, up or down from that. In this case, Elon has decided in advance of getting anyone's input, that the number should be, I think, 135 bucks a share, so,

• 6:15Speaker 00

  which values the company 1.8 trillion. In other words, he's kind of short-circuited the price discovery process, and instead, we're not doing price discovery, I'm telling you the answer, and the only question is, how much of it do you want to buy at that price? So, one thing we can't get wrong is that, Harry.

• 6:31Harry Stebbings?

  Is that a wise move? He's leaving a lot of room for markets to move in between that. That's why you normally leave it, obviously, as close as you can, because you don't want an Iran-Israel, a Broadcom-moving markets, and then putting you in a precarious position. It feels unwise, but Elon is a master, so I'm not gonna...

• 6:48Speaker 00

  Yeah, I mean, calling someone unwise is about two days away from becoming a trillionaire is a big call, Harry. But I think what it is, you know, it's no surprise, given Elon, it's ballsy. You've got just way more error creeping in. You could be wrong to the high, you could be wrong to the low, you could leave, you know, maybe all the orders flood and you've left money on the table. Maybe on the other hand, you're struggling to get the orders in and it feels very high and it opens down. It's more risk. But the one thing we know about Elon for the last 30 years is when he hears the word more risks, he says, yes, please, I'll have two, right? And this kind of must appeal to him. It's like, I'm telling you the answer in advance and I'm taking the risk. That's how he became a trillionaire. Is it wise? We'll see him today.

• 7:27Speaker 01

  It's a huge amount of capital, Rory, but if it's really only 2X subscribed or over, I'm not even sure oversubscribed is the right word, if it's only 2X, right? Plus Elon picking the price, that suggests to me this one will pop. I do believe the day traders will drive it up ultimately, but it doesn't feel like there's an excessive demand at 2X. In most IPOs, it would be almost insufficient to close the IPO.

• 7:52Speaker 00

  I agree, but there's two separate things in that, Jason. You're right. I mean, one is the decision to pick a fixed price logically reduces the probability of a pop with no other information, because the whole point of the banker process is to pick the price the night before that allows the pop next day, and you simply aren't doing that because you don't have the information. You're right. But then the second thing you added is some information that's come out, which is to date the book is two times covered. And your comment is that feels low compared to normal IPOs, correct?

• 8:22Speaker 01

  I mean, traditionally, you want eight to 10X to get the deal that you want, but you're not raising the vast amounts of capital Elon's raising either.

• 8:30Speaker 00

  Yeah, no, it's hard to get 10X oversubscribed on 75 billion. To be really direct, what you're saying is you're pricing something on a fixed price that's not taking into account demand, where you're looking for a very large amount of money, such that you only have a small amount of coverage. You're right, you look at those circumstances and you say, there's a non-trivial chance that it pops to the downside. Is it 30%? I don't know. But if you think about it, normally bankers bend over backwards to try and Have the damn thing pop, right? So they're trying to get a 10, 15% pop and near 90% plus of the time it pops. But still 10% of the time it breaks IPO. They get it wrong. Even trying to fix the game, they get it wrong. In this case, they're not even trying to fix the game.

• 9:15Speaker 00

  And you know, time will tell on Thursday night, are they too high or too low? But there is obviously by definition, some probably higher than 10% chance that on the day, people go, everyone who put in for it, put in for it. And it's not impossible to trade something. It's just if you use mechanism A that's designed to create a pop and it works 90% of the time. And now you use a mechanism that doesn't have the information to allow you to make a pop because you've done a fixed price. Then by definition, the probability of it going wrong goes up. That's all.

• 9:45Speaker 01

  I think what will happen, if that's accurate and 30% to retail, I think the IPO nominally will be a dud. I don't think it will trade up dramatically, but I do think every time there's great news, more satellites in space for SpaceX, more things. It will, it will begin an inexorable rise up. People will, will be excited, especially if, if the upside is tied to potentially significant revenue, right? As the last announcement said in with Anthropic and Google, I just don't think it's going to pop that first week. I think not enough buyers out there in this universe, or at least in this galaxy, had this price at 2X.

• 10:21Speaker 00

  I'm going to step back. I kind of hate that we, and I caused this, so I apologize. Got into the technicalities of the, of the IPO because zoom out a million miles here. This is amazing. This is an amazing technical company. It's the, the iconic company of its generation. It's going to go public this week. It's a huge moment. What do you say to Elon? Congratulations. What do you say, you know, everyone involved? Congratulations. I mean, it's just an wildly impressive company. I mean, look, I am skeptical of the valuation, but step back. I mean, you know, I've watched some of the launches on, you know, my little, on little YouTube and I'm like, they're just so, the whole thing's so impressive. You know, at the risk of sounding a little, sorry, Harry, I risk of sounding a little partisan American.

• 11:00Speaker 00

  This really isn't only an American moment, right? Where you could, yeah, I can see your little face, Harry, but you know, who else is going to find the capital to take that? Kind of risk to go for it. And frankly, also to have a big enough capital market to fund it, a big enough and addressable market to sell to it. It's a great article. It's an amazing company. It's a real asset to America.

• 11:19Harry Stebbings?

  End of day one prediction and end of day 90 prediction.

• 11:24Speaker 00

  I actually think it's. So you really are determined not to let him have his great moment. You just wanted to see you're like those commentators in politics who won't talk policies. All they want to talk is the horse race. All you want to do is talk the horse race here, Harry, because you know that's what sells. You're such a little media slut. But just to tell you, I'll answer. I don't think it's noble end of day one. I think all three scenarios are equally likely. One third, it just goes down just because there's weird pricing mechanism. So they don't have demand. One third, it's flat because whatever. And then one third, to your point, retail enthusiasm goes up. There's no information here. Now I will make a call though. I think over the next 12 months, I doubt it will retain this price. There, I will make that step. I disagree with you.

• 12:08Speaker 00

  So I think fundamental value here reasserts itself. I mean, there's two reasons I say that. One is, again, I always go back to the base rate. The base rate on IPOs in general is, you know, you do see quite a lot dip. The base rate on IPOs more than 10x forward sales, even more dip. The base rate on IPOs at 70 times forward sales, there hasn't been any, but you've got to believe there's a dip. So I think valuation reasserts itself over the medium term. And the probability of it being higher than the IPO price 12 months in my gut is lower significantly lower. So I would say I haven't a clue day one. It's a tactical thing based on the mechanisms. And I think over the medium term, this amazing company might shock horror only be one surely than instead of 1.7. And it's still a huge win.

• 12:52Speaker 01

  Two thoughts, I don't, I don't know what you guys think. One is, um, listen, there are many great IPOs like Facebook and Google that IPOed with a whimper. Right? It would not surprise me if this IPO is with a whimper at the end of the day. It doesn't matter for SpaceX. We will have multiple layers of generational wealth created. Elon will get his liquidity, right? It'll all be great, whether it's a nothing burger IPO or not. I guess it might hurt OpenAI the most because they've been so aggressive on their valuations and so. Aggressive on their capital raise. If that means they have to cut back their aspirations for the amount of capital raise. Valuation maybe doesn't matter as much, but they are they are related. That could be the biggest negative effect. It's just they they need so much capital, too, that it just could be. It could take some of the wind of the sails out of out of OpenAI.

• 13:36Speaker 01

  The other thing I'll just say briefly, I was before I I'm in Hong Kong as we record this. But before I got on a plane, I I spoke to one of my LPs who's who's getting lots of cash here. Got cash in Cerbus, getting cash in all these other deals. It does kind of tie to a conversation we had before, which is the the expectations are so high now for performance. And I think that will permeate through the ecosystem. And I do think it's a minor negative, but I do think it's something for founders and others to understand that the it's not a free lunch. Right? The bar, the bar will continue to go up after these events. When when LPs are looking for seven to eight X routinely from GPs, which is hard to do. Right? Outside of anomalous periods of time. The expectations that GPs will have from founders continues to go up.

• 14:19Speaker 01

  As this LP said to me, I don't know that little five to eight billion dollar IPOs really make it make this math work anymore. And so we've talked about it, but to hear it from a large LP, it echoed in my ears of of how this how the bar goes up.

• 14:31Speaker 00

  I don't think you can take a once in a decade event and start extrapolating as a norm. I think in life you should take this as the once in a decade.

• 14:39Speaker 01

  But there's like four or five of these once in a decade events. There's going to be Anthropic, OpenAI, SpaceX.

• 14:44Speaker 00

  It's interesting that you say that, but of course, the opportunity, the once in a decade. I mean, SpaceX was once in a decade. It was last decade. Reminder here, founders wrote that check in 2008, right? It's now 2006. It's 18 years ago. So for that kind of huge return, I mean, yes, there's been a 10 X.

• 14:59Speaker 01

  When was the Mercer C check written again? Remind me.

• 15:02Speaker 00

  The Mercer C check three years ago, yes.

• 15:04Speaker 01

  So maybe they do happen more than once a decade. There they seem to be, they those decades seem to be shrinking.

• 15:10Speaker 00

  I think you're going to have one trillion dollar outcome from the last decade and two, it looks like from this decade. If it all happens according to plan. But my point is, yes, you probably can't assume 10. You don't run your business on the expectation that every check you write is going to be a trillion dollar outcome. If you're really smart and you get one, you should say yay. So I think eight billion dollar outcomes will make everyone perfectly bloody happy. Obviously, unless you have a 10 billion dollar fund, in which case it doesn't. Fund size dictates the amount of market cap it takes. It's a Josh Toplin thing from ages ago, you know, the venture arrogance index, whatever, right? The bigger the fund, the bigger the deal that has to be to make it work. There's nothing surprising here.

• 15:46Harry Stebbings?

  Will this have knock on effects in terms of LPs, direct investing more and see an increase in fund investments from LPs? You've got Ohio teachers who will make, I think, over $10 billion from their SpaceX.

• 15:59Speaker 00

  To clarify, I know you think the entire Midwest is the same, Harry, but I think it's Ontario teachers, right?

• 16:06Speaker 01

  Fair enough.

• 16:07Speaker 00

  But no, at this point, you're conflating Canada and America, which is an easy mistake to make because we're making it ourselves, starting with the president. And it does begin with O and it's kind of in the middle. So I understand your ignorance, but let's go back.

• 16:18Speaker 01

  Maybe he's just a big fallout player too.

• 16:20Speaker 00

  Easy. But the bottom line is yes, Ontario pension nailed it. I mean, they're going to make a magnificent, and there's a bunch of others. It's great. University of Washington, they have an extremely savvy CIO who, and by the way, Washington, Harry, just to confuse you further, is not in either Washington state or Washington city, but we'll keep that for now. But yeah, look, by definition, these are going to be the best co-investments ever because it's the best deal ever. I mean, there's nothing surprising. I know some of our.

• 16:49Harry Stebbings?

  Our LP is going to come back and go, those that will get liquidity from this go, hey, we're going to reinvest more. And will all their brethren be like, hey, we're going to join this because we want the next generation, even if we didn't have them.

• 17:00Speaker 00

  Yes, because everyone's just going to go, wow, that looks amazing. As I say, again, it's back to the extrapolation from the unique event. Of course they are, because it is going to be amazing. I saw, I think in the Journal this morning, not University of Washington, Washington University, what has, again, I'm not going to confuse, like, it's 10 or 15% of their endowment. It's awesome. It's awesome. This is the best venture capital deal ever in terms of absolute return. And yeah, anyone involved is going to do really well.

• 17:25Harry Stebbings?

  Speaking of a once in a lifetime or once in a decade moment, as Rory wrote, I'll take you put, another once in a decade moment is obviously OpenAI filing to go public, not so confidentially. Anything to say here that we haven't covered?

• 17:38Speaker 01

  The only thing I don't understand is maybe it's a question for Rory, because I don't get it. Other than the captain obvious element, what's the point of hedging your bet on the timing, but filing? I mostly get it, but I don't totally get it, right? Yeah, I only half get this, oh, we may, we may want to stay private, we want flexibility, but we're going public.

• 17:57Speaker 00

  I think it's actually all they're doing is being smart a little bit and managing expectation finally, which is I read that as we're fine to go public in a perfect world. We'd love to go public as quickly as we can, but if it's delayed for whatever reason, we don't want to have a whole bunch of negative stories there and it says, see it's slipping. So if you preemptively say manage expectations and say we're filing, but we're not committing to a timeline, we're not all going to be sitting here in late October going, they said they'd be going public in early November WTF is going on. The big aha here, we said it two weeks, it's everyone's suddenly gunning for the door. At some point you need the capital markets, the public capital markets because the scale involved is such that that's where you got to go. And if everyone's just hit that point and they're going for it. I think going back to your comment earlier on the

• 18:41Speaker 00

  SpaceX, it feels like the market is very risk on. I mean, we had that little dip last week and then everyone got over it in two days. So it's as good a time as any. You keep cranking while you can and see if you can get it done. I mean, I'm sure that they made that caveat of we'll take our time, but they made that statement in the press department. My guess is in finance and legal, the mandate is get this puppy done as quickly as possible. So we have maximum optionality. And we're pointing out, by the way, the SpaceX S1 went through the SEC very quickly. And normally that's, I mean, I remember when that used to be a painful process with multiple iterations and it seemed to happen here extraordinarily quickly, probably because we don't regulate anything anymore. So go team. This may all

• 19:24Speaker 00

  process through real quickly, in which case brace yourself for a fun fall.

• 19:28Harry Stebbings?

  Rory's on fire this morning, eh? Gosh, I really want to touch on something kind of beneath on the product layer for OpenAI, which is, you know, Sam Altman's been driving towards kind of persistent and always on AI. They shipped Dreaming V3, biggest memory architecture upgrade since launch. I'm just intrigued, Jason, in particular, to hear your thoughts on this. Is the future of AI continuous, persistent, 24 hours a day, fabric of life, always on in your mind? And how do you see this and that?

• 19:58Speaker 01

  I think we all believe it. I mean, we can make fun of Apple this week, basically repackaging Gemini and giving up on AI, right? If that's the way we want to view it, but that's a little piece of wanting ultimately AI to be persistent 24/7. We do want this. We already live little hints of it and it's pretty silly that AI for the most part lives in our browser, right? Which is, if you think about it, very dated, so dated that we still use browsers. I mean, who would have, we gotta get Marc Andre, I mean, the fact that we still live in the era of Netscape in so many ways. So I do think it's exciting. I do think as this show continues, you know, that whatever we want to call it, the token

• 20:36Speaker 01

  apocalypse, I think it will morph into just standard business practice, right? At some point, there's only, the IT budgets can only be so large, there's only so much, even if we lay off half of the unemployment, I mean, employment keeps growing. We're gonna have to manage spend, so there is a conflict, but I do think we're gonna look back in two years and think of this non-p persistent AI as almost archaic, right? As almost sort of desktop-like.

• 21:02Speaker 00

  Yeah, I mean, yeah, because you're throwing a lot there.

• 21:06Harry Stebbings?

  Rory, you pulled several faces there. For the audience listening, Rory's facial.

• 21:11Speaker 00

  No, no, no, it's just that Jason, as he often does, covered a lot of different things and I'm just processing through it more slowly. It's that on the memory thing, I'm kind of with Jason, is that it just totally makes sense, right? And the question, yeah, if you step back, you know, you have the core models and then you have what people are calling all the harness, which is all the stuff around it to make those models effective. And part of that, and it can either be in the, it should be in the model or it could in theory be in the harness, is just understanding memory. And the impact of that, and I think why Jason went to the token economics part of it is, part of the thing should be, you should get better answers with memory and part of the thing, it should be more cost-effective in terms of token, because you're not passing through all the context all the time. I mean, I think a lot of the trend on these harnesses will be adding stuff to minimize

• 21:54Speaker 00

  your cost on frontier models. And part of that will be having memory, right? It also leads to a better experience, right? I think that I actually just went in and tried to see, has it been switched on in mine yet? Because it just makes tons of sense. You should know who I am after I after I look up fifty eight twenty VC podcasts. I'm probably here to look at my twenty VC podcast research, you guys. So it just makes a ton of sense.

• 22:18Harry Stebbings?

  Most people know who you are now as well.

• 22:20Speaker 00

  No, I'm sure, but but but but my my OpenAI sometimes doesn't. So, yeah, it's a really, it's absolutely, it's one of the necessary to do's. And they're doing it. It's great.

• 22:29Harry Stebbings?

  Well, you pulled a face when Jason said about Apple giving up on AI with Gemini. You're right there.

• 22:34Speaker 00

  You're moving on to that. That was an interesting one. Ben Thompson at Strako, he did a really good piece in it this morning I was reading. Is that to some extent, in the sense that they're paying Google a billion dollars to use their model as the default model. But reminder, Google pays them, I think, twelve or twenty, I used to know the number, twenty billion dollars to be the default search engine. And so it's a minor offset. I give them credit. I actually think that they're making some, yes, it would be better if they had their own model. But they're making progress on the use cases that just make a ton of sense for the consumer. And I think it was a, I think the amount of context you have when you're on someone's phone is such that they can, they should be able to deliver a unique and compelling consumer experience for the kind of things they demoed on the thing about knowing context on which Rory.

• 23:19Speaker 00

  It's like, it's like to your memory comment, Jason. It's like, you're knowing which Rory Harry is talking about, knowing your calendar, knowing everything and deliver a much better experience. Now, should they have been able to do it with their own model? Yeah, but the bottom line is they control the handset. And for the consumer, it's a pretty powerful product. So I think they're in a good position to make progress. I don't think they're giving up. I actually think they're pragmatically saying, we kind of screwed up and not our own model. But that's actually now what matters for us, for Apple. What matters for us, Apple, is delivering an amazing experience to our consumers. Because if we do that, they'll keep buying handsets. And if keep buying handsets, we can probably afford to give someone a billion bucks a year. So I give them credit for getting their shit together. I mean, yeah, it is stunning that Siri is so bad for so long.

• 24:03Speaker 00

  So I think actually trying to fix it is just awesome. So I give them credit for stepping in the right direction is my takeaway from it. So the opposite, I don't think they're giving up. I think they're doing what it needs to win, coming from behind. And they have a great position. I think it's interesting. The person you have to think. Think about this a lot with obviously is if you're OpenAI versus if you're Entropic because Entropic has made the enterprise bet and OpenAI in part has made the consumer bet. And you know, I like my OpenAI subscription because you know, I sit at my desk and I do research. But for a lot, I mean, it was a great line and give Ben Thompson credit, he said, very clear. I've thought of it, but hadn't anyone say it clear. He said, consumers don't want to work. There's not a big market for consumers in their non-working life to do a whole bunch of, you know,

• 24:48Speaker 00

  complex research or kind of using AI for productivity. They just want, you know, delightful experiences because they want to relax and entertain. So I think actually the consumer space is going to be a tougher space for Open. The enterprise space has really been validated because in enterprise is all about automation, efficiency and the consumer space, it's about experiences. Apple's well placed to do that. OpenAI has got to compete with that and compete with Google. And it's a tough space, especially if Apple's getting their shit together.

• 25:16Harry Stebbings?

  Well, speaking of consumers not wanting to work, soon they won't have to. Uber cuts 23% of HR.

• 25:24Speaker 00

  It's just to make Jason happy. We can now have.

• 25:26Harry Stebbings?

  Sorry, I'm so sorry. It's obviously it's people losing jobs. It's terribly sad. But I'm the one who fucking said no great CEO likes HR and everyone got angry at me. And then everyone starts cutting HR. Anything of note here from Uber cutting 23% of HR, remote work rescinded, three-day in-office mandate, company denies AI played a role despite 95% of engineers using it daily. Anything of note there?

• 25:54Speaker 01

  Well, look, HR and recruiting, right, let's consider them different, are the easiest things to cut. You always see any, any, any big tech leader stumble a little bit and they lay off 30% of the recruiting department. We're going to, you often want them back. I always wonder, I always think this is, I mean, it makes sense on paper, right? The HR one will be interesting. I mean, we've, we've put out a call for someone to report to our AI VP of Marketing and I've gotten my head cut off a lot on social media for that by people not, it's okay, not really listening to what I'm saying about that. But I do think HR is one of these areas that many. Parts of it will be better managed by AI. I think an AI can be a better VP of HR for certain

• 26:34Speaker 01

  parts of the job than a biased human. I think there are advantages to having an AI VP of HR. Not, not, not, I don't want to get rid of all of the humans or even lay people off, but an AI VP of HR can evaluate every single thing you've ever done, every little bit of your work, all of your issues, whether an AI VP of HR can figure out, hey, maybe it really is your idiot boss, Jason. Maybe it really, maybe that really is the problem. It's not, it's not you. An AI VP of HR can find out a lot of things and process of ass. So I don't, I think it's, it's under discussed versus other areas, but it should be massively disrupted.

• 27:07Speaker 00

  The big picture question in all these areas is, you know, how much efficiency do you get? My gut, it felt 23%. I doubt everyone is automating and saving 23% using AI in the non-engineering departments because adoption there isn't as strong as engineering. Do I think there's some? Of course I do. So my bottom line is, I think my guess is some portion of this is quote unquote, AI automation. I doubt it's 20% because I'm always calibrating off, you know, what percentage, it's the Dario number, what percentage of quote unquote, knowledge work is going to be automated and it's knowledge work, tasks, and then knowledge jobs. Is it five? Is it 10? Is it 50? As Dario has said, 23% felt like a lot, but whatever. Again, what you don't know

• 27:50Speaker 00

  is how much of it is just too many folks there and they're just partly rationalizing. So it's a data point. I mean, I think the other data point from Uber is far more interesting, which is not the AI for HR, but the AI for autonomous driving that they continue to make progress on autonomous driving. They're actually rolling out some more autonomous driving experience in Europe, in Madrid, I think, right? So partnering with, I think it's a we ride or some of the technology providers. But I mean, you know, if you want to talk automation, driving is one of the biggest targets in terms of the number of humans that do that job. And, you know, when you see Uber making experimental progress on robot taxi in Europe, you know, it's something obviously to keep an eye on. It's all, it's worth pointing out, this stuff is still moving way

• 28:34Speaker 00

  slower than I think people anticipated. It hasn't been, you know, way Waymo in San Francisco resulting in, you know, Waymo is everywhere within six months. It's been a long, steady progress for Waymo. And Uber's doing what it should do. The Travis Kalanick devotees would say the failure, cutting of their autonomous project in 2016 or 17 was a fatal error for Uber. I'm not sure. I think 10 years later, they can pick up the thread and, which is what they're doing and catch up on that. Because it's not like the technology tip like a domino. But I think they're smart to now start pushing robot taxis and partnering with technology providers. And this is the, because, you know, the, the question on the Uber stock is always, oh, my God, is robot taxi existential? Which is the bad scenario.

• 29:18Speaker 00

  Or the good scenario is lots of people build robot taxi technology. And Uber is in a wonderful position to be the coordinating thing because it's the app we use. And if they just add, you know, 10,000 robot taxis to the fleet, then things continue just fine. It's frankly, it's good to see the Europeans do something. I mean, I said this respectfully, Harry, but typically, you know, Europe is the slow technical laggard, especially on stuff like that. So go Madrid.

• 29:44Harry Stebbings?

  Should we discuss the Revolut 115 billion, 115 billion, you know?

• 29:50Speaker 00

  Amazing.

• 29:51Harry Stebbings?

  Yeah, thank you.

• 29:52Speaker 00

  And I, I think you're doing that, I'm going to push it. I think you're doing that defensively. You felt I was dissing on you and Europe and you're, you're basically implicitly saying, oh, look at Revolut, it's amazing, correct?

• 30:02Harry Stebbings?

  Correct.

• 30:03Speaker 00

  And it is amazing. And you know why it exists? Because the European banks, unlike the American banks, you know, are so crappy. There's a reason that Revolut's worth 115 billion because the incumbent European banks were fat, dumb and happy and making margin off their customers. And there's a reason why China is worth 5 billion, still a great outcome, by the way. That's because the US banks are now which are a little more efficient.

• 30:24Harry Stebbings?

  That's also why New Bank is such a valuable business.

• 30:26Speaker 00

  Agreed, because the, the Brazilian banks were inefficient. I think all these fintechs, I mean, it really is a, I mean, it's proven markets. It's a function of how egregiously priced the incumbents are. You know, Europe, especially when it had non-single currency, you had all this foreign exchange, because you guys aren't in the Europe. You had, you know, the FX chargers, you had all this transporter bullshit. And Revolut just blew a hole through that. So I think it's amazing. And I know you're a big fan of the CEO and I wish him all the best and pound those old school European banks into the dirt. I mean, at some point, we're going to have to deal with the fact that the largest bank by market cap doesn't do much lending.

• 31:05Speaker 00

  And that's actually going to be a real problem in the aggregate because the whole point is of banking is to recycle savings into lending. And right now, you know, Revolut's not a long-term lender, but that's that's by the by. They're killing it.

• 31:18Harry Stebbings?

  I'm fascinated to hear Jason's thoughts on this one. What's dominated my Twitter over the last week is Greg Eisenberg's original tweet about a horror story of venture fundraise. It led to hundreds and hundreds and hundreds of founders sharing horror stories, including the Cloudflare CEO who said about his experience with Coaster and Vinod Coaster. Jason, I'm really intrigued to hear your thoughts on this one. I'm sure you have some. How did you feel about this slew of founders bluntly saying how terrible a VC experience they had in certain cases?

• 31:53Speaker 01

  Well, I'd say a couple of things. First of all, I have, when I was in the most intense phases of founder, I had those stories too. I really, we forget how deep some of these things cut, these slights. Folks that are friends of ours now that we co-invest with, I thought terrible things of at the time, literally. One that we both know really well would constantly use me just to do diligence on another investment constantly. And now I'm pretty zen about that crap to founders. I'm like, just take the meeting and do reverse intel. Like if you're just being used for a competitor, then sit down with him and just find out about your competitor, you know, get the exact information. But man, that stuff really, it really burned me. So a couple of things. First of all, the whole thing with the CEO of Cloudflare,

• 32:35Speaker 01

  just remember founders hold grudges. I still do. I'm just getting over them now. I'm just getting over my founder grudges. So founders hold grudges in a way that VCs actually I think don't because VCs, you miss the deal, you got to find another bus, right? Having said all that, get over it because it's it's sales. The only thing that to really have a true grudge on is if you got fired. I think the folks that hate Benchmark from Uber. I think they deserve to hate benchmark. I think there's others, but if you're treated poorly during the fundraising, get over it. It's sales. Have you never sold? This is what I say to people. Have you never sold anything? Have you ever never thought a customer deal was going to close and it didn't? Have you ever not talked to a prospect where they told you, Rory, of course, we're going to buy by the end of the quarter?

• 33:18Speaker 01

  And then you just send them 28 emails and 87 texts and the deal never closes. How is it any different selling stock than anything else? So there's a bunch of issues to separate the grudge, the firing, which is a niche issue. And learn to sell, man. Grow some.

• 33:34Speaker 00

  In one sense, you're right, but I think the difference for the founder, and I think a ton of what you said is super insightful. The difference is the founder in this case isn't selling their product. They're selling themselves. So I think you're right about one thing. The rejection's cut deeper and there's no doubt. Even on my side, I remember a VCR 30 years ago said to me, you never forget the LP turn downs. And 30 years later, he's so right. You remember those people who turned it. It's just a personal thing because you're not just selling your product. You're not selling Ford cars on the deal a lot. You're selling yourself and when you get turned down, it hurts. So I totally agree with you, Jason, is that you do have to grow a pair. You do have to get a thick skin.

• 34:15Speaker 00

  But I totally get the way founders, even if it's something doesn't go wrong in the process, I totally get rejection sucks. And as yet, so that's the founder side. And I thought you were super sympathetic there. And then just to put the other side of the table, every venture person is in a business where we turn down 99 out of 100 deals that we look at. So rejection is our default MO. And that's why I always wrestle with these ratings businesses, right? You know, the kind of rating VCs, it's doable. And I think there actually is appropriate ways to do it. But you do have to remember the default is a no. And it's really hard to high customer sat when 99 times out of 100, you're going to tell the customer, no. It's why no one ever loves the bank that they apply to the lending money.

• 34:56Speaker 00

  Cause a well-run bank turns down five out of six customers. No one likes that experience. Rejection sucks. So it's set up for failure out of the gate. Sometimes, you know, in the course of turning down. Two, three hundred people a year, you get some stuff wrong.

• 35:11Speaker 01

  What was interesting is Matthew was really upset that Vinod asked him to consider getting rid of Michelle, who we know who is great and is CTO, and giving him the shares, not stealing his shares, which I think was misinterpreted. He made a suggestion in a pitch. And listen, I am a super fan of Michelle. I would not make that suggestion. But let's step back for a minute. We've all had those meetings with founders where the team is very unbalanced. And am I Vinod? And would I say it that way? No, but you might know me well enough. I almost would. You know, in a different situation, I almost would say that to a founder. I just wouldn't do it during the pitch. I would just say it's not a fit for me. But I find myself constantly post-investing, the only one that would say things like,

• 35:56Speaker 01

  what are you going to do with your co-founder? Rory's just not committed enough. He's not getting it done. I think his directness is interesting that it bothered CEO of CloudFlare so much. But in a way, it was just his read of the team. I think it was wrong, at least for one of them, but the read of the team.

• 36:13Speaker 00

  And by wrong, you mean incorrect relative to the subsequent outcome?

• 36:17Speaker 01

  I would, I know Michelle. I don't know Michelle that well. I think she's a great founder, so I would keep her. But the fact that VCs going and you see that the founders are not equal, not in terms of their commitment and skill set, right?

• 36:30Speaker 00

  Don't comment on this. Because, look, it's clear, given the superb outcome, that whatever CloudFlare had, it shouldn't have been touched one little bit. It should have just been let do exactly what it did. It's a great outcome. So you're right. I think, again, Jason, you have a good point. You go in, you know, you see things. And especially at the earliest stages, if you think the team is wrong, but you want to do the deal, then, you know, that's a really tricky conversation. As was when you're as successful as Vinod, you're like, I could take three meetings and slowly and delicately get to this point, or maybe I'll just say it. Now, it's also worth pointing out, he said very clearly, he doesn't believe that happens. So I think, you know, I think stepping back, I don't know if it's a useful way to rehash. I mean, the more successful you are, the more meetings you'll have, the more meetings you have, the more likely some of them go wrong, especially if you're direct. And Vinod is nothing if not direct. So stuff happens.

• 37:15Speaker 00

  I mean, as someone pointed out, he was on the Midas list the first First time for Juniper and he's on the Midas list this year for OpenAI. And there's thirty years between those two events. So he must be doing something right overall, which is still not to say that on an individual day, you can piss people off. And look, I'm sure I look back across three hundred, four hundred turn downs a year for thirty years. I know there's been some where I wish I'd handled it differently. There's been one or two where Lily at the term sheet level, I wish I'd handled it differently. It happens. It's not ideal. You know, if you're aware of it, you apologize later and say, look, I got that wrong. And you just have to move on. Some element of breakage is inevitable.

• 37:50Harry Stebbings?

  But I have to admit, Rory, I disagree with you.

• 37:54Speaker 00

  What?

• 37:54Harry Stebbings?

  I've been turned down by lots of LPs. The best way to have revenge is that you forget they even existed. And I'm being a dick here, but like a lot of them ping me now like, wow, you know, when they turned me down when I was twenty one, like, whoa. And you're like, who are you?

• 38:09Speaker 00

  Yeah, you don't maybe, maybe early on, you'd early on, you remember you're right over time. To Jason's point, you develop the thick skin and you're right. I remember much less the turn downs in Fund Seven than in Fund. Yeah, the first one was Fund Three. I do remember in Fund Three, our first independent fund, which we foolishly timed literally for the week of the great financial crisis in November oh eight, getting turned down three times in the space of an hour. So I do remember that pretty vividly, but life goes on.

• 38:35Harry Stebbings?

  Okay, so I again, big milestones for lovable and cursor this week. Loveable saw literally just before we came on, I will hit five hundred million of error. So five hundred million of error with one hundred and forty six employees. Cursor has hit four billion and it's targeting six billion at the end of the year. Jason, you're the man of the hour for this one.

• 38:57Speaker 01

  You're the coder.

• 38:58Harry Stebbings?

  Any thoughts on this?

• 39:00Speaker 01

  I think there's two different things you said. One was about the scale, right, of these companies, right, which we've talked. I do. I do think the headcount thing is something that we're still learning about, right? And so I think when we started this show, we were in an area where where folks were very lean and growing very quickly. But the question was, does this normalize over time? As you approach scale, as you approach a hundred million, two hundred million, five hundred million, a billion in revenue, will startups get fat again? Do you just need, do you just need? Layers and I can think of a number of hot AI startups that are getting pretty fat, especially on go to market teams and others. But we're seeing more and more examples to the contrary. And it is disruptive on many levels.

• 39:44Speaker 01

  If you can stay as efficient as as these guys are, it is disruptive to investing. It is disruptive to employees because it will shrink the number of these great roles and it will increase compensation right to the click up point to Zeb's point. I'm doing layoffs to give million dollars to a handful of folks. Lovable can pay its team whatever it wants with a hundred, less than 200 employees. It can pay whatever it wants. But man, if this becomes the the steady state for startups, and maybe it was in the old days, maybe in the old days of Microsoft, it was true. But it's just so different if they're not going to reflate is what I think about. And because it's not a lot of people, man, and it's not a lot. And what people get don't understand, I know Repl a little bit of lovable, but they're the same.

• 40:26Speaker 01

  They're pushing out a lot of code, like one thing you could say is, oh, it's easy because they only have one product, right? That would be a comeback that I think a little bit like you don't have to have 22 products like Datadog or 7000 like Salesforce. Well, maybe, but these are pretty complicated products. Okay, you've got database, you've got hosting, you've got management, you've got SEO you're running, you've got so they, these guys are pushed because it's the most brutally competitive space it is, they're pushing out more features than any of us did our entire lifetimes a generation ago. So I don't think we're, these folks are working, they're incredibly hard and they're incredibly productive. And if you want to be, you want to have some contempt with for VCs tying this together, I'm kind of contentious of startups that need to be fat. I'm like, what's your excuse? What do you need another 200 people for?

• 41:11Speaker 01

  And when I, when I'm at a board meeting and a VP says, or they're all C levels now, right? A C of something, there's no VCs anymore in startups, they're all Cs. And they say, well, I could do that, but I need another 50 or 100 heads. I need another 10 or 20 or 40 million. I just think that person should go.

• 41:28Speaker 00

  The only comment on, and first of all broadly agree, but the only pushback I'll make is this, you know, we're having the, oh, they're amazing that, you know, they can do this with only 146 heads, but we Remember, if you're spending fifty to seventy percent of your revenue on intelligence from Entropic or OpenAI, you don't have the, I mean, it's a different business. You don't have the option to also have fifty to seventy percent of your revenue on employees because there's not enough room in the percentages, right? So there's some, and they're just different businesses with different business models.

• 41:59Speaker 01

  They are, but you have the choice of who you invest in or who you work for, right? We have our, we have our legs in pocketbooks, right?

• 42:05Speaker 00

  No, of course. You would, and this is actually one of the core challenges many of these other companies are going to have. If you can be one of the hundred and forty-six employees, that is, I agree with you, Jason, a hundred percent, that is getting levered from this AI such that your economics are compelling because you're one of a small group of people making a lot of money in a business that's leveraging technology to have a very high revenue per headcount. It means we can pay you a lot. That's a far better place to be as an employee, you're right, than, you know, one of, yeah, eighteen, whatever it is, ninety thousand employees at Salesforce. You're exactly right, because you're not getting levered from the models on intelligence, right? And this is the, how much will be labor and how much will be intelligence? This is the kind of, what's the split? And what you're seeing, to your point, and so I'm

• 42:49Speaker 00

  rambling on this, but it's clear in my head, I want to get it across. In businesses that are using a lot of intelligence, and I'm using tokens as a proxy for that, then small numbers of people can achieve a lot and make a lot. And those are better places to be as an employee and often as an investor than to be, you know, slogging it out with ten times the employees, not a ton of new leverage from AI, and you're stuck in 2010's ground game, which sucks.

• 43:16Speaker 01

  That's what you'd want to do if you could as a founder, as an employee, as an investor, you'd want that, if you could, that's the model you'd want. That's where I'd want to go work. I want to go work somewhere where I'm empowered, where I'm one of a hundred and seventy-two people at five hundred million in revenue. I matter.

• 43:29Speaker 00

  To your point, Jason, I do think, and I want to call it out, I do think as you start to develop an enterprise motion, and you implicitly said it, you're probably talking about the foundation models who are building big go-to-market machines because they have to. We are going to see way more bodies. I don't buy, there's not going to be an infant number.

• 43:46Speaker 01

  Right, it's not just, I mean, it's the gore, it's.

• 43:48Speaker 00

  What you're selling to enterprise, this idea that 157 people can do it on their own is not going to be true. I think for products, because remember, in the end of the day, someone Hang on, agree. In any business, there's only two things that happen. People are either making stuff or selling stuff. And if they're not doing any of those two things, they're just, you know, they're just overhead. And to your point, if you're selling stuff via PLG, then you only need people to make stuff. So you can be pretty lean. Once you start selling to law firms, once you start selling to corporates, then you do end up with a big ass sales force. And one of my theories is that that doesn't change from cycle to cycle. The Entropic sales force in five years will look like the Oracle sales force, the Microsoft sales force,

• 44:33Speaker 00

  and the IBM sales force 50 years ago, because

• 44:36Speaker 01

  But here's the thing, I don't know that that's going to be true, Rory. And first of all, there's, I'll give you, like, I don't mean to go back to, if we compare Replin level, I know Replin's hiring 250 sales reps this year. So that's going to look very much like a traditional organization. Lovable isn't, okay? And it's different DNAs and different goals. But the majority of of Anthropic's enterprise sales are not allowed to talk to a human. And so my point from that, and we're not, we can't all be anthropic. Founders are choosing, they are choosing to have leaner go-to-market teams, leaner sale. They just don't want this crap. They just don't want 250 people running around. And they're willing to trade off some marginal revenue. I mean, Anthropic has less than 5,000 employees, right? So they're just saying culturally, so I don't think that they're all going to,

• 45:21Speaker 01

  I thought they would all look like SAP and Oracle and Salesforce. We're not, we're not seeing that.

• 45:25Speaker 00

  It's not going to be 147 people doing 500 million when it's enterprise sales.

• 45:31Speaker 01

  Nope, but what you might see is two to five times the level of efficiency. And it just changes the the culture, the headcounts, where people are. That's the difference, right? It doesn't really matter whether it's zero or 4X, right?

• 45:43Speaker 00

  Agreed. It will be better. No matter what happens, when you start with a clean slate and leveraging intelligence, you just become way more efficient. I agree, these companies on average will be way more efficient.

• 45:54Harry Stebbings?

  When you do a comparison, it's over 3 million error per head versus, and I'm not But like a sales force which is 350K per head. It's nine times more efficient.

• 46:04Speaker 00

  Yeah, but again, I'm just gonna say it here. Yes, you're true, but Salesforce enterprise heavy, R and D heavy, no intelligence costs. Right, remember, they have 300 million of the decedative tokens, which let's just do it here. We did the math. That's roughly 10 or 15 grand per engineer and engineers are about only one fifth of what they have. So remember that 300,000 ARR, probably only 1% of that is tokens. Do you understand me, Howard? In other words, Salesforce has $300,000 of revenue per head, which means if they're gonna make money, they can't pay anyone more than 200,000 and they're probably spending 1% of revenue per head on tokens. Contrast that with, you know, your example of a Replish.

• 46:47Speaker 00

  They're getting 2.3 million per head, but they're probably spending 70% of dollars on tokens. It's just vastly different businesses and one of them is more aggressively leveraging the new enabling technology. So to Jason's point, it's probably a sweeter spot to be one of the 147 people in that gig than one of the, I used to know the headcount, now I don't, I probably could do it if I met that 20, 30,000 people in a much larger organization. We don't have leverage. They're just different businesses.

• 47:16Speaker 01

  But this, to me, this is, this is much more interesting than layoffs and these stories. I think everybody, every founder, forget about older companies. Every founder today wants to run a startup that's at least a million in revenue per employee or more. They're targeting 2 million. They want to be in a million and they want it because they want great teams. They want lean teams. They want the best people. They, they wanna work this way. They wanna go to work with people they look up to and respect. They don't want bloat. My sense is that roughly over the coming years, startups will be half the size that they used to be for revenue, including enterprise. This is, this is very much B to B focused. That's a much bigger change than whether this company does a 10 or 15% lift. If everyone's half the size they used to be, it's a much bigger change.

• 48:00Speaker 00

  Can I make a comment here? By definition, if you invent something that's meant to augment humans and

• 48:08Speaker 00

  Make them more efficient and that thing is called AI and it does a trillion in revenue. By definition, you need to see a trillion of efficiencies and the way efficiencies show up is less humans per unit of task. You're exactly right, that's the bet. If it wasn't happening, the entire thesis of the case would be bullshit. So you're right, Jason, it's gotta be happening. If the people who sell AI can't be efficient with AI, then what chance is there for the rest of them? Do I agree with you?

• 48:35Harry Stebbings?

  Did Elon have the acquisition of the year buying Curse for what will be 10 times end of year revenue? Looks a pretty pressy and buy if they're gonna hit target.

• 48:43Speaker 00

  It was a clever deal on every dimension. I mean, when I was thinking about this, because I'm always skeptical on the valuation, but Elon did such an amazing job of meeting the AI moment. You know, you look back and you go, he obviously founded OpenAI and then all the drama happened, blah, blah, blah. But in the last 24 months, he moved from ground zero to building Colossus, building Colossus 2, feeling with his model, but just because he had the guts to show up and spend that kind of money. Because to be fair, he does have the cheapest cost of capital on the planet. He found himself with, you know, gigawatts of capacity just when everyone needed it, was able to sell it to them and then did the cursor deal also to kind of backfill the space.

• 49:24Speaker 00

  And everything stems from the fact that he had the big picture conviction that AI mattered and he was willing to put 30, I mean, it's astonishing, 20 to 30 billion dollars of capital in the ground in advance of revenue because he felt this was the trend to back. And at least right now, it looks like a great trend. You're right, pressing is exactly the right word. He found two of his biggest competitors who want to buy from him. You know, he's getting 2 billion a month, 1.25 from Antropic and 950 from, no, the other way around. 950 from Antropic, 1.25 from Google, the other way around. 2 billion a month, 2 billion a month, 24 billion a year in terms of compute revenue. And then on top of that, he has Cursor coming in at the back end to fill those servers.

• 50:07Speaker 00

  So he is the most efficient core weave with the lowest cost of capital. Now, separate comment, it doesn't mean you have a foundation model, it means you're just a better core weave. But oh my God, did he make... Turn a loss into a win in the space of three months. I mean, in January first, you could have said, look at all those data centers and you don't have a foundation model. You're screwed. Here we are, June ninth, and he can say, I have a $24 billion outsourced business and I have this other business that's coming in. That's going to be doing $6 billion that'll run on my servers. I went, great move.

• 50:41Harry Stebbings?

  Incredible transition. Two private rounds that would large. Ramp raises 750 at 44. We've discussed Ramp a lot, tripled in a year, crossed a billion in ARR, positive free cash flow. And then also Suno, the AI music creator company, raised 400 million and a 5.4 billion. Teasing first license model, Bond led that one. It was double the previous valuation just six months ago. Anything on either of those?

• 51:08Speaker 00

  I mean, Ramp, we've said it before, it kind of gets to the Revolut. They'll trade like financial companies, financial services companies, but they will be adjusted for growth. And, you know, we always, we kind of do them, you know, when Brexit slowed down to, I can't remember what it was, 30, 40%. They sold for 6x and here we have Ramp. I've heard they're actually as much as 1.25 billion. So they're trading at 30 to 40 times, right? Whatever the number is, right? Of that order. It's a growth path. And if the growth keeps up, this will be a smart round. And if the growth goes down to anything like, quote unquote, normalized growth, it won't be. And it's the same bet with Revolut. They're raising at 100 and something, they're doing what, four and a half billion in revenue? You know, 1.5 billion in operating income, which is fricking amazing. These companies are great.

• 51:51Speaker 00

  Banks don't trade at 40 times, 50 times earnings, they trade at 12 times. So on both of them, it's really just, I mean, people always say, you know, will this trade like a tech company or like a financial services company? And I was, it'll trade like a financial curve, but it will be adjusted for growth. And Ramp is getting the growth and they just seem to do a very good job of riding the Zeitgeist. And, you know, their AI story, their adoption story, they just seem to do a good job on all that. So for now, they got the growth and as long as they got the growth, the math works and it's a big time. So we'll see.

• 52:23Harry Stebbings?

  Jason, you're trying Suno, the music AI company. You having for your personal assault? Office, Suno, just playing AI music.

• 52:31Speaker 01

  I do like Suno. I pay for Suno. It's one of those ones that if I were more cost sensitive, I would cancel my subscription because I think I pay fifteen or twenty bucks a month for three songs. There are certain apps that I think they're fragile for certain users because I'll pay to continue to pay them, but barely. The utility is there, but barely. You know, it is amazing. I don't, I'm not maybe, even though I'm a customer for a while and user, the rate at which that valuation doubled and, you know, the twenty billion dollar outcome for it, I'm not smart enough to see it yet. So it feels a little bit to me like risk on, right? Because the revenue justifies it, the growth justifies it, the stickiness justifies it, the brand justifies it. You can't lose an AI, but I don't know. We'll see. We'll see at the IPO.

• 53:16Harry Stebbings?

  I just don't know where all this money is coming from. No, I'm saying with all the IPOs and then you mentioned Revolut again, Rory, they're targeting seven hundred and fifty million with the secondary sale that they're doing at the one fifteen. And then all the IPOs beside, I should know where all this money is coming from.

• 53:31Speaker 00

  There's always money when people aren't afraid. I always say the converse is important. When things get scary, it's not that money runs out, it's that money gets scared. And in the same thing in a bull market, it's not that more money is being made, it's that people are brave. There will always be money when people are brave and there'll be nothing but treasuries when they're not.

• 53:49Harry Stebbings?

  How long will they be brave for, Rory?

• 53:51Speaker 00

  If I knew that, Harry, I wouldn't be sitting there talking to you. I'd be trading QQQ. I don't know. I mean, at some point, they won't get brave, but right now, right now, it feels everyone's risk on. So yeah, I think people are brave.

• 54:02Speaker 01

  But we've all convinced ourselves the rules have changed now, right? You can go one to a hundred in a year and so many other things have changed. We throw these numbers, these growth numbers out as if it doesn't require a massive change in externalities to justify them. Like, oh, everyone, all the best startups go from one to a hundred in a year. You should, one to twenty in a year is pretty good today. You want to be doing five to eight by the time you get out of Y C. The rules have changed and they have changed. But there's a limit to how much the rules can change, right? There is, it's called GDP.

• 54:31Speaker 00

  Yes, and it's also called human nature. I think that the rules have changed what's doable, but what we do is in the face of these increased opportunities. We all get more aggressive and we keep on getting aggressive until the only thing that stops us being aggressive is someone gets burnt. It's the whole Minsky analysis of, you know, you're going to do what you're going to do. And it's going to continue. And the only thing that will stop it is overreaching. And the skill is to figure out when you're at that point. Like, it was funny. Last Friday, there was a little dip and you never know why stocks go down when things overpriced. But, you know, the, the, the narrative was, you know, the employment numbers were good. So therefore rates won't go down and therefore stocks went down. And, you know, intellectually, yeah, I generally find things don't go to hell in a handbasket because employment is good. But that's not going to be how this thing ends, right?

• 55:16Harry Stebbings?

  Well, it was because of chip guidance, to be clear. It was, you know, chip guidance of 16 billion missed the 17.2.

• 55:21Speaker 00

  Yeah, you're talking about, you're talking about Broadcom.

• 55:23Harry Stebbings?

  Yeah.

• 55:23Speaker 00

  I go, yeah.

• 55:24Harry Stebbings?

  Which triggered it.

• 55:25Speaker 00

  It was some of that and then it was just some, yeah, but yes, they, they definitely got guy. I mean, I think what that, if we're going to talk about that, all that said is when you're priced for perfection, which is always true. When you're priced for perfection, even a small miss to expectations, you know, filters through very quickly. And that's all that happened there, you know, the semiconductor index is up 100% year to date. So it turns out it's pretty vulnerable to correction. Oh, well.

• 55:48Harry Stebbings?

  Well, and that's amazing, which we may not have comment on, but it is amazing. It's bending spoons. This is kind of a roll up play on traditionally kind of consumer companies. You know, some of their properties are very well known, but you know, Evernote, Vimeo, WeTransfer, AOL, Eventbrite. Very massively executed roll up strategy, a billion three in revenue. And they're filing to go public at $20 billion in the US from Italy. I hasten to add, one of the few large Italian success stories, to be very blunt. I thought it was amazing. I don't know if you guys have a comment on it, but I thought fantastic success story.

• 56:24Speaker 01

  Well, to me, the part I didn't, I didn't appreciate, and I do appreciate it, is that they turned around these effing companies. I mean, Evernote was dead and they re-accelerated the growth of Evernote with a fifth of the employees. I mean, it sure makes you think a lot of management teams are pretty suspect. If frigging bending spoons from Italy can turn Vimeo around, Evernote around, good God. You know, if AOL becomes the, becomes the, the, the next hot thing. I mean, these guys are fucking geniuses.

• 56:50Speaker 00

  I did read it in detail because I was super interested, right? Turned around is an interesting expression and so it wakes up. I mean, what they do, their MO is they buy these things. They cut all extraneous expenditure, including a lot of the acquisition expenditure. It's very like a little ironic, like the Vista playbook in enterprise. And then they raise prices massively. So if you look, I actually tried to figure out the organic growth rate of each enterprise. Because they got, they're growing nicely overall. But a large part of the reason they're growing is they're adding new companies. So by definition, revenue go up, right? I think they had, I'm trying to find my notes here. I had the growth rate last year. It was, you know, stellar, like something like 90%. But most of it's acquisition. So you're trying to piece through, Jason, and you're trying to find out what did they do in terms of growth by entity?

• 57:35Speaker 00

  That's the next level down. And even then, they get pretty good growth rate, you point out of the gate. But then you go one level below that. How do they do that? It's mainly price rising. It's very hard to get any sense of unit growth by individual. So in other words, what they're doing is they're taking Evernote as an example. It's doing 200 million in revenue. They just cut all the marketing initiatives other than high ROI stuff. So they take out, you know, 80% of the marketing spend, you know, focus the team on features, raise the prices 80% over the course of two years. 10% of the existing users go maybe 20%. Their net retention is reasonably decent. It's below 100, but it's reasonably decent. So they raise prices and the people who really want it stay. And it's really hard to grow new businesses. But what it means is it kicks off cash. And, you know, let's get real here.

• 58:20Speaker 00

  Anyone who hasn't churned from AOL now ain't churned until they die. So you can raise money on that. I mean, you know, you've had a whole two decades, people. I mean, it is 26 years since the AOL Time Warner acquisition. You've had 26 years to churn off this thing. You're going nowhere. So they have very sticky inertia customers and they stick it to them. It's an excellent business. I mean, you know, the big three properties are AOL, Eventbrite, and I want to say Vimeo. It was interesting, in the top 10 or about 80%. I think Evernote, which I use, is in the top 10, but not top three.

• 58:54Harry Stebbings?

  You still use Evernote?

• 58:56Speaker 00

  I don't use it, but I have a bunch of stuff in it. So I paid for another year. I need to get it out and figure out where I'm going. It's a long story, but I'm not using it. I'm using ChatGPT, but I got to get all my shit into one place. It's a long story.

• 59:07Harry Stebbings?

  I mean, Rory, what was the Last Supper like?

• 59:09Speaker 00

  Sure, sure. Let's focus on the business. So yeah, I looked at my goal. The odd thing is, this is a consumer internet version of early Vista, Toma, Brava. Buy those companies, cut the cost, raise the prices, and probably tap them out. So the question is, is it a great business? Absolutely. Should it go public at 20x revenues or 15x revenues? Maybe not, because you are relying on the acquisition for, I mean, you're not getting organic growth. You're getting a profitable business, and you know, you probably have to look at the sustainable profit. But it's hard to value it on a growth multiple, and you might be leaning in a little 20 billion. But I think it's a great story, because everyone was playing in the enterprise space. What these guys realize is there's

• 59:52Speaker 00

  similar opportunity in the consumer side, which, you know, just as, you know, the whole idea was in these verticals, no one's going to change their car dealer accounting system because they put prices up 20%. In the same way, you know, the default consumer is going to stay. So it's totally sensible and orthogonal plate what everyone else was doing. So they deserve the prize. Should the prize be 10 or 20? That's a different question. But yeah, great story.

• 1:00:17Harry Stebbings?

  Does it diminish what we've previously said about the bar to go public today? You know, don't get me wrong, they're that fantastic scale. It's a billion, three in revenue, which is awesome. But we have said that we're seeing this kind of bifurcation, and you need to be huge.

• 1:00:32Speaker 00

  No, you said it. I haven't said it, so I don't.

• 1:00:35Speaker 01

  But they're growing what, 70 or 80%? What are Bennington's growing?

• 1:00:38Speaker 00

  By acquisition, yes.

• 1:00:39Speaker 01

  I mean, Rory would know better than me. I'm not even convinced the markets care as much as we think, whether it's organic or inorganic. Salesforce itself is, is the balance of it is inorganic at some point, and then it becomes organic. We don't even think about a lot of these products as inorganic or again. I mean, does anybody really care? I mean, as long as it works, if they can keep finding these targets for the right price, if they can do what they did with Evernote, which is raise the pricing from 75 to $250 a year on average. If they can find enough of these without just running out of affordable targets, go into the founder's letter. It sounds better to me than starting something from scratch. Just go, there's got to, there's got to be 800 unicorns to buy. Just go buy those ones.

• 1:01:18Harry Stebbings?

  I really liked his letter. He said, well, finding product market fit is just a continuous mission of luck in some ways. And then the execution machine built after that requires no luck at all.

• 1:01:30Speaker 00

  Totally, absolutely.

• 1:01:31Speaker 01

  It's just traditionally, the constellation version was one to two X revenues, right? I don't know what bending spoons blundered price they have, and maybe it's not revenue based. I just don't know.

• 1:01:41Speaker 00

  Yeah, this is constellation for consumer with a much higher valuation because right now, software is under pressure and this stuff isn't.

• 1:01:50Harry Stebbings?

  Speaking of big enough to go public, guys, Databricks come out today, no, no, we're gonna do another round. Hundred and sixty five billion, price up from a hundred and thirty four billion earlier this year. But obviously, not going public with that announcement anytime soon. How did we think about that?

• 1:02:10Speaker 00

  I mean, look, the argument we said for why the big model providers are going public are they have a huge capital need. And, you know, I actually think this might have been Diamond or someone who said, I mean, the Goldman guy said recently, there's three reasons to go public. You want capital, you want currency to buy other things, you want to get liquidity for your shareholders, right? If you don't have one of those three things, then, you know, do you want the hassle? So I think Databricks, unlike these guys, for now at least, may well be in the position where their capital needs are still manageable. I mean, for context, reminder, the last private round at Anthropic was thirty billion, and the last private round at OpenAI was a hundred and twenty two billion. So this is

• 1:02:50Speaker 00

  less than, oh my God, it's point one percent of the last OpenAI private round. So what that says is, if there's money to fund OpenAI, there was money to fund Databricks private. So they can do it for longer, because it's just not the same need. It's a software company, it's not a, they don't quote unquote have to. Now, I personally think you should at four or five billion in revenue at the margin. I think in the end, you'll find, logically in the end, the cost of capital should be cheaper in the public markets, but right now, it's not. Databricks can get capital at a higher revenue multiple because they're higher growth rate than Snowflake can, and on hassle-free terms. I also think, the other argument he did Which is does resonate a little with me is the idea that this is just going to be a noisy year.

• 1:03:33Speaker 00

  I mean, you've got SpaceX by Friday, you've got the two big model companies by the end of the year. There's just a lot going on. It may well be next year as a clean deal. But yeah, I mean, the bigger hub was they don't need it's just the amount of money that you need to build a foundation model is two or three orders of magnitude more than anything else. So the imperative for those guys to do a public is just different.

• 1:03:53Harry Stebbings?

  All right, boys. Is there anything that I've missed that you think we should discuss? Other things that made it to the top. SaaS now trades at a discount to the S and P 500 for the first time in history. Wow, that's sad. Meta weighing tens of billions more for CapEx band following in the suit of Google. Zuck, attaboy.

• 1:04:12Speaker 01

  I'll tell you about the one small one I'll pick just for fun if we're breaking. I think it's actually a more important story, but maybe it takes time to track it is, you know, Microsoft's new models that it launches, right? Which I think it said they were clear there. I don't know what terms they use. Sorry, I'm traveling. It's in beta. I found it very interesting that the models can't even search the web. So there are certainly use cases where that's not important, but it's interesting to me that you would launch a model that can't extend its knowledge by searching the web. It's a flashback to when this show started when basically, you know, every you talk to chat GPT and everything was nine months ago, right? I don't remember. My memory is only through September 2024. The only thing that says to me is hard to predict whether anyone can can really, we think everyone can catch up.

• 1:04:57Speaker 01

  We think Microsoft can catch up. We think deep sea can open source can catch up. But if Microsoft launches these models and it doesn't even search the web, can we really keep up with the pace at Anthropic? I mean, the pace of change is so rapid. It's so impressive, like so much progress. I just can't predict. I can't predict where it will play out over the rest of the year next year.

• 1:05:17Speaker 00

  But you are right, Jason. It did matter because it was the final recognition that frankly, it's outrageous is you can't for Microsoft to have such a core foundational technology and the way they don't control it just wasn't a long term sustainable state. And, you know, they and OpenAI are somewhere between an open relationship and actually divorced. Of course, I can't quite figure it out. Where they're allowed out of partners, but they're still together. I can't quite, but whatever. Microsoft needs its own control and they needed to do this. And you're right, Jason. Is it, you know, the reviews, I haven't used it yet. The reviews are like good, but not even as good as the best open source. But my takeaway on it is, you know, well done because you needed to do something. And you, it's hard to imagine not playing here.

• 1:06:00Speaker 00

  And they tell a story about, you know, local use and, you know, range of models and, which I read all as some version of, we don't have to be the very best. Cause we know we're not the very best in general in life. You need to be the very best, but at least you need to be playing. It's a step. It's a step to the goal. And that's why Google is so much further ahead, though, at least in the game. But yeah, this was the end of the period where you could fool yourself even slightly. That your plan for AI is to partner with OpenAI. That's just not the answer anymore. And it hasn't been for a couple of years for Microsoft. So yeah, onwards from here, my guess is they'll, you know, they will become the next sucking sound for talent and money. And you're right, they need to add the stuff that the other guys added two years ago. It's an interesting question. Can they do the Microsoft thing?

• 1:06:43Speaker 00

  And grind their way to good enough over three to four years, like Azure was never as good as AWS. But it was good enough for most of their corporates. Can they grind to something that's good enough? In this space over the next two or three years whereby they're not going to be as good as Entropic or OpenAI. But they're good enough for the bulk of low end intelligence work. I don't know. It's a, it's an interesting question. I mean, they never caught up in mobile. They never caught up in search. They did catch up in cloud compute with Azure and, you know, who knows here. But you're right, it is the one that matters. One of the big questions is between Microsoft and then the open source vendors. Are the open source vendors especially, is it going to be a non-Chinese US open source vendor? That's kind of even within the spitting distance of the frontier models.

• 1:07:28Speaker 00

  Cause that matters a lot from a pricing perspective.

• 1:07:31Harry Stebbings?

  There's a lot of open source models today that are within spitting distance, no?

• 1:07:35Speaker 00

  Either are, but mainly Chinese. And yeah, the question then is, you know, is that sustainable? And a lot of our companies are using them and is that sustainable? Even though it's open source, is that sustainable over the medium term? If your only plan is you can download KIMI or DeepSeek and you can fine tune it, that's great. But A, some of those Chinese companies are themselves going closed source. I think what happens in terms of an open source competitor in the US matters. And obviously you've got, I think it's recursive and pool side, a couple of reflection and pool side doing that. But that's to Jason's point, sometimes you get caught up in the stories and you're the worst for that, Harry, because you just love gossip. But Jason's right, what really matters is, is this going to be an oligopoly? Or is it going to be four or five players? In foundation model and two years from now, which is why what Microsoft did matters.

• 1:08:21Harry Stebbings?

  I just did a show with the founder of Nabyus and he said the single biggest threat to Nabyus is consolidation of models. If we have concentration of model winning, we are in a tough space and we want an ecosystem, not a monopoly.

• 1:08:33Speaker 00

  There's a reason, yes, that everyone other than Anthropic and OpenAI is shoving money furiously at anyone else who can help or load that competitive advantage.

• 1:08:42Harry Stebbings?

  I just did a show with Aaron de Perplexi and he said that export controls have actually hurt the US in many ways because it's meant that they've innovated on architecture that they wouldn't have needed to and really built muscle that they wouldn't have had to. And combined with the open source model capability that they have, it's now a competitive threat that's even stronger. It was an interesting discussion. Rory, I have to say, we'll wrap. My mother text me after our last episode and said that your quote on making money is like sex was the favorite moment of any trio show that she's heard. And I got about 50 texts from people being like, that is the quote of the century.

• 1:09:19Speaker 00

  I guarantee you, I think it's not in direct format, but there's a version of that either in Fred Schwedt's Where Are the Customers Yachts from the 1960s? Or in reminiscence of a stock operator from the 1920s. One of those two investing books hinted at that, but I always remembered it. So I am not the original author, but the books are kind of three to five times older than you are, Harry. So it's kind of like the Bible as far as you're concerned.

• 1:09:46Harry Stebbings?

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