20VC: Tiger Global Saved by OpenAI | Coatue's New Fund: Hype or Substance | Why SBF is the Greatest Investor of the Last 5 Years | Why Big Funds are Investing in Perplexity

Items Mentioned in Today’s Episode: 04:11 Owner’s New $120M Round at $1BN 06:05 Why Series A is F****** Today 14:55 Could Tiger Global Be Saved by OpenAI and Scale 22:43 Why SBF is the Greatest Investor of the Last Decade 31:34 Why No Individuals Should Invest in Venture Funds 36:27 Why Microsoft Laying 3% of Their Workforce Off is not Enough 41:38 OpenAI’s New CEO: Non-Technical CEOs Running OpenAI 44:48 Why Big Funds are Investing in Perplexity 54:43 Why Clay Should Raise a Warchest and Go to War 01:00:05 The Impact of AI on Marketing and Sales

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

• 0:00Speaker 00

  The fact that Sam invested early in Entropic and Curse is astonishing.

• 0:04Speaker 01

  I think the weirdest thing in this is that for OpenAI, you have a CEO and now another CEO that are both not technical. I just think it's really weird. Microsoft laid off 3% of their company today. It's not enough. I'm not sure I need 80% of my team today. So I would armor up if I were Clay. I would hire everybody. I would raise another 100 million and I would just scorcher everyone in the space.

• 0:25Speaker 00

  What perplexity is selling from an investor perspective is an at-bat, a credible 1 in 3, not equally weighted, to be clear. OpenAI is clearly going to win, but maybe you can be third. And that's worth a damn sight if the prize is a trillion bucks. That's what they're selling.

• 0:40Harry Stebbings?

  This is 20 VC with me, Harry Stebbings. This show was just the funnest to record. These are always the highlights of my week to record. In the show today, we discuss OpenAI's new CEO, Co2's new fund structure. We discuss perplexity's new potential round, where SBF might be the greatest investor of the last few years, and so much more. You can find it on YouTube by searching for 20 VC. I really hope you enjoy it as much as we did recording it. But before we dive in today, here are two fun facts about our newest brand sponsor, Kajabi. First, their customers just crossed a collective $8 billion in total revenue. Wow. Second, Kajabi's users keep 100% of their earnings, with the average Kajabi creator bringing in over $30,000 per year.

• 1:25Harry Stebbings?

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• 2:10Harry Stebbings?

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• 2:54Harry Stebbings?

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• 3:37Harry Stebbings?

  get access to credit sooner to hit the ground running faster, unlock capital that's designed for scaling, and see all these money moves all in one place. I speak to dozens of founders every week, and most of them are using Mercury because they're super smart, and that's what you have to be using. Visit mercury.com to experience it for yourself. Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Column NA, and Evolve Bank and Trust, members of FDIC.

• 4:07Speaker 00

  You have now arrived at your destination.

• 4:10Harry Stebbings?

  Guys, it is so good to do this. I always say this, this is my favorite show to do.

• 4:14Speaker 00

  I bet you say that to all the girls, Harry.

• 4:17Harry Stebbings?

  You know what? Clearly you don't listen to the show, my friend, because I don't. I actually just thank them cordially and pretend, you know, that I'm thrilled. But I would love to start with some big news, which is Owner's new round. Jason, you led the seed here. Ninety million at nine hundred million, I think it is?

• 4:35Speaker 01

  You know, I don't even read the document. Honestly, I don't read the document. I just found it's 120 million when I read it today. I didn't even know. I didn't even read the document. All I care about is my ownership. I don't really, the other numbers, you know, they don't really, I'm being a little facetious, but actually, no, 120 million, yeah, 120 million.

• 4:49Harry Stebbings?

  At a billion?

• 4:50Speaker 01

  Yeah, at a billion. Yeah, yeah.

• 4:51Harry Stebbings?

  Wow.

• 4:51Speaker 01

  The learning is, look, yeah, they're at 40 million, growing 10% a month, but the trailing is there, right? So they have done a lot in sort of AI-infused marketing, but in some ways, it's also a pre-AI. I mean, it's really good software. We could talk about that. But well, the interesting thing was that the narrative is right. This is just my learning. With those metrics, right, with the growth and the thing, Adam did a great job doing what you're supposed to do, getting to know all the VCs over time, right, socializing. But then the classic thing, which actually I get a little, some hives around, which is open the data room on Monday, get two term sheets that afternoon, and get all of the term sheets by Wednesday. That process still makes me nervous to this day for a variety of reasons. But the meta lesson is going to our conversation, look, triple, triple, double, double, still good enough,

• 5:33Speaker 01

  right? And so Owner is growing faster than that, okay, objectively. But if you are, then it feels like there's unlimited, this is learning, there's like friggin' unlimited capital. Even just from the insiders could have filled out 150 million in this round. Wherever this zone is today, this is the endless struggle for me of, this is my learning from this. If you're in the zone, and I think it's harder than ever, but if you're in it, there is just unlimited effing capital, right? But you gotta be in that box. So that's my learning, the box, right?

• 6:02Harry Stebbings?

  Rory, what do you do in those cases? I have this now with the team where they say, Harry, great founder, great founder, we need to decide by Wednesday and it's Monday. And I go, I can't write a $15 million check by Wednesday when it's Monday. I just can't.

• 6:16Speaker 00

  Well, the framing of the question says why it's wrong. If it's Monday and you're hearing it for the first time and you gotta write Wednesday, you're just way behind. Because even if you crank and write the term sheet, You're also going to be up against someone who's met them before in the last round and is ready to write another term sheet now and has done some work the prior Monday to Friday. And for them, Monday is just confirmatory and then you've got two days. So yeah, look, it's, I mean, the, the speed at which things are moving make it really hard. But there's no use crying and saying, shit, I wish it was 2010. You just gotta, as I say, play the game on the field. It's really hard to go from zero to decide in two days. Maybe you can assimilate the data, maybe you can, but it's very hard to assimilate the person.

• 7:00Speaker 00

  In other words, it's very hard to know enough about that person in two interactions spaced one day apart or two days apart to pull the trigger here. So that's the hard part. So, you know, we, we have internalized, you know, you've just gotta be tracking them. You've got to, you've got to put a lot of effort into seeing the ones that you want to see in advance to know in advance what you want. And the consequences of that means the second order problem is what it means is you can't be looking at everything equally because you can't, you can woo 10 people, you can't woo 200 people. So upfront, picking your shots on where you want to do the wooing becomes part of the struggle. My rule of thumb is if I don't have a list in our sales force of 10 to 20 names that

• 7:40Speaker 00

  I know I want to see, that I could imagine investing in in the next 12 months, I'm probably not doing my job. And, you know, we talk about it internally, everyone has their hot list. And if you can't name those companies, you know, and you're just wandering around hoping shit's going to turn up on Monday that will make you money on Wednesday, it's not going to be successful.

• 7:58Harry Stebbings?

  The question that I'm finding, series A investors and our series A team asking is like, how quickly after the seed can we preempt? Because it's so, so fricking competitive that they're like, the seed was done a month ago, can we just bid it up now? Because when we don't, Lightspeed, GC, Sequoia do.

• 8:13Speaker 01

  Well, look, if you bid it, I mean, as silly as these things sometimes seem when they're bid up in two or three months, right? Sounds silly at first, right? But going to Rory's point, let's say you met them and you really liked the deal, it didn't work out for whatever reason, you get two more investor updates and the company's grown 50% in two months and you've already done the diligence, you already met the founder, right? I mean, why wouldn't you do that deal? I mean, if, if, if you believe the price made sense, right? Because you already got, you get a second chance. Isn't Sequoia seems to be really good at these second and third and fourth chances, right? Sequoia did this round at seed and this round and then it does Clay at 1.5 billion. To me, it seems chaotic, but I don't think it's chaotic, right? It's win when you can win, isn't it, Rory?

• 8:53Speaker 00

  I do struggle with this. Should we do it three months later? Because you know, there's a little part of you that says, oh my God, that just feels wrong. Right? So I admit my biases are that way, but I think.

• 9:04Harry Stebbings?

  And you know, they don't need it. Like you know that this is solving for your problem, not for theirs fundamentally.

• 9:11Speaker 00

  Yes. And if they don't need it, well, they're big boys. It's up to them to say they don't want it. I don't have to solve everyone else's problems. It's hard enough to solve my own. So I do agree that's an issue, but the bigger issue is there's a couple of things. Can you stomach pain, you know, twice as much as someone three months ago? We've never done that. I struggle with that.

• 9:28Harry Stebbings?

  Yeah.

• 9:28Speaker 00

  But then, as you know, as a theme with me, I always think, am I getting that right? I mean, for example, there's no doubt some of the best companies in high growth markets have the highest velocity of raising. At some zoom out level, it's, you know, Adam Smith giving a signal to everyone. These guys have found a place to put capital. Give them more capital, you fools. I mean, OpenAI, I mean, the classic example, we put in 100 million, the model got smart. Shit, let's do a billion. Got smarter. Let's do 10. I mean, you know, you're going to double down until it doesn't work. That's the signal that says we need to get money into this thing. So I'm wrestling with exactly that. How soon after that should you do it? You don't want to be paying twice the price of someone else for the same risk. That feels like an idiot, which is why we haven't done it.

• 10:11Speaker 00

  But at the same time, as Jason said, six, nine months later, probably if it's a good deal, that's when you should be engaging.

• 10:18Harry Stebbings?

  On the flip side of this, we've just seen literally just before this, and sorry Rory, then we'll get to bits that you have prepped for, because I promise I won't throw in everything. For Carter just announced that Series As are down 81%.

• 10:29Speaker 00

  Yes.

• 10:29Harry Stebbings?

  I agree with this. Our Series A team are scratching their head going, what the has happened to the Series A market? Are you guys seeing the same thing? How did you reflect, think about this 81% drop in Series As?

• 10:43Speaker 00

  I saw the data. The seed and the pre-seed are the believe in the team round. And the A is to show me the traction round. And you know, belief is easy to manufacture and traction is hard. So once you get to the traction round, you either, you know, it's either you have it or you don't. Right. And if you don't, I think the smart thing people are doing is not trying to raise. They're just trying to figure, and we'll talk about a company in a minute that did an amazing job of that. Not calling, never, you know, it's kind of like the law, like a barrister, never call a question unless you know the answer. Don't go out and try and raise money unless you're pretty certain you got what it takes.

• 11:15Speaker 01

  Series A conversions are down. Who cares? Your start, like, go make your startup S tier. The whole point of venture is to invest in S tier startups. And if you built a B tier startup and it's hard, or you built an A tier startup that could get funded in 2021 and it can't today. Cry me a river. I was there with owner years it couldn't get funded. I couldn't get funded multiple, I went through sequential years as a founder. Easy to get funded, impossible. Easy to get funded, impossible. Right? Crying about it because it's hard to raise a series A is a, it's a B tier way to look at it. Be the best of breed, you'll get five term sheets. You really will.

• 11:46Speaker 00

  This is a totally weird analogy, Jason. What I get what you're saying is like, years ago, I actually had stunningly bad cancer. And you get the numbers and you get the statistical survival rates and they're miserable. And what we internalized at one point, my wife and I, is that the statistics are actually interesting to the doctors. Because they have lots of patients and they want to keep a rough eye on things, right? To the person, to the patient, it's zero or one. You either make it or you don't. And it's the same thing here for the startup. You're exactly right. Either you have something that's worth funding in which yay you and the statistics don't matter. Or you don't. At the margin, it's interesting that it's slightly easier to get money. But fundamentally, I think you are right, is that you want to get money because you have a good thing. And the having a good thing is the hard part.

• 12:30Speaker 00

  Venture is pretty much on tap if you have the kind of metrics that you guys got at owner. Look, I was, I was telling Harry before we started here, you know, whenever there's a good deal announced, I go to our sales force. I look at the chatter notes and I look at why we passed on that round four or five years ago and what idiots we are. And, you know, that's just the nature of the thing. At time, it didn't look obvious. You guys hung in there, you made it work and all power to you.

• 12:52Speaker 01

  The cancer you talked about.

• 12:53Speaker 00

  Yeah.

• 12:54Speaker 01

  Why did you come back to venture? Why didn't you throw in the fucking towel and say, I've had enough of chasing these deals? Seriously, I, you do, you, we are, we've talked about how. Folks are leaving venture, right? Some are certainly not elective. But we've also seen a lot of folks that made a lot of money that stepped out of venture the last couple. Like, why did you come back?

• 13:11Speaker 00

  So I did not make this, me to make this a personal thing. It was just kind of came in my head, but I have no problem talking about it. And because I internalized at the time, I was just on the 40 and I got stage four colon cancer. And my big heart going through it when I was doing chemo for about a year and a half. And, you know, that is that I kept on working and, you know, some people say I had this thing. I had this near death experience. I want to, you know, travel around the world, live in a yurt. I don't know, climb the Mount Everest. And what I realized is I like my work and I just like to keep doing it. And you just do it until you can't. I I've kind of processed through the whole existential, what are you doing thing? And come straight out to, it's a good job. We get pretty well paid and it's quite interesting. I have no desire to do anything else and I, that definitely brought it home for me. It's like, you know, if you're not going to change, I mean, sometimes it irks my nearest and dearest.

• 13:56Speaker 00

  When she'll say, you know, really? You couldn't even change. And I'm like, yeah, that's what you got.

• 14:00Harry Stebbings?

  Jason, do you know what I love so much?

• 14:02Speaker 00

  What's that?

• 14:02Harry Stebbings?

  Well, how cancer changed Rory? I just want to find another enterprise storage company. Give me another.

• 14:10Harry Stebbings?

  I don't want to see Everest. I just want another data storage company with high NRR.

• 14:15Speaker 00

  Hey, you know, there's a lot to be said for.

• 14:17Harry Stebbings?

  There in the hospital.

• 14:20Speaker 00

  I actually used to take calls when I was on the chemo on the, I used to lie on the floor because of hope. I didn't, I don't mean to make this a personal thing, you know? Actually, as a random comment on the yay venture, I was one of the first people to get a vast and which is the Genentech drug, which was funded by venture capital way back in the day, kind of funded Genentech. And, you know, before that you'd have been toast. And after that, you know, literally it was a week afterwards FDA approved. At the risk of getting political just for a second, I don't know what my health company, my health care provider paid for that drug, but I'm damn glad they did.

• 14:52Harry Stebbings?

  So you said yay venture there. One of the villains or criminals of venture, so to speak, over the last few years has been Tiger. People criticize obviously deal volume, deal count, dollars out the door. It's definitely been seen with some skepticism for sure. But positions with OpenAI and scale is proving to make some of their fun. Performance not look so bad. And if we project out forward, this could really save them. How do we think about this, chaps?

• 15:21Speaker 00

  First of all, it's not a morality play, so there's no right or wrong. Look, they had a very aggressive strategy. They did 300 odd deals in 2021. Obviously, in retrospect, total mistake. You know, time diversification. If they had enough time diversification, I think it's in Tiger 15 or PFP, whatever they call it, 15, to get some OpenAI in and they had the guts to do a lot of it. Then, yeah, can you pull it back totally? I think, I don't know, but at the very least, you can kind of salvage something from, you know, what looked like a very tough fund. So it's entirely plausible that one deal has a significant impact. Now, given the size of the fund, 12 billion, given the 350 As in 2021, this gets to something we've talked about earlier. The only way it works is bet sizing.

• 16:05Speaker 00

  In other words, if they did one 350th in OpenAI, it's not going to bail them out, even if it's a 10x or 20x or 30x. If, on the other hand, they had the guts and the foresight and the courage to put 10 or 15% of the fund in something that could 7 or 8x, then yeah, maybe they've snatched victory from the jaws of the feet and, you know, more power to them. I don't know the amount they put in, but that's the key fact.

• 16:29Speaker 01

  Wait, let's go back in time. Help me, Rory, because you're so good at this. They did 350 Series As, basically, in a year?

• 16:33Speaker 00

  I don't know what As, deals, I think.

• 16:36Speaker 01

  So help me just think, but 2021 was good times, especially in B2B, because everything was working, right? What would it have to work out in B2B for that fund to do 3x? Like, how many? Help me think through the math.

• 16:48Speaker 00

  I think you shouldn't conflict the two, because the truth, any 21 exit is a 2018 late-stage deal, right? So, which is why, by the way, if you look at it, a lot of the late-stage funds are going to have a very excellent 2018 vintage, where interestingly, the earlier guys won't, because they won't have had it all the way through the system by the time the window shut. You know, the later-stage funds are going to post a very nice 18 fund. Tiger, as the definitive late-stage firm, probably has a great 18 fund. I haven't checked, but PFP 14 or whatever it is, right? Because if you were buying stuff at 2 billion in 2018, you were probably selling stuff at 6 billion in 2021.

• 17:23Speaker 01

  Yeah, they were they were the gems, the two billion.

• 17:25Speaker 00

  That was beautiful. And then, of course, everybody does the same thing. You start thinking you're smart because you're making money. And then you do three hundred and fifteen more deals in two thousand and twenty one. The math of those, Jason, I mean, it's a twelve billion fund, so you got to return. Let's just do twenty four billion to get a two X, you know. My assumption is that you're not going to have the hit rate. The calculation you're asking isn't worth doing because this isn't going to work. Because twenty percent or thirty percent of the three hundred and fifteen deals become, you know, solid deals, right? There's not going to be enough deals. It's going to work if it works at all because they put twenty percent in OpenAI and ten percent in scale. And then they get a couple of dribs and drabs and that's, you know, a couple of decent twenty one deals that become okay, but not much.

• 18:08Speaker 00

  You know, it's just hard to dig out of a twelve billion dollar hole in one hundred million dollar increments.

• 18:13Harry Stebbings?

  I have to say, I think they are unfairly criticized. I completely agree that the deal volume was off the charts. I don't think the strategy was that wise, all of this. That said, if I was an LP in those funds, if they hold on to OpenAI scale, and I'm actually in some of the back catalog with them. I mean, and the good and the bad. The bad, they will one X. There's lick preps, they haven't raised crazy amounts, they will one X, they won't lose money on them. And there's actually quite a few that are really fucking good.

• 18:39Speaker 00

  Totally. I I think that's fair. People have strategies. They're at work or they don't. The facts come in. The great thing about this business is in the end, we don't have to say what we think of each other. The numbers tell. If they were able to put a lot in those two big deals, they win. And they should win because that's a very shrewd move. When you're in trouble, you have a lot of trouble deals in twenty one. And you say to yourself, objectively speaking, what's the only strategy that can save this fund? The correct answer is shove the remaining forty percent of the fund in one of the only two or three things that can go to the moon. It's a total morphing of the strategy. There's an implicit statement in there that the strategy was wrong. Because otherwise you wouldn't be in the hole. But at the same time, getting out of the hole counts for points too. It's a little like Bush in Iraq, you know, like.

• 19:23Speaker 00

  It was a mistake to go in, but at least in two thousand and six, he surged his way out. This could be the tiger surge. Made a big hole, then fixed it.

• 19:31Harry Stebbings?

  I have to say, I think the thing that's fascinating is actually when you look at FTX, their positions in Anthropic and Kersa. Actually would have saved them if they had the time to prove that out and they hadn't done the co-mingling. That would have saved their financial performance with those two investments alone.

• 19:45Speaker 01

  Well, that's what I tell founders. Just only do like a little fraud. Like, you gotta know where the line is of too much fraud, right? And that was too much. That was the problem. You poked the bear too much.

• 19:56Harry Stebbings?

  That was not cool, Sam.

• 19:57Speaker 01

  Yeah, he just, he just, he just, yeah, I mean, you know, a little co-mingling, you know, using, using the funds to buy a compound in the Bahamas, that's okay, but like, you know, he just took it too far.

• 20:09Speaker 00

  I feel the need to state for the record that Jason, once again, has merely been ironical, and we will not be leading the promotion for this show with a picture of Jason and me with someone saying, only a little fraud is fine, okay?

• 20:22Speaker 01

  I think all of crypto is a little fraud. He just took it too far, right?

• 20:25Harry Stebbings?

  Rory, we couldn't fit that much on a thumbnail. We just have only a little fraud.

• 20:29Speaker 00

  Exactly. No mitigation. Okay, got it. There's a lot in that for what it's worth. First of this, just to observe, yeah, the fact that Sam invested early in Entropic and Curse is astonishing. What a talent. What a willingness to look at new stuff in 21 before the ChatGPT moment, you know, when it was just crazy stuff that, you know, people were saying, this might work, who knows, right? It might have been early 22, I wouldn't swear by it, but astonishing to pick two of the most important companies, you know, in the post-21 crash and nail it. You're clearly a very smart man. That's yay. Second thing is, your comment on that quote, quote unquote, has saved them. It's worth pointing out, the core business he also had

• 21:10Speaker 00

  was a pretty impressive and good business. I mean, the core exchange worked fine, too. It was all the weird shit on top. It was all the co-mingling. So, yeah, he had an excellent business, blew it with fraud, and did some great venture. That's quite a polymath.

• 21:24Speaker 01

  Do you think he deserves another startup if he gets out on time, if he gets pardoned? Do you think he deserves it? Like, you know, Theranos got another one, right? The Synapse guy, do you think, do you think a top fund will give him a couple hundred million to get his next venture going?

• 21:37Harry Stebbings?

  That's a good question. Would you, would you fund him?

• 21:39Speaker 01

  Would I fund him? I don't think Rory or I would, I'll defer to Rory, but I think someone will fund him. He showed the upside as well as the downside. I don't know. There's a lot of morality in the business. I think someone will give him just like a hundred to start. This isn't like an open AI spin out. Just a little hundred at a billion post to hire a team and just kind of get things going and see where it goes. It's not a lot out of the new five billion dollar fund, is it? It's 2%.

• 22:01Speaker 00

  Yeah, it's all cute. And look, there's lots of examples.

• 22:04Speaker 01

  I mean it though.

• 22:05Speaker 00

  What?

• 22:06Speaker 01

  I think someone will fund them.

• 22:07Speaker 00

  I don't know if I agree in the sense of, at the risk of sounding like a stick in the mud. I think there's a big point spread between dodgy, aggressive performance, acute failure. We work being the most obvious example of, you know, major failure, hubris, grandiosity, you know, implosion of money on a large scale, but no convicted crime. And on the other hand, being convicted of a whole bunch of fraudulent related offenses. I just think that's a bigger lift in terms of attracting capital. So no, my gut, once you pass the convicted criminal stage, the bar goes way up.

• 22:40Harry Stebbings?

  You said yay venture, saving venture. I think what really stood out to me was the co2's marketing of the new fund as being open to anyone with 50K. You know, Philippe LaFonte went on all in and really showed this kind of democratization in access to venture and a new model where you could redeem, there was kind of liquidity built in. How do we think about this?

• 23:02Speaker 01

  Well, you know, I want to hear Rory things, but I watch a lot of YouTube and they have, and they have movies. And boy, The Room came up. It was the story. Vin Diesel, it's just a story. Let's just rip off the retail investor.

• 23:13Speaker 00

  You really are the cynic here.

• 23:15Speaker 01

  I'm the most positive. I'm not a cynic. I just think people are cynical. I'm not a cynic. I think this is cynical, ripping people off for 50 grand that don't know what they're getting themselves into.

• 23:26Speaker 00

  And bringing a couple of things together. One, in defense of the thing, a lot of the big private equity firms are making the same move. They're trying to tap additional sources of wealth. I mean, we've just discussed it. A lot of the endowments are under pressure for capital. You've just got to get money where you can. And it's one more vehicle. I think if you look at people like Blackstone and people like that, a significant and expanding portion of their capital is coming from, you know, high net worth individuals. I don't know if the bar is as low as 50K, but there's no doubt that all the wealth managers have these PE type products where they've constructed some element of liquidity similar to what Courtois is doing. So it's not like it's out there,

• 24:08Speaker 00

  way out there in the blue. The other comment I'd make is going back to, I think, here we are. I mean, we just, this is the complete round trip. We, everything used to go public early, and then they stopped going public early, and they stayed private for longer, and all the institutions can do it. And now we've had to, now we've recreated this vehicle to allow public investors to invest in these companies. And in fairness to Courtois as well, I want to say, at better economic terms than the traditional two and 20. But when you zoom out a million miles here, this is all madness. We, these companies should be public, and then Fidelity Growth Fund could do them at 70, 50 bips, instead of, you know, Courtois doing them. So the core problem here is that all these companies want to remain private for longer,

• 24:51Speaker 00

  and you got to ask yourselves, why is it such a shitty experience bringing the public markets? Because it clearly is. This is a workaround for a problem that would be better solved some other way.

• 25:00Harry Stebbings?

  Is it a workaround that others adopt? Is it a workaround that Lightspeed, G C, others go, hey, this is something that we should be doing as well? Or is it you, you need to go to, do you think?

• 25:12Speaker 00

  I, I think anything that works in finance gets copied immediately. It's just one of those life rules.

• 25:17Harry Stebbings?

  Do you think it will work? Respectfully, he's on all in because he wants people to invest, and he's marketing a product out.

• 25:23Speaker 00

  I think that they're very smart people. I did, one thing I didn't understand, by the way, is the concept of was Adele and Bezos as anchor tenants? I don't know if you saw that part of the announcement where they said, I think it was Michael Dell. I didn't understand that because I would have assumed that they can get all the liquid, or illiquid, they can get whatever asset they want. They don't, they passed the 50K threshold. Let's put it that way. Jeff Bezos and Michael Dell make the 50K sufficient. To get an investor threshold. So I didn't understand that. But do I think it'll work and raise capital? Probably it will. Because the the facts are there. The other P E vehicles have worked. And then let's get real. You know, at the end, it'll be packaged as some version of this is the only way you can get access to OpenAI, Anthropic and all the hot new startups that are changing AI.

• 26:06Speaker 00

  Sign here and people will sign because it's true. It is the only way you can get access to those assets. So yeah, I think it'll sell.

• 26:12Speaker 01

  Listen, I I'm not a real retail guy, but based on my limited experience, I Rory's right. If you tell folks they can get access to these hot names, they won't even understand what the carrier economics are. They won't even process what it is, right? Um. In fact, I think the way they're doing the whatever the carrier is 12.5% and 1.6842% fees. It's almost too insider basebally, right? I don't think the average retail investor even knows what that means. It's actually arguably very high, although it's low compared to traditional venture, right? Depends how you whether it look let it a crossover. You know, is it is this fidelity or is this V C? But I

• 26:43Speaker 00

  That's an interesting point, Jason. You're right. I didn't take into account 50% of the assets are public. You're exactly right. That's probably how they got it. Half of my assets are public stocks, which should be 50 bips. And half of my assets are venture, which should be 220. So you blend. You're exactly right. The point. So it's not cheap. It's it's market.

• 27:00Speaker 01

  You know, there just is a line where this could rip retail investors off, and I I just hope it doesn't cross it.

• 27:04Speaker 00

  There's really only two things that go wrong. Either you have the wrong manager, or it's just the wrong asset class, or maybe the third is the wrong structure. So let's take it apart. You're getting an excellent manager. Co2 is a top tier, public, private manager. So if you look at the three things that go wrong, when a retail investor puts his money in, you know, dumb stuff, mistake one's not going to happen. You've got a top tier manager.

• 27:25Harry Stebbings?

  Are they a top tier private manager?

• 27:28Speaker 00

  Do at least put it this way. I would say for the kind of later stage things they are, they're clearly very sophisticated. They're in some good deals. Are they as good as Series A as Pick a Name Benchmark or Klein? No. But they've established a meaningful scale franchise and thoughtful. And, you know, compared to a lot of ill thinking people, they're thoughtful investors. They're in the flow. They have access. It's not like a million billion coming in where they have no access. Because one of the things that goes wrong is when these weird outside vehicles Come in and they have in a pre-existing business. You know, you just don't get the good deals. They're already in the flow. They'll be able to get good deals. I think the real question, actually, the other two issues. One is just the timing and venture is that if the if the next five years are tough, no one can save you.

• 28:10Speaker 00

  And then obviously, a lot of retail investors will think, oh, my God, that was dreadful. So I mean, to me, that's the bigger question. And then lastly, the structure thing is interesting. The whole will people internalize that there are limits to liquidity? And this is not SPY, your friendly local ETF that's fully liquid at one minute's notice. There are redemption gaps, redemption blocks, what are gates? That's what they call redemption gates. And if you remember back a couple of years back, it's either one of the Blackstone or BlackRock. I get those two mixed up, but they had a real estate fund where they had to put up the gates of liquidity because they just couldn't meet demand. So those, to me, are the questions much more than will they? I don't think they'll do bad investments. They're shrewd guys. The question is, does the retail investor who thinks they want it today really want it?

• 28:54Speaker 00

  When it's cyclical and illiquid and then they discover that?

• 28:58Speaker 01

  If I step back, I do worry it's being oversold. But any single individual I know that wants to LP into into venture funds, right? Anybody's, including mine, I tell them, don't do it. Because no one understands the illiquidity. It's not worth it. It's not worth it. It's not worth it for a large amount of your income because the liquidity will stretch it out. It's not even worth it. Put a little bit of money. Oh, I'm going to put 50K into 20 VC and then it does 8X, but it's 17 years later until I it's just not worth it for the stress. And I don't know how all the gates will play out. But a lot of folks maybe get stressed that this investment is. And I think 99% of folks should only be in liquid investments, including people in tech. You should be as liquid as possible. It's just too stressful for the like VTI is the perfect product for 99% of people. It's the perfect product. You cannot beat it.

• 29:43Speaker 01

  One of the things that I just hate about venture as a founder is when I smell too much greed. Now, a little bit of greed is OK. OK, we're aligned. We're on the cap table together. There's a good greed, but there's a lot of VC today and in 2021 that's like super greedy. Like, you know, there is a super greedy element to SPACs. That's why I hate them. You can tell me there's some good ones, but it's super greedy. OK, there's types of SPVs that and opportunity funds that are Super greedy and it just, I just don't like the smell of it. I just don't like the smell of it. And when times are good, this super greedy, maybe it's the right playbook in venture, like grab the billions. Grab the billions, but there's, there's, I don't know, some of it smells too greedy.

• 30:20Speaker 00

  There's always that feeling when you go to the retail investor that you've exhausted anywhere else. I get the cynicism. The weird thing that's happening is as privates become more and more of the economy, it just makes sense that the big private houses find more and more, have to access more and more of the public capital to kind of feed the beast.

• 30:39Harry Stebbings?

  I get you, but a 1.2 billion fund, don't butter no parsnips on that extension of private markets. You need $10 billion to be playing.

• 30:46Speaker 00

  Well, I say that the way you get, the way you get 10 billions, you start with 1 billion. So yeah, I, I look, I hear you. Again, I would say it again. Just look at what the PE firms are doing where private is a significant portion of their total raise. My guess is if you're running one of these big firms, and I'm sure, I'm sure there's a PowerPoint on the desk at Andreessen, at General Catalyst, at Unlight Speed on this. If you're running and you want to make sure that you're matching whatever it is that those guys are, the other people are doing that you perceive as your scale peers, then you're going to do what they're going to do. And they're all copying the PE guys. So the movie's inevitable. There's no point getting all moralistic about it. They're just, you know, it's, it's the game they're playing.

• 31:26Harry Stebbings?

  Also credit Jason to you for potentially the fastest bet to go south in a long time. I mean, you very confidently last week were like, you know what? I bet you 100K that AI is going to replace jobs very quickly. And then this week, Seb from Klarna, the biggest proponent of replacing people in Klarna with AI goes, yeah, seems I went a bit far and we're going to be hiring back a load of people to walk back a lot of that AI transition process that we made. How did we think about that?

• 32:01Speaker 01

  Few things actually I enjoy more than being wrong. I enjoy it, right? I'm happy to admit it. I have no ego in it. I genuinely enjoy being wrong. Believe it or not, I'm thoughtful when I speak up because I, I, I'm going to win this bet because for a bunch of reasons. But one thing, this Klarna thing was misunderstood in the beginning. And it was misunderstood today. It's misunderstood. Look, first of all, there's some drama in what the CEO is trying to do to get attention for whatever reason, right? Drama with the sale. But here's the point. This is what's happening. There's in everyone that's in AI in B2B, there's a slider. Okay, there's either literally or figuratively slider. If you go into an app like gorgeous where I'm on the board where there's 20,000 customers using AI for SMB support. There's literally a slider and you can dial how much support AI you want from zero to 100.

• 32:43Speaker 01

  No matter what anybody says on X and LinkedIn, the average across their SMBs is 20%, okay? Folks that put the energy in get to that 40 number that everyone talks about that's for, but you have to invest time. And out of 20,000, they have a handful of folks that are at 100, like Klarna. Do you know how many it is out of 20,000 are at 100? What's your guess out of 20,000? How many went to 100?

• 33:03Speaker 00

  Probably less than 100 people, maybe even five or 10.

• 33:06Speaker 01

  Two, two went to 100. And these were folks who absolutely knew the trade offs and knew what the issues were. And this is what Klarna did. They moved the slider to 100 and they did not move it back to 100% humans. He did not say that. What he said is I'm bringing back some humans. He did what two out of 20,000 customers did at gorgeous is he moved the whole thing all over to 100 to learn to be dramatic and it went too far and he moved the slider back. But you know what's going to happen every three months? That slider is going to move closer to 100. It's going to move closer. And I believe in most cases it will never get to 100. But what will happen as we go into next year is folks will be like, I'll deal with the downside of 100. It's only two today, but more and more folks will say, listen, like some orders are going to be wrong, some answers are going to be wrong, but I'd rather have no humans in my new cool five person billion dollar startup.

• 33:51Speaker 01

  And these five person billion dollar startups are still going to move the slider to 100. So I just think it's misunderstood. The fact that he bounced back so far a bit, he did not say I'm rehiring everybody. He did not say I'm rehiring the thousand people that I laid off in support. He's probably going to rehire 200, right? And 800 will still be AIed. So I think I'm going to win the bet, but if I'm wrong, I like it's cool, like it's possible, but I literally I see all the data across 20,000 AIs and the slider. And the two, once I realized it was only two that did 100, then I had my aha moment, right? That's too far. But they talked them through it and they told them what the downside was. They walked through it and they did extra training. And they're like, we're still going for it. And those were products that were simpler, et cetera, et cetera.

• 34:29Speaker 00

  First of all, Jason, you're not going to win the bet because we're calling it now. You've been margin called. We're closing the book. We're punching you out now. I send the money. But actually, having disagreed with you last week, I a hundred percent agree with the way you outlined it this week because frankly, it was more rational. Because you're right, stylistically, you're an entrepreneur, Seb's an entrepreneur. You've got to move big organizations and one of the way you move a big organization is you create these big ass goals. You violently shift the thing one way and if you have to correct back a little, you know, you do it, right? It's very Elon-y and we can talk about his automation in the Tesla plant as an example of that. I think you're exactly right. I think I don't know if the CEO of Klarna believed it and thought maybe we can do it. If he didn't believe it, but he thought we'll get to eight, the only way to get to eighty is to try for a hundred.

• 35:12Speaker 00

  But it's unfolding exactly the way I would have said last week and I agree with what you're saying this now, which is pre L L M, your customer support, B to B or or B to C, you can chip away twenty, twenty-five percent of the number of tickets and unfortunately they were the easy tickets because it was, you know, how to fix my password. So you actually didn't save all that much at headcount. Depending on where you are on L L M's, you can get to fifty, sixty, seventy percent without any deterioration in service. And in fact, based on some references we did, an improvement in N P S. That's what's going to happen as the base case. Some people are trying to, going to try and do a hundred and then probably back off a little. My guess is in a year or two, you're right. Maybe it won't be Klarna because they're big and they're doing money. But if you're running a small D to C company with a fairly simple product

• 35:56Speaker 00

  and you were just really focused on, I can see in a year or two saying, we just don't do support, we answer all the questions. So the direction of travel is clear. It's going to take longer than people thought a year ago, but it's not going backwards. So I'm violent agreement today. This is just a five-year trend, not a one-year moment.

• 36:13Harry Stebbings?

  So I love Seb. I think he's fantastic. I've had him on the show, friend, investor in Project Europe. So this is all Seb with love. I'm surprised by the lack of strategic analysis around the timing of how he bluntly presented this. Public markets, I had the founder of Duolingo on the show recently, very clearly said, hey, public markets take a very binary approach to A I. You're either an A I winner or you're an A I loser. Very simple. When we started, we were an A I loser. You saw that in the stock price, chat G P T is coming for language. We changed our positioning around how we use A I. Content creation is powered by A I. Now we're an AI winner reflected in pricing. Okay, I'm summarizing, but really very well articulated there.

• 36:53Harry Stebbings?

  When he was going public, he was singing the song of we're AI first, AI, AI, AI. Now he's no longer going public. He is able to say, actually, went a bit far. I don't need to project that AI progressiveness right now. And I can save that for the next day when I do want to go public. I think it's a very clear strategic message from a CEO who was about to go public needing an AI story. Very wise and quite right of him. And it's just the walk back of that.

• 37:23Speaker 01

  You're probably right. You would know you would know best. I think in general, though, when I see a lot of these statements from public company CEOs, they're really also telling their team it's time to change now.

• 37:31Harry Stebbings?

  Yeah.

• 37:32Speaker 01

  Enough. And honestly, a lot of big company CEOs I talked to, they're honestly like, I'm not sure I need 80% of my team today. They're just the wrong people. It's not 3%. Microsoft laid off 3% of their company today. It's not enough. It's not enough. The people running the 2018 playbooks are gonna become almost useless going forward. So you always see these comments about CEOs like publicly saying, we've got to go harder, guys. I'm not sure who listens to those statements. Pushing the dial to 100, people are gonna listen, right? They're going to Rory's, but I think that's what it is because, you know, the Fiverr guy is like, my job is at risk. And it looked dramatic, but I think he's right. So CEOs are trying to give folks shock therapy. And I don't know that anyone's listening, but hey, at least at least he said it ahead of time. Your job is at risk.

• 38:14Speaker 01

  The Fiverr said everyone's job at the company is at risk, including mine with AI. Toby at Shopify kind of implied that too, that everyone's job is at risk. And I believe it with my bet. I don't think it's five years, Rory said. I think it's, I think by the middle of next year in tech, almost every single person's job will have changed by the middle of next year. It doesn't mean there'll be mass unemployment, but their job will have, it's not going to change in five years. It's going to change by next year. CEOs are at least trying to tell people before you get fired or lay off. You gotta step it up.

• 38:41Speaker 00

  And maybe an interesting distinction here that I'm just internalizing, Jason, is this. Is if you're in charge of driving change, in other words, if you're the CEO of a large organization, you have to take these hyperbolic statements because otherwise it's just so hard to move 10,000 people. So right, you have to put stakes in the ground. It's a management technique. Look, I'm standing back frankly as you know, as small VC, an analyst type person. I'm saying what I'm trying to be very precise. What percentage will be automated in the next 12 months so I can build my five year kind of expectations on revenue growth? It's a very different thing. I'm trying to find the right answer. The CEO is trying to find the right answer for his organization to make progress. And by definition, that's a much more umfy, lifty kind of statement.

• 39:25Speaker 00

  And I'm looking at my best CEOs as they're driving change here and they're doing stuff like this. I mean, I'm thinking of one in particular. I got the missive at the start of the year. By God, we're going to drive this. And I was like, wow, that's what it takes to get true to people. And I think that's what's going on here. So I don't think it's some mysterious I'm in and then maybe there's some public market messaging in the cloud and thing, I don't know. But I think it's just a CEO of a big organization trying to drive change. And the only way you can drive change is just push, push until something breaks and then swallow back a little.

• 39:54Speaker 01

  Literally a CEO of a company just crossed a hundred million and asked me, not that I'm any, how do I create more urgency in this AI age? I don't think it's about, I think it was that as a CEO, how the hell? We've had this level of urgency for years. I need to double our level of urgency because everything else is urgent today.

• 40:10Speaker 00

  Agreed.

• 40:10Speaker 01

  How the hell do I do that with 10,000 people? How the hell do I create even 5% more urgency?

• 40:16Harry Stebbings?

  What did you say?

• 40:17Speaker 01

  The only advice I gave to this particular CEO is immediate, like he was hybrid. So I said, to force 100% of people return to office in 30 days and let everyone go. Except your S tier engineers, letting them all go because you don't need them. If you're there from six in the morning, like 20 VC till midnight, like Harry is. Harry posted on Twitter last night, my whole team's here. I get the the BST and the PST confused. But there's a multiple messages in that tweet that Harry sent out. He's like, don't work for me if you don't want to be here at night, right?

• 40:44Harry Stebbings?

  100%. We are all in person and we work late and we believe that the harder you work, the luckier you get. 100%.

• 40:51Speaker 01

  This is my only half decent idea to create urgency. Force everyone to come into the office and and by, to be honest, we have a beautiful office in Palo Alto. I only go two days a week. So I represent, acknowledge it's hypocritical. I'm not willing to go back, but it's the only idea I have.

• 41:05Harry Stebbings?

  Speaking of driving change, I mean, the single biggest change in 20 VC and how we do what we do is is simply chat GPT across everything. This week, a couple of big bits of news. New CEO of apps, Fiji Sumo. I love Fiji. I had her on the show when she was at Instacart. Fantastic operator. How did we evaluate this kind of layered CEO beneath Sam now CEO of apps for OpenAI? What did we think?

• 41:30Speaker 00

  They weren't gonna start being normal now, dude. We are 10 years into the least normal startup on the planet. Why stop now?

• 41:37Speaker 01

  I think the weirdest thing in this is that for OpenAI, you have a CEO and now another CEO that are both not technical. I just think it's really weird. I think it's really weird. And listen, Sam is obviously off the charts genius level. Even though he's lost a lot of people, he can recruit like no one on planet Earth. And maybe that's all that matters is CEO. My life experiences, non-technical CEOs, now we have two of them, they can't win at companies like OpenAI, yet they are winning. But my experience is they almost all fail.

• 42:04Harry Stebbings?

  Why? Fiji built an apps ecosystem at Facebook unlike any other. Why? Why does it need to be technical? I'm naive. Help me understand.

• 42:11Speaker 01

  Because the the rate of change is so fast that I find non-technical CEOs just can't understand it. That now they're really great at sales and marketing and they're really great at knobs and dials and spreadsheets and price increases. Honestly, Harry, no matter how many times you talk to me about rag and vectorizing my content, I'm never gonna understand how it how it works. I could spend 100 hours with the smartest people in the world. I will never understand how how how OpenAI works. Never. Now, she's smarter than me, but my point is all the non-technical CEOs that I've seen, especially take over my investments as outside CEOs. They never understand the product. They never. And Sam is S tier, like, I mean, S S tier, right?

• 42:50Speaker 01

  And she's S tier. But it's still weird to me that one of the greatest technological innovations of our lifetimes is now run by two non-technical people. I just still think it's weird, right?

• 42:59Harry Stebbings?

  Rory, does it impact how you think about their expansion into the app ecosystem? You mentioned before very wisely, I think, chat, coding and customer support. Does it impact how you think about that?

• 43:11Speaker 00

  A little, not a ton. Going back to that comment I made, actually, one of the things you told me, Harry, is that doing this would make me up my own game on thinking. And you've been very right, by the way. I decided after that, that comment was wrong. I think they will do, obviously, they've done coding, they've done the app. I don't know if they'll do customer success because it's so idiosyncratic. I, so I think the apps that they'll do will be very broadly horizontal in a way that coding is and a way, obviously, that chat is. And you can envisage a huge amount more on the consumer side.

• 43:41Harry Stebbings?

  I think shopping in particular.

• 43:43Speaker 00

  Absolutely, totally. Yeah, it's a thing. I mean, yeah, so I do agree. It is astonishing that the most compelling technical product in the last ten or fifteen years has been created with a CEO or the head who's not technical. And it just speaks to some shrewdness by him and empowering that technical team and feeding them money and providing them leadership. It's a stunning achievement. We'll, you know, we'll look back and go, wow. But I think it is going to work. I mean, I, at the margin, it doesn't matter. I suppose that's what I'm saying. They have won. They have just huge, and there's just so much more to do on the coding and on the consumer side. And you're right, ChatGP is going to suck in all your brain.

• 44:20Speaker 00

  It's going to suck in all your phone calls. It's going to know everything about you. And, you know, it's going to be like, remember what once, way back when you thought Evernote would know everything about you? You ain't seen nothing yet. It's just going to take it all in and you're just going to be able to defer to it. Web traffic and shopping is just going to be a huge thing. So, yeah, I, I think there's a ton to be done there. It takes someone who's not focused on the pure technical stuff and not focused on raising, you know, five hundred billion dollars. And it looks like this is that person.

• 44:47Harry Stebbings?

  Should we just all chuck in our funds into OpenAI at this point? It seems like the easiest way to get a three X.

• 44:53Speaker 00

  You know.

• 44:54Harry Stebbings?

  The shortened window to liquidity. I am so sure that OpenAI is going to be a one and a half to two trillion dollar company right now.

• 45:01Speaker 01

  I think you should put, listen, I don't, I remember, I might have this a little bit wrong, but I remember I was around when David raised Kraft Ventures One, right? And I think the next week he put a third of the fund into SpaceX. And I had just a little bit of overlap with LP and they're like, they're like, David's crazy. I'm like, listen, I only know David as a founder. We were founders together. I don't know him as an investor. This is one of the smartest guys I know. If he wants to put a third of his fund into SpaceX, I think it's going to work, right? I think he did it like the first, I think he just called up Elon, any extra share. I don't know what the story was, but. And I might have this a little wrong, but I think it's mostly correct and it, it obviously worked. A third of the fund, fund won. And it seemed like a, you know, a nutty move, but it was highly concentrated, can't lose.

• 45:39Speaker 00

  Agreed. And we just discussed Tiger a half an hour ago, where it may well be that the saving move was doing exactly that. It's not a crazy comment. It's not what my LPs are paying me to do. But in an open canvas, you say to yourself, that's a compelling company of one that does have just a huge, enormous market opportunity ahead of it. Obviously, it's got to sort out its entire messy legal structure.

• 46:03Harry Stebbings?

  A question for you, Rory. You mentioned that like, it's not what your LPs pay you to do. What would you do if you didn't have LPs in that respect? If they just gave you blank canvas completely?

• 46:14Speaker 00

  I mean, we've discussed this a number of times, the kind of single bed variance, making one exception without making an exception across the team on everything. I don't know.

• 46:23Harry Stebbings?

  But like, you could put the fund and put 25% into Andrew, 25% into Rippling, 25 into OpenAI, and 25 into you name your other breakout. It's not what your LPs pay you to do, but you're like, strategically, that is how I think we will have the most value created in a good time window.

• 46:40Speaker 00

  I do believe we are in a world of fewer, bigger winners. And that rolls up and down the entire venture ecosystem. If you thought your portfolio count had to be 30, a seed fund had to have 30 deals, you need 45. You know, we typically, our target portfolio was 20 deals in our fund. I believe at this stage, we need 25 to 27, 28. Why? Because instead of exiting at 150, we're going to exit best case at 300, which is two or three more years when one in three of these companies will fuck up. So by definition, if you want to end with three or four winners, you just have to have more at bats. The moving out of the bar has had consequences in terms that I think ripple up and down the ecosystem. And it will be, instead of us having 20 deals and having four great outcomes, we might

• 47:25Speaker 00

  need 27 deals, but only have three great outcomes. But they will be bigger because they will have compounded, the good ones will have compounded on from 150 to 300, and the bad ones will have failed. So if you take that to extreme, you're at your point, Harry. Fewer, bigger winners, all the way up the stack to one huge winner. By OpenAI staying court private for longer, it might get to Facebook-type valuation before it ever goes public. Facebook today, not Facebook when it When public. So yes, what you're saying makes sense at some directional level. I mean, the hard thing then to assess is at the same time, you can still overpay for growth assets and be wrong by five or six years. And history is replete with examples of that. I mean, you know, you look at the Nifty fifty in sixty eight, they didn't come back for ten or fifteen years.

• 48:09Speaker 00

  You look at two thousand, the Nasdaq didn't come back for fourteen. It is possible to take a good idea and push it to such extremes. They went up wrong. And I just don't know. I haven't seen those numbers to say, look, is twenty seven times forward revenue for some that got the right number? Is what's it? They're doing four. Let's take OpenAI, doing four last year, twelveish this year, three hundred and sixty million. In fact, what's that? Is that what kind of revenue multiple are you looking at? What kind of compound are you embedding there? I don't know. I looked at it side by side with Google and it had tracked virtually the same to now. But if you look at their forecast for the next three or four years, and in fact, the leaked forecasts are showing higher growth than Google. So at some point, you're over extrapolating into the future. And when is that point?

• 48:54Speaker 00

  It's not a stupid idea, but obviously you haven't done it.

• 48:57Harry Stebbings?

  If you were just about making as much money in the most efficient way possible, would you do it the way you're doing it?

• 49:05Speaker 00

  I think the question is, can you? I think the problem with in private markets, you put all your effort into being able to do one thing well. And the cost of that is you don't focus, you you're not equipped to do something else. So it's not been something I focused on. So I don't think starting from here, I don't know if it's easy to be successful at it. For starters, let's start with the basic comment. Let's, because let's push on this. Very basic comment is that OpenAI said in the last round, you either show up with two hundred and fifty million or don't show up at all. Right. Remember that?

• 49:33Harry Stebbings?

  Yeah.

• 49:34Speaker 00

  That's an example of to play in that space, you have to be equipped to play and how you have to set out in that. To make that be your objective and you have to equip yourself as a fund with the ability to write for two hundred and fifty million dollar checks. Otherwise, you're going to get to see the deals. So, you know, so I just think sitting here with my thirty million dollar check size. I mean, I can make a phone call, but I don't think they'll get back to me. You know, leave a voicemail. Jason's AI will like at a hundred percent will just look at my customer support ticket and say, not worth replying to.

• 50:03Speaker 01

  It always replies, but you're right.

• 50:05Speaker 00

  Dear Mr. Driscoll, you do not meet the accredited investor at 250 million bucks.

• 50:10Harry Stebbings?

  Moving this on, because I could press here for a while.

• 50:13Speaker 00

  You really are, dear Harry.

• 50:14Harry Stebbings?

  No, I'm not a dick. I'm not. The question that we brought up there was the nonprofit versus the for-profit. And this was a big point. Now, that's gone back. That's still a not-for-profit. I thought the whole point was they were moving for a for-profit. Jason.

• 50:29Speaker 01

  I mean, it is interesting. The most interesting thing of all of it for me is that, you know, when Microsoft did this deal, it seemed like a crazy, weird, get-around M and A, antitrust game. And Microsoft was just gonna lose billions subsidizing a backup bet. Now it looks like Microsoft got a great deal. I mean, that's the way venture works. But getting everything they get plus 10% of all revenue until there's AGI plus the returns. I see why Satya was sitting pretty and wasn't really concerned about all this. He got, not only could he afford to lose it, but in the end, what looked like a weird backdoor license and M and A is like an epic investment, right? Not that I think Microsoft cares about it as a financial investment. It can't care. That's the irony. But I guess they have to work it out is the answer. It's like US and China.

• 51:13Speaker 01

  Like at some point, like it's gonna be messy, but they just, they just gotta work, they just gotta work it out.

• 51:18Speaker 00

  Sometimes things don't work out. But kind of staying with this one and leaving the US.

• 51:22Harry Stebbings?

  That was a murky intrusion.

• 51:26Harry Stebbings?

  Yes, sometimes.

• 51:28Speaker 00

  Staying with this, I think Jason, you are, I think it's funny. It's, there's a bunch of great reasons for doing it at the time, both the original for-profit, not-for-profit, and then the Microsoft structure around that. But now you're left with this interesting conundrum. It's clear that, I mean, to be fair, they're not going back. I think you said, Harry, to a not-for-profit. They're not doing that. That's not what's happening. What's happening is they're not going to just convert the underlying company to a for pro, to a classic for profit. They're going to convert it. Oh, it's it's a public benefit corporation, people like Patagonia, where basically it's just like every other company, but you have in your articles of a corporation, a specific obligation to look out for interests other than the shareholders. So the good thing about that, that actually strikes me as a decent solution at that level, because what it says is, we're going to be trying to make

• 52:13Speaker 00

  money, but at the same time, we don't have this binding obligation just to maximize shareholder value. So when you're public, you won't get pounded by the Delaware lawyers and told you can't do this, you can't do that, because it's not in the shareholders' interest. It's a it's a useful legal structure. As I say, Patagonia uses it, so it's a thing. It's not something they pulled out of thin air. So the idea is, you you drop the assets into that thing, and then at the holding company level, you have the not-for-profit, which has a significant, the foundation, I think it's a foundation not-for-profit, you have a significant board control, and you have a significant economic stake. That structure makes sense, and maybe it will be a little less contentious, in one sense, than the pure,

• 52:56Speaker 00

  the subsidiary being a for-profit. But to your point, the hard part is, everyone has a veto. To Jason's point, the Microsoft deal, it's so weird and so quote clever, that unwinding it, I mean, you're basically told, how do you value, what percentage of a company? Imagine if Jason did a deal, eh, in one of these companies and said, you've got to give me all your profits until I get my twenty million investment back. Then I got to get a rev share, then I got to get something else with a cap. And now you got to convert that to a percentage ownership in a simple deal. I I don't know how, that's an interesting one, because you do get into this. Two people have to agree. I'm not sure where the the leverage is, and I think Microsoft ledgers might be pretty strong, because the current

• 53:39Speaker 00

  deal is pretty interesting and attractive for them. So I think you're unwinding something that was a little, maybe made sense at the time, it feels a little clever now. And they have a block, and then separately, you have the whole risk of litigation for me, and eve- even under this structure, is it still not not-for-profit enough? To do it. So there's a lot of wood to chop yet and a lot of Delaware lawyers and California lawyers and New York lawyers who are going to put their kids through college on, you know, the litigation.

• 54:08Speaker 01

  A lot of kids are going to get put through college on this stuff. A lot of kids, a legion of children are going to go into college on this one. The legal bills are probably 20 million a month or 10 million, they could be 10 million a month, 20 million sounds high, could be 10 million a month, the legal bills, right?

• 54:19Speaker 00

  In the end, that kind of, the public BBC structure is actually what Anthropic did from day one. They got it right. It's interesting, but OpenAI is basically saying we're going to go for something like what the structure Anthropic already has. It's obvious that that's the endpoint that just about works. You know, somehow they get there, but God knows how.

• 54:37Harry Stebbings?

  We're going to speed through a couple of companies where there were notable announcements slash news. And then Jason's got Sasta. Big week, Roy, for Jason. Go Sasta.

• 54:47Speaker 00

  Honored he even came.

• 54:48Harry Stebbings?

  That's, I mean, honored, honestly, what a frickin' hero. Perplexity, $500 million rumored round at a $14 billion dollar price rumored to be led by Excel. Any thoughts?

• 55:00Speaker 01

  I just think it's interesting. I do like perplexity. Perplexity of the, of the leaders is the closest to like Google on steroids, right? I mean, they announced they were at 100 million AR recently, right? So let's say they're at 200 today, which is still generous growth, right? Does it justify this? Or is this a distant number three getting a massive premium? I don't even know if the Anthropic valuation is, they may be getting too much of a valuation premium compared to OpenAI and I just don't know if it deserves it.

• 55:26Speaker 00

  In a world where we have a rational M and A strategy and it's TBD if we will under this administration, the big picture here is this is an at bat, a one in three at bat at a trillion dollar company. Cause Google's a trillion dollar company and this is a one in three. There's only three people that are going to be relevant here. It's OpenAI, Anthropic, perplexity, right? The mere fact that you're in the arena, to use the phrase, and you're, you know, you've got users, you've got revenue growth, you were first with the idea of web search plus LLM combined. You got that done. You got that out the door. That gives you the right to play the game and maybe you can build a standalone thing and get public in a world where, frankly, in a world where IPOs happen like they happen.

• 56:06Speaker 00

  In ninety six, four search engines went public in ninety six. You don't remember any of them except Yahoo, but it was Lycos, Excite. I can't even remember the fourth, proof. Because it was a big, obvious market, it was happening fast. All of them had a chance to be big. So going back to that upside junkie comment I made last week. What perplexity is selling from an investor perspective is an at bat, a credible one in three, not equally weighted, to be clear. OpenAI is clearly going to win, but maybe you can be third, and that's worth a damn sight if the prize is a trillion bucks. That's what they're selling.

• 56:38Harry Stebbings?

  I am actually an investor in perplexity. I think I have to announce that, otherwise my CFO will fucking kill me. But that was exactly my thinking, which is that how many companies have a credible chance of being a trillion dollar company? Where it is still very small, very, very, very small, very small, but still a credible chance.

• 56:55Speaker 00

  In a world where you can do M and A, which may not be today, there's also a whole bunch of big companies who need to be credible in this space too. So Plan B shouldn't be awful. Now, as I said, the weirdness of M and A in tech for the last five years is headbanging the depressing. But there's no doubt in my mind, you know, there's a couple of trillion dollar companies who are like, shit, maybe I'd like to mess with Google's head. I need to have this.

• 57:17Harry Stebbings?

  One hundred percent agree. Incredible team around them, to be fair. And then also, one thing that no one also sees is their distribution strategy has been very, very smart in terms of large partnerships. They've done quite a few in Europe with big telecoms providers, which enables them kind of default access to consumers' phones. That is very smart. And if you look at Google in the same way in the early days, they did exactly the same. It was distribution through partnerships. Very smart.

• 57:40Speaker 01

  I realize that investment standard, investment memo should be updated. The first paragraph should be odds of trillion dollar outcome. You think I'm being facetious, but I'm using an old template. What I remember the first deal I ever did was Pipe Drive. We talked about it years ago, Roy. And I remember when I wrote up the investment memo, it was the odds were getting to a hundred million dollar exit. That was the old structure. And I was forced by the traditional VC firm to fill out the numbers. And I said five percent chance of a hundred million dollar exit, right? It did sell for one point two five billion, but I'm just using my twenty thirteen first investment ever lens. And I did five percent now instead of a hundred million. I mean, then it should have been a billion and then ten billion. But maybe there needs to be another row, which is one trillion. What are the? Odds in the IM of one trillion and if it's north of 2% odds or two, we do the deal.

• 58:21Speaker 00

  I think some version of that is truth. The way I'd say the opposite is if you're looking at a deal that has all the risk of a classic private company, but doesn't have embedded upside beyond the base case, you probably shouldn't do the deal. As I say, we're all upside junk. It's the pixie fairy dust that lands on our portfolio every five or six years that makes the math worthwhile. So if it doesn't have that, you know, you got to ask yourself why should you do it? And this one has it in spades because it's the biggest pixie dust. It's a trillion dollar pixie dust, not the hundred billion dollar pixie dust.

• 58:48Harry Stebbings?

  Totally agree and get both of you there. In a similar ish elk.

• 58:52Speaker 01

  So you're going to do your super prorata is the answer in this alleged.

• 58:55Speaker 00

  Nice.

• 58:56Speaker 01

  This is just what I don't know. Are you doing super prorata, prorata or none? What are you going to do with your check?

• 59:01Harry Stebbings?

  My business is not to do $14 billion price down.

• 59:04Speaker 00

  You know, so after giving me crap half an hour ago about not list and just doing what the right thing to do is you're saying it's not your business. I just want to note that moment. I accept it, but.

• 59:14Harry Stebbings?

  Rory, before the visuals have been made, do you want to pick this fight, my friend?

• 59:20Harry Stebbings?

  No, I very fair point, very fair point. But no, I $14 billion is not my game, but I'm thrilled that Excel are rumored to be.

• 59:27Speaker 01

  Dollar cost average. That's the thing. You don't that's as an existing investor, you don't have to take that nominal price too seriously. You're dollar cost averaging it.

• 59:34Harry Stebbings?

  The interesting thing is the other one, and then we'll let Jason run is actually Clay. Clay obviously did this kind of billion and a half dollar priced transaction. I think it was employees, secondaries with Sequoia. My thinking there was people are now believing that Clay is the next credible threat to Salesforce. And that is why people are getting so excited by it. That actually it's much more than, oh, we're like shaking heads. How do we think about this?

• 59:57Speaker 01

  Maybe the VCs are, I don't know. Maybe that's what Sequoia says. I'll tell you just two things I see in the field, right? Because this is pretty close to our core audience, right? Is Clay is first of all, Clay is a great success story. Like, let's simplify it that, right? There's a couple of things that are driving Clay. Certainly, there's super sophisticated, cutting edge teams, right? But there's also every struggling marketer today that doesn't understand AI wants to deploy Clay. Massive pull. Every 2021 CMO that is scared they're going to lose their job, they nothing's working.

• 1:00:26Speaker 01

  Search SEO isn't working, content isn't working, everything's down. They're hiring Clay consultants, Clay engineers, deploying, writing checks like Hoppin in 2020. Okay, it's literally like Hoppin in 2020, but for marketers. And I think they earned it, right? So I don't know about the sales force, maybe that's the vision. But I'll tell you what's happening on the ground is just like people needed a digital event solution during the pandemic. Marketers need an AI solution now. They are, their jobs and lives are at risk because they're playing. This is what I'm seeing. Literally, we were at a SASTRA pre-event last night, and I'll tell you everything I heard about Clay. That's what everyone's saying, every CMO. And we're gonna have a CMO summit on Thursday, and I'll ask, and Clay is the winner. Does that mean it's unsustainable? I'll tell you my second question.

• 1:01:06Speaker 01

  So every CMO, we're gonna have 400 CMOs on Thursday, where if you come, you can sneak into the CMO summit and ask them. You can ask the question for me. How many of you are using Clay? Raise your hand. How many is it because you're scared of AI? I bet if it's a closed door, they'll say, because I'm scared. The only question I have for Clay is, boy, I've never seen more great founders than I met last night that have Clay, the Clay target, they're going for it. Everyone, everyone want, I want an easier to use Clay. I want Clay with better data sources. I want Clay that can be self-serve. I want Clay for this, I want Clay. And I'm not saying Clay won't win, but literally this is a category that the knives are out. And it doesn't mean they don't already have scale and won't win. I literally met the CEO last night. He's like, hey, are you Anna Lemkin's father? I'm like, yeah, well, I just dropped out of Stanford with your daughter.

• 1:01:50Speaker 01

  I have a new competitor at Clay, we're already at 2 million. Wow. Already, he just dropped out. And he's 19 or 20 with my daughter. And like, what do you mean you're at 2? He's like, well, we're just, honestly, we're just much easier to use, and we have better data source. It's this story I've already told you like the third time. So that's 2 million like in a couple of months, right? So Clay is, has won this like Q1 2025 vision of the marketers platform. And I'm not betting against him. It took like four years for folks to figure out why Gong was successful. Like anyone in sales adopted Gong in the early, they're like, I can actually listen to my reps' calls. The dumb things they say to prospects. But it took everyone else about four years to figure out why, why machine learning on voice calls was disruptive. Now it's happening in like days with AI, right? Or weeks they're figuring it out.

• 1:02:31Speaker 01

  So just competition's gonna be insane in the space is my summary of my rambling point, insane. So I would raise even more. Forget the secondary. I would keep it as primary because I'd build up my war chest. So you raise it as primary? I mean, I'm just saying the competition is so high. You know, we started this conversation on owner and why did owner raise 120 million, right? You know, part of it is because it's, even though it pulled away from some of its venture-backed competitors, it's such a competitive space. I'd love it if you could win in a competitive space and be cash flow positive with 50 employees, but we have a lot of history of that playbook not working. So I would armor up if I were Clay. I would hire everybody. I would raise another 100 million and I would just scorcher everyone in the space.

• 1:03:10Speaker 00

  A lot of agreement. I mean, it's worth pointing out that the original Clay product is a pre-gen AI product all around, combining multiple data sources, manipulating those sources. It was a horizontal spreadsheet-type functionality initially, then focused on marketing. And the problem it solves is, hey, you need to build a 10,000-name list of B2B CFOs between 50 and 500. Do you use Zoom? Do you use people data? Do you use one of those? No, you use Clay. You import from all of them. And they brilliantly consolidate the four or five different entities and give you a clean, combined list. It's a rev ops function that was pre-AI that they solved brilliantly. Right? Let's start with that. That's what the product actually does.

• 1:03:55Speaker 00

  Now, what they've added is these Clay agents in the last year or two that take that list and start, you know, they're going to start doing email, start doing enrichment, start doing all the agentic work after that. So they're moving down funnel from list management to enable AI SDR. So it's a totally excellent product. It hit the sweet spot of the, it so initially was not a, oh, my God, AI GPT story. It's something totally different. I mean, it's so far from Salesforce CRM that I can't even think about it right now in any useful fashion. So that's what the product actually does, which should never get in the way of a good story from a VC, obviously. And it does it really well. And it fills a need. And you're right, they have the chance to run fast on top of that and do a bunch more on top.

• 1:04:39Speaker 00

  And it's, the roadmap is pretty clear because you've got this AI lift and now you've got clarity on what the next five set of automation. Could be, but there's lots of people doing that. You know, we have investments in that space. I'm sure you do too. There's a whole ton of AI automation coming to top of funnel, sales and marketing. That's what's going on now.

• 1:04:58Speaker 01

  I do think being the vendor to take advantage of AI fear is a great strategy the next 18 months. Is that sustainable? I don't care if it gets me to 300 million in revenue, like the world changes like. I disagree. Hop in was at 200 million in revenue. Yeah, but they, we did come out of the pandemic, Harry.

• 1:05:13Speaker 00

  No, I, I'm with Jason Harry because I think that you can use that fear. No, no, no. I'm thinking of some companies where genuinely, I think when you did references on them two years ago, you talked to their very few customers and they'd be like, I'm buying this thing because I need to do something in AI. And you fast forward to today and they would say two years ago, the product's not great. You fast forward to today and the same people would say the product's improved a lot. I'm now getting real value from it, but they sold on the fear well ahead of the product. I'm always biting my tongue to think of not name companies, but I have a couple of mine in the professional service, relevant professional services, white collar spaces where they've, you know, gone to finance, gone to legal, gone to folks like that.

• 1:05:55Speaker 00

  And it's been very airy fairy at the start of GPT, but they got in the door, they told the big story, they sold the fear. And then over the last two or three years, they've built the product. It's different than hopping where the fundamental end demand died. Yeah. If you seize ground, but then the ground turns out to be waterlogged, you're toast. But if you seize the ground and it matters, then you win. I think there's an element of the AI fear story that has been real in the last year and probably for another year or so.

• 1:06:21Speaker 01

  I just think people that have budget will spend a lot to not lose their jobs. So if you're that one app for the CRO, the CMO, the CCO, the CFO, where if they spend six figures on you, the odds that they won't lose their job, you will find budget and you, not only will you not, you will find budget out of the budget cycle. You will find budget this month. You will find six figures of budget if I buy you and I might not lose my job. And I'm just smelling this with CMOs and clay. I'm just smelling this fear. I'm going to lose my job. And all I have to do is write a six figure check. I'm all in. My, my budget's five million, 10 million in marketing this year. All I have to do is come up with 200K for clay. Done. Send over the contract tonight.

• 1:06:57Speaker 00

  In the end, you have to deliver and you've got to deliver the thing roughly that you said you're going to deliver, not something different. But it's a totally legit tactic at this point in the cycle, provided the product gets there in the end.

• 1:07:07Speaker 01

  I mean, seriously, not I know we got to wrap, but I can't tell you how many marketers, if they're honest, when I talk to them are looking around and they're like, I don't know what my team's going to be doing in six months. I just don't need this writer with chat GPT with AI. I just don't need my team. And then everyone's looking for the AI wizard, the AI magician. And to the extent this person exists, they're going to work for like a super hot startup. That's the other fear with the CMO. They're going to work for windsurf. And how is your B two B company growing 19% this year at 81 million in ARR? How are you going to get the AI wizard, even in marketing, to come to your company? You know what? There's no chance, right? So you need this Hail Mary to save your job because my infographic person that needs a week to make an infographic.

• 1:07:49Speaker 01

  And then my product marketer that takes 30 days to turn around a proof for product marketing and it's terrible. You're looking at your team and you're like, I don't even know what to do with these people anymore. I don't know what to do with them, so I'm going to buy clay.

• 1:08:01Harry Stebbings?

  I'll tell you the one thing that is so far off is video. Video and AI capabilities around video editing in particular for complex video is so.

• 1:08:09Speaker 01

  Today, but Higgs field is so good, man. My jaw drops with Higgs field. Listen, I don't think you can produce 20 VC with AI. Don't get me wrong. And that's a good thing, right? But I don't even think there's a point in having a static marketing image after Higgs field. I don't see a point. It's so good.

• 1:08:24Harry Stebbings?

  And I think within two years, we'll still be at 20 VC level for my video team.

• 1:08:28Speaker 01

  Yeah, you'll need it, right? But I think even when I look at like Opus, where I invested, like in some ways you can make fun of Opus because you'd be like, now everyone can do clips, right? I mean, other folks do it, but Opus democratized clips, right?

• 1:08:39Harry Stebbings?

  We tried it. They weren't nearly good enough for us.

• 1:08:41Speaker 01

  Well, fair enough, but I'll tell you what's interesting. I'll just give you one last thing to close on. So the and the meta problem is when everyone could use Opus and everyone used Opus. And so then their 20 VC clip gets even more valuable because it's so differentiated, right? And interestingly, Opus has a feature that's coming out, which for you is not valuable, but for me, now they will create a clips video and search all your video. I have 12 years of video. I'm going to go off the Sastre in five minutes. We're going to produce 300 pieces of content. You think I? Can make a one hour video out of the best of all these speakers. Now for 20 VC worthless, okay worthless, but for a CMO. That's still struggling to get their Zoom webinar working. That's a big change.

• 1:09:20Harry Stebbings?

  But it does not make my content more valuable sadly, Jason. It actually makes it less valuable because it brings discovery as a problem to be a massive fucking problem. Because now we have infinite supply of content and discoverability is.

• 1:09:32Speaker 00

  Agreed.

• 1:09:33Speaker 01

  So sell into that, make money out of this trend. Make money out of the fear, make money out of fear.

• 1:09:39Speaker 00

  The two ways to make money, I want to sell the tools so everyone can produce this content at scale. And then back to your comment, Jason, I don't want to do it with my people. I do believe the marketing people who know how to use this stuff, not only continue to have their jobs, but become even more useful. Again, it's the same. You've got to be on the side of using this shit and leaning into it. If you're resisting it, you're toast.

• 1:10:00Speaker 01

  You're right, but the honest truth maybe to break on is it's far fewer people than you can almost even talk about in public. So few people are on top of what AI can do. They're just going to hire agencies and they're going to lose their jobs.

• 1:10:13Speaker 00

  Now you're doing the Klarna thing again, dude. You're sliding the scale to 100. I think the scale advances steadily at five or 10% a year. And yes, you're going to need less people, you're going to get more efficient, maybe it's 20.

• 1:10:24Speaker 01

  A month, five or 10% a month.

• 1:10:26Speaker 00

  But Harry still makes his stuff handcrafted with care in central London, so there.

• 1:10:30Harry Stebbings?

  Trust me, I'm with Rory on that for video and for me. I love the balance that we have of the beautiful nuance of Rory. And then the binary US bravado of Jason coming together is just wonderful. And then me just sitting in between.

• 1:10:46Harry Stebbings?

  Other than go to where I just unleashed. Guys, this was fantastic. Jason, good luck for Sasta, dude.

• 1:10:52Speaker 01

  Thank you.

• 1:10:53Harry Stebbings?

  Me and Rory are rooting for you. It's going to be a special one.

• 1:10:56Speaker 01

  All right, well, we'll see you at the one in December in London, Christmas in London. We'll all do it, we'll do it first week of December together.

• 1:11:01Harry Stebbings?

  Thanks, guys.

• 1:11:02Speaker 01

  All right, talk to you later, bye.

• 1:11:03Speaker 00

  Take it back.

• 1:11:06Harry Stebbings?

  They are just my favourite shows to record. My favourite thing is that I get stopped when I'm walking around London with my mother and everyone says, "Oh my god, I love your shows with Jason and with Rory." And then there's this pause and then they go, "We really love Rory." I'm not sure what to take from that, Jason. I think Rory is the fan favourite. I so appreciate your support. If you want to watch the video, you can find it on YouTube by searching for 20VC. But before we leave you today, here are two fun facts about our newest brand sponsor, Kajabi. First, their customers just crossed a collective $8 billion in total revenue. Wow. Second, Kajabi's users keep 100% of their earnings, with the average Kajabi creator bringing in over

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  Insights and analysis on demand. AlphaSense has completely reimagined fundamental research, helping you uncover opportunities from perspectives you didn't even know how they existed. It's faster, it's smarter, and it's built to give you the edge in every decision you make. 20 VC listeners, don't miss your chance to try AlphaSense for free. Visit alphasense.com/20 to unlock your trial. That's alphasense.com/20. And once you've got the insights from AlphaSense, you're going to need a bank that actually moves as fast as you do. What comes to mind when you think about business banking? Probably not speed, ease, or growth. I'm willing to bet that's because you're not using Mercury.

• 1:13:57Harry Stebbings?

  With Mercury, you can quickly send wires and pay bills, get access to credit sooner to hit the ground running faster, unlock capital that's designed for scaling, and see all these money moves all in one place. I speak to dozens of founders every week, and most of them are using Mercury because they're super smart, and that's what you have to be using. Visit mercury.com to experience it for yourself. Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Column NA, and Evolve Bank and Trust, members of FDIC. As always, we so appreciate all your support, and stay tuned for an incredible episode on Monday with Duolingo.