0:00We're definitely not investing at the right speed. We are either investing way too fast or way too slow.
0:05Returns are going to be highly skewed.
0:07Variance is going to go up with AI and many of you will fail.
0:10So, what do we have on the cards today?
0:12Well, Anthropics draft S1 lease. We break that down. AMD, baby, they are in the market to buy. Feel Lee's World Lab sells to AMD for 8.2 billion in stock. And then, kaching, Mr. Mark Zuckerberg decides to whack out the checkbook to hire MongoDB's CEO and pinch him for Muse Enterprise. This and so much more in a blistering episode out today.
0:35There are like 10 companies that can do $10 billion acquisitions and want to.
0:40Money is a signal. Price is a signal. And price is sending a signal. Everybody go right here. It's a talent war in the most insane way right now.
0:47I think open source has reached its maximum as a market share. I think it's going to keep going down.
0:52What? If we're willing to [ __ ] trust them not to blow up the world, and they've already said they might, and it's only a 10% chance, I think we can trust them to with the votes.
1:01Ready to go, boys. I am so excited for the show today. A, we have a surprise guest in Mr. Jackman. So, Jack, thank you for joining us.
1:21So happy to be here. Yay. This is I've been looking longtime listener.
1:25That's very sweet, Jack. Thank you. You know, don't worry, Rory will ruthlessly uh give truth to me today while we go through the news. But we have a lot of news to get through now. Number one, Anthropics draft S1 leaks. I think every every venture nerd was so excited for this moment. 4.6 6 billion of 2025 revenue, 8 billion operating loss, 518 billion of compute commitments.
1:54Genuine comment, not a single piece of information in that leak. Not a single piece of useful act other than one minor comment which I'll come back to. Like the 2025 numbers long since spent, you know, the fact that the I mean lots of shitty bad takes. The whole oh my god they're losing 40 million billion when 34 billion of his non-accounting law in accounting loss the rest of it was exactly what you thought 4 and a.5 billion in revenues eight in compute expense five in other expense blah the only the only interesting factoid in
2:24that was that two customers did 25% of the of the revenue which means someone spent half a billion dollars on entropic last year which is pretty impressive but the point I'm making is the only thing that counts is not even Q1 and Q2 of this year cuz I think everyone knows Q1 and Q2 is anthropic killed it. Right?
2:42what we said last Q the Q3 numbers which haven't been finalized yet are are the monologue
3:04kind of flattened out the Q3 revenue number is 90% of the data required to make a decision on pricing philanthropic and everything prior to that in particular 2025 is so leaked at this point that there was no data in the wider thing. It was fun but no data.
3:21This is going to be one of one of the nice things about these companies going public is that I actually think the public market investors will be a little bit more long-term oriented than the private investors. I think like we are all hand ringing monthtomonth about what these companies are doing. And in a weird way, I think the public market investors will think a little bit more long-term, a little bit more structurally. you think about both, you know, anthropic and open AI and it's like each month it's like the narrative is just all over the place and it's so easy to to flip like that. I think at
3:50least in my conversations with public market investors, they're going to be thinking a little bit more at least quarters, maybe even years. And so, you know, I I agree with all of that, but I think people are going to mostly be oriented towards like what is the market structure of these things and hopefully it'll it will be a little bit calmer.
4:05I think that's true. Um, my only thought and listen this could be completely wrong. when I read all the press, right?
4:11Yeah. Like to Rory's point, we learned nothing, right? And to Jack's point, just getting the public investors excited to hold an epic asset long, but man, it really reads negative, you know, not just the the the the risk factor that there's existential risk to humanity. I mean, that one is a little jarring to to see, but what I mean is it may be like the the the Facebook IPO in that at least on the retail side, the negatives come to the top, you know, and we're all investors, right? So, we're all playing for the upside, aren't we?
4:40We're all, you know, why, you know, why is Instinct worth 10 billion? Well, it's the upside, right? Um, it's just the the the jaw-dropping losses that, frankly, I don't think the four of us care about, right? And maybe a lot of long public markets don't care about. I just think the retail market, everyone that is anti-AI may see these negatives as a reason to sour. And I I don't know if that can really drive the stock down.
5:02But I worry that the IPO will be su it's a minor worry, but I worry the IPO will be successful. they'll hit their number whatever they ask for it'll be over more than over subscribed than Aura you know 10x but then a month or two in with no real change we may see a drift below the IPO price just because of the negativity right the the massive spend any hick you know the the CDS's or at Oracle uh some default on data centers and all of a sudden the the negatives overwhelm the the life-changing positives that was my only thought is we're going to see a lot
5:31of stuff like this right after the IPO much more than we have before I almost think the people who are going to be big buyers of the stock are not an overlapping circle with the people who are you know dealing with all the kind of fallout from the noise and the negativity. I mean, so I know I mean brutal and let me say it even more directly, right? 70% of America might think data centers suck, but they're not running fidelity growth and a a small number of highly compensated managers are the buyers of their stock. Right.
6:00Right. And re retail people excited for the thing. Where I do think you're right, Jason, is it's not so much that directly the the dislike of AI kind of impacts the stock directly, but the indirect comment is I do think there was a non-trivial political backlash brewing. I think it was super interesting see the guy in Florida file basically I you know basically sue to stop this thing stop um opening island tropic from middling models there's going to be a whole load of you told me in a legal document that this thing was
6:28not safe therefore I'm entitled to believe you and if it's not safe you should stop right so I do think indirectly you're right is that because they have to spew out all these negatives just to cover their ass right though I'm not sure who's going to sue you if the end of the world actually happens you're probably pretty good in litigation side. Um, but because they have to skew out all this negativity, people are going to be reading that and saying, "Huh, this is the first S1 I've ever seen that poses existential risk and where the product lies to me. Maybe I should, as the attorney general for
6:58the great state of fill in the blank, sue these guys and say, "Stop." And I think we're starting to see that. So, it will be way more of a public participatory moment. Everyone's going to have a goddamn opinion on this perhaps in a way that everyone doesn't have an opinion on. You know, when a semiconductor stock goes public, 95% of the people can barely describe what it does. Everyone's going to have an opinion here.
7:18Speaking of topics that everyone has an opinion of. I think everyone seems to have an opinion on Instinct right now and Instinct versus Muse and the future of agents and personal AI assistants. Instinct closes a billion dollar series C at 10 billion. Noah Shin, 23-year-old founder, amazing generational talent, raises a billion at 10 billion, takes on Muse and Alex Wang and Zach. What did we think, Jack? I think you've got a check from Benchmark.
7:48Yeah, we did. My my partners um Peter and EV led it. Um and we were all extremely excited about it. And um I mean first of all goes without saying on the point of Muse and Meta and them waking up like they've done a they've done a phenomenal job and it's a great product. They've sort of reinvigorated the organization. I've got a lot of friends there. Like that that is an awesome company and they've done they've done a great job. But I think in a lot of ways to me at least when I see that it kind of reminds me of what happened with coding and with cursor and
8:17cognition in the face of the labs. And our view was kind of this is such an important new paradigm where you've got you know these consumer agents that are I think Ben Thompson described it as like the aggregator of aggregators but you know basically it's like these agents that can interact with the entire third party internet. That's like a pretty important new paradigm shift and the implications are big. It means that you can have it do things for you. It's not just talking to it anymore. I think like a lot of the younger generation was already using AI in this kind of way and
8:46I think this kind of brought it to the masses where it's like this is something that primarily does things for you and so I think that it's a big new paradigm what we've seen in general whether it was with you know coding or a bunch of the application areas was just when something's that important a lot of things can win and so my view is basically something like there can be an amazing kind of you know independent player like instinct you're also going to see you know the labs have some sorts of offerings around this but if this is
9:15the main way that you know broad you know consumer bases use the product I I think it I think it's going to be really important so you know we'll we'll see how it plays out but you know our view is that this is like a really big new paradigm kind of on the level of you know chat and coding and these other things and um I think I think a lot of players will win this is my uh meat and potatoes view of the big winners today right is the ones that are winning today and this is and I'm a muse fan I haven't used instinct I'm hoping to get an invite Right? But I use I have 22 agents. I'm all in on the
9:43agents, right? But the ones that win, this is an open question, are the ones we use all effing day long. So if you look at coding, even me, I'm running I'm running my coding agents 10 hours a day now, right? I run and uh legal I got wrong in a sense because folks are running Harvey and Logora all like like like Harry's partner. You're like this.
10:03She gets home, she's on the sofa running it all effing day long. And there's lots of wins as VCs we're going to make for sporadic use. And this is just a question. I don't know. It's it's not even a criticism. Will we run Instinct Muse 8 hours a day, right? If we do, I guarantee it wins, right? Um, but I think we're in I think this is the second generation. Generation one was Open Claw. No one knew how to run it, right? Other than destroying, you know, all your security and credit card. This is generation two. And then Gen 3, I think we'll figure out, but I don't know
10:32that we're going to do the use. This may change in two weeks, but I don't know if we have an eight hours a day app yet here. I don't know. I think you described it exactly right which is it is super early in its cycle if you think about like when chat first launched like how much did we use it then versus how much do we all use it now you know Lora and Harvey you know which are you know when they started if you did the reference calls on their customers when they were at a million of ARR the customers were like the thing barely works we don't use it that much and now you talk to them and they're like I run my whole life out of it and these
11:02businesses are at hundreds of millions of ARR growing really fast and all of that I think same with coding like at first it could do a little bit now it kind of does everything. In the future, it's going to be like, you know, times 100. So, it's an open question on the on this stuff. And I think you're exactly right. The question will be, does it make it from where we are right now to you can autonomously trust these things to run your life? And if it can, it's big. And if it can't, it's not.
11:23Does it not massively cannibalize the chat usage? I'm I'm so I'm so sorry for any awkwardness, Jack. I I used to be a massive open AI. It's kind of like you win both sides, so forgive me for this. I used to be a massive open AI user in chat GPT, and now I just live my life through instinct.
11:37Yeah. And you see a lot of people cannibalize that chat usage. You know, I think it does to some extent. I mean, I think there like on some level we're each only awake for so many hours a day and like we are all on our screens so much at this point that like there are not more you can't really get us out of the like parks where we're playing soccer too much anymore. Like it is all coming from other time that we were spending on the internet. So yes, it it does to some extent. The form factor cannibalizes. doesn't mean that these products cannibalize the other companies, but it does mean that the form factor takes some amount of the
12:07space whether the labs do it themselves or not.
12:10Yeah. Can I be a dick? Isn't this what like Open Claw was meant to be? And the founder Pete Stipe and like No, but like dude, they've been watching from the sidelines for 6 months.
12:22Yeah, but AI didn't give everyone an entire virtual CPU in the cloud, right?
12:26And storage and everything. It this is just these guys looked at they were all inspired by OpenCloud. We all were. They just Instinct did it. Jack and I have a story and and the whole Muse team said they were inspired the next hour to build Muse. Muse was built since OpenClaw. It's just OpenCloud didn't make sense for any of us.
12:40To be clear, Harry, what you're saying is not OpenClaw standalone. What you're basically saying is when OpenClaw got subsumed and OpenAI, shouldn't they have done this?
12:48Yeah, 100%. You were best placed to do this. That was the most strategic thing with the person who did OpenClaw.
12:53I actually don't have the sort of full inside scoop here. But OpenAI's dev day is, you know, today. And so we'll see, you know, what, you know, their sort of reaction to all these things are. But, you know, also back to Jason's point, it's like there's generations of these things and they keep moving and everybody learns from each other and it happens in like 2 seconds. You know, when Cursor came out, it was they had like a long window before the labs caught up. Now, you know, you look at the Instinct teams window, it's short.
13:16It these these cycles are only getting shorter.
13:18First of all, I just got to say in passing, Jack, I got to hand it to you guys, you know, I've known Bench since 95 when they started, right? And when you guys said after 30 years you're gonna embrace growth, I taught you tiptoe in and I got to hand it to you. No, when we're embracing this thing, we're [ __ ] embracing it. It's 10 billion pre pre- revenue big ass check.
13:37No mincy little little steps here. It's all in on day one. So congratulations. It's like, you know, coming off the coming off the dry and embasing the booze, you know, big party night, first night.
13:49Yeah. And what what's funny about it?
13:51So, yeah. And we, you know, we we invested, you know, first at 2 and a half and 10. And what's funny is in our minds it was actually kind of an early stage investment. And I know that sounds psychotic but it yeah but that's kind of how we saw it genuine comment here. It actually one of the things that's been funny is in this cycle we've had investments with early stage risk requires super late stage capital which is just definitionally a strange time to be playing. But yes I think yes you you thought you were raising a growth fund. In fact you're
14:20just expanding the early stage fund because it just takes bigger checks now. And and good on you guys for doing it cuz I thought your logic at the end is basically some version of if this matters it'll matter a lot and if it doesn't matter it won't matter at all and there you go.
14:32Right. I mean, it's funny. I I'm just pushing. I was I was I listened to the Noah interview and you know, I I did the boring stuff and I'm going to make the boring point and then I'm going to kind of kind of backtrack it from the boring when you listen to interview and you talk about monetization and travel and all that. And then you go away and you do the data on, you know, the number of Americans who fly more than one or two times a year, which is pretty small, the fees available from that. the number of Americans who book not just dining but fine dining it's you know it's like 10%
15:01or less of total dining experiences are fine dining you don't need a reservation for McDonald's or Applebee's so if you start thinking and he mentioned if you think of it as travel monetization you could get pretty angsty about market size here I mean you guys were smart enough to do open table 20 years ago 26 years ago now Jesus and um you know it's it's a billion dollar business today you'll be pretty bummed if you're only doing a billion dollars in restaurant bookings on instinct. So there's
15:30implicitly some level of yeah, we'll get all this travel revenue, but there's something more here and because you guys run the same numbers and you know them, right? Is there a is there a part of the monetization that's just, you know, finger in the air and says if this matters [ __ ] will h good [ __ ] will happen? So I mean back to the point before which is slightly tongue andcheek but slightly totally true which is like do you think of is this a is this a growth investment because it was billions of dollars of valuation or is
15:59this an early stage investment because it's like 9 days old.
16:03And both are kind of true. And if you think of it as a growth investment you say okay how do I underwrite this you know relative to you know public companies that have 2.5 billion of AR and they're worth 10 billion. And so you know you kind of logic that out. If you're thinking of as an early stage investment, you say, gosh, this paradigm, we just have no idea. And so I think in our heads it was close. Yeah, it was closer to that where you say, you know, the we are so early innings here where there was open claw, there's this like, you know, between now and Christmas, there's going to be like
16:32three more evolutions of the whole thing. It's like you don't even try to guess all of that.
16:37How do you think about sizing it then when you're writing growth checks at early stage risk material? I think there's uh you still to the extent that you can I'm a believer that um and I think you know this is sort of like something I've kind of picked up from the crew that you still you still need enough investments no matter no matter how you know accurately you think you can pick at the early stage let's define this forget the price but you know early on in a company's life you just need
17:05enough shots on goal to get something that's going to really matter and so on some level I would say the sizing is constrained by wanting the fund to have enough chances to get something great.
17:15And so that's the constraint. And then like the upper bound is, you know, these rounds are big, you need to matter in the context of the round and if the valuation's already high, you know, you got to put more dollars in to sort of get some ownership. And so those are kind of the boundaries.
17:28It was a very good articulate, not quite answer, but but exactly the right questions. Absolutely. No, I I think you're exactly right. It's that you do some kind of Kelly betting and then you kind of you know how certain what's the upside and how certain are you it's going to happen edge over odds and then you say do I have the stones to do full Kelly or do I back off?
17:49Yeah. And I think like sophisticated public markets investors probably spend as much time thinking about their sizing as their actual positions.
17:56I think you know we we we obviously don't um but you know we try to at least give ourselves some boundaries knowing that we're going to you know size incorrectly almost every time. And it's probably actually the hardest one to size because you're right, you have high upside which leans in, super high variance which leans out, but still a requirement for meaningful dollars.
18:15You're right. The sizing discussion must have been almost everything. H yeah, and it's like on some level I want I mean have you I ask it in the way you can take the have you disclosed the dollars total dollars in the deal?
18:29I don't think we did. I don't I I'll find out if we didn't. If we did, we can like stitch it back in here with some AI, but I I don't think we did.
18:36Got it. Yeah. Because the way to think I'm just thinking aloud in real time to make it something we all could talk about rather than the guys with the big checks, is that how would you think about that bet as a percentage of your fund? If you're typically doing 20 deals, which means 5% on average, right?
18:52You know, you look at the capital needs, you say, "Hey, maybe I need to do 10% of the fund in this." You look at the risk and you say, "Maybe I need to do two and a half." Harry, you always jump on me with these kind of real time questions.
19:01What percentage of of your fund would you put in instinct at 10 billion per as a percentage of the fund? Cuz that's the way a Kelly Better thinks.
19:10Super easy. I'd do 5%. If it's meaningful enough that it returns the fund with the upside, it's got to be 5% obviously is. I think if you can project out where it is. Um, but then on top of that, I think you have real downside protection here. It's only raised like a billion and a half. It's clearly a really phenomenal team. the bet that Microsoft or any of the large providers would buy it I think is very clear. So you've basically got a 50x upside on it being the WeChat of the West that we've all hoped for for many years and downside protection on a 1x plus. I
19:39think by the way just as I know I'm being a joke but you do it to me. If you really believed in that risk profile 50x upside 1x downside the Kelly bad answer was probably 30% of the fund just to be clear. But this is what I think founders don't understand which is like it's nuance. Like for me at my stage of career if I did a 30% of the fund bet my LPs would [ __ ] the bed.
20:00You Rory respectfully because of the incredible tenure that you have and the many many years you know as you said you've known Benchmark since 1995 a year before I was born. Um you have slightly longer relationships. So maybe it it does differ.
20:15I wouldn't have the guts to do that at all. So I I wouldn't want to let it ride. No, I think look I can see I would come out I mean 5% Tiffany 20 deals in the fund 5% is a full whack deal and you know you're right go ahead chat I think the other thing that I was going to say I you know that sort of like in support of kind of Harry's view on this is we're in a moment in time where a lot of investments are shaped like this where like relative to other times I think it is uh much more dispersion on
20:43these investments and things are both really expensive and then the upsides like apparently look very high. And so one of the things that we, you know, think about and I scratch my head about a lot is we're in a moment in time where everything valuations are like extraordinarily high and then traction and, you know, outcomes and all these other things are extraordinarily high.
21:07And so, you know, people are like, do you think we're are we investing, you know, the right speed? And I'm like, we're definitely not investing at the right speed. We are either investing way too fast or way too slow. But when both supply, you know, when both sides of the equation are this out of whack, the odds of having it right are zero.
21:23I'm really sorry. Every venture investor is in a WhatsApp group right now saying the market is totally [ __ ] Just to be super clear.
21:29Yeah, but those would be the same to Jack's point and the schizophrenia.
21:33Those would be the same investors who get out of the WhatsApp group and then wire another check for 50 million bucks to Neolab, right? So yeah, look at what you do, not at what you say as Harry Halddeerman said about Watergate. But to your point, it's funny. We actually just did our annual meeting and we had Tyler Khan the economist speak and he was great just great. But some one of my partners who was doing the meeting asked just a tangential question on venture.
21:54What's going to happen in venture? And he just quietly said as economists do you know returns are going to be highly skewed. Variance is going to go up with AI and many of you will fail. And then just moved on to the next question some of you will get rich and many of you will fail. Well thank you for clarifying that Tyler and he was exactly right Jack. You're right. It's like the highest variance time which which which speaks to even when you're doing these bets with the upside having enough to do 20 is key which is why I don't get the
22:23we've talked about this before it's why you write about instinct being an early stage bet the price despite the price it's not yet at the stage where you can have the concentration discussion you know the folks having the concentration discussion are really talking about open AI entropic at the last two preIPO rounds but you're right at at a even at 10 billion pre if it's where it is today. You don't want to put 30% in.
22:45I I also think like this is not the round that worries me. If you would look at the instant cohorts, which I haven't seen, but I imagine the usage is incredible. I imagine the depth of usage is like we've never seen before. What worries me is when you have three rounds in three weeks with no material movement in between and no data suggests there's been anything different. That's what worries me. Like the people who say, "Oh, 10 billion, 14 people." Like, it's just like people who said, you know, a billion for what for Instagram was stupid. just like, "Yep, you don't know that smart today."
23:1216 billion for WhatsApp.
23:14Yeah. Exa. Exactly. Um, but you know what I love? I love the fact that I actually had your partner Ev Randall on the show and he said, "Ah, we're going to look back at Andre and General Catalyst and Lightseed." And he retweeted it, which is so humble and like nonVC like where he was like, "Maybe I was wrong to say that Andre won't do a 5x in this vintage because Mr. Martin Casado is making us look bad because the man has had Open Ruda. The
23:43man obviously last night had Faye with World Labs and then he had cursor. Um I mean so for the new story of the day, AMD buys Fay leaves World Labs for 8.2 billion in stock at first big lab exit 2 and a half years into the company's journey. Let's focus on the entrepreneur first, right?
24:04I think it's great for Fay Fay End of T. I I mean I've only met her once. I thought she was awesome, very humble. I love her book if you read it. Very moving book about being an immigrant to the US. I was myself so I know it. And kind of came up from nothing.
24:18As someone pointed out, it's not an overnight success. Cranked through ImageNet. kicked off the whole damn thing cuz the entire AI kind of resurgence was really kicked off when that ImageNet project that she built when the winner of that was Ilia and two or three other people I think in 2012 where their model using kind of neural nets just kicked ass and blew past everyone else and it was the first hint that this technology this deep learning technology was going to blow everyone
24:48away and she kind of set that up didn't monetize that you know, worked at Stanford, worked at Google, and then, you know, midlife quit, did this two and a half years ago, and nailed it. So, I think it's just an awesome story. Um, you know, yet another, just a reminder, yet another wildly successful immigrant story coming to the US, making a ton of money. So, I'm stoked for her and, you know, good on AMD. So, I mean, we can come to the venture money later, but that it's just a great story. if anyone
25:15deserved to encourage has been restored and it's good, right?
25:27Cash the check. Well, ju just one thing, you know, it's, you know, AMD was like one of your grandpa's investments, right? Uh, you know, he and his buddies from Fairchild or I don't know what the exact This is an oldie moldy. It's up 279% this year to 1 trillion. So, I don't even know whether they're going to continue the 3D world models or they're just going to be their counterpart to Nvidia's model team. But whatever it is for 8% of that market 8%. Yeah. Getting a worldclass team to make sure that 279%
25:56run continues like it's cheap if it's the right team, right? It's a moment in time to Jack's point, right? If AMD was up 3% this year, they they ain't going to be spending 88 8 billion. But this is a run that you've you know, it's epic, but you got to maintain it, right?
26:11they've got to be number two to Nvidia or whatever the goal is. And it's uh that it's a it's a it's a habit trail that keeps going faster. So, I'd certainly invest 8% of my market cap to to keep the good times going.
26:21And I think it's the first of a few.
26:22We've talked about this a couple of times. you look at these investments and candidly I don't think the world lab companies not the world lab in particular but the kind of those world lab type companies would on a standalone basis have anything like the trajectory of entropic and open AI where there was a very quick path from here's an amazing AI technology to here's chat and that can monetize and then oh my god here's coding and that can monetize like a mother right I don't think the path would have been as clear which is why
26:51I've been a bit nervous about those deals over the last couple of years. But in retrospect, the thing I think that's now become obvious is I think all the big foundational model companies are probably in the market to acquire to acquire some kind of robotic foundational model story. I think that as you say AMD just wants to be relevant to Nvidia. So I think there wouldn't surprise me if there was a ton of acquisition interest. I mean there's still 100 Neolabs. So you you got to be in the 10 that win. But I think there will be a bunch of these big ass
27:21acquisitions over the next 6 12 months if the market continues to hold.
27:25Do you cuz I I I I invest with a brilliant French partner Paul who is you know incredibly cynical just by nature of being French. Uh and he wrote this report on 102 Neolabs $70 billion plus raised. And my question is just like just how many of them can get acquired when there were 10 to 12 like yeah it'll be okay. 102 we all going to have downside protection. It was very easy when all the sort of Neolabs got started and the trend took off to just say this
27:54is total insanity and you know to your point Harry we don't yet know what the like net balance sheet of the whole thing will be but we are definitely starting to see data points like you know world labs and many others where like there is real interest and I think part of part of what's so different now than certainly any time I've ever seen may you know maybe there have been other points in history like this but there are just a lot acquirers. like there there are like 10 companies that can do $10 billion
28:22acquisitions and want to and that's just so different and it's much easier than going public and it's quicker and you don't have all of these long cycles and the hand ringing and um that that has really changed things and obviously you know like you know extremely impressive run by Martin and it's just shown that like you know in these infrastructure lab type companies there there's there's a lot of room to run so I I don't I don't know how it will Oh, obviously any better than anybody else, but I'm definitely I'm hesitant to be too
28:51skeptical at this point given what's happening.
28:53I agree with that. And I think when you deal with the 100 and yes, there might be 10 or 20 acquisitions, but it's the Yeah, this is where you people sn they use the word consensus in a negative sense, but there is no doubt that credentialism matters. Like you got FE Lee, you know, I could write that press release, you know, originator of the whole AI thing. It's a little like, you know, the quality folks at OpenAI and the Tropic. So I think the other part of this is and then Leo Labs making sure you have the pristine the pristine tech
29:22asset versus the gritty team. A lot of the stuff I do in the apps level I love my gritty teams right I think for something like you know building a world model you need to have proven technical success because that's both what it needs to deliver and frankly what it needs to navigate and be the desired acquisition candidate. I mean, I'm not sure that's not true overall, but it's just something I've observed.
29:46I was talking to one of the best CIOS in the world last night, and he just said to me, the honest takeaway, dude, you really think you can play in venture with less than a billion dollar fund now?
29:57And I candidly when I look at many of these companies, you the first round for this and Feay was like 65. Um, you know, I just paused. I had my team say to me the other day, we can't find anything under 100 million. I said, wow, seed prices are expensive. They said, "No, no, 100 billion round size."
30:13Pushing back a little, I I think the weird thing about this tech is, cuz I've been thinking about this a lot, too, as a $900 million fund size. Um, you've got two kinds of businesses. You've got businesses where you can't ship a product on less than $4500 million, like huge Neolab raises. But you've also got to admit the following, which is also true. You've got companies that use that Neolab and that um opening ionotropic technology that are shipping products on relatively little capital in I mean you know you guys are in Higsfield right you
30:43run into a bunch of these guys who are like well we took $10 million but we shipped the product for 3 million bucks and then the customers took off and [ __ ] we still got 5 million bucks in the bank but we're going to raise 50 anyway because we can. So it's not like everything is hundred million dollars just to you know spin up some GPUs.
30:59There's a whole bunch of 10 million bucks got us a long way and then maybe we're raising a 100 but for different reasons because we can, right? So, it's not kind of uni consistent. It's almost two different worlds. And it kind of makes sense is the big technology lift up front from the guys raising 10 billion is what's setting everyone else up to do amazing [ __ ] on relatively little. Yes, I would say that just Bney talent costs are so much higher than they've ever been because of a lot of the alternative options for the talent that you can't do a two to3 million
31:28round anymore like 10 to 15.
31:30You know what the challenge to that though, Harry, I agree with the math and Rory made the point last week and I want to hear Jack's thoughts that I think nominal inflation is like 2 and a halfx in venture since 2010. I might be I might be maybe sometimes I get my nominal and non-nominal confused. All true. But if you look at the at the undiscovered gems, okay, I think seed rounds and maybe they're called preede or pre- preceded or postinception, but whatever we call it, there's still what does it take three to four folks to get 18 months down the road? It's the same thing. And if you're coming out and
32:00you're lucky enough to get a million dollars of free tokens from whatever a half million from open airropic to start your company, you get all these other things, you can still get pretty far for a couple million bucks, especially if you're willing to uh share share all share in a $8,000 a month apartment in San Francisco. So you I it's not that I disagree with the math, but the truth is you can do as much I think for 2 to three million bucks as you could 10 years ago. And if you don't have folks dying dying to give you capital outside of demo day that that may still be the
32:28natural atomic amount of capital for what I get the terms wrong today but a seed round it still should be two to three million bucks. Yes, in certain market I mean just at the risk of being a patent, right? Yes, in certain markets where you can ship a product leveraging everything else, it's a couple hundred million minimum to enter the neolad space and it's 500 million to enter the semiconductor space. And you know, I'm just making a point is that I mean, especially, you know, full scope, there's a r the weird thing to Jack's point, there's such a range of different financing things you got to get your head around, right? You know, you want
32:58to put a hundred million in a semiconductor company to still pre-tape out at 2 billion. Hm, let me think about that. Then tomorrow, let me look at $5 million for a seed round for a software company where maybe they can get a product out the door and consumer revenue on nothing more. the uh the characterization that Harry opened up with I I mostly agree with which is basically that the initial rounds have gotten so extreme and there's two reasons. One is that there's like you know you all are saying there's these labs where you know you can't do
33:25anything for less than 200 million and so that's the first round. The other reason is there is a set of founders that are very like in the Silicon Valley network that don't necessarily need to raise, you know, a $50 million seed, but they can. And so they skip the first round. They skip they they skip the six at 40 or whatever that round used to be, and they just don't raise it. Or maybe they raise $300,000 just to like get a month in, and then they raise the money.
33:52And so in many in many lanes, I think that round has kind of evaporated. And so I think there is a there is a cohort of the market where traditional seed investing where you're going to write3 to $6 million checks by you know 8 to 15% where I just think that is fully broken slash just isn't there anymore.
34:12All of that said, there there is another part of the market which you know Jason I remember reading your blogs like way back when I was starting Lattice you know 12 years ago 10 years ago whatever and um you know a lot of it was just like you know trying to get my head around what the venture math was and it's you know you have a small fund you buy 10% of a company you hope it's worth a billion or two you get 100 to 200 million you do that a couple times you know out of a basket I actually think that that that might still exist but the
34:40way that it exists is not in the things that we're reading about on Twitter and in headlines. It is these rounds where um at the moment they for one reason or another can't go do that round. they're either not in the right markets or the shape of the company isn't quite right and then you know they somehow pivot or they get more traction than you thought and it just kind of it just kind of gets bigger but it happens the slow way like we have now gotten accustomed to all of these stories playing out in a year or 3 years like you know it's like you know
35:09we're talking about instinct it's like you know the these stories play out so quickly they get big but even if you take a company you know like Lora which you know obviously I know Harry knows well and you know these stories still play out in a short number of years And we've all gotten used to that. But it, you know, there there is another part of venture that takes place over 10 to 20 years where a software company just kind of compounds slowly. And so do I think that there's a three at 30 round happening today where in 2041 that company is just going to have quietly
35:37compounded in the market of police or fire departments or libraries like Yeah, I probably do. So it's just it's just a different it's just a different part of the market and it has really had a big dispersion.
35:48I just don't think that's an industry. I just think that's an anomaly and we're in an industry and I don't want to bet on a potential pivot 3 years down the road that might lead to a misshapen company that then becomes shaping again. Like [ __ ] I can't bet on Slack.
36:04Every time I try and pitch the story to Harry, he me just like that. And I, you know, and I I want to believe in it because we've made some magnificent bets on companies like that. But I do agree the the the table at the moment is 80% the fast action table and 20% the slow action which makes sense because in 2022 there was a discontinuity and everything before that became obsolete. So by definition anything at this stage four years in is fast action by definition
36:34cuz it started in 22. Also if you want to go for that model your numbers will be crap for quite a long time. And we always forget that we're in an we're in an opportunity cost game where people can put money into your Sarah and your benchmarks of the world. And while you guys post numbers that are just never before seen, I was messaging Chaan last night, Jack, being like, "Oh god, just stop." Like the latest fund is just ridiculous. Um, and like we're an opportunity cost. You can be in those.
37:03Well, you can't be in those funds, but you know, you can try and be in those funds. And so trying to be smart where no one else is lot agreed it's yeah the the giant sucking s basically money is a signal price is a signal and price is sending a signal everybody go right here and everyone will go right here cuz that's the job of price Mr. Hayek would be happy.
37:24The problem with the quiet compounder, to Jack's point, in my view, as someone who's pitched quiet compounding since 2012, is they're just not with with exceptions. They're just not stable. You have to build so much more software so much more quickly, right? Jack and I are both on the board of owner, which is, you know, a rocket ship north of 100 million revenue. But look how much effing software they have to build this year, right? How many folks can pull that off? How many folks can raise the capital like this? Like and even if you you have 10 times more competitors,
37:53right? I I have another company at 100 million. They put up a competitor slide the last board meeting. I never heard of eight or nine of the ones. I thought we had one competitor. Turns out we have nine, right, at 100 million. So it's not that I don't want to believe. Forget about the fact that the the it's harder to raise LP capital, which is Harry's point. I this instability is something that I think people underrelect on, right? That's the problem. It's just it's so unstable that it's just it's so undurable.
38:18Put another way. Yeah. If you're making a compounding play, the quid proquo should be low risk. And if the world is such that the tech environment is changing so much that you get the compounding, not the hyperrowth, but you get the same level of risk, that by definition is a sub-optimal game. I think the uh sort of to me one of the most dominant reasons why I do agree with Harry here is it's just like it's a talent war in the most insane way right now and it it it's just the these
38:46opportunities are just too enticing for great people.
38:48Which is a perfect segue. Perfect segue.
38:51Harry, come on. Figure it out. Are you suggesting that Jack teed me up there, Rory, for a slam dunk? I didn't No one told me Super Base was doing so well. I'm out of here.
39:00Harry, I didn't see it either. And I also try to be a podcaster, so that was a hard one. Jack, I think we're just a bit slower than Rory. Okay, Professor O'Driscoll, he's very sharp. He's very sharp.
39:10Stop. Stop. Stop. Stop the [ __ ] We should just for the viewers we our listeners we should just say look what happened here is the CEO the chief executive officer of a standalone independent public company MongoDB a very successful $20 billion market cap public company who just took the job less than nine months ago got an offer from Muse hit the bid moved over to Muse to run their enterprise Facebook/ Meta to run their enterprise division and [ __ ] stock dropped 20% in one day and then um Dev stepped back in who'd been
39:40the not the founder but the CEO from a long last time and is now back running it. But the point to Jack's point was the money can exert such a powerful influence. It was powerful enough to persuade this guy to quit the top job, go work at Facebook cuz I assumed the offer was just earthshatteringly compelling, right? And that and that's your point, Jack, is that when you have the hot stock, when you have the momentum, you can make people offers that just allow you to take whatever talent you want. And this is an example
40:08of that. Do do you think it is the money? I when you're earning 52 maybe I I don't earn 52 million bucks a year but I imagine if you're earning 52 million bucks a year earning 120 million bucks a year that's nice but I think for him when he looks at this he's like holy [ __ ] I have the chance to impact far greater I think it was a $52 million package and he was offered a $500 million package by Zuck to run enterprise. He 10x is easy. What does it take?
40:34520 million then done right. Um, no one wants to step down from CEO of to be the chief executive enterprise products and tokens officer. No, he's paid 500 million bucks a year.
40:46Yeah, it's 10x. It's It's 10x. I'm I'm hitting the bid. Hit the bid.
40:50I'm just kind of agreeing with Jason cuz you were going to go down some kind of mango not exciting and meta enterprise will be exciting. I think that's true. But conversely, no one who's been a CEO goes back to not being a CEO. It's just it's just so damn hard, right? So, the answer is it must have been just a compelling offer.
41:10And dude, we saw we saw Nick Kle who was deputy prime minister go and work as Mark Zuckerberg's I mean we we know exactly how much I mean yes. So like you know that's I'm Yes, I'm trying. Yes, Be careful what you say. I'm just trying to not be mean about Nick Kle or England or David Cameron or Mark Zuckerberg and it's just too hard. So I'm just going to let it slide. But what what should we take from this though that actually even the role of CEO is one where departure
41:39is normal now in face of money we should take what Jack said it gets back to the conversation you were making he because he segued off your comment an opportunity cost the market is sending a signal that the only place to be is in these extraordinary hot AI companies and it's sending that signal via price and people are responding to price to me I think it is you it it is the money and it's also though the um It's the attention and it's where it's where the zeitgeist and it's like the white hot center and I think that is so
42:08alluring to people. I think there's a there's an entirely separate thing here, you know, with kind of the way that this all went down that I'm not close enough to at all to know the details of. And I think that's kind of its own unique beast. But in general, I just think that it is so alluring. And the money is part of it, but it's it's not just the money.
42:27It's also it's the thing in all of the headlines. It's the it's the product that we're all using. It's the thing that all of our families are talking about and I think that it's just so concentrating and so you know there there's all of these short-term things that are negative about it. But one of the things that I will say just kind of this is zoomed out broad positive is that the the much higher uh transition rate of talent that I think we've ever probably seen. One of the benefits of it
42:54is that talent feels very unstuck right now. You have all of these times in history where great talent gets very very stuck in places that you might not want it to be. And we are probably in one of the higher liquidity moments in the market where great people are in fact going to the most important opportunities which I think is probably on some societal level very positive even if in these like short-term situations you scratch your head and you're like what's going on here?
43:19You're right. I I I tend to focus on the money but you're right. It's not just that. It is the side guest. I'll give you and Harry that point. Yeah. It's what's good about here even versus the east. You know, I I can't remember was it someone on garden leave either in the east coast or the UK. The great thing about California, you got none of that.
43:34It's just like I go across the street and next day I starting the new company.
43:38Yes. And that is the highest and best use of talent. What are you doing, Harry?
43:42It's time for the invest. It's time for the investment committee.
43:45Oh, yeah. Yeah. Yeah. Yeah. It's time.
43:47You already You already did one. You did a great one for Instinct at the top of the hour.
43:50Oh, no, no, no. That wasn't an investment committee. No, no. the the investment committee this week is Jev.
43:56Jev is in the market to raise at a $10 billion price. Uh Jason, welcome to the room. Can you please present whether we should be doing this deal or not at $10 billion a week after the seed at about $200 million?
44:13Well, of course we should do it. What's the price? 10 billion.
44:15Yeah. We should put at first thought we should do 5% of the fund but after the last 20 VC I've decided to recommend up to 30% of the fund. Um you know Jev's already seven 17% of the traffic on open router it's 20% of the traffic through versel's router. Many people will of course copy it just like many will copy instinct and others but we are reaching the point where as exciting as exciting as the neolabs are as exciting as anthropics pending IPO and open AR these uh AI costs are unsustainable in it
44:44doesn't matter if sonnet 5.5 and the latest um opus is cheaper it is unsustainable to spend these costs 10 12 hours a day and the competitive bar just goes up. Jev is a 70th of the price and 100 times faster. And listen, as my good friend Jack Alman says, the pace of change is so fast or exploding so fast.
45:02Maybe Jeff isn't the winner next year, but this is exactly the kind of bet we have to do. We have 100% downside protection. Someone's going to scoop up this team out of X OpenAI no matter what. Um 17% market share on Open Router. Uh I mean, as much as I advocated instinct last year, last week, this week, this is my deal. I'm all in on Jeff 30% of the fund. I know it's risky, but I want to get the ownership.
45:24And I do believe there's a 50x upside to 500 billion. So I I deferring to Rory, I say we do well 20 to 30% of the fund.
45:35Jack, I should warn you, for some reason, Harry likes this kind of the soundbite and it plays well on the pod. So who Jack, you know me so well. At the end of the day, I'm a clip clip monkey.
45:44You're a clip [ __ ] I would say but but but but going back the funny thing is um in this case you can do some basic math and it's not crazy. I mean we talked about this last week you know spend right now today is roughly hundred billion dollar and you do the analysis and 20% of that is relevant to Jev. So 20 bill that's 20 billion dollars of accessible revenue, right? Say to compress it five to one, that gets you to four billion bucks of accessible
46:14revenue. And what we've seen that's been amazing is the developer adoption's been lightning fast, right? A whole I mean, you know, rumor has that they're at, you know, numbers all over the place, $und00 billion run rate. And given that the tokens are half nothing, that's a [ __ ] ton of usage, right? You know, you could credibly get to a billion dollar revenue line relatively quickly here, right? by literally taking money that's already being spent and saving 80 cents on the dollar. So, uh Jason's comments aren't wrong at all. I
46:44mean, he has to learn that if you spend 30% of the fund every week, in 3 weeks, you're out of action. But other than that, we we're benchmark. We just go back to the LPs with one email, we have a new fund. It's not a constraint. It's not a constraint.
46:56Jason, we'll just recycle something and it'll all work out.
46:58Yeah, we'll recycle something.
47:00Can you flip it and tweet?
47:01We also recruited Martin to the team. He He's going to help. We'll just recycle.
47:05Instinct. Instinct. Can you please email LP's new fund, please?
47:10Invest 150% of the fund.
47:12Another big round is modal triples to $15 billion and base 10 talks at $26 billion. It has turned out that the right trade, you know, like there was um there was a period where you look back and maybe we're still in that period, but there was certainly a period where you look back and the right answer with investing was just put it all in the labs. just buy the labs, right? And every round people were like, "It's expensive." But the the correct answer was just keep buying the labs. And it
47:41has now turned out in the last 18 months or whatever, the correct answer was just keep buying inference. You have modal, base 10, fireworks, foul together, and it's just all worked. You know, my partner Eric Vishria had this, you know, line that I've been kind of quipping a lot lately because it's true, which is that like it's all going to work. And he was on the Invest Like the Best podcast and it was like, "Is it this or that?"
48:07And Eric's like, "Dude, it's all of it." And it doesn't mean that every company's going to work, not every sector is going to work, but in general, a crazy number of things are working. And inference has been a really great way to get an index bet on everything outside the labs.
48:22Jason just made the point which is a big part of why these inference companies are doing so well which is that the costs are just not sustainable. So you have that on one side which is it's too expensive and on the other side you have this dynamic which I think is we have now crossed sort of the threshold in a lot of areas and more and more happening where you get sort of like intelligent saturation where it is now good enough to do the thing you know to take a simple example your tax return is filed correctly or it's not filed correctly
48:51and you can you once you have filed it correctly throwing more intelligence at that problem doesn't do you any good if your job is to hit a hammer, you know, to hit a nail in with a hammer. Your hammer's good enough. Making it a golden crusted hammer that cost $30,000. All you your whole job was just to get the nail in. And so when you have more tasks like that and as a result, you're going to see more open source. And as a result, you're going to see these inference companies. And you know, there's obviously been, you know, I can't remember who just mentioned it, but open source is doing tremendously well. By the way, this whole cost
49:20dynamic does not mean that open source just runs away with it. the the labs are obviously also going to offer much cheaper versions of their own models and I think people forget how cost advantaged they are in a lot of ways.
49:36Their access to compute is structurally very strong. Their access to users is very strong. They have a lot of different ways to make money and therefore can subsidize certain costs in certain situations as it makes sense. So it doesn't mean that open source will dominate, but it does mean that open source is going to be a big part of the market and that means that you're going to have it means you're going to have great inference companies. So I I'm long inference. I think open source has reached its maximum as a market share. I think it's going to keep going down.
50:04Even if it does, even if it goes down by 50% and total consumption goes up by 10x, you still Yeah, there's still good investments.
50:12I'm not saying that there's not there's not an almost infinite amount of inference, but I think we've reached peak open weights. What? What Jason?
50:17Why? Sorry, help me.
50:18Two reasons. Jack hit one of them and there's a second one. They're crystal clear. One is at the end of the day, um, Anthropic and Open AI are just deciding what they want to price their non-Max frontier models and they have many ways to compete directly. They have many there's no reason they can't be as cost competitive as they want to be. Now, they're you know, you you need you need Anthropic's got its numbers if you exclude 7,000 things that has 80% gross margins. Okay, we can make fun of that stuff, but they have the ability to be as competitive as they want to be, right? It is. And Jack's right there at
50:47for for sure there's a certain point where all that matters is resolving a task. But even that I don't think is that is is quite that simple. But they can price sonnet plus 55 which just came out. I just tested it. It's it's only like 20% cheaper. But that's 20% cheaper in one week. They can do 30. They can do 40 if they want. That's reason number one. Reason number two is boy uh you know people really don't want anthropic and open AI um uh training on their own uh first party data but they also I mean
51:16I just got back from Dreamforce and I got to tell you I know there were a lot of blazers there and and and and ill-fitting suits and stuff. No one wants to run on open source models there. Chi at least Chinese China based nobody. Nobody no not a single person is comfortable with it that I talk to.
51:31Okay. um uh not founders aside but no customer. So, I think just those two trends mean we've hit the peak, right?
51:37To Jack's point, oh, it's not that open no I mean it's ridiculous to say it. No one at open anthropic stupid. They can twist the knobs and dials and do what they want um and be as cost competitive and just you know there are arguments for but I just just this anxiety at the sea level is only going to increase.
51:54It's only going to increase and it's only going to increase as security becomes a bigger issue and it's only going to increase as Astra 51 was pulled back for security concerns and no one listen I know it's fddy duddies but it is the real world in enterprise no one I asked them no one wants to use an openweight model on the floor that I talked to nobody so I just think the market share is peaked I'm not saying it's not material did you ask openw weight or did you say Chinese open weight because I think there there's a bunch of things I I get your point I'm simp I'm simplifying that the vast majority of these models that we're consuming today
52:22are are China origin models Right.
52:24And where some of those guys are also moving towards not being open with themselves, but yes, I do think that's why the whole poolside Nvidia thing is interesting. It would be interesting to have a lowcost US-based alternative. And going back to Jeff for a it's not open weight, but it is US and it's not an LLM, but for a certain class of um use case, it is a direct competitor. Right.
52:46I'm not saying that they're destroyed to Jack's point. I just think they've peaked. They've peaked in market share.
52:50I think it will come down and I do not I don't even think it's going to maim modal or base 10 or others but I think these market share charts that have seemed crazy this year right there's been a lot of sources but but I think there's a lot of structural benefits that the that the open anthropic have here and they're they're going to take take advantage of in the coming months the question is though and open just hit 70 billion they said in enterprise like it's it's it's a lot of traction there pushing on that and again I don't know the answer is that provided you have opportunity at the frontier you won't
53:19waste time with the second string stuff to some extent. You're probably more likely to spend time on as you say doing the tax return if you feel you're asmtoic on some of the frontier stuff cuz the thing that you're allocating at the margin is your compute and if you open a entropic I'd love to know what the math is like on do you take this next chunk of GPU and build a model for biology that can you know cure cancer or do you take it and do you know Jack's
53:48tax return which is a pretty finite probably not a pretty finite task actually out of your benchmark It's pretty infinite task but you know within the context of AI it's pretty finite and don't super interesting set of trade-offs there.
54:00A couple other reactions there. One is that to to the point of you know non-American models I I do think that there's a lot of anxiety there. I also think we are starting to see and will continue to see a lot of enterprises post-rain their own models and draft off of open weights and use inference you know companies to make their own models and then run them themselves and so I think I I don't know how that will factor in but I do think we will start to see more of that in the US and I think that will have you know some
54:29amount of impact the other thing is you can kind of you know I I uh I often try to just kind of like step back blur my eyes and like what's like the one thing here and I think um one of the things you could look at here in general is it's kind of all just going to come down to like who's got the compute and um you know if you look across all of the inference clouds I think it's you know on the order of like a gigawatt or something like that and I think
54:56openthropic you know high single digits each and so you know you could say maybe one's a little bit more efficient than the other maybe one's got better you know token efficiency one prices a little bit ly, but on some level this will also just come down to like all of the compute is firing all the time and like who owns it, I think is going to turn out to just be a dominantly important part of the equation.
55:18Yes. You Yes. Your your compute share probably proxies to your token share. Probably with a little adjustment to your revenue share.
55:25I got at least within 2x or something like that.
55:28Yeah. Yeah. Yeah. Within Yeah. Got it.
55:30That that that does make sense. Speaking of tweaking the levers, OpenAI reopens its $200 plan that it paused because it ran out of compute for the latest Asher model, but halves what $200 buys. So Harry, you're right. You're you're I So this is getting at the same topic, which I think is like kind of on some level the fundamental equation of all of this.
55:52I think it's extremely important. The other parts of it that we just don't know that are also updating variables continually are how many tokens do you need per task, you know, and so it's like as the models get better, they get much smarter at consuming a token. And then the other is like what is the utility per token? And so we just don't know. So like it is true that there will be there are more tokens being consumed.
56:18They cost less dollars. And what we just don't know on the other side of it is like how many do you need to like file the tax return for example? And that's just like an open it's an open question to all of it. So can you get more intelligence out of a gigawatt?
56:31Yeah. And when you try and get to grips with that you realize how hard it is cuz you know I'm a geek. I went away and tried to figure out you know token cost going down tokens going up token efficiency. And you the truth is you're multiplying three numbers each of which has an error bar that's pretty damn large. And if you if you any intellectual honesty at the end you kind of go I just don't really know right.
56:51The only thing you can observe that's actually actionable is the buying decisions of people who are allocating their money cuz I can't figure out you know multiplying three big numbers together what it means. But you know some buyers spent half a billion dollars last year on Tropic. You got to assume they ran the numbers and are getting value from it. Which is why in the end I go back to what I said the proxy for all this and Jack you where the rubber hits the road is people allocating budget
57:18saying at the margin automating this tax makes sense and it's worth spending you know half a billion dollars half a million dollars whatever it is to do right that's the only because other than that it's just super hard to really convince yourself you've done the math well enough to understand it or more importantly to predict it 12 months out and that's why if you if I could know one thing I go back to my comment over and over again I would know the Q3 numbers for those two companies and you right longterm it doesn't matter but short-term it matters a [ __ ] ton is my
57:47opinion just from a momentum perspective and you know how those budgets are continuing to expand you know what it's worth for just for fun there's an app I'm trying to finish called Saster Connect and I just ran an eval my own I I don't know if you can call them eval but um I ran it on Sonnet 55 which just came out right um input tokens 42% higher than before output tokens 44% higher so who knows if Jack's tax return is and all that cheaper. Now, there's benefits from it, right? It it passed more of the blind test, right? Quality went up, which is what you'd expect.
58:17Cost went down about 10%. Not what they not 30% because more Jews, but plus 40% more tokens. I just think this stuff's hard to predict, man. 42% is a lot from a from a to go from 55, right?
58:28That's at the level of granularity of Jason doing Jason's task. And it's 10x 100x harder to say tasks in general from people I don't know where I don't see their token spend which is why you just got to look at what the Joyens are doing.
58:43What else on that one?
58:45Well, today we have news on on the flip side of like the incredible multi- trillion dollar IPOs. We have Aura pulling their IPO which was planned for a $16 billion. Rory, you look like you're what, Jack? I have to whenever I basically say a new topic, I read Rory's face and it's always miserable, but it's just the extent of misery that I have to judge.
59:09You know, and so I You're right. We actually have Oh, no. You've got some of Aura, don't you? Sorry. Yeah. Yeah. Oh, I'm so sorry.
59:18We'll we'll set up a GoFundMe page just for you, just so you can get some shack some shackles in your pot to make up for it. You're all sweet, Harry. I know you care so deeply. But look, I just comment. Yes, I'm in the position of having an ownership interest, but not in any way being actively involved. So, not having in any insider information. But I will admit this surprised me. I mean, it super surprised me. Aura, you know, um had planned to do an IPO. They were a
59:46long way down, meant to price this week, Wednesday, right? Uh we, you know, they went into it feeling very strong. In fact, the the the and they had, for the record, they had Morgan Goldman at Morgan Stanley, Goldman Sachs, and JP Morgan. I mean, all the people I mean, you there was no people left that you couldn't have, right? So, it's not that they had the dummies here, people. All right. And then the second thing is, you know, it's a profit. It's a big company.
1:00:09Consumers know it. It's a kind of thing that should be very doable. And the third interesting thing is when they first filed, one of the largest investors, 4Runner, whom I think are super smart, said they're going to sell all their position, which I've been doing a long time. never seen someone in an IPO being able to sell all their position, right? So, I was like, hm, ballsy call and give you credit cuz you consumer electronics is hard. But the fact that at priori they'd said, we're going to do this, right? To me, you wouldn't say that unless you are highly
1:00:37confident the deal is getting done cuz look, it's always harder to get a deal done when there's secondary action and when the more secondary action there is, the harder it is to get a deal done. Do you understand me? Right. So having leaned in upfront to say we are effectively we're doing this with a primary and a bunch of secondary, right?
1:00:54And we think we're going to get a lot of secondary off the table to have to walk it back. We're going to downsize the deal and now we don't like the price, right?
1:01:00Do you think it's the right decision, Rory?
1:01:02Well, because there was a huge secondary component, right? the secondary buyers who are venture people on the board, it really matters to them the price they sell at because they're actually crystallizing it versus, you know, if the company's taking 10% dilution and it leaves a little money on the table, then with all due respect to Bill who has been postitizing on this, I'm going to say something awful, no one really cares. The stock pops 20%, everyone moves on and the stock is trading nicely and it's set up nicely for secondaries down the line. That's the normal move, right? If you're actually selling your
1:01:30entire position right at the IPO and you think you're going to get 22 bucks a share and suddenly you're getting 18, that's going to reduce your entire venture return by 20%. So you become very price sensitive. So maybe maybe they felt they could get the deal done any time and they only wanted to do it at a high price. That's the that's the positive version of the argument that the investors like the deal but just wouldn't pay up and they decided, hey, at that price we prefer not to transact.
1:01:56It's a totally rational outcome, but it's kind of a weird one.
1:02:00You really think Tom Hail decided not to do the IPO because 4Erunner couldn't get the price they wanted. I don't buy it.
1:02:06I don't know. I don't know. It's hard to say. I I I'm trying to piece it through because it's possible. Don't get me wrong. He's not a founder, but uh I find it all the effort that went in agree.
1:02:17If I'm the company, I'm bummed because I always think doing an IPO, I've been in IPOs that nearly pulled on the last day before. You know, it's like those bob sled races. My opinion, I always tell people just the minute you unveil the S1, the minute it goes public, you're jumping in that bob sled and you're sliding to the bottom and there's very few easy way out. You know what I mean?
1:02:37Before you unveil, you can do what you want. But once you unveil, look, this is the hardest thing to do, which is to pull a night or two before the thing. If it was an enterprise company, it would be even harder because then you get all these second order questions. Are they at risk? Are the dynamics? But because it's consumer, consumers don't care that much because it's already profitable. They're not at risk. So it's not fatal.
1:02:58I'm with you. Like a whole bunch of hard work to get it this far and then a bummer at the last minute. It sucks. I'm like I don't know why that hap. I don't know why that happened. I'm a bit beused to be honest. As you can tell, it does soften it slightly. The employees had 534 million in tender offer just a couple months ago. It does soften the blow, but it's definitely a bummer. like the whole if you've been on the other side of it going public there's just so much emotion right it's a bummer if the stock price is lower than you thought it's a bummer if the
1:03:27pop is less than you thought when I thought when I read it I was like man there's just it's there seems to be so much liquidity you know we talk about all the M&A deals when we started it but man you can't get a damn IPO done and that's what I mean Dan Primick made that point he said don't like it because of market conditions we are 1.4% 4% off the S&P all-time high, right? The Schiller PE is at an all-time high. This I mean, what else do you I mean, how much better does it have to be, big guy?
1:03:56Right. So, I agree. It was like, huh? I mean, maybe it's I mean, and it it would be interesting to see any of these other non-entropic IPOs. I'm not sure what's up next. I know. Was it new? Is it new?
1:04:08Not new scale. It's Nale. Ncale. Yeah. Yeah. the the that's another highly aggressive compute dependent one to Jack's point be interested to see when that one goes what'll be interesting too is we haven't really seen any of the like AI native companies go out yet and my guess is a lot of them would trade very well because public markets don't have enough exposure to them but I think you know it's it's scary to be the first one it's scary to do it before the labs have gone
1:04:38out and everybody can see how the markets react all those things so I think there's a lot of companies waiting in the wings and I think if the market holds on I would I would expect that in 2027 there will be quite a few of these. We just it's interesting that we haven't seen one yet.
1:04:50Totally. Which will be the first Jack?
1:04:53If I knew that I would, you know, I'd be really good at my job. I'd be able to pick them all. I don't know. Um I think there are many that can choose to go out tomorrow if they wanted to, but it'll just be a decision with the management teams and the boards to the point of this, you know, or a conversation. It's it is um it is not a question of can they be public. It's just what price do they get and are they happy with it? So, it's um there's a lot of companies who just, you know, it's at their option right now.
1:05:17On the other end, you've also got Monzo, the British bank, getting acquired for Oh, why do you not like that one? Come on.
1:05:24I love that one. No, they give me a chance to [ __ ] No, I know. No, I'm sorry about my face, Harry. I love that. I'm actually really excited. I'm really excited to do Monzo. I have stunningly opinions on this.
1:05:34For everyone, Rory has an astonishing RBF, which is a resting [ __ ] face, but whatever you say, it's continuously just miserable. Um but uh Monzo 8 to kind of 12 billion there's quite a range now on the suspected acquisition price by New Bank. Um, honestly I was really surprised by this. Like David is very focused on winning the US, buying Monzo, which is bluntly a phenomenal asset in the UK. You a really strong strong
1:06:01British bank, but it's in the UK. To buy it off the UK and the US at the same time, I thought was respectfully very strange. David's brilliant, so much better than me, so he knows what he's doing. But I was shocked to see this news. Put it another way, it is more surprising to see that New Bank wants to buy than it is to see that Monzo wants to sell. That's effectively what you're saying, Harry. And I Oh, yeah. Yeah. Monzo want to sell for sure. They're too they're way too small to be significant in a US public market.
1:06:31And that the European public market is a [ __ ] ass. And so you've got you're praying for someone to come and save you.
1:06:38Agreed. That that funny because that's all you're going to take. That's exactly right. So yes, cuz Yeah. So the question is why new bank because in fact and the interesting thing is the stock market agree I think the new bag stock went down on this right $6 billion yeah you know the pos I'm not I'm going to make the argument and then you can tell me why it's dumb because I think it is is that you know you can make the argument that look the problem with the US as a um neoank market is we're just so damn efficient in terms of our banks
1:07:06that there's not a lot of fat profit to be taken which is why Chime which I admire as a company trades well but not amazingly I I 56 billion Whereas Revolute, which is sticking it to all the crappy old school banks in Europe, is making out like a bandit. Right? So maybe the argument is, if I'm Monzo, look, the reason they did so well in Brazil, it's another market full of crappy old school banks that overcharge.
1:07:31Maybe they're just focusing on another, you know, focusing on the less efficient markets than the US. And that's possibly the argument, but you're right. Even then, A, you're entering the UK, not Europe, because you guys left Europe, you silly people. And then B, uh, you compete with Revolute, who, as you point out every week, Harry, is not exactly a shrinking violet when it comes to competition.
1:07:51Oh my god. Uh, terrifying. Terrifying.
1:07:54Take Jamie Diamond, but as a Russian, you know, what could go wrong?
1:08:00New new banker down 23% over the year.
1:08:03Oo, over the week. Yeah.
1:08:06Market cap is 46 billion or 47 billion over the week. Over the week, they're down 12.6%. 6%. I'm going to buy this.
1:08:15Cool. That's real time, Jack. This is how we do business.
1:08:20Yeah. You You'll Jack, you'll note the complex analysis he did here. He looked at the stock chart, so filed in.
1:08:28How much should we do?
1:08:30Do 30. I would I would do a full 30.
1:08:3230% of your liquid assets. 30% of your liquid assets.
1:08:36Yeah. All fund now. Third in Instinct, a third in Jave, and a third in Monz. I totally a new bank, man. You you're you're you're in. You're one/3 liquid.
1:08:45Traded. Done. Thank you very much. I'm out. Thank you so much for coming, Jack.
1:08:49Yeah, exactly. Yeah.
1:08:52But but still, I don't know too much. Honestly, I don't know too much about this deal. I can't add too much value. But the one thing I will say in general is it seems to me you're buy they're buying time, right? They're buying time to instantly have the British market.
1:09:02They're not buying just the revenue, right? Or the customers. They're saving themselves time. And I think as venture investors, those are great for our portfolio companies because sometimes a company you have, it's not even growing that that that that uh that that that crazily, but it has a position and someone will pay up to save time. We need that for venture to work too, right? It's the only way people are going to buy the A minus B plus assets is to save time. So So thank you. And I have a few others that can save you time
1:09:31that can save you years of time. I got I got them. And uh here's a deck.
1:09:37I also think one other comment on the Monza side is that the whole you know boardroom drama you originally founder Tom had retired. They put in a CEO then the chairman swapped out the CEO and then the investors were pissed and then they reversed that and then the chairman's retired. I mean, it's going to sound really it's that UK chairman plus CEO role I've seen which makes intuitive sense for well-governed public boring companies but in my view makes absolutely no sense for ventureback
1:10:07deals and you can tell what happened here under the surface which is all the VCs were like you did what you know we weren't backing the chairman we were backing the CEO and you changed them so I think there's a lot of board instability and when you have that espec when you've taken out the founder and you have a ton of board instability and then suddenly someone says I'll buy you out. You're like, "Hit the bid and the pain."
1:10:26Well, I think everyone was thrilled bluntly when TS came in. Just to be super clear, like with the greatest of respects, the company turned around when TS came in and then when TS got taken out, oh yeah, mother of God, why the [ __ ] did you take the guy who was competent out of this business?
1:10:42No, you're exactly right. Tom had done the founder thing. The company was doing 100 million, losing 100 million. They hired this guy, he kills it, right? And then they replace him in the last few months. And it's like, huh? And I think all the venture vessels are going, we didn't sign up to have a non-exec chairman replace the guy we backed.
1:10:59Totally. Um, guys, there's two different spectrums here in terms of venture.
1:11:04Bessemer razor fresh $5.75 billion to the point of you only need one. Well, they think you need close to six. Um, but a very very modest $1.75 billion seed fund, Jason. So seed isn't for suckers when you're when you're when you're doing about 40 million a year in fees. It ain't for suckers, baby. Um uh and then on the flip side, you've got NFX now just investing GP Capital. Um
1:11:33not taking a new LP capital in new funds. So two different ends of the spectrum there. Well, the Bessemer thing is just what Jack talked about at the beginning, the learnings of benchmark and going big on growth early. I think it's probably the same story. I mean Bessemer didn't didn't they weren't memo into anthropic but that was a great one right the growth team accelerated they blew up the whole team's there Samir and the whole team it's been a win so of course you put more more money into it right they said that I think they said the seed early was still mostly growth
1:12:01but but even there to Jack's point it's 2026 imagine a seed around is 30 million how many can you do with reserves in a 1.7 billion fund if you can't count on recycling 30 with with 1 to1 reserves you can't you you need even a billion starts to sound small for seed funds if you believe 30 30 million is a seed and it you know that that barely gets you a techrunch article. So the math sounds right even if the returns may may you may be some work.
1:12:28That's why Rory's a preede investor today with his 900 just okay friends and family round. Rory's the first shackles in Yeah. Exactly.
1:12:39totally agree. And then and then NFX shutting shop to externals. I agree on the like there there's both of these moves make sense like you know for Bessemer it's it is the market around you and they've got you know a long history and tons of LP trust and if you want to play the game why not just go why not just go bigger and play the game and then on the NFX side you know like you know the homebrew guys I think did this before and that works out really wonderfully and I think it it probably
1:13:08changes the texture of how the of how the game feels and I think people also really care about that when you're not managing external capital, you get to you get to do things without any explanation to anybody. And I think that, you know, there there's probably some ways in which that lets you, you know, frees up kind of like your activities. But I also think some people just get to a place where they prefer it and they want to say, you know what, this ownership stuff, I don't care. I want to put, you know, 100K into, you know, into Jev or something like that.
1:13:36And that's hard to defend out of a seed fund. But if you're investing your own capital, it lets you it lets you do it. I I do also think back to the prior point. I think money is a big driver, but I think there are also non-financial drivers for a lot of these things. So, makes sense.
1:13:51The only thing I thought about this is do with NF NFX. I mean, I I get the the the appeal of investing your own capital, right? And I think frankly, I think anyone investing that has some resources has thought about at least a little bit, right? If you've got a little bit of money, I'm like, f the LPAC and the the the all this. Well, I'll just do invest my own money, especially if I have a hot hand. I'll get into these great deals and you know I'll get 100% instead of 25% or 20%.
1:14:16Everyone's thought about it. The only thing I always thought about if it's such a great idea, why didn't Peter Teal do it?
1:14:20Well, Peter Teal did put a huge amount of his money.
1:14:23Yeah, but not all of it. But not all but not all of it.
1:14:25No, not all of it. I think um on that it's just it's just an example, right, of not doing all of it. Right.
1:14:30I think you're right. I mean, I think I to I think what he would say without having ever talked to him about this obviously, but I think what people like him would say is if you want to build a firm Yeah. you actually you need outside capital. You need you need salary to pay people. You actually need kind of the tension with stakeholders outside your firm to do it. So I I think if your aspirations are firm building then you would say I'm going to put in as much of my own money as I can cuz I believe in the strategy but you know as much you know LP capital as we need. So that that would be my guess.
1:14:59Yeah. It's like 30% of the fund that he funds or something like that. But the NFX thing I did notice I think they said goodbye to the team in the in the note.
1:15:06So to Jack's point, you know, it's it's easier if you don't want to have a team, right? If you don't want to have it's it's a it's a different thing. And you and they have life goals, too. It's not just the money. You can you can fund the salaries, but they have life goal. I mean, they want to be partners.
1:15:18You're building a firm. You have junior people. They want to have a goal. They want to have a career. You have to take outside money. You got to do all the things, right? I think by the way the beauty of putting 30% of your own money in is you can look the LPs of the eye and say thank you for your opinion but as the largest LP investor here I'm very comfortable putting 20% of my fund in SpaceX in 2008 so duly noted that you're concerned but hold that thought for 18 years and you'll be glad right yeah and you know by the way I think a lot of this gets lost you know we we we rarely
1:15:48talk about you know LPS and all of those things but the like the you know the the end result of all of this, you know, venture capital work is, you know, hopefully that you're generating money for, you know, groups that that that it matters for and all of those things. And if you're, you know, an employee at a firm where it's all the principles money, you're kind of like a family office where if you do a really good job, you, you know, you enrich that person versus, you know, hospitals and endowments and all that stuff. And I I do think people care about that, too.
1:16:16Agreed. on both sides. I will say just as a comment, you you care about it a lot because you want to do really well for your LPs and you also feel the burden of it too, right? Is that you know, you're not just letting yourself down. You I mean, you know, I'm always conscious of the charities that many of our LPs embark on. And I have a this mental model if we're doing wrong or do doing something that's not working out.
1:16:34I have a couple of charities that are super small where I'm like, I know exactly where this money goes in some mid homeless program for teenagers in the Midwest and I'm like, we're sticking it to them, right? Okay, people, let's get back to work and make this happen here, right? But you're right on that.
1:16:50Jason, would you Jason, would you ever do this move? I think you're probably the closest to us in doing this move with the greatest of respect.
1:16:56You know, the only I thought about it and and to Jack's point, the reason is um and you rethink it, right? I'm like, okay, notwithstanding most of this conversation, if I want to be able to write a $5 million check to be relevant, right, that's too much for my balance sheet. It's too much risk. Okay. So, I don't want like I I don't I mean, Homebrew, first of all, they they were phenomenally successful, right? Small LP and some other funds, right? They just didn't they're they're comfortable with those those diverse size checks, right?
1:17:22I just didn't want to do them. Like, I don't get a lot of joy out of the the 100K check that I do in 60 seconds. If I got joy out of it, then maybe I would do it. But I'm like, "Hey, I got to be able to write a $5 million check or I don't want to do this game." Um, but if it wasn't for that, I probably would I probably would. And in fact, the homebrew guys recommended I do it when I started. They're like, "Don't do this fun thing." Like back in the day, you have enough of a brand. You have just just just do it just just just just do it direct. Um, so that echoes with me
1:17:51once in a while, but you got you got to you got to mold even if benchmarks change. You do you you do have to fund the check size you that you're you're optimal at writing, right? Somehow you got to fund it, which can change.
1:18:01What have I missed, Rory? Jason, is there anywhere you're like, you've missed this, you [ __ ] Antropics founders locking up 50.1%.
1:18:13You know what's weird in that? You know what I didn't get in that story? Maybe you guys have some color. Like why why' they wait so long? Why didn't they lock up the control a little bit earlier?
1:18:21Like what am I what am I missing in the in the story? Right. Uh did the guy from Skype not let him do it and Duskin Moskovitz vetoed this? Like what the hell happened? Why did it take so long to get voting control? you probably that's because you probably actually have it in the preIPO structure, right?
1:18:38I'm willing to bet just based on a bunch of different things and then it's when you convert everything to um common stock that you know you pro typically voting rights expire on the IPO. So what my guess is they had a pre-IPO deal and now you got to recreate a post IPO deal because everyone's cap structure changes. So I, you know, I've been in situations where it's been in existence pre and then you realize, oh my gosh, everyone, all these preferred stocks that have minimal voting rights or maybe two out of five board members convert to common. Now it's just based on
1:19:07ownership. Oh my god, in this case I own 2% of the company. I think we're going to do it differently. And look, could be. Yeah, it could be. I mean this to to me at this point look if we're willing to [ __ ] trust them not to blow up the world and they've already said they might and it's only a 10% chance I think we can trust them to with the votes you know this is this is so do down the list of I mean can you as I sit up and draw up the S1 having argued over founder control before right and is it a good term for the public markets and as I've mentioned to you guys I've changed
1:19:37my mind and I've come to the conclusion it is because of the activist pressure in the case of this deal it's literally item 17 on the agenda Right. First, risk of blowing up the world. Second, risk of cyber attacks. Third, risk of hostile state actors. Blah blah blah blah. Oh, item 17. Oh, by the way, we'd like to control all this. Yeah, right. I mean, everyone else is like, knock yourself out.
1:19:59I mean, sure, you have charge of it. That's where they'll know who to indict.
1:20:06Boys, it's a wrap. Well done. Thank you so much for joining us, Jack. You've been a star guest.
1:20:11Thank you for having me. It's been so good to have you here.
1:20:14You guys are awesome.
1:20:16Thank you, Jack, for joining.
