0:00Speaker A:There's going to be a lot of people paying the bill in 26 and 27 for a certain amount of hesitancy in 23 and 24. The only way you prove that you're not dying is by growing.
0:10Speaker B:So what happened this week that we discussed? Canva cuts 2026 growth by a third. Ouch. As AI serving costs blow up.
0:18Speaker B:Next, Jeff Dean leaves Google after 27 years. Demis Hassabis, the OG of AI, then steps back from Google DeepMind also. God, poor Sundar. That is one bad day at the office.
0:29Speaker B:And then Elon Musk, as always, comes out with the most ambitious projects with terrafab, where we unpack the jobs that come from it. The first real installment of $16.8 billion. And just what it would mean for him in terms of structurally not having to beg at the tower of tsmc.
0:47Speaker C:I mean, this is such an entitled podcast. Oh, poor anthropic Engineer only made 35 million. I mean, go out to the goddamn panhandle, no one's making 50 grand.
0:55Speaker A:It must be extraordinary validating if you're Jeff Dean, to leave as a non CEO of a $2 or $3 trillion market cap public company stock go down by a couple of hundred billion dollars. Google's efforts so far are B a minus.
1:08Speaker C:They're not a any investment I've made that is not run by a founder, it's going to be a zero in this age.
1:13Speaker B:Ready to go. Okay boys, we're going to start with something other than open AI or anthropic. Today we're going to start with Canva, baby. We had Cliff on the show before.
1:33Speaker B:Now Canva cuts 2026 growth by a third as AI serving costs blow up. So for those that maybe missed this story on Canva, what should they know that they need to know here?
1:46Speaker A:Sure, yeah. Let's start with the facts and then kind of come to the question. The facts are that Canva, you know, large privately held company in the kind of creative suite space, discloses its revenue even though they're private. And you know, they were at 3 billion in GAAP revenue last year.
2:02Speaker A:Going into this year they're growing at 30%. And the CEO, Melanie Perkins, disclosed kind of mid year that they're probably going to be growing 20% by the end of this year. So as you say, a 1/3 slowdown in growth rate, but still a healthy 20%. And then the other half of what she said was interesting, which was that they're obviously adding a ton of AI features.
2:21Speaker A:Those features cost real money. And part of the reason that she claimed for the slowdown in growth, it was just too expensive to effectively be subsidizing users with kind of cheap AI, when in fact they're incurring significant costs. So there was an implication there, which I'm actually going to tease out later. I'm not sure I fully buy, which was my growth rate slowed, but if I was willing to lose more money, it mightn't have slowed by as much.
2:45Speaker A:So there's an implied statement on elasticity there. But the big picture, I want to zoom out and ask Jason a question. The big picture on this three massive creative software companies. There's Adobe, which does 23 billion, growing at 12%, trading at like three or four times revenue.
3:04Speaker A:There's Figma, which is also public doing at 1.4 billion, growing at 40% the fastest. And in the middle there's Canva, still private around 3.6 billion, growing at 20%. Right. And the big question for all three of them is, and that's why I want to put it back to Jason, who's much more.
3:21Speaker A:I've used them, but not as much as Jason, is is AI going to be a feature they can incorporate or is it a new, new thing that makes them obsolete? And to me that's the meta question. It's not about 30% growth versus 20% growth because of a little bit of gross margin compression. If that was the only issue, we could talk about that.
3:39Speaker A:That's a kind of second order business model issue. The real question for all these Companies, are you 30 on the way to 20 on the way to 10? Because there's a whole new set of companies doing this. And I know, Jason, you guys are in Higgs Field or is this something you can incorporate and kind of survive and continue to grow?
3:58Speaker A:So I think that's the question. Jason, I'd love to get your thoughts.
4:00Speaker C:I don't know, man. I found it kind of depressing, the Canvas stuff, because Canvas seemed to me one that obviously AI was maiming every every ChatGPT release, every Higsfield release, every else. You can do more and more of its functionality in core AI. Right?
4:18Speaker C:This is what we fear as investors is that you can do our investments in ChatGPT or Claude. Right? That's the ultimate fear. But yet it seems somehow Canva was defying that gravity like it seemed it was a non issue despite me having churned and Emilian having churned.
4:35Speaker C:We churned, just not because this is a tough one. Canva and Notion both, we churned not because they're not great apps. We just no longer had any need for them in the agentic area. Just no need.
4:45Speaker C:Canva and Notion did nothing wrong at all. Nothing. And we didn't need them. But until this, it seems somehow I was wrong.
4:53Speaker C:Like they were defying gravity. But 30 to 20 in one year. I know. I love Rory's optimism that they're going to bounce off and get back to 30 or 40 next year when they find a few extra tokens under the covers.
5:04Speaker C:I think it's terrifying and it's a little. I was hoping they were defying gravity, but it doesn't look like it.
5:10Speaker A:Defending myself on the optimism charge because no one ever accused me of optimism. I actually didn't say that. What I said was that's the implication that they're saying, I don't know the answer. Genuine comment here.
5:21Speaker A:Right. And look, and I'm going to advance the bull case to some extent, just articulate it more because again, what the CEO is saying is, look, we can't envelop it in AI because we were using frontier models and they're just costing us a shit ton. So the first shoe that's clearly going to drop is they're not going to continue to spend a whole bunch of money with anthropic or OpenAI. Probably OpenAI, given its images, of course.
5:45Speaker A:Rory. But they now bought their own model and are building their own in house image focused model, which makes absolute sense. So let's assume they do that.
5:54Speaker C:Why did they do last quarter?
5:56Speaker A:Agreed. Let's say they were even a year or two late. Because I think I want to push back to the big question.
6:02Speaker A:The interesting question is if, let's just say they get it done and in six months their in house model, which is 90%, 80% cheaper, is just as good as images, as you know, the frontier models, then the question still remains to your point, Jason, do you think they can, and I hate being fake, stuff enough AI functionality into that product that you would have retained or do you as a pretty active users say no, I just prefer to go out at AI Native Day 1. Because that's the big question.
6:32Speaker C:You know what's scary is something that sounds nerdy is becoming mainstream. Our agents never even suggest these products. That's the danger. And it's not just agents.
6:43Speaker C:It could, you know, we talk about AO and Geo. What does Claude and chatgpt say? But it's worse than that. As we become agentic, our agents, we can't choose everything ourselves and we generate, we have Our own.
6:54Speaker C:We built our own ad server and ad generating network that built our own creative and own collateral and serves it to the Saster community. It's all built on our agent. The agent never. It never occurred to the agent to use Canva for this.
7:05Speaker C:It never once occurred to it. And so even some sort of open weight parody. I think it. Listen at a meta level, I think what's scary is that the most exposed part of the market is the prosumer market.
7:20Speaker C:Everyone is ChatGPT fluent and if it works in ChatGPT, right, or Claude, you're just going to use it. And you know, if you believe these Gartner numbers and I'm out at a big salesforce event, they have all the data. It may be that less than 10% of the enterprise has even deployed an agentic application successfully. I actually believe that.
7:38Speaker C:Okay. Despite what we're seeing in the because all the hot enterprise AI companies are still serving early adopters and outliers to a larger extent on the prosumer side everyone's used ChatGPT and so there's. There's no going back. And then my related concern is if you compare it to Figma, well, Figma missed the quarter in a sense.
7:57Speaker C:Figma traded down 20% but they burned the tokens. Dylan was clear. Our gross margins are going to be significantly impaired going forward because our agentic products are being used. It's not identical but they took the hit, right?
8:15Speaker C:And they're public. It's more painful to take the hit when you're public than when you're private. I really don't think Blackbird and Friends are going to beat Canva up if the bottom line is missed slightly. That's an internal decision, right?
8:26Speaker A:I think you're right and there's a lot buried in it. I just want to unpack it again for folks. One is you made a distinction. Let's talk about the enterprise versus prosumer distinction because you're exactly right is that Figma is much more an enterprise product.
8:39Speaker A:It's kind of large groups of people building software, coordinating. So even if you automate creativ, you still got bureaucracy and corporate processes that you make money off in terms of managing workflow. But you're exactly right. Canva is the prosumer shit.
8:53Speaker A:I want to generate a flyer. I want to generate a cheap website, I want to generate some kind of content and that's exactly where AI is the most accessible because you can just go on and type in generate me a flyer that says this and there it is so you're right, they are more exposed in that sense. That's one. So I think it goes to the.
9:14Speaker B:Fortnightification that Jason often talks about in terms of the shrinking cam when you have a dinner invite that you can do on ChatGPT and bundle it into your consumer subscription versus an additional tool,.
9:26Speaker C:The nerdier version. Amjad said about Airtable, not about Canva, but he said his quote on the CEO of Replit's quote for Airtable was no criticism. But the era of no code is over. And no code was a bunch of tools where without developers or AI we could build stuff.
9:42Speaker C:And airtable was a no code database disguised as a spreadsheet. Right. It was a wonderful product before AI Notion is a no code database disguised as a word processor. And Canva was a no code way to design stuff.
10:00Speaker C:It was a breathtakingly disruptive product. I didn't need a designer anymore. I didn't need to know how to do HTML or anything. But the era of no code, of things that we, that we can humans can do without engineering resources, it's slowly winding down.
10:18Speaker C:And if it's in ChatGPT, man, I'm just worried. I'm just worried.
10:22Speaker B:Is it a blessing or a curse that they didn't go public already then?
10:28Speaker A:It depends on who you're asking. Blessing and a curse for whom? I was thinking about this a lot because I knew this question would come up. Because if you think about it, if you're the founders, doing this publicly is just arguably marginally more painful.
10:45Speaker A:So maybe you're happy to be doing this in private. What you're really saying is this, let me try. And we never say this explicitly. When you say, should you have gone public early?
10:53Speaker A:What you're really saying is, my God, if I'm the venture guy who did this thing at 100 million like blackbird or a couple of million, I think Felicis was in early and Matrix was in super early. And then even the guy who came in at a billion, you must be like, oh my God, if we'd access that 50 billion valuation in 2021, I would be so gone now. And that's really what you're talking about. Which is why, to be clear, some of the CEOs are a little unsympathetic to this line of conversation because this is their lives work.
11:21Speaker A:Because really, when you say, should they have gone public early? What you're saying is, boy, I wish that the fast money had gotten out while the CEO and the management team would still be there. Just in a different forum. Does that make sense?
11:34Speaker C:No, I think it's a good point. The, the. The getting out early. It's a critical question for VCs, right?
11:40Speaker C:How the hell do I take something. We can talk about IPOs and M& A, but man, our shares are illiquid that we buy, we put them in and we, we hope, we pray, we face east that, that we'll ever get any cash out. If I'm an employee, Canva, or a founder. And the founders already gave away 90% of their shares, right?
11:56Speaker C:They've already given it away. They're. They're on the mission of their life. Maybe in Sydney, in Australia, it's easier to retain your talent than in the Bay Area, right?
12:04Speaker C:Maybe they're not going to quit and go to OpenAI the next day. If you don't go public and make them, you know, a million dollars effective a year in stock. Maybe. Maybe it is better to hide.
12:13Speaker C:You've built an iconic company that isn't going anywhere. Right? It's. It's.
12:17Speaker C:I mean, I'm just playing the Devil's advent, but Rory's point, if I were the founder, if the three of us were the founders, I might want to run this thing like basecamp, right? 37 Signals, guys, let's just hunker down. We'll increase profit sharing, right? And I mean, probably the VCs wouldn't let you get away with it, but if I hadn't raised a ton of my cap table, it might not bother me so much.
12:36Speaker A:Yes. And I think one of the totally separate threads is public markets have to be more attractive, not just for people exiting like the VCs, but also for founders to be able to kind of reignite and reopen the window. And if it's rational to say on certain circumstances it's easy to be private, then that just probably weighs into the calculus. When you decide, as Canva could have done, should you have gone public in 2021.
13:02Speaker A:Again, to repeat, for the most important people in the company, who are the founders who own effectively the company from a entrepreneurial oomph perspective, regardless of the cap table, I don't know if that matters. I don't know if public versus private matters nearly as much as this is the platform shift challenge of all times. And assuming you do get almost free AI via your standalone model, you've got to figure out, to Jason's point, a product in the next 12 months that's as easy and as accessible to your user base because, you know, the segment of the market you're addressing that it has to be as easy to that user base as ChatGPT is to generate the products they generate with it. That's your challenge and it's a product challenge.
13:49Speaker B:My point is I don't even think it's about easy. I just think it's about the bundling of consumer like real estate, of where they spend time. I just interviewed the president of Uber. What is his single biggest fear?
14:00Speaker B:It's actually the disaggregation of UI or the removal of UI where you say I want a car and ChatGPT automatically routes you to Lyft, Uber or another provider based on price.
14:12Speaker C:That's what our agents already do. They just routed us around Canva.
14:15Speaker B:And so my point being there, Rory, is like ease doesn't actually matter.
14:19Speaker A:No, no, you exactly look to be very clear going back to something. If the AI models become the universe, well, in ChatGPT, let's say who is more consumer focused. If that becomes the universal interface for functionality, then you're exactly right and all model choices are back end choices. Then you never even get the chance.
14:36Speaker A:I don't know if it does. I could be wrong, I don't know. And in fact this is probably an area where I'm still trying to triangulate. I don't know what things that we do separately in the west, because it's interesting.
14:48Speaker A:China obviously in mobile has a single super app for everything and you do everything through WeChat. But just to pick on two what I'd call high cognition tasks that are very different actually the polar opposites. One is creativity, building something creative for consumer, and the second is doing your taxes. There is a credible argument in both cases that ChatGPT can suck those revenue up, which is why Intuit was down.
15:13Speaker A:I'm not sure I fully believe it, but it's why Intuit is down and it's what canva's wrestling with. It's a super interesting time here as yet. I'm willing to bet I could be wrong on this. I'm willing to bet and you guys from Higgs Field can say it, there's still a role for a company like Higsfield, which is an aggregator across models, which goes against what you're saying, Harry.
15:31Speaker A:That's a company that's saying, hey Mr. Consumer, you could do this directly on one of the video gen companies, but I'll aggregate the models, I'll give you a slightly better ui, I'll help you with billing and maybe there is a business on top of the Models.
15:46Speaker B:I don't know if Jason would agree with me. I'd say they're serving two different markets. I think the ChatGPT cannibalization of Canva is me and my partner doing a dinner invite with ChatGPT that we would have done in Canva. And then Higgs Field is actually a business that uses video as a more primary method of delivering their message.
16:02Speaker B:And so it's a slightly more prosumer professional, I would argue. Jason, I don't know if you agree with me, but both easily, I think.
16:09Speaker C:It is, I think you could argue for sure. And almost all that growth, 700 million in revenue over today is from this, the video creation. Complex video creation, where you're taking, you're creating functionality out of the models that alone. It's very complicated to harness.
16:27Speaker C:Right. It's a harness that allows you to do something that's very complicated with the models, their original model, which was just to aggregate models to make short videos. It is cash flow positive to Rory's point, but it's not an exciting business. Right.
16:40Speaker C:They, they stumbled into the bigger one, the, the tough one. And it's. That, is that, you know, that whole, whether that whole business, which will shortly be a billion in revenue. It, you know, a lot of it could have been canvas if, if, if, if they aggressively got into it.
16:53Speaker C:Just like I, I firmly believe a big chunk of replit and lovable could have been Figmas if they'd done it. It's. These are. It's easy to, to take shots when it's so hard to run your core business.
17:03Speaker C:But I think we're starting to see the outcomes of it being so hard to run your core business in the age of AI. And you've added all the AI stuff. Figma's added, added great agentic features, canvas a little slow, but they've added it. Even that's.
17:17Speaker C:It's just not enough and you're seeing gravity weigh you down and it's, it's, it's a tough job today, right? It's a, it's a tough job.
17:26Speaker A:I think that's actually a super interesting meta point, Jason. You're right, because I tend to be an incrementalist, but there are times when the world opens up and there's a crevice between the before and the after. And if you make that jump, you gotta make it quickly. And there comes a time when the gap is too big.
17:44Speaker A:Right. And that's what you're saying here. I've come to the conclusion that this could be one of those times. And to some extent there's gonna be a lot of we saw it airtime.
17:52Speaker A:There's gonna be a lot of people paying the bill in 26 and 27 for a certain amount of hesitancy in 23 and 24.
18:00Speaker B:Can you give me an example of a Figma or a Canva generation company that has gone, hell, I see this coming, I'm going to move fast and hell with it. They've done it and done it well.
18:11Speaker A:I mean, look, the boring one is obviously Intercom. We've talked about a lot and we were investors, so I don't. But they succeeded and did it. And I think, I'm sure when, after the deal, Owen will be the first to say that was a journey and a wild journey and a hard journey and he earned every dime, let's put it that way.
18:26Speaker A:So I give him credit to that. But I mean, I'm just trying to think here. It's a hard one, isn't it? I mean, the thing is, because the interesting thing is to some extent, and we'll talk about, for example, Atlassian in a second, one of the big questions is how much of your business is going to change.
18:44Speaker A:And there's some businesses that just by virtue of the software process, they automate, there's not going to be as much change. I think, for example, I think accounting, you know, we're looking, we have real interest in the next generation of accounting companies. Companies. But it's a fairly slower moving market than say individual prosumer creative tools.
19:02Speaker A:So to some extent the speed at which you have to move is in part a function of the kind of business you have. Right. And what AI's impact will be. And I'm just thinking aloud, actually I will give you some because they're right on the head.
19:17Speaker A:Some of the coding tools, I think even they didn't have a big business, but I think Windsurf and Even Come on Cursor were doing something else right at the start, but because they were super small, they pivoted in 22 really fast. I don't have a good. To your point, I take coding as the best apps market. Right.
19:34Speaker A:The biggest. I don't have a good example of a 2020, 2017, 2018 coding company making that pivot.
19:41Speaker C:Well, I have the example, but I think Replit's an example. It was frigging in the wilderness for six years until it added the models. Right. It was a super nerdy web ide.
19:51Speaker C:I think, to answer Harry's question, it's Just, it's a tough question to address as investors and employees, which is the ones that cop. The ones that, that have accelerated, right? The pre agentic ones are the ones that were in the. Could catch the wave.
20:07Speaker C:The data dogs, Cloudflare, Palo Alto Networks from last week. These were guys that were already even. You know, I didn't think Twilio would benefit from this. Jeff Lawson saw it when he was on this pod, right?
20:18Speaker C:He's like, agents are going to need more, they're going to need more voice and more text. So Twilio, which is your. Which. Which was, you know, the hipsters, you know, API for, for voice and, and data.
20:31Speaker C:When, when we all met Jeff, it became your granddad's tool, but it was still well positioned for the wave. Yet he was holding the boogie board just right and the wave came in and he's flying and Frank Chachi BT is just tumbling poor Canva side over side. And I think in the enterprise that's happening is just slow. It's just quarter by quarter, it's slowly happening.
20:51Speaker A:I want to make a distinction here because I think the Datadog example is an interesting one. I think you have to distinguish between. It's easier to survive if you're well positioned and don't require a business model change versus if you're not well positioned. I think the challenge, the toughness of the task facing the CEO of Datadog versus say the CEO of Canva, Adobe are very different because if you think about Datadog, they sell observability, they sell it to infrastructure vendors.
21:18Speaker A:Nothing in their model has changed except there is now an infrastructure vendor who needs to buy 100 times more Datadog than anyone else has ever bought. Right? So all they had to do is show up and sell more. And that's true for all those guys.
21:31Speaker A:We were lucky enough to be in jfog. You can see that Cloudflare, Datadog, all the infra providers, it's not like they're inventing a new thing. They're just saying this is the greatest infrastructure boom in history. I sell infrastructure time to make out like a bandit.
21:44Speaker A:There's some tweaks at the margin on the products, I agree. But fundamentally, that's it.
21:49Speaker C:There is one that Captain, obviously, just so I don't get flamed in the comments too much, that did it. And I think there's. I don't know all the reasons, but I can think there's two important reasons. Obviously Palantir did it.
21:59Speaker C:Palantir went from 18% growth to 98% growth right. Unprecedented in our lifetimes. Right. It may be the one of N or the N equals one.
22:10Speaker C:Maybe it was well positioned. But the thing was it really leveraged a combination of outcome based deals and pricing and true FTEs that no one else. We talk about FDS all the time with our portfolio companies. It is fair to say they're really solution architects or SES with an FD T shirt.
22:28Speaker C:Palantir had people who for a decade and a half were out there deploying massive change in the field for their customers. So when their customers needed AI, they had the guys to do it. Right? And then Alex Karp did the crazy thing which we, which the VCs talk about but it's hard for all the company.
22:47Speaker C:He did outcome based deals. Give me 2 billion, I want a 2 billion dollar contract but I'm gonna save you 8 billion or I'm gonna give you 6 more billion of revenue. On the commercial. No one does that outcome.
22:59Speaker C:They talk about it but they just tip. They just pretend that they do it. No one puts a two billion dollar deal on the line for an outcome based resolution. And they had both these things that canvas on the prosumer side but in the enterprise, very hard to change to true outcome based pricing and to have a suite of FTEs that can deploy AI.
23:18Speaker C:I really wonder if the average SAP SE is as literate in the models as they are at Palatine.
23:25Speaker A:And I think again, first of all I totally agree because remember we talked infra and now we moved on to apps and in the apps I think Palantir is an excellent and possibly unique example of someone who's. It's very interesting because their existing model wasn't that threatened but it was growing slowly, very government centric. And if you read the book, the Palantir, the Karp biography, huge credit to them. In 23, 22, 23 they saw the LLMs and they groked it immediately and they said going back to the thing about making your bets in 23 that come good in 26, they basically said we're going to put all our wood behind this.
24:02Speaker A:We're going to build the enterprise version of the product. I can't remember the code name for it now, but we're going to make this bet. And you're right. And it turned out that the combination of AI knowledge and FTEs was exactly what enterprises needed.
24:15Speaker A:So I agree that's an example of someone who, I wouldn't say they had to. I mean if I think of it, someone like a replit had to rethink Everything and pull it off. Someone like a canvas still has to rethink evidence and has a lot of pressure on it. Palantir could have chugged along at 20% and been roughly fine with the government, but instead they grabbed the moment.
24:36Speaker A:I'd give them the positive grab the moment award. Are you with me? And it's one where I would argue, unlike a data dog or somewhere where all you had to do was do the same thing, that's one where you have to give the CEO and team credit. They said, if we turn the crank even slightly on our offering, it will work for a whole suite more customers than we've had.
24:57Speaker A:So I agree. I think that's a good example of grab the moment and I think Replit's a good example of doing the even harder thing, which is, shit, I gotta do something else. But if I do it, I'll win. But there's not many.
25:09Speaker B:Ding, ding, ding. If I just do a quick fire, I don't want to take it back too much. But just a lot of LPs listen to the show and they have Canva in their books and they're going, what do I do with that? How should they think about that, given what we've just said?
25:27Speaker C:Well, what do you think it's worth? I'd say it's probably worth 12 billion right now. 20% Growth at 4 billion ARR in the current public markets and not decelerating. There's some sort of rule of 40 number that's better, but I'd say it's worth about 12 billion.
25:42Speaker A:The odd thing.
25:42Speaker C:Oh, I held at 50.
25:44Speaker A:I understand. I'm just going to. You might be right, but I'm going to push. What's interesting is I can find you companies that are in 20, 25% gap, reven growth, free cash flow positive, are trading significantly above that because they're getting the.
26:00Speaker A:Because there's no existential question. I mean, one of the big things that's happening, like a datadog or I think a Cloudflare or JFargo, all those guys, they're mid-20s growth, 20% plus operating margins trading at 15 to 17 times NTM. Right. But I think the difference is there's no existential question here, which is why maybe I'd answer the question in the following way.
26:21Speaker A:If it's 20% and the existential risk is there, then Jason's right. It could be, you know, it could be 12 or even less. If they can. If they can transcend that risk, then you probably, you know, you're still top stop by.
26:35Speaker A:You know you're going to be grounded by reality now because you're not selling Brave New World. But it's kind of 12 and up, right? And a good get up.
26:41Speaker C:But just listen. I hope you're right again. I don't want to be negative. I want to be.
26:45Speaker C:I want Canva to defy gravity. But why do you when when every single person on Wall street uses Chat gbd, why do you think people won't And I think existential risk is both reality and perception. Why do you think it won't be perceived as having existential risk? If Monday and HubSpot do, I don't see why they won't see the exact same thing for Canva.
27:03Speaker A:I'll tell you exactly why. Because you are in the short term they will. But if you look at in the short term, you can't control that though. You can't control what the 27 year old on Wall street thinks.
27:13Speaker A:But let's take the example of Atlassian. We had Micah on as well, right? They killed it last quarter. The only way you prove that you're not dying is by growing to Jason's point.
27:22Speaker A:The thing that's pleasing about life is if you pull off the important thing, the hard thing itself, then the markets will follow. You're right. Right now it's a very tough time because you're going to. When the existential risk is posed, the only way out is to prove it right now.
27:37Speaker A:I think there would be a wide variety of perceptions on valuation that something like a prosumer company like Canva and it'll be hard to peg value and hard to get liquidity at scale by the way, which is one of the other things about at the margin a difference between a private company and a public company is when the window shuts in private and the appetite dies, it's very hard to get anything done. So the real answer to your LP is it doesn't matter what you think, big guy. You're in this journey for the next 12 months. Buckle up.
28:07Speaker A:Because liquidity will only come at the end of the journey.
28:10Speaker C:It's also important potentially. I mean I don't want to overkill it. So I'm not exactly a public company PR expert but I do think it's important to get ahead of of the narrative Roy's describing. I do think that once everyone starts saying that ChatGPT is killing Canva because you can make poster size images for free in with your, with your subscription every.
28:33Speaker C:It's just like the dumbest I Think the three of us can probably agree. One of the dumbest AI memes was that everyone would vibe code their own serum, even though Harry's had guests that do it. This makes no sense for 99.9% of the world. Okay.
28:44Speaker C:You can't maintain it. You can't build the integrations. It's more complicated. Most of the folks that say that have never used a CRM.
28:50Speaker C:But, but it, but it, it's so visceral, the idea that everyone. And that STAM20VC show has, has been part of it, bringing in all these guests who are trying to hide slowing growth by. By talking about how they built their own CRM. But I mean, it.
29:04Speaker C:It is taken hold, right? And, and the shorts have jumped on it and the haters have jumped on it, and so be it. Right? But if I were a Canva, I'd be worried that this would become a meme.
29:15Speaker A:I think there was a quote, something like, the worst thing in the world to fight is a bad idea whose time has come. Right. And you're right, everything's.
29:22Speaker A:And you're seeing that in the SaaS Apocalypse Now. And the only way out is true, right? Which is the companies that have produced revenue growth have seen uptakes and overall World Cloud's up 50% since the bottom of the saucepocalypse. But the people who struggle are still struggling.
29:38Speaker A:So you're right. You will have to prove it.
29:40Speaker C:What do you think the answer to LPs is? Obviously, I think after Airtable and this Canva quarter, it's probably time to be a little extra skeptical of marks. Just, just being realistic. Like, we've had some.
29:51Speaker C:We've had. These are two events that I think have quietly hit old marks. Even you should have marked him down last year. But I mean, these are, these are events that are difficult to hide.
30:01Speaker C:They're difficult to say, my guy's going to turn it around. Okay, after these, these, these vents, I think they do kind of shake the ground a little bit.
30:08Speaker A:They definitely do. And it's funny because just taking the Airtable account, we all. I used to mentally say to myself, I'm sure you did Airtable and Notion, you had them in the bucket of being the same. And then, I mean, I don't know if the sacronomas are correct, but notion is apparently 800 million growing at, you know, 70, 80%.
30:24Speaker A:Right. It gets back to the same comment is when I think about valuation, stepping back at a minimum, you have to look very objectively at the actual growth rate. Rates. And be brutally honest, as you think about valuation relative to that growth and that projected forward growth, you got to ground yourself in those facts of step one.
30:40Speaker A:And then the second order question is, do you grade up or down for existential versus lift? But at a minimum, yeah, it's no longer acceptable to say, once upon a time, we raised at 42, therefore, we're holding for 42 billion. We're doing a billion, we're growing at 30%. That is this multiple.
30:59Speaker A:We're doing a billion, we're growing at 10. That justifies that multiple. I totally agree, Justin.
31:05Speaker B:For me, I thought. Actually one of the tweets of the week was Dave Samuels, I think his name from Freestyle, who mentioned that blended exit price from our table was actually 6 billion. And the importance of selling along the way and being very thoughtful about selling in the good times,.
31:21Speaker A:It's always true when it goes down, and it's never true when it goes up.
31:24Speaker B:One of my great friends is a multibillionaire and he told me, you know what, Harry? I never regret making millions of dollars. And I did. Maggie, 650.
31:33Speaker B:And actually, you know what? I've sold now stuff. And yeah, I've lost on upside, but you know what? I'm happy that I locked in some wins.
31:43Speaker C:No, yeah, but here's the thing. I mean, we can move on. I get all that, the freestyle argument. It sounds great on Twitter and it's mathematically true, right?
31:51Speaker C:But if you want to have an outlier fund, I don't know, man. You got that math really only works if you got like six or eight of them in the fund. Listen, maybe, maybe at the scale size or bigger, the math's different, but for a smaller fund, I'm lucky to have three fund returners. Okay, that's hard.
32:09Speaker C:That's hard. And if I start taking early exits on those, and I don't have a 10x fund returner, okay? And my LPs want these Friggins. 5, 6, 8, 10X funds.
32:21Speaker C:The math gets kind of tricky if you sell too much early. I don't. I don't care what X says. You got it.
32:27Speaker C:You gotta keep doubling down. And I literally just did this analysis across my whole lifetime of all the things I've been involved with. Personal angel venture, who should have sold and who should have. Who should have sold earlier, Taken the secondary, and for me, it broke roughly 50.
32:43Speaker A:Surprising. I would have guessed it would. I mean, statistics would say it probably breaks 70%. You should have sold.
32:49Speaker A:I mean, I can tell you what the facts are 70% plus, you should have sold 30% or less, you should have held. But the next sentence is the key. The holders compound forever and the ones you sell don't compound at all from then on in. So it's the.
33:02Speaker A:I'm going to pronounce his name wrong. The guy from Arizona State, the BookBinder, researched that sub 1% of all the companies ever give 90% of the cap gains in the public markets. It's the same in the private. It's just, it's the nature of power laws.
33:16Speaker A:You know, most of the time you'll regret, you won't regret trimming, but on the few that you regret trimming, it turns out to be most of the value.
33:26Speaker B:I'll never forget having Jake Saper on from Emergence, who I like a lot. I like Emergence a lot. Brilliant firm, but like, you know, they sold Salesforce reasonably early in the arc of the Salesforce value accumulation journey. And I mean if everything else didn't matter and there was just a hold on that decision, it would dwarf all the other outcomes.
33:48Speaker B:We can choose to continue in this vein and discuss Atlassian and HubSpot or should we talk about Jeff Dean? Google talent changes.
33:55Speaker C:I mean, I'm not an expert on the Jeff Dean talent chain, but it clearly. This is the time to go off and build, man. Okay, Jesus. Let me, let me leave the comfy cooperation where I'm making nine figures a year to just talk about AI in a comfortable conference room with a mug and go out and do it, man.
34:12Speaker B:So let me provide some context. Google had some talent loss. Jeff Dean, one of the godfathers of much of AI has left after 27 years, taking three legends with him. I'm going to pronounce their names wrong, so I'm going to leave it there.
34:31Speaker B:And then Demis also is like stepping back or whatever elegance and marketing message we want to put around it. It's like moving into chairman role power, centralizing back really to Silicon Valley as well with that, that was the big news from Google and obviously shares tanked as a result.
34:54Speaker A:I actually think Jason made the best point. Right. So first of all, in passing, it must be extraordinarily validating if you're Jeff Dean to leave as a non CEO of a $2 or $3 trillion market cap public company and have the stock go down by a couple of hundred billion dollars if you want to increase your sense of self importance and self worth. That was a good moment.
35:16Speaker A:That was what the therapists call validation at a high level. Right. So let's move on from that. I actually think Jason, genuine comment here.
35:23Speaker A:Jason's take is the correct one. We can analyze what it means for Google, but think about it. If you're Jeffney and you've done 27 years at Google, you've made gazillions of dollars. The mission at Google Tour, rounding out, like it or not, is allocate a lot of the compute to the Google cloud business to just be a hyperscaler, boring as shit to you.
35:45Speaker A:Allocate more of the remaining compute to build a competitive frontier model mainly focused on the big things of consumer because that's what they care about and coding because that's what they care about. At this point, after 27 years, fairly boring to you. And get some time to do a little bit of medical discovery and scientific discovery that's really exciting to you. But because of the relative size of those businesses, that's always going to be in third place.
36:11Speaker A:That's option A, option B, you can go raise all the money you want. I mean it was really sweet that they even built a PowerPoint. I doubt they needed to. I think, hi, Jeff Dean, I'm raising money would have sufficed and go away and do exactly what he says, which is, you know, use AI to quote, you know, investigate advanced scientific questions.
36:29Speaker A:Right. What are you going to do with your late 50s in life? It's, it's, it's, it's totally natural.
36:36Speaker B:I didn't buy that. I'm not being rude. Sorry. If you look at the resources he had available to him at Google, with the data that he had available to him at Google, he could go into Sergey and Larry's office and say, hey, I want X.
36:48Speaker B:And they would say, Jeff, you have whatever you want.
36:51Speaker A:I don't think that's what's happening. With all due respect, I don't think that's what's happening. Right. I think what's happening is every piece of compute that you give to Google cloud turns into 30% operating margins in a day because they can sell it to Entropic.
37:09Speaker A:Every bit of compute that you give to building Gemini might turn into a decent coding model if they get their shit together. And maybe you can get some anthropic like revenues or some chatgpt like consumer revenues. Every bit of code compute that you give to drug discovery, our materials discovery, our physics discovery turns into a long shot, five or seven year moonshot that maybe will indulge at the 10% level, but it's not going to be the core thing they do. So if you're a senior executive in those companies, you're probably expected to do your J job.
37:40Speaker A:What was the old thing? 20% Kind of fun time. 80% Of the time you're meant to deal with boring shit, right. I think at some level there's a desire to focus full time on that.
37:53Speaker A:I think people. It's hard for you to understand when you're younger. As you get older, you start saying to yourself, is this it? I optimized ads.
38:00Speaker A:This is all I want in life. Maybe I want to be my own boss. Maybe I want to just focus on scientific discovery.
38:06Speaker C:If Rory's right, and it makes sense to me, I just don't know if in a sense they have access to all the resources, but. But the team somewhat deprioritized, right? Because of where the cash flow is. I can just tell you not to go back in time, but when I was an SAP at Adobe at the number three business unit sucked it.
38:25Speaker C:I mean, you know, you go, I'd be with other 50 VPs and we wouldn't even get to talk about what we were working on when you know, we were. We were. That we were only doing 800 million at the time. But it didn't like the number 3 bu is invisible.
38:37Speaker C:It was just. And so if that's the vibe today and for maybe for the first time ever, I could take my team, my whole team and get all the capital I really need to do what I want to do, I would leave if I was number three. Listen, I'm not quite smart enough. No.
38:52Speaker C:But if Rory is right, that may completely explain it. If you're. If you're the number one priority at Google, you're going to stay, right? Because it's easy and it's a pretty bucolic environment there.
39:02Speaker C:Right? Or at least it used to be before. I mean, I used to sell to Google all the time. I was there every three or four weeks.
39:07Speaker C:The most bucolic campus ever. But maybe today it's a little more stressful. But if you've been deprioritized, as important as you are, your team as and you can raise a billion or so I check out man, I go do it right. And the VCs aren't going to put the traditional annoying pressure on you the first 24 months.
39:27Speaker A:That's actually another interesting point, it's worth saying, is that the appetite from venture to finance moonshot type AI will solve science bets has never been higher. I mean the proof is not yet in as a reminder. And there's A lot has to happen to make these bets work. But if you're a scientist at your core and if you're a believer in knowledge and discovery, this is a once in a lifetime chance to make that unhedged bet with no corporate BS to deal with.
40:01Speaker A:And it's a once. I mean even two or three years ago you would not have got that kind of money to make that right. It's just these kind of science based neolabs are really a phenomenon of the.
40:10Speaker C:Last two years and maybe just two small things we can move on. But when I think Vinod's leading the round right or co leading the round or something so he's just redoing. He already, he already. Granted OpenAI hasn't gone public but he's already had a little bit of a win here right that guy Vinod, right.
40:23Speaker C:So he's just doing the playbook again. And then two, going back to to Harry's question at LPs. You know I think this week it's, it's a little murky. I'm trying to read the news from Hawaii.
40:33Speaker C:I'm not quite in this F B but if Anthropic really is going to IPO for now for real in the next 60 days it's just going to tangibilize all this once again, right? Hopefully. Hopefully for the better, maybe slightly for the worst but it will make these bets seem more and more like the present. Right.
40:53Speaker C:And the canvas and friends more and more like a distant memory. A distant memory of a bygone era of software.
40:59Speaker B:Two questions for you. How significant is it losing this many high calibre people this quickly? We haven't mentioned Demis obviously. Demis founder of DeepMind, led London AI efforts, visionary, genius, been fortunate to interview him.
41:14Speaker B:How significant is it honestly to Google.
41:16Speaker A:On one sense Obviously look early on this business had been very individual centric so losing these two talented people in terms of full time thing and the three people who left with Dean is obviously really significant. Right? On the other hand just to put it out there, whatever Google was doing wasn't quite working. And we've gone through the Google is dead phase 12 months ago.
41:38Speaker A:Then we went through the Google is amazing phase six months ago and now we're kind of going to the in the middle which is Google's doing a good job in cloud selling Compute to Entropic. They're doing a good job selling the picks and shovels of TPUs to antropic. They've kind of got a model out there but they haven't made any impact whatsoever in coding, which is the mother load that's feeding the entropic beast right now. So you could look at it and say Google's efforts so far are B plus, A minus.
42:06Speaker A:They're not A plus. Right. So I don't think anyone wanted anyone to leave, to be really clear. But it's probably been unsatisfactory to go because you can imagine you're the CEO, you're coming in saying, you're saying to your two most talented human beings, one of whom has a Nobel Prize for medicine, just to remind you, why aren't we building a better coding model?
42:25Speaker A:And they're sitting there thinking, why haven't we cured Alzheimer's? At the end of the day, that's a really boring E staff meeting because we're just talking past each other. In a perfect world, a year, I mean, this is hardly what they got rid of two years ago. In a perfect world, if everyone had been self actualized, they'd have put someone like the guy who's running it, a tactical executive in charge of grinding out this and maybe giving these guys more running room, more early to do fun things.
42:50Speaker A:Because I think that's been the dynamic all along. If you read the Maltby book about the DeepMind acquisition, all along it's been how much corporate shit do I have to do? Because what I really want to do is get a Nobel Prize. And who am I to argue, we'll remember the Nobel Prize long after we Forget the Google Q2 earnings.
43:07Speaker A:So he's entirely right to want to do it. But unfortunately Google has to make Q2 earnings. And if you're the CEO there, you need an executive who's willing to drive, drive what it takes to get a comparable job, chat model out there to compete with ChatGPT and a comparable coding model out there to compete with entropic, neither of which you've done now. So if someone comes in and says, I've launched this initiative and I think in five years time we'll bring out a simply amazing drug and it will cure cancer, cure Alzheimer's, whatever your brutal comment is, the correct response is if we do that at the expense of a coding model and a chat competitor, that's a mistake and our stock will go down by 50% because the largest drug company in the world is valued at a trillion and Google valued at 3.
43:53Speaker A:So the corporate imperative is to get someone who wants to do those things, not someone who wants to save the world.
43:59Speaker C:It's super difficult today. Totally the best the best, the best AI engineers, the best AI researchers really want to work on what they want to work on. Nothing stupid. And they don't want to work on stupid things and they don't want to work on obvious things.
44:13Speaker C:They just, they really only want to work on extreme stuff at the absolute cutting edge that is extremely intellectually interesting to them. They don't want to work on anything else. They just don't want to do it. And they don't have to.
44:23Speaker C:They don't have to anymore.
44:24Speaker A:Which is why you've got to admire the brilliance of the team at Anthropic that they have simultaneously managed to not convince themselves. Because that sounds judgy. They feel they're on this mission, you know, Public Benefit Corporation, a mission to bring AGI to the world, all that good stuff, while simultaneously making every single correct rational financial move over the last two years, including to your point, going public first, which I think they will as soon as possible because they'd be insane not to. And the one thing we can stipulate is those guys are not insane, they are right on it.
45:00Speaker A:They will go public because this is peak brass wing moment and you could argue the trends in 27 are tougher. You've pulled ahead of ChatGPT, so just put a nail in the antropic pit, right? You've pulled ahead of ChatGPT, comfortably. OpenAI to a point where it's embarrassing, it's never going to be better.
45:19Speaker A:There's just been a trillion dollar IPO that all in all went okay. It's back to its offering price. You should go, you should go now. You should go fast.
45:26Speaker A:You should be done right.
45:28Speaker B:If I'm the founder of a company, an early stage company, do I just accept that I'm going to have B tier or C tier AI talent? And I don't mean that denigratively or rudely or horribly. But they're Anthropic and OpenAI. I mean, Google can't freaking keep them.
45:43Speaker A:I think it's the wrong framing. Because if you think about it, I mean, look, when I was, you know, when you were building a software company in the age of the PC, you had fourth tier chip talent because you weren't building a chip. The point is, if you're an AI company and you feel the need to build a frontier model, then yes, you've put yourself in direct competition with someone. And if you don't have the good people, you're toast.
46:09Speaker A:So what you got to do is make the model a compliment and have a tier Talent at ui, a tier talent at AI implementation, A tier talent at the things that you have your competitive advantage in. But yeah, you're probably not going to. Even the very best companies that are taking open source model, open weight models and fine tuning them, they should be experts at fine tuning, they should be expert on their data domain but they're probably not going to be as good at kind of building an LLM from scratch as the guys have been doing it for the last three years. But that's okay.
46:40Speaker C:One tough thing though that is happening for sure is that I think when we started this show there started to be sort of two tracks on compensation, right? Which is I have to have, I have to break my salary bands for my AI guys because they're worth so much philanthropic and nobody else.
46:56Speaker A:That's true.
46:56Speaker C:Now we're seeing three bands of compensation. We're seeing the regular human beings, then we're seeing the AI guys and then we're seeing the one, the one to five superstars that we're talking about, right. That I have to, that I have to find a seven figure package for as an early stage startup because they're going to get it right and we have to provide them everything. The outsize equity, the outsized cash and there are, especially when you talk for folks that are mature, the 100 million and up ARR guys, 200 million up.
47:28Speaker C:They all have this, this God tier now of compensation and it's, and if you have the revenue it's sort of fine, right? You can afford, if you're doing 200 million in revenue, you can have four God tier employees. It's not going to break your, your, your model, but it does, it is a big, it is something that folks have had to accept. There's a bunch of CEOs I work with informally that I'm not an investor with that I work with at that scale.
47:50Speaker C:And they've all created God tiers. They're like I got four guys. They are the core of my next generation product, okay. They're all making seven figures.
47:58Speaker C:They all have like, they all have equity stakes 10 times what an employee at this late stage would have. And the, the best investment I've made like this God tier and it's just, but it's tough on the rest of the team, right? Because it's not the way we used to do this kumbaya style when, when you've got this God tier it's tough. But if you, you're not going to pull off, you're not going to pull off A Palantir and intercom without a God tier, you need a skunk works and you need a God tier or it ain't going to work.
48:25Speaker C:It's just the siren call of the anthropic comp is too high. OpenAI just did a secondary of 7 billion, didn't it? This week. Something like that, yeah.
48:33Speaker C:I mean that sounds pretty good to me, guys.
48:36Speaker A:Markets and prices are all about incentives and signaling, right? It just, it's a way of sending real information and there's no doubt that, you know, I saw the analysis that someone who got a million in Stock in anthropic in 20, it's worth 51 million. Now that's a signal that just ripples through the hiring environment across the entire ecosystem. Now I would remind everyone that that's what's known as a one in a lifetime change.
49:02Speaker A:I don't think the person today will be getting 50 times their return. But whatever, it does have an impact of just distorting what everyone thinks is possible. And we are naturally attracted to narrative around the outliers. That's not the norm, but yes, that is the, that is the California gold rush part of the story.
49:22Speaker A:And you're going to see it even more written when the pricing happens.
49:25Speaker C:The only other thing I would just add for if you're not, how do you compete with them? Right? How do you compete with that? There is you.
49:31Speaker C:I do think you might have to have a God mode compensation package. The only thing is a lot of those job, the jobs that you're offered for those job, they do go into Rory's earlier point, they do kind of suck. They're not all Jeff Dean and buddies sitting around in a whiteboard designing the future of fable, the 7.2. A lot of these jobs for folks that aren't quite at that tier are not that great.
49:56Speaker C:And so that's always been the job of a founder, is to find those pirates and romantics at the edge that could get it. Back when I was a founder, our test was always did you get an offer at Google? If someone got an offer at Google back in the day, you knew that they were top 10%, top 5%, right? You could do the same test today.
50:14Speaker C:Did you get an offer at Anthropic or OpenAI? And what was the offer? Well, you know that, that flashing thing in Claude, they want me to work on the or I'm a colorblind. The red or orange thing.
50:24Speaker C:I'm gonna make a million dollars a year make getting that pulse just right or I gotta Work on watermarking my first 18 months. And so you can find the folks that say, yeah, accounting software. Be more fun than that. I'd like to do LLMs for accounting.
50:38Speaker C:You got to interview everyone on planet Earth and you will find someone that doesn't want that job. Right. That's the job. But you might have to pay them a lot more than you had to 24 months ago.
50:46Speaker B:Talent is one bottleneck. Another bottleneck that I did think was a really interesting news story that came out this week was the backlash going federal when it comes to new data center creation. Repro Kana that he will introduce a data center bill of rights that will give local communities the right to say no to AI data centers. Yes, you go Rep. Ro Khanna that's exactly what Xi Jinping is going to say.
51:13Speaker B:Yeah, Xi Jinping is going to say stop you deep seeking moonshot. We don't want that in this rural community. What a fricking joke.
51:22Speaker C:Hey, I have talked with some folks who truly are experts at this right. You can including very recently most folks think that like this is, this is pretty lame. This is pretty dumb. This NIMBYism, right.
51:34Speaker C:It's bad for. It's. It's even crazy that Texas is in on it. Right?
51:37Speaker C:Is in on the NIMMY ism. And I think Elon pointed out that, that the tariff apps already created 3,000 jobs but it's only, it's only 10% capacity. It could be 30,000 to kind of get folks to see the other side of it. But I think folks that are close to it think that there will be enough counties and jurisdictions that want these data centers that as we push through this and as government gets on the other side it will ultimately going to work itself out.
52:03Speaker C:Like this will not be one of the great issues of our time. Even though it seems ridiculous today that, that you don't want these. But they are, you know, there's only so many people working at these data centers, but this one may work itself out. At least that's what folks I've talked to that know it more closely than me.
52:18Speaker B:Do you not think that's. Do you not think this will be a material blocker in our speed of deployment?
52:24Speaker C:Well, we have 50 states and I don't know how many counties we have. It's a lot of counties. Like I'm pretty. There will be some with water and power that want, that want this business is.
52:33Speaker C:Is the meta point and that also this backlash isn't going to last. Right? These are not, these are not all destroying our water tables. These are real jobs.
52:41Speaker C:303,000 Jobs for a lot of poor communities. Let's not mock it when the average. I mean. I mean, this is such an entitled podcast.
52:48Speaker C:Oh, a poor anthropic Engineer only made 35 million. I mean, go out to the goddamn panhandle, no one's making 50 grand. Right. So these are not enough jobs.
52:57Speaker C:Right. To make up for the. But these are real jobs with real money, and they're going to last years and years and years, and they bring a limited amount of real economic benefit. You know, there's enough.
53:09Speaker C:But it is a bummer for places where we should be building these data centers. For sure. It's not a net positive. It's just a question of will it work itself out in.
53:19Speaker C:In the US where we do have competition. We do have a nice set of competition here. Regulatory competition between states and counties.
53:25Speaker A:Yeah. I mean, I think the irony of rural Kana, the Silicon Valley congressman, turning into the Marxist wolf in sheep's clothing, is pleasing to me, as I would not tend to be on that side of the voting aisle. Just watching all the Dems get suckered into thinking he's a moderate has been worth the price of admission as he starts advocating the billionaires tax. So there you go.
53:49Speaker A:But who am I in China?
53:51Speaker C:You mean millionaires tax? Rory, I think you missed.
53:52Speaker A:Yeah, yeah, that's exactly right. So that's just funny in and of itself, but, you know, once you're elected congressman, your next step is up. And the truth is, the way to electoral success probably lies to a fair amount of populism for the next period of time. So on the data centers, I think, you know, I saw a good piece, I think, in Atlantic or something, really just talking to people in the areas wrestling with these issues.
54:16Speaker A:And it was a very interesting point. It was much less, even AI is awful. And much more. I don't know what I'm getting here.
54:22Speaker A:It's all very opaque. What's the deal? And I think if tech wants to get this stuff done, there's two risks here, and they're almost opposite each other, because if you want to get local support, you got to figure out what's the package that moves it for them. And it definitely isn't all, oh, by the way, you're going to get a 25% increase in electricity costs.
54:43Speaker A:And you're seeing that now. People are. And I think the smart people are saying, at a bare minimum, if you want to get a data center in here, you got to find a way of making sure people aren't going to pay for electricity and there's probably going to be some kind of dividend. If you tell people that you're going to get this job business, there's not going to be an increase in electricity and there's going to be a 5, 10 grand distribution per people in the township.
55:02Speaker A:You probably go, yeah, we should look at this. Right? The other thing is, do some of these statewide laws just make that impossible to do? Because the truth is, at the moment there is a fair amount of we hate tech bros out there.
55:15Speaker A:And as we said a million times, it turns out if you spend three years saying AI is going to kill you all, you shouldn't be surprised to be hated. So I think there is some wood to chop technically. But I do agree, Jason, it's a great point. One of the best things we have over here, unlike, dare I say at the uk, which is one of the most centralized states in Europe in terms of central authority, and Andy Burnham was trying to change that, but we got 50 states.
55:38Speaker A:If North Dakota hates this shit, but South Dakota likes it, then South Dakota can put something in place and it can happen, right?
55:46Speaker B:Dude, the UK is like the size of South Dakota.
55:50Speaker A:Yes, but my point is that we've got diversity here in terms of. So hopefully it won't be a huge block. I mean, right now the practical point is it's actually the availability of power rather than pure data center blocks. But there's definitely a whole series of things slowing things down between power availability, compute availability and then political willingness to turn the stuff on.
56:13Speaker B:Now, the main man himself, always lacking in ambition, Mr. Elon Musk unveiling Terraform, which we touched on there, $16.8 billion. I think it's going to be the most expensive build out of a real estate project. I think I read, as we said, in terms of jobs, extraordinary in terms of how many jobs will be delivered, different numbers, but between 2 to 3,000. Really.
56:38Speaker B:It's him saying that he wants to sidestep TSMC's Q and obviously build out his own fab capabilities. How did we think about this news, both in terms of the strategic decision and the scale of it?
56:52Speaker A:This is someone with boundless ambition plus success at delivering on this. Boundless ambition plus access to capital at an unprecedented rate. So he's probably going to try and do all these things. It feels wildly ambitious.
57:08Speaker A:You have to build the gas turbines, to build the fab, to build the robots. It's vertically integrated on every level, but he has a piece of vertical integration that's been superb, which is satellite launching integrated into Star. Starlink has been superb, vertically integrated. So you can join the dots in the past and say it all makes sense.
57:30Speaker A:I continue to think the scale of ambition, if there's any slowdown in the AI spend, then the all in bet is the one that slows down the most, the fastest. And this is the all in bet. So watch his space. But right now he's got the capital and he wants to do it.
57:49Speaker C:I just think at the end of the day he's beyond all that. He's just saying, listen, there's a decade of supply chain limitations that's going to damage my ambitions. I got to do it, right? I have to do it.
57:59Speaker C:It's just, it's. This is, this is also unprecedented, right? It's not just the investment that is unprecedented, it is this. You can't get ram, you can't get Chip, you can't get what you want, right?
58:08Speaker C:We've had limited issues in the past, but I don't think we've ever looked forward and said for a decade I'm not going to be able to get what I need or on a cost effective basis, I can't even get, I can't even get TSMC on the phone because Jensen's out there all the time. I just don't. I could be wrong, but in my career I, you know, I have a limited amount of experience here. In the old days, I don't think it's ever been like this where it's.
58:26Speaker C:You, you could. It almost feels like infinite time before I can get the capacity I need at any tolerable price.
58:32Speaker A:Which is why it's super interesting to tie in something. Intel has come into the consortium. Intel is part of the Terrafab consortium in such way. And I just saw it today, I did not know this.
58:41Speaker A:Intel completed an equity round, which I read someone. I haven't verified it. It was the first time they raised equity since like they went public in 79. In other words, they've been profitable from cash flow and returning capital like a real company is meant to for the 80s, the 90s, the 2000s, the 2010s, right?
58:58Speaker A:And now the AI capex boom. Plus obviously their deteriorating performance has said it's time to access the capital markets again.
59:06Speaker B:While we're on, Elon Musk. Elon Musk did have a very unusual incentive package where he's obviously expanded with the expansion of company valuation. Revolut announced an incentive package to the CEO or it was Leaked whereby it basically ratcheted up with different prices of the company. He'd get another I think 5 to 7% at 200 billion and then he ultimately at 500 billion would have circa 39 to 40%.
59:36Speaker B:Is this the new norm and should every CEO be asking for rated incentive packages alongside valuation bumps?
59:45Speaker A:It's not going to be the new norm. And if it is, largely stock prices should go down by 10 or 15%. Because I mean what you're basically saying, I mean I read what's available about the package and the first question is multi year packages and with incentives around market cap and in other words, significantly beyond the normal CEO comp, that's been a thing. It obviously worked for elon in the 2018 Tesla package and obviously after a lot of toing and froing, he got another package just recently finally approved after they moved to Texas.
1:00:21Speaker A:So they're not quote the norm, but they are put in place for reasons we'll come back to for a small number typically of founders who fully vested in all their shares and who want to be incented again by boards who feel that they have to be incented again by definition that's not quote the norm. 90% Of public companies aren't run by the founder. And frankly the number of people willing to run a public company for $10 or $20 million a year turns out to be remarkably high. So no, they're not the norm.
1:00:51Speaker A:Harry, are they the norm for founders? We're seeing some of them, I mean most of the time I think, especially if they're badly designed and focused on market stock price only. They typically, they often fail. We saw a whole bunch of them in 21 that got unwound in 23, 24 because they weren't based on operating performance, they were based just on, hey, if the Stock is at 200 bucks, we'll give you more shares.
1:01:17Speaker A:And then what happens is the CEO executes brilliantly but the market is down so he doesn't get his shares and he comes back and he says, look, I've done my job. Forgetting that he would not have made the same argument on the other side, he or she, the record is fairly mixed. But at the same time I'm going to acknowledge something for that special thoroughbred CEO who thrives on challenge, you can put them in place if the incentives are right and maybe you do get extraordinary performance in return for extraordinary comp. So it's not utterly crazy.
1:01:48Speaker A:They're a very not blunt, they're a very high cost, focused instrument. And I Think boards have to be fairly careful when doing. I'm not, for example, a fan of the purely stock price based ones. And to be fair to Elon's 25 package, we went over this before, it was a great package because it had you have to do Mars, you have to do Optimus, you have to do lots of cars at that point.
1:02:10Speaker A:Give them the damn money, people. So there can be way to. Now, interesting comment. I saw, I think in the Journal today there is a clause that says if there's an M and A above a certain value, you might see some acceleration of that package.
1:02:25Speaker A:I haven't read the detail, but it would be interesting if SpaceX and Tesla merge. Does he hit the big Ka Ching on Tesla as well?
1:02:31Speaker C:That's what it implied is that he might hit it just merging the companies. Right?
1:02:34Speaker A:Totally.
1:02:35Speaker C:Before the details were just one question to you or to you and Harry, I don't mean to interrupt, but this, when I read this, I thought it was more about control than just money. I also just read a story that the CEO of Revolut just tried to get out of paying a $20 million broker fee and a $400 million yachty bot. So clearly he enjoys the good life, right? As well as working hard.
1:02:54Speaker C:Right. This is not, this is not a CEO that does not care about money. But to me, and I think that Elon was very clear on this, I need to control these companies or I'm walking is what he said when the first one failed. Right?
1:03:05Speaker C:So If Nick owns 40% of Revolut, he controls. Especially with, I'm sure a super majority board and all that. It's his company, that's what he wants. He wants the money, I'm sure is part of it.
1:03:15Speaker C:But this is not going from 2% to 6%. This is going to 40% ownership. That's a lot.
1:03:21Speaker A:If he made that argument. To me, it's about control and I was a chair of the comp committee. I'd say you're exactly right, Nick. So I'll tell you what, we'll give you three votes on each of your existing shares.
1:03:30Speaker A:Now you don't need control and you don't need any more shares. And he would come back an hour later and say, I also want the money. Right? Having.
1:03:36Speaker C:Right. But I will say, I think we both all learned that. We've all learned that there are limits to super majority shares. We all have learned that there are other sources of pressure, whether they're VCs, shareholder activists, other issues that there are levels here of Control.
1:03:53Speaker C:And you can control 99 out of 100 board seats. But if you own 6%, you. You may get pushed out of your company. It is entirely possible.
1:04:01Speaker C:Unless you'll go to the mat on it.
1:04:02Speaker A:I could talk for hours on that. But you know, I do think Zuckerberg will be an example of someone who, whose control is. You can ride ironclad control as a public company if you want to.
1:04:10Speaker C:And as I said before, pushed so hard with 40%, you know, goodbye guys. Like I would just end the, end the zoom with Wall street if they didn't like what I was doing at Revolut. I just push the button and say goodbye guys. Go short me.
1:04:25Speaker C:I'll see you later.
1:04:26Speaker A:You say that, but actually turns out your problem. Yeah, you can ignore people, but you can also they can choose alter not to buy your stock. It was super interesting thing happened today on the control thing.
1:04:37Speaker A:This could sound unrelated, but humor me, Zuckerberg's philosophy on AI, right. If you read it, one of the things remember this is a person who controls his board. Absolutely. You are just literally, you can show up, you can tell me what you think, but in the end I control.
1:04:53Speaker A:It was super interesting. And he's pretty much had that sole control, he said as part of AI kind of how they think about governance. He didn't want personal control over the decision to release new models. It should be a board level decision, I will admit.
1:05:08Speaker A:I'm like. And that to me was an example of yes, Jason, you can have control over everything, but then you own everything. And at some point, even if you say you want 20% of your company, but you have 10x voting control, you can't make them buy the other 80% so you can't keep your stock up and you own every problem. And this might be a very smart man saying, I'm not sure I want to be the sole person releasing these shit.
1:05:33Speaker A:So it was super interesting. It was the first piece of uncontrol that Zuckerberg's done in 20 years. So I did note that in passing. Right.
1:05:40Speaker A:Because control is interesting because even when you have it. And I actually have changed my opinion because Bone Public is so shitty because of all the problems going public. I've actually come to the conclusion that giving founders more control over their life's work, which is what it is, is an acceptable price to pay to incent them to go public. So I've actually changed my opinion on that.
1:06:05Speaker A:I actually think even though some of these control things are weird and I do think they probably shouldn't be in passive indexes as much. There should be some discount for that. I've come to the conclusion that weird control terms are an acceptable part. Cuz otherwise everyone just does what the Collisons do and stays private.
1:06:19Speaker A:They're like, I don't need your shit. In the words of I think Senator Dale Bumpers in the Clinton impeachment trial, when they say it's not about the money, it's about the money.
1:06:29Speaker C:I think it's about the incentive. I don't think it's about the money. I think your point was so good, Rory. I don't think.
1:06:33Speaker C:I don't think I've heard it expressed enough that way. Going public sucks so bad today. Look at, look at the public company CEOs we've had on this show, or Harry has. It sucks to be public today.
1:06:42Speaker C:Okay, yeah, it was fun during lockdown when you could grow 90% without a new feature. It's not fun. And I can't imagine having been a founder twice. I can't imagine a helpless feeling as a public company CEO.
1:06:55Speaker C:I'd want to quit. I would just hate it. Having control and equity has to somewhat tie to it. Or it's a partial fiction would make it worth it.
1:07:08Speaker C:I might leave the keys on the table. If I had no control of the company I founded, I'd already made plenty of money. I was diluted to nothing. I mean, I had a board that didn't understand my product telling me how I run my company.
1:07:18Speaker C:I might just sort of leave the keys for you guys, you know, you take them.
1:07:22Speaker A:Agreed. And I say that not because I like it to be clear. I say that because I'm just looking at people staying private. I mean, I think the real solution will be when the private capital markets evaporate, deteriorate and then they will go public because they have to.
1:07:33Speaker A:But that's by the by. So I agree with Jason on that. But on the other hand, let me take the other side of it now. On these kind of deals, the thing you look at is the participation rate, which is how much of the total creation and value is going to the CEO.
1:07:49Speaker A:In other words, and the way this deal was announced, and to be clear, it's not been put in the Revolut deal going back to that. It's not been put in place yet. It was something like for his existing thing, he gets it to 200 and he gets to 30%. And then if he gets from 200 to 500 in value, which is 300 million in delta cap, he gets an extra 10% of the company, which would be 50 million billion.
1:08:13Speaker A:Right. Which would mean that for 300 million in value creation, he's getting 16% of that, which would be abnormally high, to be clear. Right. I think 16% abnormally high.
1:08:27Speaker C:That's less than our carry checks. Those are 20. This sounds low, but I can tell.
1:08:33Speaker A:Yes, but if you're getting it on.
1:08:35Speaker C:20% Of what my portfolio does after a certain point, poor nick's only getting 16%.
1:08:40Speaker A:I disagree. I think that the market, I mean,.
1:08:45Speaker C:You're working harder for your portfolio than Nick is working for Revolut.
1:08:50Speaker A:No, I don't think it's about working harder. I think the nurses in the fucking emergency room are working harder than both of us.
1:08:55Speaker C:Jason, I could not agree with you more. I could not agree with you more.
1:08:59Speaker A:Let's go for it. Right? The question is 2 1/2 x. Taking something from 200 to 500 billion gives you $50 billion, right?
1:09:07Speaker A:Do you think you could get a Jamie Dimon level CEO for 10 billion? I mean he's only made a billion.
1:09:13Speaker C:Taking it's too. I think it's too hard. Let me tie it back to a different point and you can challenge me on this all you want. Right?
1:09:19Speaker C:Harry asked, what should LPs do looking at this? Right. I'll tell you what I'm doing. Any investment I've made that is not run by a founder is a zero.
1:09:27Speaker C:It's going to be a zero. In this age, it's going to be a zero. I look across now, we have different portfolios, but the ones I have that are not run by founders, whether they're at 20 million or 200 million, they're all going to be zeros. And so if the price of me not having a zero is getting Nick to 40% in my bet, I wish I was a shareholder.
1:09:44Speaker C:If I'm Balderton, whoever this is my best name and that's the price, I'm going to pay it in a heartbeat because all my. I do not believe Jamie Dimon's lieutenant with his starch shirt and his blue and white collars and his and his cufflinks can run Revolut. It's not that mature. The space is not that stable.
1:10:02Speaker C:I don't buy it and I'm not a, I'm not a banking expert, but I don't buy it's possible. I believe he will run that company into the ground just like every non founder has run my portfolio companies.
1:10:11Speaker A:Let me ask you another Hard nose.
1:10:12Speaker C:Comment, but running into the ground. Yeah.
1:10:14Speaker A:When you're mining. Yeah. See by the way, I'm gonna get.
1:10:18Speaker B:Killed if I don't say one thing here, which is our former guest, Nick Ash.
1:10:22Speaker C:Yeah, yeah, but when did he join? Two years ago. I just know my portfolio will be zeros without this, without the founders. I'm not saying there aren't examples out there you can find.
1:10:32Speaker C:I just know for me, to the LPs, they're all going to be zeros. No matter how much arrs they have, they're going to be zeros.
1:10:38Speaker A:And this is the question is, and that's totally true. At 1 million, 10 million, 100 million, maybe a billion. The question is, I think Revolut's doing five billion. I used to know it.
1:10:49Speaker A:Five billion in revenue and a billion or two in profit. Right. It's an extraordinarily big and very impressive company. At some point it becomes not true.
1:10:57Speaker A:Right. Or maybe the better statement is this. And this is the interesting one. And I know this sounds really negative, but when you're on, remember going back to interest, it's a corporate governance question.
1:11:07Speaker A:And having just come out in favor of founder control, all the things I said earlier and I stand by them, you still need a dynamic to protect the other shareholders. Because if you take the logic to extreme, I saw Nick at Revolut made a comment, it's a very interesting comment that I think is bullshit. He said, and it doesn't sound bullshit, but it is when you think about it. He said, quote, I deserve more because the investors, after they give capital, they do nothing else.
1:11:37Speaker A:And that statement is the first, the second half of that statement is true. After investors give you capital they deserve not they do nothing else. That's the world of capital. But just because that's true doesn't mean the founder can.
1:11:50Speaker A:I mean, what's the limit then? To put it another way, fast forward 30 years, what?
1:11:57Speaker C:What's the limit? I think the world has changed. I don't think most founders care anymore. And so I think you got to adjust.
1:12:04Speaker C:I think, I think Nick. Nick is what is saying. I think half the class at most accelerators agrees. I'm just going to raise it 50 and if it doesn't work, I'll just do whatever.
1:12:13Speaker A:But you're not addressing the issue. What you're saying there is the cost to run a company from 200 billion to 500 billion is 10%. Dilution is the cost from 500 billion to a trillion. Another 10% is the cost from a trillion to 2 trillion.
1:12:29Speaker A:Another. I'm just trying to get a sense of it.
1:12:31Speaker C:I think your point's a really good one.
1:12:33Speaker A:If it is, then two things are true. One is you should pay less for that stock because you're going to get way more dilution.
1:12:41Speaker C:Pitchbook had an article this week saying how much massively returns are being compressed on outcomes north of 500 million to a billion. That outcomes are being massively compressed by unprecedented dilution and high entry prices. So this is just the world we have to live in. Like, as a seed investor, I've only been doing this so long, but I've been doing it for a while.
1:13:01Speaker C:When I started, my model was I'm actually paying twice my entry price. That's how I model. Now it's 4X. Now I'm paying, I'm going to suffer 75% dilution.
1:13:13Speaker C:And it's not. And that really means my price is 4x. What it looks like on that 50 post you want. It's really effectively 200 if we hit it right.
1:13:22Speaker C:And I could complain about it just like the Nick thing, right? But Nick gonna do it like the baby Elons are gonna get these packages. And it don't really matter what I think or any of us think, because enough investors are gonna go along with it that they're gonna get these packages. But to your.
1:13:40Speaker C:I think, Rory, that the more important point you made is, is how elite will this be? Will this be reserved for. We could debate whether Nick deserves this, but this is, this is. This is a generational company, right?
1:13:50Speaker C:The question is, do subgenerational companies get these packages? And how does it impact things? But yeah, our dilution, I think all Pitchbook said this week, all of our dilutions under modeled. It's all under modeled, right?
1:14:04Speaker A:And look, as I hate the role I've adopted in the last 10 minutes because I all tell people I'm generally the softie in the comp committee. I love writing big comp checks for successful equity packages. But you do have to have some kind of linkage and someone has to sit there and say, okay, what are we getting for this? And you're right.
1:14:23Speaker A:And for what it's worth, on this particular one, I'd probably do it, but I'd insist on non market comp, non market stock performance metrics. If you build the biggest bank in Europe operationally, not just on stock price value, then I would totally say you're worth the $50 billion. That's why I'm saying a lot of it's in it's really boring. But a lot of it's in the details.
1:14:43Speaker A:So you can. If you're going to pay. Let me very clear here. If you're going to give someone $50 billion.
1:14:49Speaker A:50 Fucking billion dollars. You ought to spell to self to spend more time thinking about what you're getting for your $50 billion than hey, I'll give you $50 billion if it's valued at 500 billion in a few years. You probably need to think about it a little more carefully.
1:15:03Speaker C:I think you're right. For what it's. We go on forever. I think that's what you should do.
1:15:07Speaker C:In my limited experience with my portfolio, these mini, these mini Elon packages, they're basically all focused on 10x what the last guy paid. Yes, that's what all the late stage investors do. Whatever. I paid $20, $20 and I just want $200 for you to get it.
1:15:23Speaker C:I don't care whether there's a little do like I want to make 10x post dilution. And then you get your piece. Right. So it's what you ate.
1:15:31Speaker C:But I think it's what a lot of late stage investors want.
1:15:33Speaker A:Again, I actually think you're right. In which case given the last rounds at 100 or 200, like that's my comment here. Is that 10x? That would be a trillion.
1:15:41Speaker A:In other words, the participation rate's just a little high. I think these are fine packages. This one looked a little. If the numbers bruited about are real, it's probably.
1:15:49Speaker A:Ooh, that's a lot for. Maybe you could pay a little less and get a little more. But, but yeah, it's a thing.
1:15:55Speaker B:The one thing I will say is I've interviewed a thousand founders. I know you love them, Sam Altman, Demis included. I've never interviewed anyone like Nick.
1:16:03Speaker A:Look, remember last week you asked which stock I like. I think it's an amazing stock and amazing potential in market cap and I just want to be sure I got an operational performance before I pointed up the 50 bill.
1:16:15Speaker C:I know it's Captain Obvious, but Revolut's all green, right? Everything, at least externally. I'm sure there's stuff, stuff under the surface that's struggling. You gotta, you gotta.
1:16:25Speaker C:You do these packages too late. It's too late.
1:16:27Speaker A:I think that's right.
1:16:29Speaker C:And that also means you have to overpay and pay up because you have to do these packages at the right time.
1:16:34Speaker C:You try to do this when the company's growing 4%. I mean, sure, but I mean, it's, you know, you've missed your window there.
1:16:41Speaker A:Yes. I actually think that this is the second package that that particular CEO got. But yes, I agree.
1:16:46Speaker B:Team, why do we want to go from here? You. We have whatnot, which obviously raised a very large round. 545 Billion.
1:16:52Speaker B:At 20 billion. Sorry, 545 million. At 20 billion. We've got Deep Seek raising an 8 billion.
1:17:00Speaker B:AT reported $74 billion. ByteDance banned distillation of US models, which I thought was interesting.
1:17:10Speaker A:I think we should talk about whatnot, if for no other reason that it's such a relief that there's more to life than AI the shopping.
1:17:18Speaker B:So there's more to life than AI shopping, Renu.
1:17:23Speaker A:I mean, I think it's a great story background for people. Whatnot raised at about half a billion at 20 billion in valuation, right? And it's a live shopping company and you know, in the Internet equivalent of qvc. The minute I heard that story, my response was, that'll work.
1:17:39Speaker A:You know why? I mean, if you look at qvc, if you look at the Home Shopping Network, these were the equivalent in pre Internet days on tv live sales, right? People enjoy that shit, right? And someone explained to me whatnot did a couple of years back and I'm like, oh my God, it's a great idea, right?
1:17:53Speaker A:Not my space, not what I do. But that's going to work. You're going to have people live selling shit. It's going to be a little bit of retail, a little bit of commerce.
1:18:02Speaker A:Look, it's going to work. I mean, if you think about it, the big three of this space have been qvc. Interesting enough, by the way, that's now bankrupt, probably because all those people died and now they're replaced by whatnot people. And then ebay, we forget it.
1:18:15Speaker A:But ebay is the other quirky way to sell shit from the 1990s. And that's got a $40 or $50 billion market cap. So what's interesting here is something where you look at and go, that's going to work. And fast forward two years and it's 20 billion.
1:18:29Speaker A:Now it's growing 2x year on year, 8 billion. I mean, you have to measure. I think It's. You measure GMV, which is about 8 billion last year, going to 16 billion this year, and then they get a 12% take.
1:18:42Speaker A:It's a great business, that's all. I mean, so I'm just like, yeah, go team.
1:18:47Speaker C:It is useful. Listen, if I'm not an expert on whatnot, I Could speak more to Shopify, which blew out its quarter too.
1:18:55Speaker C:It's roughly related but I do think it's worth. I do think everyone should at least study what isn't being destroyed by AI. Right. What's going to happen with, with online shopping, online commerce, what's going to happen with restaurants, what's going to happen with, with cars and, and it's just, it's.
1:19:14Speaker C:There are, there will be many good opportunities and spaces that aren't going to be destroyed by folks creating a poster in chat GPT for free and we should just study it more. Right. There, there's, there's gold in the things that aren't going to be destroyed by AI as, as well as the things that are being decimated by AI. That to me that's the only interesting part.
1:19:33Speaker A:I totally agree Jason, because look, Revolut's another example. It's just what, you know, just trying to ground. I agree there are two compelling large businesses catering for real universal human needs, finance shopping that are building huge outcomes. I agree AI is most of what's going on, but not all.
1:19:52Speaker C:But if it was an AI story, it could be worth 50x GMV. That's the only miss let's say they could pretend that GMV was rev. So what's 50x times 16 billion? Rory, help me with the math.
1:20:03Speaker C:This what what not LLM would be to the next trillion dollar AI startup.
1:20:08Speaker A:Pleasingly enough, 50x16 billion is roughly Anthropic's market cap.
1:20:13Speaker C:Yeah, that's what I'm saying. We need another trillion dollar. This one's a bargain at the iconic investment committee. We're getting this for 20.
1:20:19Speaker C:Yeah, I do think there's plenty of that out there. I think whether it's literally GMV or not, I think there are plenty of folks getting benefits of revenue that make no sense. It's not, it's not even just lying or cynical. I think there's a lot of.
1:20:30Speaker C:I think investors to some extent don't care as long as the growth's there's.
1:20:33Speaker B:Final one if I want to shepherd us Shopify. We mentioned blowing out the quarter Atlassian blowing out the quarter. Biggest jump since 2015 for Atlassian. Crushed it.
1:20:47Speaker B:Any takeaways from some of the big results that came out?
1:20:51Speaker A:Yeah, as I said, if you produce, you'll get rewarded. Right? I was, I was delighted because, you know, when you pinned me to the wall a few months back and said name names, my first bet, what stocks would you buy? And my first answer was the best one.
1:21:04Speaker A:Which is just Buy World Cloud and it's up 50%. But then you kind of pushed me and I named some names and one of them I named was Atlassian. And honestly, two months ago, I felt like an idiot. It was still not.
1:21:13Speaker A:I thought he'd pull it up, but it wasn't there. And then obviously they nailed it. They got the growth and the stock jumped. I think if you look at overall, it was kind of because some people like Datadog were down a little bit.
1:21:25Speaker A:Right. And you kind of lump them together in the agenda. But those are different stories. I mean, Datadog's story was just everything's amazing, but our biggest customer, and Everybody knows it's OpenAI and no one says it right, suddenly realized they maybe don't need to spend $150 million and are spending less.
1:21:41Speaker A:So grow was down a little. But that's because Datadog was trading at 18 times forward revenues and now it's 15. Right. That's one phenomenon of the AI adjacent winners, which is very different than what Atlassian was going through, which was existential shit.
1:21:56Speaker A:And we're trading it three times and suddenly we nail the quarter and it's an easy pop to five times. Something like that. Those are different movies at the same time. What the Atlassian story says is the sales forces, the Hubspots canvas, if it was public, is if you get it back on track with the fundamentals, the stock will follow.
1:22:20Speaker A:But if you don't and some of the others that you mentioned didn't, then you're stuck in 2 and 3x land forevermore. Until you get, as Jason said last week, until you get bent spooned.
1:22:31Speaker C:I still think these are hard companies to run to your earlier point. I mean, yes, Atlassian, but Atlassian also did something which cannabis did too, which I always find a bad sign, a sign of stress. Not a bad. Not Michael Mike's great, but.
1:22:45Speaker C:But they got rid of most of the free Loom seats. And this is what you do in times of stress. Like the other thing that Canva did because the revenue's down, is they pushed a lot of features into the higher paid editions. Okay.
1:22:58Speaker C:And after. And then it's just. It's not the end of the world. Loom is not the breakout success of Atlassian.
1:23:03Speaker C:Right? It is not. But getting rid of collaborative free seats, which is how we all grew up using Zoom, right? We could share and work on these together.
1:23:11Speaker C:That's a sign of just how hard. Even if you beat the quarter, guys like Shopify or Atlassian, man, they're leaving nothing on the table. These are not easy beats. This is not Anton a lovable turning around and he added 100 million last week without realizing why these are these even the beats are hard and so and so the loom one it sounds minor but whenever I look at whenever I see the base getting overly monetized or harvest if nothing else it's a sign of stress in the organization because no one really no founder wants to do that.
1:23:46Speaker A:You've said that and I've totally come to conclusion. You're right. And you know when you talk to people one level in at some of these big software companies and you know they're doing a 7 or 8% quarter and then you talk to a director of sales that you know you suddenly discover it's we're jamming them on price, we're jamming them on overages and you realize it's just not sustainable. So I do hear you on that one.
1:24:09Speaker A:I mean overall I thought it was a great quarter but yeah, maybe yeah it's Sorry to lose your free loom suit.
1:24:15Speaker C:I still, I still just worry if the agents need all these products but I hope so. Just like I don't want to be negative on last year. I'm a super fan of Mike.
1:24:22Speaker A:We all are.
1:24:22Speaker C:I want it to win but I also worry a little bit it's a canvas story coming that it seems to be defined some trends now you can answer. You can say Atlassian's very enterprise. Right. Let's not look at the developer side of things.
1:24:34Speaker C:Let's not look at how, how, how how we used to use JIRA and other tools but our our agents really don't need these seats and it is in a lot of their revenue is still developer focused which where I think the seed is under assault. A permanent, permanent assault. The seed is.
1:24:50Speaker B:I've got a provocative question for you. HubSpot today is sitting at $10 billion. How long will it be until HubSpot is bought by bending spoons?
1:24:59Speaker A:I'm not going to dunk on HubSpot. We were lucky enough to be. Yeah we did the series C investment in HubSpot. It was at 4.
1:25:06Speaker A:We did it at 47 million pre so we're still up Harry.
1:25:11Speaker B:I will series C at 47 million.
1:25:15Speaker A:It was 70. I'm wrong. It was 70. I was thinking a box box was.
1:25:18Speaker C:But yeah we had to get done too.
1:25:20Speaker A:It was hard to get done. I mean I'm sure Brian if he could have got one of the glamour people who turned him down and Then did him later. He'd have taken them off us.
1:25:28Speaker C:Well, I wouldn't go that far, but yeah.
1:25:30Speaker A:Oh, I would.
1:25:31Speaker B:But you're a podcaster, Rory. You stand up.
1:25:34Speaker C:I'll tell you why I don't think they're going to get bending spooned for what it's. I don't know. Right. There's so many things in the air table story that are scarier than they sounded but I think one of them is that they only got one offer and bending spoons is is going to look at everything and it's got to be perfect and maybe they will buy them.
1:25:53Speaker C:I first of all, it's a lot. That would be a lot for bedding spoons to bite off. But they could do it, right? I guess.
1:25:57Speaker C:I guess you can always line up the financing. I think the tough like HubSpot assuming they would sell. Let's just assume they would even sell. Right.
1:26:06Speaker C:And there's a lot of fiduciary questions here. There should be offers at 12. If it's at 10 today there should be. But I don't believe there are.
1:26:13Speaker C:I don't believe there's many. I will tell you at a meta level if we want to break on it. Just there is an issue here and it's a structural issue in the world today, in the AI world. Just like if you're canva, the prosumer folks are threatened by chat.
1:26:27Speaker C:If it can be done in chatgpt even accidentally, you're hyper threatened. The SMBs, the Hubspots and Mondays and others, they're not really threatened by doing it yourself. Okay. That is a short myth.
1:26:42Speaker C:What they are threatened by is the fact that low end competitors in SMB are really good. The low end CRM competitors are exploding the revenue growth from Monaco, Lightfield, Oracel and others. They're like nothing we've seen before. You know, My first venture investment was Pipedrive.
1:27:01Speaker C:It would have taken 40 years to get competitive with Salesforce. Right. It was just slow and that was the number one like simple to use. CRM exited for a billion and something.
1:27:08Speaker C:My first investment, the problem across my portfolio is you used to walk into a board meeting and the competition would be the guys bigger than you. Right. Here's what the big guys are doing now. If you walk into a board meeting and it's SMB, they're all guys that weren't on the slide 24 months ago and they're really good and their agents are good and their lms are good.
1:27:26Speaker C:And so the tough hand HubSpot has is it spent the last five years beating Salesforce at the low end. Right. It's a CRM company now. It's not a marketing automation company.
1:27:35Speaker C:When now the low end is so good. It's so, so good with AI. These low end, the new entrants are so good in SMB and so. And the amount of founders that want to compete even in niche categories, they didn't used to want to.
1:27:50Speaker C:And so this is the bear case on everyone at this SMB space because it's just. There's too many good competitors.
1:27:57Speaker A:Exactly right on that. It's very well articulated. I remember that the years of we're doing CRM, we're competing and so forth and now you're. Exactly.
1:28:05Speaker A:It's, it's those. There's just myriads of. Because you can build really excellent software really quickly with a different twist using AI. It's why I tend to.
1:28:12Speaker A:I was telling this to someone who runs a big PE shop in tech. If I was, if I owned one of these companies as a PE owner, if I was, I would just be at every Y Combinator demo day. I would be like, you need to hire, you need to buy some of these. You need to infuse some of that DNA quickly while you still have breath.
1:28:31Speaker A:Right. And figure out what you can build.
1:28:33Speaker B:You fucking kidding me? With the loyalty that they have today, you think they're going to stick? Let's get a load of young people from YC A. You know, I just gotta push ahead this heap.
1:28:46Speaker A:Obviously if you think it's a heap.
1:28:48Speaker B:No, but all the PE companies respectfully are heaps.
1:28:51Speaker C:You wanna know the serious reason why it won't work? Rory's right, Harry. You know why it won't work? Because all the hot startups have this model.
1:28:57Speaker C:They're all picking off everybody.
1:29:00Speaker C:I mean I think one of my investments, owner, I think they've Aqua hired like 20 companies and they, they get to go work for a, for a reasonably hot company. Right. And so how are you going to compete with that when. When rippling is hoovered up 30 and owners hoovered up 20 and revoluts who were up 10.
1:29:15Speaker C:You just. That strategy worked three years ago. Like it's too late. Like everyone is just sitting there hitting refresh, hoping these smart YC companies fail so they can hoover them up in an aqua hire.
1:29:25Speaker C:I'm not, I'm not kidding. It is a core strategy of many of many leaders.
1:29:28Speaker B:Boys, thank you so much. That was awesome. I love that Sam.
