0:00I think Zuck's had a lonely stretch. I think it's been a tough job. There's a material chance Meta has just a monster AI product on his hands. What is on the agenda today? We have Valor Atomics sues its own preede investor day one and the pro rat debate that ensued on Twitter. Then we have Meta, Zuck, and Alex Wang. The bromance is real. They're crushing it with Muse Wonder, their new model.
0:23And then big tech, they go shopping. Amazon in talks to buy daycart and Nvidia circling around reflection for a whopping $30 billion. This and so much more. We roughly generated 20 plus or minus decacorns per decade for the last five decades. And we generated 42 decacorns in less than a full year of this decade.
0:44I think everyone without massive scale is living a worse apocalypse than in March or April because no one wants to buy software. Everyone's breathing a sigh of relief. I don't think we should be breathing any size of relief. Ready to go,
1:07boys. It is my favorite 90 minutes of the week. We have some big stories. I love the like salaciousness of of this market. I remember when it was quite boring. I look back. And so we're going to start off with the news of the day.
1:22Valor Atomics sues its seed investor over Proata. And so the the backdrop here is that Day One Ventures put about a million dollars into the seed and $15 million into the A. They hold about 5% and the fight is over August billion dollar series B at 6 billion led by Seoia. And basically the CEO asked every major investor to take zero series B allocation, but there's a spring back
1:51clause which basically meant that day one wouldn't relinquish this and basically put up a bit of a fuss when everyone else didn't. How did we think about this? And is pro rata outdated in modern vansion?
2:05And just to remind everyone, patter simply means if you want 5% of the company, you can get 5% of any round.
2:12And um so you can quote protect your ownership. Typically all major investors get that right. But but it's typical also that a majority of the investors can wave it for everyone. So someone can say hey you know if most of us don't want to do this cuz we want to do a different thing for the company that's right for the company. Normally you should just be able to wave it and then those rights go away for everyone. So it cancels the problem entirely. So but then you mentioned it. The second thing is you have these weird spring back
2:39rights which it's something like if if we wave our pora rights and then one of the investors who had por out rights gets to put some money in then you can say hey you waved but then you took care of yourself specially that's kind of unfair it's not really a fair vote so I get my spring rights too and that's what I think they want is it was asserting at one point in time and there's actually another level of at but those are the two big rights I think as usual in these disputes no one's 100% right
3:08It's rare. It's rare in life. Uh there are disputes where someone's 100% in the wrong and even when you look back, you might say, you know what, may maybe I contributed just a little bit to that.
3:18Here's here's my read of the situation for what it's worth. Here's here's the more interesting thing. What what happened? Um I I listen, we only can read the tweets, right? Uh and I love the fact that immediately everyone was all over it saying that Day One was suing their portfolio company, which was completely wrong, right? It was quite it's quite the opposite, right? Uh they they may have hired uh Quinn Emanuel, now a notorious firm, but it's it's it's Valor that wants declaratory judgment to move on. They just want an answer, right? So all of a sudden X decided that
3:47Day One had sued their portfolio company, which wasn't true. The other thing that I think if I read what Masha, who's my co-investor and owner, I don't know her that well, but I have observed her behavior, um and she's a good investor. Um it sounds like to Rory's point what really happened was um Sequoia came in very aggressively and said we're going to make we're going to make you a great offer. We're going to make you a fast offer. It's clean. It's simple. And just like Sequoia and Index and others do, everyone has to wave their PDA so that we can get our ownership target. And I can say as a
4:16seed investor this happens all the time. It happens all the time. It the big fun the big funds in fact they put in their term sheet without even checking it. Their lawyers immediately put in that my proriters waved in every single round.
4:27Okay. So, it happened here um probably annoyed uh day one because they clearly had even though they're a $450 million total fund, they have more funds whether it's SPV or whatever. So, this annoyed them. They want to do the Prada. So be it. And then Valor said, "Oh, we're actually letting one of our investors invest because they're strategic." Now, this would this might piss me off, too.
4:49What is First of all, if they're strategic, they're already on the cap table. You got the strategy. You already got the strategy you need. if they're a new investor, right? If if someone wants to invest and help this nuclear uh startup go further that's truly strategic, let let them the hell in, right? But this is someone already on the cap table that wants to own more, which I get. That probably means they're adding more nominal value than your early investor, which I get, but this is the whole point, right? This is you're
5:17not supposed to play favorites. And so, I get all of it. Having said all of this, I've I've observed versions of this many times. I've observed VCs suing your uh suing the uh suing their portfolio companies for doing the wrong thing. When founders have decided to do this, you just got to get with the program. At the end of the day, if when the founders are in the wrong here and the big funds often convince founders to do some things that are a little bit wrong. You just got to get with the program. It's not your company. You got to get with the program and agree with it. It
5:46it to be clear say, "Hey, that feels unfair, but I accept. I'm not going to waste time with Mr. Quinn and Mr. Emanuel. I'm just going to go with it."
5:53Is that what you're saying?
5:54You might even listen if it's if you feel so wronged. And I'll tell you why I think that that she day one feels wronged if you want. If you feel so wrong, maybe you do send a letter, okay?
6:03And maybe you don't hire Quinn Emanuel. Maybe you hire Stebings and and O'Driscoll because they're not quite as intimidating. Maybe once in a while you send a letter, which you shouldn't, but you do. But then you got to let it go. You just got to you just got to get in line and move on. It's not your company.
6:16It is not your cap table. And this isn't just assets. These aren't just I mean the founders have to work at this company for 20 years, right? That's the that's the uncomfortable part. Um yes, but the fact that they bridged the company when no one else would, led the rounds when no one else would, and then were discarded later, you know, that can hurt it. It's happened to me several times and it hurts as a human being. It does hurt as a human. I don't have I didn't have a hundred million lined up to do the valor round, don't get me
6:44wrong, but multiple time I've had three or four poor folk companies where with a small fund I had to bridge or do an A, B or C, which I don't even have the resources to do and then sometimes the founders just forget it even happened and it that would bother me.
6:58So I I actually agree with everything you said there Jason. The challenge is you are seeing people like Ali Povvi who's a fantastic investor who's made a lot of money for his investors and he's brilliant come out and say I nominated him last year for investor of the year right they come out and say we wave our rights and we don't think it's right and many great investors support him. There is a moving tide towards proada rights not being Yeah. But you know why he said that is because his fund doesn't need them. His fund doesn't need them.
7:25Yeah. Yes. I mean cuz because you then have the you know the Gary Tan comment on how prat rightites is what made his IR and I think initialized one of his funds on on one of his on Coinbase right I think look if your model is all seed and no follow then you can wave your patter rights no matter what I mean the interesting question is will the megapund be raising its waving its pro rights in other words is sea coming into this round saying I'm not going to take anything on the follow on round so I I mean I to me I always think anything
7:53that a majority can control in a cap table which is heterogeneous where there's lots of people should be roughly fair right if a majority can wave porata rightites if it's good for the company you know typically two or three of the VC investors can get you there and it should all be fine would be my would be my assumption most of the time right I do think for the seed guys some I mean I I'm not a seed investor obviously but I can see why it sticks in the truth of a seed investor who takes all these risks and you know most of the deals don't
8:22work out and only a few of them work out well and They're going to want to grab some of that when the guys coming in later say, "Oh, thanks for everything and now you get now now you should wave." So, I totally see that.
8:33So, is it complete that we have to just let the big platforms come in with term sheets that automatically wave our rights?
8:41Well, look, I would say you see, look, there's obviously many types of rounds, but I would say roughly there's two later stage rounds, okay? There is the Sequoia index or whomever that wants to take all of it. They have the resources to capability, the fund size and they're very they've been very aggressive since for 20 years, right? These terms are not new. We take the whole round everyone waves. This is not a new thing. Some funds do that and then or sometimes you'll find other investors that are growth stage that their targets 5% or 7% and all of a sudden everyone gets can
9:11can play in the round. It really seems like there's two types and founders get really pressured to go along with the program that look the Sequoia brand is super powerful, right? It has been since the 1870s and you you're treated with love and you're paraded in the office and you're given these days you're given a very generous evaluation set of terms, right? And you're given help and you're and and you feel great and I just ask one ask. We have a target, Harry, and we
9:39just need to own 15% of the company, 10% of the company. I just ask that you let us do the whole thing. And nine times out of 10, founders agree to it without thinking. And maybe that's the right thing to do. Maybe it's not. But there's another category investors that that's not their target, right? There's plenty of growth funds that isn't. And and it's just uh it's the way it the sharp elbows are in the industry. This is not an industry full of soft cushy elbows. And uh it's uh it just this is a mess messy messy way for it to spill out, right?
10:07Um, so Jason, you're on the side of day one. Rory, I think everyone's wrong here.
10:14I think it went too far. I think the CEO handled it poorly and said he he wished they'd never been an investor when he they clearly bailed him out multiple times. That's not cool, right? And hiring Quinn Emanuel for a very aggressive investor is a step too far. They both they both did the wrong thing.
10:31Yeah, I agree. Cuz I think play it out here. I mean, um, I'm just wondering because I mean, now down in the weeds of what are you actually going to win here?
10:41Like whenever you start an argument, and I do this a lot, too, you forget to ask yourself what are you going to win, right? Because first of all, you've waved your pora rights. So, you won 15%.
10:51You're no long 5%. You're not going to get 5% of the round because someone's waved the rights, right? Once that's happened, it's all up for grabs. the spring back is is only proportional to how much the other sign the other person who got to come in on springback rights puts in. In other words, if the strategic got to put in 5 million, then your ratio is relative to that. So, it might be a whole ton of money anyway, right? So, you're suing for the right to get 10 or 15 million bucks in at 5 billion, six billion pre
11:20when you already own 5% of the company, which is worth $300 million. What are you doing here? Right? Even if it's $100 million, right? you have your win.
11:28Picking this fight's a mistake. Whenever you pick a fight with a founder and occasionally you do it when you're not thinking it's just not worth it. I'm I'm kind of with Jason. Both people can be intellectually wrong but pragmatically right. Pragmatically this is a you know whine and say I'm hurt and then move on.
11:46Right. And we've left out the whole Russia Epstein dimension. There's a whole bunch of noise around that that's very Twitter ccentric about day one and I know nothing about it. I'm going to acknowledge it and I'm sure at some point it'll be used in the defense. But I I think forget that leaving that aside even I think the pragmatic thing is what are you fighting for relative to what you already have? Why are you doing this?
12:07That's just my for what it's worth. I that's just my life lesson is listen what if you are quote air quote wronged by a founder as a VC uh raise in fact it happened to me once with Harry years ago. Um raise it raise it once and let it go. raise it once. I made this mistake once years ago. Around years ago, Harry doesn't even know. He wrote a small check in to a company he didn't know and a very large fund. This is one of the rare cases where I wanted my prora. It was important to me. I don't really care after the second check, but
12:35I needed to get my second check in. And I love this guy Harry Stepping, but I get an email that Harry's investing in the round. And I'm I'm cut back to zero.
12:43And I'm like, I was the only investor in this company for years. I bridged you. I helped you. I've been the only one. And I love Harry, but ex I know he has this fabulous podcast, but why is Harry getting an allocation and I get nothing?
12:56This is a true story. And and it was so and I think that when I said it that way, and I shouldn't have quite said it the way I did. It was so obviously wrong that Harry got his allocation that it really bent the relationship with the founder. It didn't break it, but it bent it, right? Because there was no good answer to why Harry gets his allocation and I don't. Um, and it took me and I learned from that, don't even say it because the decision's been made. It doesn't it doesn't matter if it's right or wrong. Let it go. It doesn't matter.
13:21But Jason, I felt a real bond with you as a result of that. You sacrifice this was five or six years ago. You never even knew until today.
13:32Uh dude, I have no idea what company you're even talking about right now. I I hope it's a good one. Um it's a good one. Yeah.
13:40But you got to let it go. You got to let it to you got to let it you got to let it go, right? And um Jason, I thought that was incredibly nuanced commentary by the way from you on that. I was very impressed. The interesting thing for this is everyone's so biased on this issue. I've never seen more crap, more selfish takes on Twitter that that are seen as generous like you know you know I you know I'm only a pure seed investor. I don't need prora, right? And then you see other folks who are like
14:08this is the most important rights is you know under the constitution of venture capital investing. you peel the layer back, everyone's biased in the answer they give, right? It's just you can't you can't get a straight answer on this, right? The only thoughtful answer I ever heard the last time this issue came up a couple years ago. I remember what Keith Ra Boy wrote, which was I thought a simple answer. He's like, you could get rid of Prada, but it's core to our business model is larger funds. Maybe it was at Founders Fund at the time, right?
14:32And he's like, I just have to pay a much lower price then worst case.
14:36Right. If I'm investing early with an expectation I can boil out later, I I'm I'm comfortable overpaying in the early round for my PRA. I'd have to pay like a half the price I'm paying otherwise. Are you comfortable with that, founders? And the crickets, no one said, "I'll I'm willing to raise it half the price for no PRAA."
14:52Yes, you you you can value an you're exactly right, Keith, right? You can value an option and deduct it from the price. You're exactly right.
14:58It has a value, right? You know, and it is worth point as I said and you said it Jason all the people even the megaphones who are coming in saying you guys should wave your rights ain't fixing to wave theirs which should be which should be a clue about the real value thereof.
15:12You wave but I ain't waving mine.
15:14Moving swiftly on. We I'm I love the bromance and partnership that is Zuck and Alex W.
15:22I I just It's like uplifting in ways. They're cool to see together. I like how they match. I like how they match. That's my favorite part. The outfits match.
15:31Did Did you Did Did you see Zuck drinking the Guinness in the cheeky pint and then he pulls away and it's like clear that he's never tried Guinness before and he hates it. Um, but Meta is back at the frontier with a new model, Muse Wonder, just shy of Opus 5.5 on Independent Index. Let's start there. I don't want to add too much. Um, how do we think about this guys? Another meaningful movement from matter into the
15:59model layer. Even more pros for Zach.
16:06Yeah, because there's no API. We can't even use it. Like it's only for internal use by meta. So who like this is the most performative um eval I've seen to date of a of a neverending spiral of performative evals. I'm not saying they're not nominally true. I'm not saying that you you don't want to celebrate the team, congratulate the team. You do want to do it. Clearly, the team has done good work at some level, right? But and I'm I'm for the show. I'm like, okay, look, I'll I'll hook it up, you know? Oh, it's you can't use it. You
16:36can use it if you in Muse. So, what's the point of a model that it allegedly has parody for the same price? It's not even cheaper. And you can't use this is this is the height of a of a performative eval.
16:47It's available in use code. It said it had a metam it said an API as well. I didn't check the API. Are you saying it's not up yet?
16:54You I can't you can't put it into your own app. No.
16:56Okay, got it. That's a fair comment from a business impact, but nonetheless, you have to give him credit for getting, you know, at the risk of sounding like someone we all know back in the arena.
17:05Um, you know, they were, you know, they they were competitive early on with open weight, then they kind of faded back way to the back of the pack, and now they're up front again, not notably with closed source models. So, we've decided that if we're going to spend $100 billion, we at least be able to charge for the damn thing is the takeaway, right? And you know, it'll be interesting to see if anything comes in the enterprise business, but at the very least, you know, the Muse Instinct war will now be
17:32powered by a supermodel model. But yeah, I thought that's the takeaway. And yeah, $12 billion got you more than you thought a year ago.
17:41Yeah. And and to the body language thing got him a right-hand man.
17:44Yeah. And great tweets. That's what I saw on the Cheeky Pike thing. It is um I think Zuck's had a lonely stretch.
17:51I think it's been a tough job. No, no, it's hard being a F CEO. Totally. It It's been lonely and I think it's been lonely since the beginning. It's been lonely before the IPO. I think he had Cheryl Sandberg back in the day. He's had others, but clearly he you know, having it it's not easy to pay someone $10 billion and have them stick around and work that hard. Like it's it's easier said than done, right? And it's and it's even harder to find someone you can truly trust in that body language, right? It's uh it's uh it's key to making this work, right? I know he's got all the other folks, the Nat Freeman's
18:20and the the the the Daniel Grosses and all these guys, but um hard hard to get a right-hand person. It's it's hard. So, I think that's that's that's the untold story to to Rory's point. This may be been a great deal for scale, right? It may turn out we we kind of almost laughed at it when it happened. Not literally, right? but uh may turn out to be the the next WhatsApp or Instagram.
18:41But I you know the more interesting I I I wasn't that impressed with the model I can't use. Hard hard for me to get too too excited, right? Um the fact that you know it just going to make the Muse app better though is super interesting. I I really I who who the world changes so fast but I think there's a material chance Meta has just a monster AI product on its hands. Just the amount of investment into it is so high. The capabilities are so high, the autonomy is so high, and now you're going to make
19:11it 10 or 15 times more powerful. I mean, you know, uh, this could do better than the ARVR goggle stuff.
19:18Jason, have you tried Instinct now?
19:21I I I've got my 22 invites and I appreciate it, but uh, I will I will for the next show.
19:26Oh, wow. Okay. Dude, I'd be interested to hear what you think. Um, yeah. Rory, are you on Instinct or Muse?
19:34Yeah. No, I try both of them. I mean, I just do boring I don't need it to tell me, you know, the meaning of life, but I you restaurants and travel and, you know, basically, you know, what should I do and stuff and I have a daily tech update from both of them that when I remember, I compare and contrast. So, yeah, I mean, it's it's a nice it's a nice product. I mean, it's I I'm deriving value from it. Um, yeah. A funny little story before Muse Wonder this last week, our Muse and Replet kind of like hugging face and uh and the
20:03OpenAI issue set up their own private bulletin board to talk. They built it Muse and Replet on their own without telling us uh to solve some issues. Um, and uh, they did share it and then disclose where it was.
20:20And luckily the the communications were in English, but they didn't they didn't want to wait for conversation to go back and forth. So they set up their own bulletin boards inside of Replet so they could talk and work on applications around the clock.
20:31The amount of Muse and Instinct competitors right now is pretty astonishing. Um, I'm sure really um, okay, big tech goes shopping, baby. We have two rumors that are circulating. Obviously, we don't deal in rumors. So, I'd love to start with the first one. Um, Reflection, um, which for those that don't know is a fantastic team building open source models in the US, um, backed by Sequoia.
20:58Uh, I think the last round was at $25 billion or so. And the rumor is that Nvidia is buying them at a $30 billion price. This is on the back of them buying poolside for $12 billion, which is in the open model game as well. guys, how do we analyze Jansen further going into the open model space? you and by further just to be clear you're you're reminding us that they already bought poolside they already have their neatron existing model and I think the answer is as we've discussed several times if if
21:28you're in the chip business and all you know and you you've got and your biggest customers are some of your biggest customers are clo close source model companies zooming out you got if you got a pile of money that's going to go into that collective pool it's in your interest that more of it stay with you and the chips and less of it today with the model companies, right? So, by definition, you love open source model and only one chip provider just like on the other side of the table, the model companies love closed source models and
21:57everyone having their own chip provider, right? So, it's, you know, we're friends. We're the best of friends. We lend each other hundred billion dollars or so, but we're watching you closely and we want to be able to fight back if you get margin greedy. So, it just all makes sense. Do you think it'll go through, Rory?
22:13When you got $5 trillion, if you want to buy something for $30 billion, you can buy something for $30 billion. Whether or not there'll be that whole push back after the Gro thing, will the structure of an aqua hire work now or will there be push back? Who who knows? The world is pretty busy right now. It's not like these next two months are going to be um idle time for the US government. So, who knows? But I think that they'll try. If you're on the board, would you say sell or would you say reject
22:42or I'd hit the bed? Um, I mean, because they're amazing companies, but the standalone business, you know, if you have an openweight model, you know, you're relying a lot of the monetization is inference. Are you in that? You I I I've always thought open weight is really exciting, but how does it work monetarily? you know, if you're getting these kind of excess prices, the value to the acquirer is very high, right? And the the market cap of the acquirer is
23:10very high. This might be a moment in time that doesn't come back.
23:14It's also honestly, it's I have been on the other side of it. It's very stressful to say no to Nvidia knowing that they're going to directly compete with you and promote your competitor. If you don't like we're we're doing this, we're investing 50 billion, 100red billion in our own open weights model, US-based open. We're going to continue to do this isn't a one-off and you have a chance to take seven or nine million, but if you don't, we're going to we're going to we're going to be a bigger and better competitor. It's not it's not a simple it's not a it it you can say no, but it is a little scary. It a little
23:42scary when you say no and they're going to buy other people and get bigger and bigger. It it it doesn't change the game, but it as a founder, it certainly weighs on you when you get that build by our partner sort of threaten threatened with a smile message, right? Yeah. So, I would take it unless you're confident.
23:58You got to have the winning hand. And you know, we don't know where it's going to go, but you know, Salesforce announced they've got their own models that are built on Neatron and built with Nvidia. You you know, we got you got to predict where this is going to be in 18 months with Nvidia putting all of its software engineers and all of its team behind it, right? This is a software company, not just a hardware company.
24:17And I don't know you could imagine that the mode here between software hardware model is so powerful that in 12 or 18 months why would you want to use any other sort of openweight open model other than Nvidia's like today it doesn't it doesn't seem logical but I I could imagine it being the case in 18 months it's just it's such a perfect combination.
24:36Does it make thinking machines more or less attractive at 44 billion which is the round that they're raising now? Do you get prderites in the round?
24:47Do we have a sense? Do we know?
24:48Good question. Let me just check.
24:50Otherwise, I'm lower substantially to Keith's point.
24:54As long as there's either a large acquirer to get paid more or an obvious clear business model. I mean, there's examples on both sides of the table.
25:03There's companies who were last and made a ton after all the early guys sold and there's companies where the early guys made a ton of money and then everyone after that kind of sorry, they're still in it. It It's all so situation dependent. It's useless to have an ironclad rule. You know, you just got to know what which the game here is. And again, I go back to if you know, I believe Thinking Machines has you grown nicely in revenue, but you've got to have a lot of clarity on revenue and revenue visibility um to to make that
25:32call. Now, you know, we're just going to see. I mean, by the time it's interesting, we're recording on Tuesday, um, publishing on Thursday, and on Wednesday, Anthropic's doing its investor meeting, and I assume the FY the Q3 revenue numbers will leak within 24 hours. So, you know, it's not like there aren't big revenues attached to these businesses. They're the biggest revenues ever seen. But the only question is, you know, how will it shake out? how to check out for you know one level down like thinking machines
26:01the sort of pool side uh why we're selling memo that we just couldn't af get enough compute we just couldn't afford it we could not keep up with the arms race I mean it does sort of it's not as simple as 44 billion versus whatever can can you even get the compute to be competitive like I don't know I don't know I I you need someone that's even closer to it than I am but my gut is no my gut is you can't get enough compute to be competitive everything's being taken Right. Even anthropics reaching out to Muse saying,
26:31"Can we get some of your computes?"
26:32Right. Uh maybe maybe they'll give it to thinking machines. I don't know. But um the the that war has just begun. You can't you can't even get memory, let alone compute. It's not as simple as software, right? So I don't know.
26:45It's time for investment committee.
26:47Jason. Uh, on the agenda for today, we have Jev and Types Safe, the parent company, raises an $870 million series A at a 7.5 billion valuation weeks after launching Jev. Uh, Andre Lled, Sequoia participating one of the largest series A rounds ever.
27:10What, Jason? Will we be participating in this round at $7.5 billion? Well, listen, obviously we're lucky to get into the second close because there's there's there's plenty of money that wants to get in at 10, 12, and even 15 today. So, I I recommend we can't even get our full allocation. I recommend we put in the maximum amount we can out of the fund because it's already valued more than this, right? That valuation is several weeks stale. Um, and Jev usage has quadrupled just since Andre actually shook hands on the deal. So, we have no choice. We have to be all in and get
27:38every share we can. Um, I've asked I've I'm asking that we can get all the the early investors to wave their PRAA. Um, that's my only requirement, but we want to put in every share we can. Um, are we worried about competition? Are we worried that it appears that Cloudflare already has a competitive product? Are we worried that OpenAI appears to be having a competitive product? Are we are we worried that Anthropic could even give this away for free? Are we worried that Amazon has suggested they're they're building their their own version of Jev? We are. But growth like this is the point of venture, boys, and if we
28:08don't do this, we should just stay home.
28:10We're raising new funds every 12 to 13 months. These are massive funds. We have to deploy it into winners. And to be clear, and we have years of data on this, not every winner wins, but you can only win by being in the winners. This is a winner. Will it be a winner in a year? I don't know. It is one of the massive breakout winners today. We're still getting to invest at 7.5 billion.
28:29We can probably do a paper paper mark up to 15 and tell our LPs we're geniuses. I say we buy every share, block the praa, and do as much founder secondary as we can. The terrible thing about that parody is it's so it's accurate as hell.
28:44Totally. It's not a parody at all.
28:47It makes you realize yes, you can do this job in three minute slight bites.
28:50But yeah, no, that's that's that's that's the story here. What Jason, can you can you paint the upside for me on Jeff? How does this become a wildly successful massive company?
29:01Where's the $500 billion? I'll tell you the the the the the the just at a tactical level at a builder level, right? Which is that, you know, no no models are particularly going back to the eval whatever the the Muse the Muse Turbo none of these hit 90s or 100. All these models are are make many errors and many issues. Okay, they're not reliable. I I I can tell you endless issues from this week. Um I I you know, Jev is a classifier which we're now in classifier 2.0. or like an
29:30AI and it works and it's maybe it gets 70% to 80% of carefully prompted matches right um will the Cloudflare team keep putting as much effort in as a standalone team will Amazon will open Routter will all these people try as hard or will these be niche products with not enough revenue that they don't have time to invest in and that these guys at Jev just get make classifiers do something they couldn't do before get get incredibly high resolution rates and then they can expand understand it. You
30:00know, right now it can basically answer simple, you know, you can ask relatively complicated questions, but you only get binary outputs. That's why it works so well, right? Rory or Harry? Who's my better investor? Rory. Harry. Rory.
30:11Rory. Um, they're going to get better and better and better. And I don't know that even if the Cloudflare Amazon teams can catch up today when it's easy, it's easy to build what open router was 6 months ago today, right? But are they going to maintain that investment? And I think as VCs, we have to make this stressful investment that a core team that is very strong out of open eye that is doing nothing else will pull ahead from the seeming parody you can achieve today. I'm actually willing to make that bet. I because I'm using Jev a lot and I
30:40can already see that if if if it never changed, maybe I would swap it out, right? But if it gets better than the rest, there's no way I would change.
30:49even just somewhat better on its on its evals, it would be you would never use anything else. So I'm I would still make that bet today that this this team will do nothing else. And I don't think the inference costs are going to destroy them. I think the 750 this this is this is a low inference model. Um I don't know the training cost. I think 750 gets you pretty far in this for real. I think it gets you further than it gets you thinking machines. It might get you two or three years of runway. So I'm I'm I'm cautiously bullish that a focused team rather than four smart kids at Cloudflare can can can maintain its lead
31:19and get to accuracy levels to summarize that were never possible before. That's the unlock. Jev is super fast and super cheap. Okay. And it is accurate enough to use for maybe 10% of your AI use cases. If they make it hyper accurate, it changes the game. It changes the game.
31:34And that's the theory on the just to get back to the numbers. If it's 20% of your total, we just said this I think two weeks ago. If it's if if total AI frontier inference is a $200 billion market, which it better be in a year or two or we're all in trouble, then 20% of that is 40 billion. And if if the price of that goes down by, you know, 80%, you're still at 8 billion. And 8 billion uh and if they get half of it, that's a $45 billion revenue company, which is probably worth 50 billion. That's the case. All every one of those sentences
32:04is credible. I think the biggest question is, you know, the other competition. But to Jason's point, the the the the business is there.
32:11What worries me in every justification for a lot of these prices is, "Wow, the lick prep's only a billion one and it's such a strategic asset with a good team that the downside protection is that'll just get bought by a great acquirer." I just hear this every single time. And maybe that's true, but not everything has a downside protection of being acquired. Does it?
32:32It does until it does. I mean, it does until it doesn't. And that's meant to be glib, but look, in a world where you've got 12 companies above a trillion dollars, all of whom are acquisitive, all of whom are in a wild tearing hurry to build companies where time is money, then and especially if the legal window is open, then there's going to be a lot of acquisitions. And the logic is true, right? If the market slows down, then all this stuff will go in the in a bad place at the same time, right? So, you know, it'll be true until it's not.
33:05I think it's overstated. I will say today it feels like a liquidation preference in in uh in Jev is much more valuable than a thousand liquidation preferences than a thousand 2021 unicorns. Those those are worthless. Many of those will end up being worthless. So, we overstate the value of the liquidation preference, right, to to get the deal through the the committee.
33:26But they have real value today, right?
33:29Uh it's just uh I'd rather have I'd rather have this this this lick preference than than uh than quite a few from 2021.
33:38Okay. You said 2021 there, Jason. 2021 there were 34 decacorns.
33:45Yeah. We now have a record 42 startups that have become decacorns in 2026. As they say in the Simpsons cartoon, that's 2026 so far, right? With a quarter to go. Yeah. There was 34 decacorns in 2021, right? Right? So in other words, we're more more decacorns than the last time things went horribly wrong. That's the first obvious description. In other Because if you look back at those decacorns, mirror was a decacorn in
34:132021. You know, um Air Table was a decorn. I don't think they'll be the same, but just worth pointing out. I think the more funny statistic is this.
34:23There are in the public markets a grand total of 98 decacorns ever, right? And if you look at them by decade, there's a scary word. It's like, and you take the private and the public decacorns as of the start of this year, we roughly generated 20 plus or minus decacorns per decade for the last five decades. And we generated what did you say um 42
34:49decacorns in one in in less than a full year of this decade. Now there is some obviously market caps continually go up. All those things point in your favor. But it is stunning to think of 20 to 30 decacorns per decade and then 42 decacorns in less than a year. H and you know that does only that does only 98 public company. I just got to 98 above 10 billion another 30 above 100 billion. So 130 companies
35:18in total worth 10 billion or more since the dawn of in tech since the dawn of American capitalism and a further 42 this year.
35:28Right. Like scr scratching the like obvious itch there. You're basically saying that we're in a bubble.
35:35I I don't know if I'm saying you're trying to make me say I'm in a bubble. I just think that Well, we got the prep as Jason points out so we're all fine. Um it but it what you can say for certain is that production rate of decacorns is higher compared to anything we've seen before including five decades of data in the public markets. Right. It definitely I mean either this is the most economically transformative event since the industrial revolution or we're
36:03getting a wee bit ahead of ourselves.
36:05Which would you pick Rory?
36:07Maybe the better answer is this. I'm actually going to go back to the prep answer. Right. It's kind of funny because you have to remember all these private company valuations that valuation is set by someone who does have a lick pref right and once you have a lick prep and you believe it exists you can say to yourself unlike a common stock where it trades every day you can say it's a 1x plus option value right and the thing right now is option values have high value because there's a lot of VA some apparently three companies in
36:36this decade will become worth a trillion dollars many will become worth 100 billion even if it's And it's rational to say there's some nonzero probability this company becomes freaking amazing and my downside is a 1x to to make it concrete. I don't think all these stocks would trade at 10 billion or more if they all traded on the public markets.
36:58That's not giving me an answer.
37:03Well, we're all we're betting this is true, right? I mean, Meno had some math when they raised their last fund. It was I think it was a $3 billion fund maybe, right, for the to deploy the next 12 months that that they're betting they'll have at least four $25 billion plus exits to make the fund, right? That's just the math. It's not complicated, right? Um that they can do that they can do that like clockwork. That's the bet.
37:23The AI spend and the recent exits of the last x months justify it. Um historical evidence uh makes it suspect. Um so are you are you are you living the moment or are you living as a student of history?
37:37Um, I I I just don't think in venture there's a lot of upside in being a student of history, even though we have one starring on the show, which I'm grateful for, but I don't know if it if it gets you the huge carry checks.
37:48And in fact, as I looked at this data, which one of my colleagues was doing for something else, I think what you what I actually realized you need to do is then you say, okay, if you extrapolate, what level of growth are you assuming to make this math work? Because yes, Jason, you are. In other words, because every year, I mean, every decade it looks bigger than the last decade with the exception of the 1970s cuz stocks go up, right?
38:07Um, but the question is, I mean, you made a comment 425 billion plus outcomes, right? And in a world per per Yeah. And there are only 130 above um 10 billion ever. So, there's probably only 70 above 25, right? And so you got to get four new ones. It's it's doable, but you can't miss you can't miss a lot here, dude.
38:33That's what Andre got so right. People when we started our invest well in maybe pre my investing career, but people mocked Andre in the early days for overpaying and doing this wrong and saying we have to be in all the winners and they just did the math. Yes, you have to be in all the winners and even a lot of the winners you won't make money in because you'll overpay, but the super winners will make up for all of it. It's it's just basic. And everyone mo all the Yahoos mocked them and they were completely right. The price of uh overpaying for a winner is get being in the super winner.
39:00Well, talking of super winners, Jason, do you want to come back to the investment committee? We can do a deep mind. Damis, the legend that is Damisaris, raised it about $10 billion give or take from Thrive matter of months ago. Now, Isomorphic Labs, his company in talks to raise it between4 to50 billion price. we can do this. I mean, generational talent is generational pricing today.
39:30Certainly, I as as as much as I believe in the uh in the Jev teams and the type safe teams, he's going to pull together a team like never been seen since the dawn of mankind in artificial intelligence. Maybe he fails. Maybe he's had enough of it. Maybe he's enjoyed life in London too much. Too many posh clubs life. But I think I've seen the fire and this it it is a scary bet. um we have our liquidation preference and no one will be able to assemble a set of talent like this. This is the the next and last generational t chance to cherrypick the best of the best of the
39:59best and this is the job. I think I agree the interesting thing about this company will be that unlike the vast bulk of the um revenues that come from the foundation lab foundation models where it's you know intelligence automation where the value capture is replace labor right here the value capture is not replace labor it's actually make science discoveries right and the way because
40:28you know if you know cuz you know when you discover when you do a molecule If you know, if you automate the $500 million of science spend that you pay science wages to, that's not really going to cut it. What you really want to do is, you know, when you create the $200 billion drug, you want to get 10% of that on a royalty basis. So, it's kind of the as the models devour all the knowledge worker dollars that are available to them in terms of direct replacement. At some point, they're going to have to monetize via creating
40:57whole new things with their intelligence. And yeah, it's a lot more credible today just given the amount the math the recent work they did on math which as one mathematician correctly pointed out isn't really that yeah you don't actually get paid a whole ton for solving Stokes Navia or whatever it is but if you can discover the next GLP drug that's a winner cuz those things do money so it's a it's kind of it will be interesting to see I'm I have in the past said it's hard to get the drug companies to extract to meaningful royalties when they still got to do
41:27phase one phase two phase three and many of these companies end up being drug companies down the line. It'll be interesting to see what happens here, but it's where it's a big pile of money if you can extract the value, not just from a labor percentage. Sorry, that was a long word.
41:40No, no, I think we're all going to be on 10 GLP1 like drugs in a few years. And uh I I think I think you know, we never really got the full story on anthropics wet lab. I think the potential here is even greater than is led on. I think the potential for drug discovery is probably massive. And you know, we're going from weirdos micro doing to finding out we're all going to have a set of drugs that that dramatically extend longevity and quality of life. And yeah, if if they can radically accelerate it, own the IP
42:09and have other people do the hard work, maybe AI really can reboot the entire industry fairly rapidly. Not all of it. Of course not all of it. Not the trials, not the rest, but man, if you could get a GLP1 out 5 years faster.
42:21Do Jason, do you actually buy that? I I don't mean that cynically. You think that's the the drug stuff?
42:27Yeah. Only very recently did I buy it? I thought it was wackos and Brian Johnson and crap. What's that?
42:33What caused you to change your mindset?
42:35Because the the medical evidence for GLP1s is so it's so profound.
42:40It's so for heart disease, for so many other things. And I think our ability to and I think our ability to tailor drug drugs to extend longevity is the the massive market. It's better than inference. you know, if you and if you talk to any just physicians at the cutting edge now, they're all saying to anybody like your hip or whatever and just just don't hurt the other one. Like just get there like in another couple years, the amount of longevity we're going to be able to achieve is so much higher that I just think the wackos of
43:10the micro dosers of SF and Brian Johnson made me skeptical. But but just the the overwhelming evidence of the benefits that that almost everyone should be on a GOP one, right? and and the fact that we're going to get better and better at figure all this stuff out. I mean, we are just we're just walking sets of cancer and heart disease and other things that um having material impacts will radically extend longevity.
43:33radically extend longevity.
43:34There's a whole sequence of steps before you even have, you know, adequately good molecule identification with some understanding of how it works and then you still have all the different bio phases. So, as I say, I do believe it'll be harder to capture value than you think, but I'm really glad they're trying.
43:50Guys, I want to talk about one which may be a little bit earlier than usual. But we had Mecca, which is the Mccor or the surge for robotics data, physical world data that can be implemented in most often robotics raises 60 million series B from Sequoia. The reason I wanted to bring it up is that you know we have microagged race to 100 million very quickly.
44:13There's Mecca which is well over a hundred million in AR. There's another provider that I'm forgetting the name of Exoft or Exosoft or whatever it is that's again over 100. And we just see the sheer volume of data providers over 100 million. What should we read, infer analyze from this? Well, you can infer data. Let's do data in general and then robotics. You can infer from data in general that you know entropic and openi spend a large amount of money on training data as do the other three
44:43wannabe foundation models and there's an entire industry that's suffers to take care of that right it's an interesting business because you only have five or six large competitors and they all obviously want to go on and sell to enterprises but the vast vast bulk of the dollars come from a relatively small number of enterprises and um and and yeah those companies are growing very quickly because you know the financial model companies want want an want data, they want it now and they're willing to spend big to get it. So they've been
45:10able to go from zero to hundreds and in the case of some billions very quickly, right? And the interesting thing in the foundation model case is there's clearly an end revenue source that's paying for that. In the case of robotics data, it all makes sense. It's the same analogy.
45:27There's a bunch of companies really interesting doing various forms of models for robotics. Um it's obviously early in its development life in deployment life cycle. I mean you've got um so you know you've got the early burgeoning spend you've got the 10 million and hundred million dollar deals and you can get that on venture dollars from the robotics companies and from yeah and financial model companies too cuz they want to be in robotics. I think what's going to scale that to a billion or two billion is when the deployments happen and that's still unproven in
45:57terms of timing, right? So because I mean the humanoids I saw at GXO which is a logistics company that one of my companies deal with. They sent me a post one of the guys there did it. It was the summary of the post was 42 PC's of humanoids zero deployed and then there was some thread about the BMW relationship with figure where again you know we talked big game but the humanoids aren't out there. So I do think there's a deployment issue in robotics which will filter back upstream
46:26to a demand to a ultimately spend on data business until such time as the unlock happens at the deployment level but for now you know definitely making hay while the sun is definitely shining.
46:39Are we doing MKA from our investment committ?
46:42You you have to do the second half of the sequoia round that the regulatory 20x step up or whatever it is they deem to be appropriate. Um so no.
46:51Well, it's just I listen I'm not smart enough to really know. I do think it it's an interesting play in the sense that obviously the current level of interest in robotics is beyond an all-time high, right? It's it's and um and they all need trading data, right?
47:05and um is and you can be skeptical of some of these folks, but the demand for highquality training data, even if it's just paying people to wear sensors and do work, it's it's just off the charts.
47:17I met I met a founder at YC demo day. He wasn't in this class at YC. He was just there that I knew from faster stuff. And he tilted his company into doing just spec, you know, a very niche version of training data. And he did 30 million in in 60 days. And he said the problem is they just don't want to do all the stuff he's asked to do. He's like, "We have 300 million of demand. It just takes so many specialized humans in so many countries to do this niche product. We don't we're turning away 270 out of 30 cuz we don't want to do it." Right? So, if you could nail that 2 by two of being
47:46able to provide the the data labeling, the humans and the everything. You have the right one. Maybe I'd rather do this than invest in a bunch of robots that are going to, you know, throw Aunt Bessie out the out the door or smash their fist through through my kitchen when they're trying to grab the pots. I'm I'm certainly skeptical of the residential ones. Maybe this is the safest place to put our money.
48:05Oh my god. I would way rather do this than any robotics company.
48:09But the absurdity of that is you can't these things aren't going to exist unless the robotics companies are successful. So I disagree.
48:15Well, no, no, no, no, no, no. Because I I'm saying I don't know which robotics company will be successful. I don't know. I don't know what vertical, but I believe the robotics will be. So I want to be in the infrastructure that allows.
48:27But but pushing back on that that's like saying I want to do scale AI which is or Merkar which are great companies instead of anthropic. If I had a choice I do anthropic. If you can pick the winner pick the winner right cuz the model companies are by definition bigger than the companies that sell to the model companies. Sorry I don't quite understand that analogy. It's it's a bit like saying I want to be in scale not uh Lorraa because I don't know who's going to win the application layer but I
48:55do know that models are going to need to get better. That's a better comparable which would be understandable. I personally I just what what you what you're saying implicit in that is you believe there's a statement in that that each robotics company has its own foundation model and that you know the companies like we're in the journalist PI and skilled like if journalist pi and skilled become the dominant foundation models for robotics then it is equivalent to the my foundation model comment but if every robotics company has to build its own
49:24specific model then yes then it becomes a very fragmented market at the model layer and I don't It's definitely one of the areas where I have I have a fair number of robotics investment and the least amount of clarity.
49:37Okay, boys. There's a lot else. Guide me in terms of where you would like to go. We can talk about anthropic cutting the price of haiku by 90% as the price wall with open AAI further intensifies.
49:51Jason, I'm relatively intrigued to hear your thoughts on that given how intensely you use them. And I mean, look, I know we've talked a lot about this kind of stuff on the show. I I I will say it's under discussed. Um these models, Haiku 55 and Sonnet 55, they're they're great and they're really from my perspective the first thing that's actually been deflationary with LM and AI. Nothing else has been deflationary because no matter how many you talk about token prices falling, we've been consuming so many more tokens, we're not getting the benefit of
50:20it, right? None of our portfolio companies are seeing their cogs fall in AI, are they? Uh not not really. Right?
50:26um the everything that we've we've all consumed so many more tokens and used more and more of the of the state-of-the-art frontier models that we haven't seen inflationary benefits.
50:35These to me are the first ones that Yeah. that are deflationary. Haiku basically, you know, since the beginning since before the show, there's always been the N minus one model, which isn't quite the frontier one, and you you get the last year's you get last year's Cadillac and fins for this year's shiny.
50:51It was sort of worth it. But now, um, Haiku 55, which is a joke. I mean, developers would laugh at you if you used Haiku 55. Like, it's almost as good for a lot of use cases as Sonnet. And it it's it's a tenth or the 20th the price.
51:06It's like shock. It's so cheap. It's almost Haiku 55 is like the first reasoning model and you can dial up how much reason you want that you can almost not care about what it costs. Like Jev, we haven't had this before that worked for me. We haven't had a reasoning level model where you didn't have to stress every token, every dollar because it is it is a tenth the price of what sonnet 45 was. It's a tenth the price. So I think it's disruptive. Sonnet 55 is interesting. As an aside, it's it's
51:35basically, you know, it seems, at least in the testing that I've done, it it's um it's almost as good as the Opus models before. But what's interesting, it's only about 10% cheaper than the previous onet, but it's twice as fast.
51:48And these evals don't talk enough about speed. Like, this is why a lot of these things are useless, like Grock and others, because they're too slow or they time out speed. Like, if you can have your chat go twice as fast, it's a big deal, right? And Sonify 5 is twice as fast, 10% cheaper, not that much, and better. Speed is also deflationary because you can do more and more quickly. So for me, the these two plus Jev the first time we've seen deflation and and and yeah, you're going to have your Jevans paradox. So we're going to use even more of course, but this is the
52:18first time you could literally go in, swap out models, and have much more speed and pay a lot less like in a week.
52:23And I think it's exciting and I think it's most exciting for like B2B stuff where we're all still we're all still making these trade-offs for a lot of B2B apps, right? We're making how how much how good can we make the resolution? How good can we resolve this issue? How good can we do this workflow if it's twice as fast and in some cases a tenth the price? Um we sure better see a lot of results at the next board meeting. No more excuses, boys. It's the first one at a practical level. I've seen this deflationary. And I think the next interesting thing will be you know call
52:52it Javans call it price elasticity because you know price elasticity simply says you know if you reduce something by 90%. As you know if it's yeah for for a proportional reduction in prices does the net dollar spend go up or down and you know your bet the bet obviously they're making is it's highly elastic and it goes down and you end up spending more and we and uh and we'll see. That's obviously the bet. I mean, you wouldn't want to be you would not want to be
53:21cutting prices in a demand inelastic product because then you'd have the classic problem of high fixed costs, low demand expansion, and lower prices, which is terribly, horribly bad, right?
53:32So, the bet here as you see these price cuts is in fact that this stuff is very um elastic in terms of demand.
53:42And I assume we'll see it in the in the S1 soon enough. I assume listen all the accounting for these LM is going to be interesting right but I assume you can when you when you're using haiku or sonnet when you're using essentially the n minus one model the only cogs is going to be inference right you can basically write off the training cost because you can assign that all to to the frontier models to fable and opus right assuming that's the case it's it's sort of a win-win all around right because I believe that anthropics inference margins are quite high right before I believe it but I believe their real
54:11world gross margins are still pretty crappy because of training cost, right?
54:14So, I I think it'll be interesting to see how they break this out, right? Um, but I think it's I think it's exciting, but yeah, we'll just use more if it there's going to be a lot of stuff where it's it's like, you know, taking a 20-minut shower when you don't have to pay for the hot water, you never get out, right?
54:29I mean, just as a reminder, and I agree we will, and I agree with that assessment, but when you cut prices by 90%. We're going to use more doesn't cut it. We got to use 10 times more, right?
54:38Otherwise, demand dasticity is less than one and you actually revenue goes down, right? just to be but I do think we'll use 10 times as much because what's going to happen instead of sampling something you'll just do it all that was what my colleague said on using Jev you'll use it in every row of the database everything and it's so fast and the key the key is speed matt we don't discuss speed as much je um and haiku 55 is actually slower than the one before but it's not even comparable son's twice as fast you can just use more of it because it's faster if it's slower it doesn't doesn't really
55:08you can only use so much in parallel but yeah I I agree with your part you just use it for everything. What does this mean for open source in US enterprises?
55:15Does this make it inherently less attractive where you're like, "Hell, I can get Haiku and Anthropic for 90% less." That really reduces the attractiveness of open source. That's why I thought I said on the I don't know whether it was Dev or Jack, but I said you could imagine it would all flip around next year. The whole open router thing would would change and and people are not loyal. No one wants to use right or wrong, no one wants to use at least China based open weights models. No, no one in the enterprise wants to use them.
55:43So when you have a domestic solution, ideally from a vendor you already that's already been qualified and trusted. I'm not saying it will happen because there's a lot of smart people working at at Deepseek at all, right? I mean some of the best of the best, but you could imagine that this being a moment in time and in 12 months from now that they're they're niche models that are are not that are that are used by some companies we invest in. Uh but but really in the enterprise are almost non-existent. I could imagine it. Right. Again, I think Salesforce making Finn rip it out before
56:12the deal closed is telling like it's just it's a moment in time. Maybe that won't. But I just people don't want these the the the the China openweight models. They just don't want them.
56:21But but they'll have reflection and they'll have Yeah, they may. That's why the open router could maybe if Nvidia buys reflection, then reflection plus poolside plus everything ends up being, you know, 50% of the usage and 15% of the revenue. It would it wouldn't it wouldn't surprise me at all, right?
56:36Jason, what else tickled your fancy from this schedule, you know? I mean, I almost don't want to bring it up, but uh but it's a but you know, um but uh Bending Spoons laying off basically all of Air Table.
56:49Um not a surprise, right? But man, I mean, I wrote this when it happened and no one cared. I'm like, guys, everyone's talking about the money and the revenue and the and I'm like, you realize almost everyone's losing their job? I didn't see anyone care give a give a rat's ars about the fact everyone's gonna lose their job. I'm like everyone lost their job at Vimeo. Everyone lost their job at Evernote. Everyone's going to lose their job at Miro. And I I barely saw a tweet about anyone giving a rat's ass. And and I'm not even judging because this is
57:17capitalism. But man, when you as when you sell your company to Betting Spoons, you just got to realize your entire team's going to be gone. And do founders owe anything to their teams? Do boards of directors own anything to their teams or they just owe their best returns to Cedar Sinai, right? Um, do you have any moral obligation to sell to someone that's going to lay off 80% of your of your team within weeks? They are stakeholders, especially if you're cash flow positive and growing like Mero and Air Table, right? They're both have hundreds of millions in the bank and growing. Um, do they matter? Do they
57:46matter legally? Do they matter ethically? Do they matter at all? Or is this just part of the startup game? I wouldn't do it. I would not sell.
57:53There's no way I would sell my company and have 80% of my team laid off. I just would never just pause. Jason, can let's just stay on that. You have a fiduciary responsibility to your board and to your shareholders if you're mero say and that is the best and only offer for you.
58:11I think Rory can help remind me. I do think legally you have an obligation to your shareholders above your employees, right? I I believe I'm mixing up my Delaware law. I'm pretty sure that's true. Right.
58:20A public company it is the only um obligation you have and they're extraordinarily clear on that. Even if in your mind you're thinking about something else, you never say it in a public company board because it just lays itself open to shareholders. Your sole job when you enter into an acquisition period is to maximize value for shareholders. So yes, that's there.
58:40I actually don't know in private what they're private, right?
58:42So So Jason, would you not sell if you're Mirror, which is a No, I wouldn't. I wouldn't. The people that work for me so hard, I wouldn't I wouldn't let them all be laid off the next week. No, I wouldn't do it. like like f pushing only on that. I hear you and obviously if you have another alternative that even if it's going to make you less money you might well choose to sell to them. The question is if you're locked into a forever march where you know over the next two years a lot of them are going to leave anyway, right? Because when you get on the
59:12forever march as you know retention is the problem especially for the best people. There's a little part of me that says accepting that having that kind of talent repurposed is actually just better for everyone. go into the bending spoons deal, but cut your deal on your employee economics up front. So, know what everyone's getting into, right?
59:30Because I do think that the debt march will get old pretty quickly and you know, you'll try and do the noble thing for your employees and then over the next two years they'll all peel off anyway and you'll be left with your even more empty husk that's now worth one times revenue. So I I hear you and I'm normally the softy in this group, but sometimes resolution is worth it even for the employees.
59:55I just don't think of there's I don't think that there's an acquirer you can be more sure will have will lay off all the vast majority of your team than the bending spoons.
1:00:05No, the the mission is clear.
1:00:06You don't know what Vista is going to do. You don't know what to Bravo is going to do. You don't know what Francisco Partner, but you know what the bending guys are going to do. They're going to just axe almost your entire team. right to an level I've never seen before. Right. Maybe Constellation does this. I don't know. But uh I' I've never seen it before.
1:00:20For what it's worked, I think Bending Spoons has an I mean con they all are very efficient. Bending Spoons has a c a bigger centralized component. I think Constellation's argument is everybody runs on their own but we don't spend a ton of money in sales and marketing and you got to have 40% EBA. I don't care how you do it. I think Bending Spoon's argument is all of the above plus all your GNA is centralized. All your people are centralized, so you just need even less. Right? So, it's variations on a theme of lean and mean and even leaner
1:00:50and even meaner. I'll tell you the other one just on the theme and Harry, you can cut me off if you want, but I was thinking about this. You know, the great the and I put this I'm very sensitive to this. I'm I I I as as we had on the dev podcast, I'm confused what loyalty means in the AI age, right? I've got many flaws. Loyalty isn't one of them. Um and um but uh you know Cloudflare is an interesting one because a lot of folks are doing little layoffs. Netflix 5%. Oh ho ho who get HubSpot 7%. You know get Cloudflare earlier this year crushing
1:01:20it. Had a great year the whole year right. Even during this apocalypse Matthew just came in and said I'm laying off 20% of the team.
1:01:26Just doing it. He did in one day and they every the beat the quarter. They've re they accelerated growth even more. The stock price is up like 80% this year. And it's not it's not bending spoons. He didn't decide to gut Cloudflare, but he made the right call. He's like, "We're not failing. We're an AI beneficiary, but we are too slow.
1:01:43We're wasting too many times on a lot too much effort on folks that aren't going to get us there. I'm going to do one 20% cut. Not because we're struggling, but because we're to grow even faster, and they've reacelerated.
1:01:53Um, and uh you know, I think bending spoons it will I don't know. But but uh some of these are just too small. That's when I see these layoffs, I always think on as as much as I care, I'm like, they're too small. Cloudflare did 20 and it worked. The hard thing for Bennett Spoons now is it actually has to find large enough companies that it can buy. There's lots of smaller companies, but it needs to find large enough revenue based companies that it can actually buy. That was what was really interesting when I spoke to them. Um,
1:02:22yeah, it's 3% organic growth. So, if you want to grow 80% like they are, you got to buy big stuff, right? Honestly, chasing the churn on these companies when they buy them though. I mean, the numbers are just you have to price increase to the max just to keep this these businesses going. Um, while we were talking, it may be uninteresting to you. I might have been a user of this company in the past. Bumble has announced that it will be taken Rory Bumble if you don't know, you probably don't. And they are being taken private
1:02:51by Mr. Ravi Gupta in his new firm uh Eith I e Ithaca Holdings for $1.3 billion I believe it is. Um cool.
1:03:02It's a pretty cool bit of news. A holding company taking Bumble private.
1:03:07Yeah. It was market cap was like $500 million before the deal, right?
1:03:12Good premium, man. VCs have always hated it, right? The churn, the the the the problems with the customer lifetime value, they've always hated it, right?
1:03:20Yeah. It's funny cuz you know given the percentage of people who meet on the apps now is 50 60%. I mean if you think about it there's a business that provides the most basic human need which is marriage etc. dating marriage like literally the thing that people care about the most. Just look at the number of pop songs about it versus everything else. And all you get is a few lousy billion bucks. I mean you're solving the needs of half the western world and all you get is a couple million bucks. It's a funny world. Billion bucks.
1:03:45Listen I I could be wrong. I'll give you the bullcase on Bumble, right? Just just as a builder, right? And this may be this may be wrong. Um I having built a matchmaking app for our Sster community, having thought through this in AI, you can do so much more with AI than you could do before, right? I haven't used Bumble, no criticism, right? Um but I I I can only assume the matches are at best mediocre, right? Uh they're visual and you have a fairly small amount of data to grab from, right? You know, uh, if Bumble can Bumble has massive
1:04:15historic data, if you can get other data and you can use AI to make dating better and if you have a data science team that can do this better than others, everything's competitive. But I could imagine it being the outcomes being much better with AI, right? Much better with deep analytics across lots of data. I mean, this isn't this is Captain Iv.
1:04:34It's obviously not new to the team, but uh I would imagine there's a bull case where someone could could actually make much better matches, charge more for it, right? Race prices because it's much better, right? Instead of going on 20 horrible dates or getting a bunch of creeps, you have five great ones, right?
1:04:50Uh you know, the old old e-harmony idea, but it actually works. Anchor high and quintiple or 10x the value of this business. That that would be the bullcase to me. Um but they're not the only guys probably thinking about it in the space, right? How to use more data and AI to make better matches.
1:05:06Totally. And also actually how to use synthetic versions of yourself, AI avatars that represent you and then you can go out and meet a hundred different people without actually spending any time meeting anyone. What a wonderfully antisocial way to date. Um, yeah, but it might work. But it might work.
1:05:21Yeah. In the end, I do I do believe the object of dating is at some point to make contact in the physical world as I understand the mission. So for a while, but at some point that sounds terrifying.
1:05:36We sit scrolling, which is why we have such a good business.
1:05:40Yeah. But AI should get to know you. If AI can reduce the friction, the the the wasted time on dating, the wasted time and money, the ROI is really high, right?
1:05:48I totally agree, Jason.
1:05:50What's a date cost? 200 bucks. A good date. You know, I'd put that put 150 on Bumble AI. I'm already 50 bucks ahead. Jason, any final ones? Because Rory's not going to give me a suggestion.
1:06:01This one is barely worth talking about, but because you had it on the list. Um, it's just worth reflecting on as we we're in Q4 of the year. Do I have this right? Yeah, we're in Q4, right?
1:06:10Reflecting on the SAS apocalypse for a moment, right? And I really don't even want to talk about it in 2027 because 2021 is so far behind us.
1:06:18But I I think the SAS apocalypse is still here. I think about this a lot.
1:06:22What I mean is the the SAS apocalypse of when when we're you know earlier this year was in part a short-driven thesis that we would vibe code our way out of all these applications right the market became feared that growth growth for many leaders slowed at the same time which seemed to self-reinforce the fact we' vibe code the own app and and we reached all-time lows in like March or April something like that right and uh the the markets roared back right um you know NASDAQ's up 22% this year I have a SAS
1:06:52AI index you can see a SAS of those I think it's up 28% worldcloud's up 25% right so nominally the SAS apocalypse was a joke and Mark Benoff made this point at the low that this this two will pass and nominally it did like that that fear passed but I I just say two things for anyone what I here's what I think about this one it passed for those well above a billion in revenue agreed I think it only passed for those with massive scale and I Everyone without
1:07:21massive scale is living a worse ass apocalypse than in March or April because no one wants to buy software. So I think we need a new term but everyone's breathing a sigh of relief. I don't think we should be breathing any size of relief. Agreed. Because if you think about all that happened is it's a mature consolidating industry now. And what happens in mature consolidating industries is that the market leaders have scale they have market cap and they have a leverage and they're just going to start you know you're seeing many off doing it. you're going to see acquiring companies and then the ones they don't
1:07:51acquire, you can grind out, right?
1:07:52Because your idea is if you're already at 40 billion, your money good. You got cash flow, you're good. Right? If you're at 100 million, you're trying to get to 300 million in a SAS product. It's really hard today. Yeah. And I wonder if if we even when we started the show, it seemed like 500 you could IPO at 500 million. I'm not I'm not sure after or friends that's even true today in the SAS apocalypse. I don't know that 500 is durable or safe any longer, right? You might need a billion and a half or two billion of ARR as a software as to to
1:08:20have a safe IPO. And that outside of Jev and Friends that has a lot of implications that this apocalypse is worse than we thought. 500 million isn't good enough anymore. Now it's got to be 1 to2 billion in ARR for these companies to go public and that the math gets harder and harder. So I don't want to talk about it forever because it's a new world, but uh it's it's it's you know the only thing that is safe is scale.
1:08:43And credit to the few who were able to transition pre-plays into post plays of the pre-AII play to the post AAI play like an intercom did. One of our businesses last week, I'm not allowed to say how much it sold for, but it sold for a very large amount of money, not billions, but hundreds and hundreds of millions. Tacwolf to SAP. Um, and it was it was a pre- AI enterprise software company in the HR
1:09:10space of all spaces. And it was able to transition into an AI first company and sold to SAP for a big amount of money, the biggest ever for Belgium, which isn't particularly saying much, but still uh big. Um, and so I think there is still room, but the transition I don't think in all fairness like congrats to the to the TechWolf guys. I I remember actually I forwarded that to you in 2020 here. I I but by it was in but I just didn't get the HR thing. Um
1:09:38or or even Finn like like okay I don't think they count and intercom and the team is great. I'm a minute shareholder. Rory's a shareholder but it that's not true scale. That's not a billion north and recurring. So those deals are great for the founders and they're fine for for the VCs but they don't I don't think they counterman this point that as Spockulus is as bad as it ever did.
1:09:59Kudos to to to the intercom for building an AI native ex reboot of their company to nine figures in revenue, but that's very different than building to a billion growing 50%. And the journey so I don't think it counters that, right?
1:10:12It's and these exits Menlo Menllo's point is we need three $25 billion exits per fund. Tech techwolf and Finn don't count.
1:10:19Well, not not for Menllo, but for my fund they return.
1:10:22It made a difference to how I mean I think there's two separate points. One is I think your fund was smaller. Hang on. you should disagregate them. One is who does the $500 million exit count for and who doesn't. Yeah, if you're a mega fund, it doesn't count. If you're a normalsized fund, you really can make good money there. It's not to be snared at when the check hits, you know. Um, that's the first comment. But the second comment I think is the more interesting one you're implying Jason which is post SAS apocalypse there's just not going to be as many of them because let's just say there's 200 300 of these
1:10:50similarsized SAS companies big tech can only buy so many at a time cuz time it's a distraction so they're going to get hooed up at the rate of 10 a year and that's like infinite time right that's the real issue which is is that because there's no crit there's no probability of getting critical mass and scale and an exit you're just done. You know, I'm not done, but you're just destined to be one of hundreds of midsize companies trying to compound your way to something that matters. And you very much have to
1:11:20proactively get AI native, try and drive to an outcome, try and be important to some other company or be happy running your company for the next decade and, you know, taking, you know, a dividend because I mean, you you could cynically say the same is true in AI apps. There are way too many apps relative to the likely number of half a billion or billion dollar outcomes. But in an expanding market, all is forgiven. You know what is product categories look like? Company categories. Everybody
1:11:49expands just like SAS did 20 years ago. It'll all be great until you hit the tipping point again.
1:11:54Can I ask guys, I don't want to be Mr. negative or finish on a negative.
1:11:59Flock safety had some problems with privacy backlashes previously. We touched on it very previously in an episode. Now they're cutting 270 people, 18% of staff.
1:12:13Is this a company in real trouble? Is this I, you know, I saw a tweet, you know, I I prefer the crime to the surveillance. Personally, I'd prefer the surveillance to the crime. I'd prefer the surveillance was actively controlled.
1:12:25You know, we talked about that a while back. The problem here is a bunch of, you know, renegade, you know, offlimits use case for law enforcement, not doing it in the right way or not even doing it for law enforcement at all, but checking up on person their personal lives has now damaged the brand. I won't say irrevocably, but yeah, it's a pretty tough problem. You know, you wouldn't want to be flock right now and um trying to, you know, position this because, you know, whenever red and blue America both
1:12:54hates you, you got a tough thing going. And I again I I defend that the other side. I I do think the crime deferral is really worth it. I think in you know I think that the improvements in crime in San Francisco, New York, they're just awesome and it really expands the game.
1:13:08So I'm I'm I I'm not not a hater, but it it always sucks when the public has you, you know, when everyone has you like that. So I don't know. I'm sure I'm sure it bottoms out, but it's a tough not just a comm's problem, it's a tough business problem, too. But I'll tell you my my concern which is this worries me with a lot of startups is I I don't know that they have a strong enough engineering team and I think they cut too many quarters because the security issues they've had are unacceptable.
1:13:33They've had uh they've had cameras just streaming unsecured across the internet.
1:13:37They were using dated versions of Google on old Android tablets to save money that were no longer supported or had security patches in the last year year and a half. This is unacceptable from a company where security has to be at its core and paramount and it's happened multiple times. Um interesting because I was more focused on the unauthorized use but you're saying there's also been access that that sucks.
1:14:00They cut start all startups cut corners.
1:14:02It's how you get off the ground. It's something we don't we under we don't like to talk about too much at board meetings. But when you are ultimately a security company like Flock maybe the police departments don't understand the corners you cut and maybe the VCs don't want to probe but the there are certain companies where you can't cut too many corners and I worry Flock cut too many it's just wasn't didn't build safe hardware or software and if you're not investing in the hardware and the software what about the rest of the team what about other vulnerabilities AC up and down the stack it's culturally
1:14:31consistent and so I don't want to pick on them because I think they've done a lot of social good but but I wonder if they cut too any corners and now they're reaping uh reaping what it comes from it. Um I think stored images unencrypted. The cameras sent credentials in clear text. Pressing a button on the back of the camera would open up a Wi-Fi any attacker could get into. The police interface didn't require any authentication. This is not this is pretty bad stuff, right?
1:14:59Security patches stopped in June 2018 for many of its cameras.
1:15:03Ouch. Those are not good facts, I will admit. Good. And so you you it's and is it ever just that? It's always more when you pull on the string, right?
1:15:12I It's a very valid worry to be fair and actually I didn't I wasn't aware of the security vulnerabilities there. Um but on a theme that Rory loves, um Jensen Huang's just announced that he's going to invest two billion more into European AI companies. So go Europe. Hey Rory, go go go Europe. Yeah, that's about that's about the way.
1:15:30How much is that? How much money is that for Nvidia?
1:15:32It's about a coffee. About a coffee.
1:15:34Maybe maybe a coffee and a quasel, you know, two billion.
1:15:37I I think the cash flow is 150 160.
1:15:40Yeah. So, it's it's you know, it's um 1% of cash flow. Yeah. Don't don't spend it all at once, kids, you know. Um I I did debate bringing it up because I wasn't so confident about the I'm not going to be No, I'm your Yeah, it's Jensen is just going to spend that money wherever he can to fragment this market. Okay. Well, probably also Harry is much closer to this and I'm not an expert, but anything you can spend to deflect any anti-Americanism is worth is probably worth the money up to a certain
1:16:08point, right? Keep your head down. Don't don't be associated with any anti-Americanism. A couple a couple billion here and there to mitigate it is probably a great investment, right?
1:16:16You know what, boys? No one's talking about that. They should be the downfall of France. I mean, Jesus Christ.
1:16:23Uh I mean, you talk about a failed ecosystem in Paris.
1:16:27Yeah. It's really good of them to step up and make the UK look great.
1:16:32I know. Do you know what? Genuinely, yes. Thank you so much, France, for making us look like peaceful. I did enjoy, you know, the I don't know why we're getting on this, but I did enjoy the fact that the Greeks now borrow at a lower interest rate than France or Germany, right? It's just pleasing, you know, after what we all went through, you know, a decade and a half ago.
1:16:53Italian politics resembles stability.
1:16:56That is a worrying state of Europe.
1:16:58Yeah, totally. Yes.
