← The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Nat Friedman and Daniel Gross Bought with Zuck's $100BN AI Budget | Navan Files to Go Public and Canva Pulls the Brakes: Why and What Happens | Why Larry Ellison is the Smartest Man in Tech | Substance or Sizzle: What is Real and What is BS in AI
01:13:57
Agenda: 04:21 - The Meta Acquisition Bombshell: Nat Friedman & Daniel Gross Join Facebook?! 06:00 - Facebook’s $100 Billion Gamble: Can Zuck Buy the Future? 09:27 - The “Magic Room” Theory: Why Only Insiders Get Billion-Dollar Paydays 11:27...
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- [00:00]
Rory
Here's what nobody wants to admit. When LLMs finally work at something, the implementation will be boring as fuck. Harvey isn't some breakthrough in legal AI. It's chatgpt with a law costume. Lovable isn't revolutionizing code, it's clawed with pretty buttons. So you have two choices. Option 1 wait until the LLM actually works, then scramble to build your ChatGPT wrapper along with everybody else who just realized the same thing. Option 2 start now while the tech is garbage. Lie about how good it is. Burn money on marketing. Claim territory while everyone else is still laughing at you. The companies winning at Leverage Beta aren't the ones building better products. They're the ones who understood this dynamic first. They're either lying about the present 11x or icon or arbitraging the obvious Harvey or lovable.
- [00:47]
Harry
This is 20 VC and my favorite.
- [00:49]
Jason Lemkin
Show of the week.
- [00:49]
Harry
It's the News Roundup show with Rory and Jason Lemkin. Today we discuss Nat Friedman and Daniel Gross. Joining Meta, we discuss Canva delaying their IPO Navan filing to go public. We discuss what everyone thinks thinks they know but is actually bullshit in the world of AI and so much more. This is an incredible discussion. I learned so much from this. I want to hear your feedback on the show. Let me know what you think. Harry20bc.com but before we dive in today, here are two fun facts about our newest brand sponsor, Kajabi. First, their customers just crossed a collective $8 billion in total revenue.
- [01:27]
Rory
Wow.
- [01:28]
Harry
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- [04:18]
Rory
You have now arrived at your destination.
- [04:21]
Jason Lemkin
Guys, my favorite time of the week. What a roster of content we have this week.
- [04:26]
Daniel Gross
I was looking at where we're gonna.
- [04:27]
Jason Lemkin
Start and me and Rory, we were texting saying that this is a good start when it was coming out and it was about Daniel Gross and Nat Friedman and potentially being acquired by Facebook or Meta. So I wanted to start there. How did we think about this following the scale acquisition and how did you guys analyze it?
- [04:46]
Rory
Well, I think there's a lot in it and we should spend a little time on it. My kind of mental model zooming out is you know, why Facebook is doing this, why they're buying. Second question is why these people are selling and what does that say? And then the third and I think also very interesting question is why is it going down this way? In other words, why are people able to extract this kind of value for their labor? And how does, for example, California and us being a non compete state impact that? So, lots of things to unpack, but maybe let's start with the first one. So why is it existential to Facebook and just to state what it's not the idea that they need to do? Llama have an open source offering and quote unquote, compete with anthropic, for example. That's not a thing. It's not going to be a business commensurate with the kind of dollars they're putting out here. The only logical thing you can be afraid of is some kind of metamo meta, no pun intended, model that basically becomes your primary interaction with the Internet, with the web, has all memory about you, which is obviously where ChatGPT is going. And it just basically sucks attention minutes away from Facebook, in other words, if they don't build something like that. So I'm interacting with Facebook, I'm interacting with news, I'm interacting also with whatever their version of ChatGPT is. The fear is, you know, precious minutes of attention, which means precious minutes of money goes to ChatGPT. And maybe that's obvious to all the listeners, but it's just worth stepping back and saying that's what it is. It's not that they want to open source Lamar and make money off it. They won't. It's not that they want to even have an API offering of Lama, something like, you know, an anthropic offering that just won't be big. The only thing that makes sense here is if you think that the minutes that people spend on Facebook will become minutes they spend on ChatGPT. And you can't let that happen as Facebook, once you perceive it like that, you go, kinda maybe. And if that's gonna happen, you gotta do something about it. So that's the first thing. Then the second thing is you just look at and go, in one cynical sense, you know, the Oculus acquisition was awful. It was like you spent 2 billion, which wasn't that bad, and then you spend another 60 billion on top of it, which is pretty dreadful. And you didn't get much, but it just indicates this is someone who's going to make damn sure that he is not deplatformed or he is not relevant in the next platform. So they bought 60 billion of insurance with Virtual reality and it covered them for two or three years. They didn't need it because the flood didn't come and they're buying another 60 billion worth of insurance by doing what they're doing in LLMs. And maybe the flood doesn't come and it never matters. Maybe the flood comes and they can kind of ride it out. When you look at it like that, in the context of, as I said, the VR spend of 60 billion, it's like, yeah, I get it.
- [07:20]
Daniel Gross
I'll tell you my, my rough guess, you know, meta as we. As we do this, this has a $1.8 trillion market cap. My guess is it's. It's fairly simple. Zucks put 100 billion to this to catching up to maintaining a and dominance. And that's the budget. The budget camp is probably can't be 1.8 trillion. That would be high for. I mean, it is possible to sustain that dilution. There are deals like that. But in all seriousness, when you look at scale, when you look at looking to buy everybody for 20 billion. Right. Perplexed day on it kind of ties to having $100 billion quick M& a budget to get back on track. It's 8%, I think, if I'm doing my math right. Right. It doesn't seem outrageous when you think about spending a quick hundred billion 8% to get back on track.
- [08:01]
Rory
And just to say it on that, you know, I can simultaneously believe it's totally a bad idea and it won't work and it's totally a good idea to do it just in case it might, which is the really zany thing about it. I mean, I really, I didn't buy into Oculus and I definitely don't. I'm not as convinced you need to spend this money and the way you're spending it will be successful. But I totally get it when there's a limited number of buttons to press and you know you want to press a button and the only kind of button that a CEO of a $1-point trillion company presses is big buttons. You don't go to mark and say, we've got an existential risk. Let's spend $2 million. Because that's just not what CEOs do. So there's only a few buttons you can press at that level. There's only a number, a few places you can buy this talent. There you go.
- [08:43]
Daniel Gross
Sam Altman quote tweeted this similar web today of App Store downloads and App Store obviously is not all of AI in all of the world, but it was interesting. It was ChatGPT over the last 28 days, 29.5 million downloads. ChatGPT, 29.5 million. Just mobile. That's just its mobile app, TikTok, Facebook, Instagram and X32 million. So ChatGPT mobile downloads just about equal to all the social media guys combined. That's probably half the answer right there.
- [09:10]
Rory
Yes. Yeah. I mean, because the first rule of owning a $1.7 trillion business that spews off 100 billion a year is don't blow the 100 billion. Don't kill the golden goose. Taking the conversation in another direction, I was thinking about what do all these acquisitions have in common and what makes them interesting and different, right? If you think back to what happened here, everyone who's getting a billion dollars was in the room when the magic happened. And that's the sound. But let me tell you what I mean by that. A whole bunch of people tried to do build these LLMs, and the early OpenAI team did it, and everyone who was in that room and knew how to do it went on to build some version of this kind of outcome. You either stayed at OpenAI, you peeled off and went to Worktropic, you peeled off and went to Safe Superintelligence, you peeled off and went to Mirrors new company, right? And for the record, no one in any, with the exception of scale AI, who was selling to them, no one who was in any of the other rooms where the magic didn't happen is ever going to get that kind of money. You know, I respect people like Cohere, I respect people like Adept, the other ones like Inflection, none of them have magic moment money. And it's really interesting. And if you think about it, that kind of thing happens occasionally in history, in industrial history, where someone just figures something out that's so damn important that everyone who was in the room when it happened has value just because they know. And then from there, how does that. What's interesting is how does that shape out into money? And I'm going to give three examples, or maybe four, right? Is that when the Chinese figured out how to make silk, they basically executed anyone who tried to tell anyone else. Problem solved. If you look at things like William Shockley, when they kind of early transistors, when anyone tried to actually, let's do Bessemer first. The Bessemer steel process, when they tried to leave, they just litigated their ass out of it there, right? The great thing about California is we're in a no compete state. If this had happened In a state that allowed massive five year non compete, all those guys would be sitting at home getting a 300 grand a year salary going, I can do this in two years. And one of the amazing things about California, I think one of the strengths is the fact that since the 1870s it's been really hard and in fact it just got even harder to enforce non competes. So all these people were able to leave, rely on the doctrine of inevitable disclosure, go set up their new company and again, not copying the past, but they know how to make the magic. And that's the aha here, right? It's just super interesting that they literally, if you were in that room, One of those 20 or 30 people in California, you can go away and effectively you're selling that knowledge that you have that no one else does.
- [11:40]
Jason Lemkin
Does that not lead to the commoditization of magic then in a world where.
- [11:43]
Rory
That some relative commoditization, you're exactly right. It would be better if there was only one. But it doesn't lead to everybody having it because it turns out the price of buying it is a couple of billion bucks. But yes, there's no doubt there is leeching of knowledge out. And as I say, if you look at all those examples, Shockley window transistor, the Besselin steel process, everyone's always trying to stop the magic getting out so they can extract monopoly profits. But over time it gets out.
- [12:08]
Jason Lemkin
There's layers of talent, acquisition value, which is your scales with your 14 billion and your Nat and Daniel and your mirrors. But you know, Sam was on, you know, Jack's podcast and he said that basically that OpenAI's talent has been offered several hundred million dollar offers by Meta several times. And so I guess that's the next layer of talent where maybe they haven't seen the magic, but they've been in the building when the magic was there.
- [12:34]
Rory
I guess I saw something very cynical that said, and if it is, it's even more impressive. Someone made the point this could be total jiu jitsu, because if you're not getting offered 100 million now, if Meta calls you and you're down the hall in OpenAI and they offered you a lousy 30 million bucks, now you're insulted. Maybe he's just messing with their heads. And the other thing is, it's going to be really hard to be the VP of HR in charge of the Meta LLM project because you know, if you're sitting there on your 2 million bucks a year thinking you're killing it, and then Suddenly you discover the new guy's getting again. Your head's going to hurt. So I don't know how much of that is just very clever disinformation, but at some level you're right. It gets back to the same thing. If you know how to cook this stuff, if you know how to make this magic, you have value. And in California, it's very hard to stop you from monetizing that value.
- [13:27]
Daniel Gross
Harry, how much money would it take for you to dump all your 20 VCLPs and your listeners and go join Meta? How much would it.
- [13:34]
Rory
That's a great question.
- [13:36]
Jason Lemkin
I really wouldn't. I wouldn't know what to do. I hate working for someone else. I get great discomfort from being in large companies. I have enough money now where I can do what I want. I'm really happy for one of the first times in my life, honestly, without being soppy, I'm in a really good place. I would be miserable doing that.
- [13:52]
Daniel Gross
Just give me a number.
- [13:54]
Jason Lemkin
Billion.
- [13:57]
Rory
I just love that. I just love that.
- [13:59]
Daniel Gross
Done. Email your LPs, tell them tough touch, tough, tough malarkey that they just gave you the latest 450 million and show up. You do have to spend four days a week in the Meta office in Menlo park, but there's great running on the trail on the peninsula. You haven't done these runs. They're great. It's a billion best over five years. And we'll just give their LPs back their money.
- [14:17]
Jason Lemkin
So spoiler alert that no one knows. I was offered in the last year $75 million for 20 VC media company of which I own 100% of it. And I went for a walk with my mother and I said, what should I do? And she said, what would you do tomorrow if you sold? And I said I'd start the 19 minute VC. And she looked at me and she said, I don't think you should sell if that's what you choose to do with the next day.
- [14:39]
Rory
She's exactly right.
- [14:41]
Daniel Gross
Because now moms are always wrong in this.
- [14:44]
Rory
Well, I'm not gonna.
- [14:46]
Daniel Gross
They give you this great advice from the heart and the soul, but they kind of, sometimes they miss how the stitching works together in the venture industry, in the LP and the holdbacks and whether you have to work for better for four years. Moms are sort of. They're directionally correct in the heart, but. But sometimes they miss the details in these deals.
- [15:03]
Rory
It depends on how much you have. The marginal utility of the first dollar versus the 75th million dollars is very different. So a lot of it depends on your personal position. But also, to be fair, I would imagine in some cases, part of the attraction has to be because none of these folks need that kind of money, is the ability.
- [15:21]
Daniel Gross
That's why I asked the question in part, right?
- [15:23]
Rory
Yeah. I don't think it'll be more fun running 20 VC for Rupert Murdoch. It might be more Fun running a AI project for Meta when you literally are told spend 100 billion to make it happen. Whenever we sell companies and their CEOs and Jason can smile at this and they sell and they go. They join a bigger company and they sign up for a year. I put a little note in my calendar after about three months to check in because they'll need some therapy. I remember one of the guys said to me, I've accomplished my day at 9:07. And then the rest of my morning is just about not getting into trouble by saying stuff. Right. It's just a very different gig. But that depends on what you need to do.
- [16:01]
Daniel Gross
With all these people leaving, is there any loyalty left in Silicon Valley? This does bother me. Where's the loyalty to your LPs, to dumping your LPs, where's the. I mean, I can think of a lot of folks in tech that we look up to that dump their LPs, that quit their unicorn to go into venture or other deals. I get the rationality of it. Quit their fun to go work for Meta. At least Alexander from Skale gave his. His VC's back. 15 billion. Like, at least he did that.
- [16:28]
Rory
He did very well.
- [16:29]
Daniel Gross
He did it right. Right. But people just leaving ship. There's no. That's what I really. I find a little gross about all of this. And maybe loyalty's dead. I mean, it's great that everyone on OpenAI that was a founder, except I guess Greg and Sam are gone running their own competitors. But there's also something about it.
- [16:46]
Rory
I don't.
- [16:47]
Daniel Gross
Maybe it's Sam's fault, but I don't like it. I don't like everyone and dropping. Leaving everything.
- [16:51]
Rory
Now you're sounding like Bill Shockley or whoever it was running Fairchild. You know, just get.
- [16:55]
Daniel Gross
Yeah, Mr. Fairchild.
- [16:56]
Rory
Guy, I do hear you taking the counter argument. Maybe that's meant to work. But if Alexander Wang's highest and best use is as a senior employee at Meta, then isn't it wonderful that the free market system was able to pay everyone else $15 billion all power to excel, who probably booked a $2 billion gain here? If that's disloyalty any of my CEOs who want to be disloyal to me and give me $2 billion, I'm in, baby. So I think the system work. Yeah, right. It's different sometimes.
- [17:24]
Daniel Gross
I hear you. It's just when lots of money goes through the system, stuff happens. Relationships become hyper transactional and maybe that's okay. Maybe it's okay. It just creates really interesting expectations between VCs and founders and founders and management. Like there's very much a vibe of just take 5, 10, 15, 20 million from my investors don't work out, goodbye. Here's the keys. If I grew up that way as a founder, my investors would have made nothing. If I could have left the keys on the table, there would have been two or three times I would have just said, here you go to my VCs. Enjoy running my E Signature company.
- [17:56]
Rory
Years ago, someone sent an old vc. Actually one of the founders of Charles river said something about it. He said, you always got to play the game by the current rules. And there was a time when money capital was scarce. It paid you to have an obligation to your investors because you weren't going to get more. And it was get rich slow. Anyway. SaaS is a compounding business. The truth now is we're in the exact opposite of that. I think a lot of these things, once it starts to hunt, you make a lot. And if it's not hunting, you don't. When people are making lots of money, the institutional glues get a lot weaker. It's just the nature of the beast. I mean, there's no point in getting frustrated about it. Just play the current game, guys.
- [18:33]
Jason Lemkin
Speaking of playing the current game, there was Harvey raising at a $5 billion valuation, $300 million. This really stood out to me as a round. How did you guys analyze it? How did you guys break it down? There's different reports of where revenues are at for them, but I mean, well.
- [18:52]
Daniel Gross
I don't know what the revenues are actually. I, I, I. What's, what's our best guess? Based on scuttlebutt, I think, I think.
- [18:57]
Jason Lemkin
They'Re at an end of year of 100.
- [18:59]
Daniel Gross
End of this year, yes.
- [19:00]
Rory
Coming.
- [19:01]
Daniel Gross
I guess, I guess the growth rate's more important, right? But, yeah, but so forex, they're approaching 50 or something. So 100x error growing. Not quite at replit rates though.
- [19:10]
Rory
No, but pretty fast.
- [19:11]
Daniel Gross
Hold on, let me. Cluly says 30 million.
- [19:14]
Rory
He's got his cheat up. I love it.
- [19:16]
Daniel Gross
I'll tell you why. To me, it's super impressive in a way, right? Is like, I know a little bit about the space, I know a little bit about the legal needs, I know about the legacy players. I never met the Harvey team, but I talked with a lot of founders doing similar things. And my problem was all the apps were great. If you run a set of legal documents through OpenAI and then ask it to analyze the terms and conditions of a 300 page legal document, if you ask it to research the current status of California, you know, no auto renew, whatever that law is, it's great. And so every legal AI app that pitched, I saw a demo. I'm like, Mike, they're all great, they're all curing cancer. Kudos to the VCs, because if I'd met Harvey at the seed stage, I would have said this is great, but I don't know that I could have told the difference from the 11 other ones that were doing this. Amazingly, as essentially, I hate the term, but as rappers, I think they did.
- [20:08]
Rory
Some things really well. And I think the thing they did really well is, yes, there's a bunch of people doing it, but they, they started off, they grabbed hold of OpenAI, they became the deemed winner in terms of Silicon Valley presence and in terms of lawyer perception, frankly, long before the product was there, they established what I think of as kind of intellectual mindshare as being the lawyer's choice. Super early, when the product was still mediocre, we didn't look at them. We looked at some other companies in the space and we did references with the Harvey customer and the reference was some version of the following. My partnership has said we need to do something in AI. These guys have a big story. I'm giving them a million bucks. It's not doing that much for me now, but I have to have an answer and I have faith that they're on the right journey. They marketed this thing as a limited number of customers. They made it scarce and they signed some early customers, Alan and Overy and, and I think one actually the accounting firms and they got this kind of stampede effect going, which was brilliant. I think the product frankly lagged that. But over the last couple of years they have filled in behind it. They have in kind of classic crossing the chasm, like that old Jeffrey Moore analogy of the tornado. They claimed the space, followed up with the engineering, and now they have a compelling product. They claim to have 300 of the, I think Law 500, a Law 1000. But they did it early. They thought bigger than some of the other people in the space. Who thought it was just knock down deal by deal, do good work, be earnest, make good product. Those guys are like, no. Make noise, freeze the market, declare yourself the winner. Details to follow.
- [21:42]
Jason Lemkin
If you're doing this at $5 billion, what are you underwriting this to on an outcome scenario plan?
- [21:48]
Rory
I mean, obviously the album's going to give you the blend at least a 3x with upside to 5, because that's the correct answer. But obviously your real question is, can this be that kind of outcome? And most legal software doesn't have outcomes, anything like that. Because most legal software, you know, there's roughly a million lawyers, and we joke, but a million is actually not a lot of anything. If they, you know, a thousand bucks gives you a billion dollar TAM, 2,000 bucks.
- [22:11]
Daniel Gross
It's not a huge market tradition.
- [22:12]
Rory
It's not a huge.
- [22:13]
Daniel Gross
Outside of litigation.
- [22:14]
Rory
Exactly. So it's not a huge market if you're selling kind of software like stuff. But fun fact, there's two escalators of value. The first is this. For every dollar lawyers spend on software, they spend $5 on Westlaw, Thompson, Reuters for actual legal information. Used to be those old books when you see lawyers in the 1960s, now it's obviously online, but data and information is 5x to spend of software. Right. That's the first kind of argument. And then the second argument for even bigger TAM is obviously you make some kind of arm wavy. We can charge a lot more even than Westlaw because we literally eat the work. We replace the lawyer so you can get paid as if you're a lawyer. All that is to say is you can't get the kind of outcome you need to make this work. If you see it as just another piece of legal software, the math doesn't work. If you see it as an adjunct to your research tool, that gets you closer. But you probably literally have to believe it's doing some of the work to make the tan math work.
- [23:15]
Jason Lemkin
I agree. And I think it goes back to a question that you said before Rory, which I think was one of the best statements that we've said in the last few episodes, which is, are we going to see AI software providers be able to eat human labor budgets? And if so, then we have the Holy Grail and we're all going to do very well. If not, then we're overpaying.
- [23:33]
Daniel Gross
Yeah, you know, it's interesting just on the Harvey story, it was interesting hearing Rory's thoughts. I did meet a little while ago with the legal startup doing something very different, but essentially tapping in. I Mean same buyers, right? And they quickly got to 20 million in ARR on very little funding. ROI was super high. What they were doing with AI, it was super high, but it didn't really do all that much. AI and lawyers are, you know, the IQ is probably the second highest behind engineers, but the sophistication of the purchase was not particularly high. Right. It was to improve lawyer productivity. Right. It worked. But the quality of the AI was limited. You know, some of these, when we look at the replit versus all these wars versus Lovable, there's a lot of equality war there. I don't know if it's possible to have a quality war in the Harvey space. I just don't know. I don't know if lawyers have enough time to switch between 11 tools, dig in and see which one analyzed state law conflicts between Georgia and Alabama properly. Right? Maybe they do, but I don't think so.
- [24:27]
Rory
I think you're right at a high level for the case law stuff. It's the same for everybody. So it is the best tool. I think part of the value proposition from someone like a Harvey is they'll say, we'll integrate with your internal information. So Cooley picking just as example lawyer. It's not just, you know, the fact, the case law that they bring to the table, but obviously we rag and we call through all your internal stuff and we can bring that to the table as well.
- [24:53]
Daniel Gross
That's so easy. Rory.
- [24:54]
Rory
Agreed.
- [24:55]
Daniel Gross
But it's still our AI has ragged 20 million pieces of saster content. It took a day.
- [24:58]
Rory
Agreed.
- [24:59]
Daniel Gross
Literally, it took six hours to input 20 million to rag 20 million words of content.
- [25:05]
Rory
But you haven't lived the dream of having sold that software to a law firm where if you look at the typical document management software that these firms have, it's 20 years old. It's a company like Imanage. So there just does appear to be a high propensity to stick with even mediocre software. So my guess is getting in the door here like, you're frankly a ruthless trier of new software. Jason, you will dump yesterday for today and you'll dump today for tomorrow in a heartbeat. And you're one person running your own business. If you're selling to a partnership, well, remember, everyone's your boss and no one's your boss. You have 200 high attitude, pain in the ass lawyers. You get them all.
- [25:44]
Daniel Gross
Imagine a VC firm like, I can't.
- [25:45]
Rory
Imagine you get them up and running on this system. You know, two years later, there's a better product. You don't need the heartache. You know, you talk to them about their use of Westlaw. They've been using that thing for 40 years. And they're like, I'm dying with this Boolean search here. So I think getting in the door and locking in those customers has value. So it's clearly going to be a valuable company. I think the question. Harry's point earlier, the only question left on Harvey is market size.
- [26:10]
Jason Lemkin
Market size and market composition. Shakeout. There's Lagore as well, who's doing phenomenally well. I mean, they're the European counterpart. I did references on them. They're beating Harvey in a lot of cases. A lot of cases. And then we invested in Solve, which is a vertical application for patent creation, editing submission, I think. And Crosby, which is next on our list. Crosby law firm backed by Sequoia.
- [26:35]
Rory
By Sequoia, exactly.
- [26:36]
Jason Lemkin
The ones who did Harvey. Yes, the tam. But the TAM is getting unbundled and unbundled and unbundled that actually it's not the time you think it is.
- [26:45]
Daniel Gross
I know you're moving on. I do think the meta question for Harvey, I mean, Harvey's still a B2B application at the end of the day, will there be enough 50 billion to 100 billion plus B2B companies in the age of AI to justify these investments? And maybe the math ties to it. But there aren't enough 50 to 100 billion plus B2B public companies today to justify these deals. Right, I agree.
- [27:06]
Rory
If it is software, even. I mean, give. Let's just go for a simple humble 3x15 billion. If it's just software, it probably doesn't. And you know, and trades at seven times in the end, you know, when things get normalized, it's a $2 billion thing. You don't get there on the TAM. So you're right. If it's all just legal software, you don't get there on the tam. If it's legal, eat the work, then you know it's two orders of magnitude larger. So that's the question. Does it eat the work? And then do you get paid when it eats the work? When we last did this, how we didn't talk about that. There's two separate things. Does your software automate what people used to do? And if it does, then at least value has been created. But then the second problem you have is if there's three people competing for the same making the same kind of software, then the law firm gets the value. Excel doesn't charge 60 grand a year because it Replaced an analyst. It charged 60 bucks. Because that's what you get for Excel. Can they replace labor and keep the value? And that's the question for Harvey. And then the interesting thing segueing to Crosby is obviously just for everyone. That's a company that, as you say, Sequoia, one of the successful backers of Harvey, also backed. That's a company that is effectively using AI to offer, quote, a better, more efficient law firm. They are, as it were, using technology to eat their own work. And obviously the value prop is they'll offer a better product to their customers while at the same time presumably be more efficient. That's the bet, at least.
- [28:27]
Daniel Gross
I've already done this.
- [28:28]
Rory
Oh, good. Tell any more.
- [28:30]
Daniel Gross
All the legal work I do, both for the fund and for Saster Inc. Everything, I run through my AI and Claude, and then I run it by my counsel to see if it's correct.
- [28:40]
Jason Lemkin
How many times is it not correct versus correct?
- [28:42]
Daniel Gross
Never. It's always right. I never read my LP agreements. I mean, they're like a thousand pages long. But for the first time ever, I had an LP that wanted to transfer to a third party. I didn't know how it worked. I had two options. I could send it to my old counsel, who charges $3,000 an hour and would give me a grumpy answer in three weeks. And then I'd say, well, can we get on the phone and talk about it? And he wouldn't get on the phone, okay, I have new counsel now. Or I just threw it into Claude. And Claude analyzed all the documents, and it gave me all the correct answers. I talked about different scenarios, how the LP would want to transfer. I said, write this up in a short memo for me. I shared it with my counsel a couple days later. He read the docs. He's like, that's absolutely correct. So what I need is a law firm. I work at the pace of AI today. I'm not working at the 2021 pace where we worked 18 hours a week and had three jobs. I need the answer, my legal answer in seconds, and then my law firm after that can confirm it. Right. I'm at the bleeding edge. But I just love these are the lawyers I have today. I've rebooted my legal team for folks that can review my AI answers rather than the other way around.
- [29:40]
Rory
I buy that. Right, in the sense of there's a whole bunch of things like vendor management contracts, NDAs, where review should be 90% AI, 10% human, check if there's exceptions, and therefore it can Be instantaneous unless there's an exception. And, and therefore in the next sentence is and therefore you'd be damned if you're paying a thousand bucks for it. And I totally think that's a thing. Right? And I think there are law. We've seen not just Cosby, but other firms specializing in NDA review and you know, very typical documents in a way interested me that wasn't doable. To state the obvious 10 years before we looked at law geeks 10 years ago. They were way ahead of their time and you know, the technology didn't support it, so they weren't able to build a compelling business at the time. But today NDA should be at the margin, free. Now the interesting question is how does that manifest itself? Because if all the existing law firms are dumb enough not to get with the program, they'll lose Jason's business because he's going to say I want the flat fee, 50 buck review and turnaround time of 15 minutes. And if those firms resist that, then you're right, there's going to be, maybe Jason will do it himself. But typically there'll be Crosby. You know, firms like Crosby will be wildly successful because they'll take the business away from the older law firms. I gotta believe though, enough of them are just gonna get with the program. Cause remember, they all now in our new world already have Harvey. They've got the guns too. They've got the tools. It'll be interesting to see fast forward five years where the incumbents have Harvey R. Lagora, but all the incumbents have brand new technology that could allow them to do things super fast. But they have business model inertia. And all the new Crosbys are competing for Jason's business. And they say, dude, it's 10 bucks for an NDA, 20 bucks for vendor agreement. And we only charge real money when you have to do a complex transfer. My gut is some of the old guys will be slow, but enough of them will adapt. I don't know, it'd be interesting to see how much the new guys can build in this space.
- [31:32]
Jason Lemkin
But this is exactly my point though, which is venture is defined by two types of outcomes. One, where you drastically underestimate the size of the market and it's so much bigger than you thought it could be. Or two, when you actually overestimate the market size and you see it fragmented and unbundled into so many different composite parts that it's actually not as valuable as you thought it was. And I think that is exactly the case here. When you look at the, you know, when I was doing the diligence for solve patent creation, There were like 15 competitors in every different legal adjacent there is the same. And I think it is as fragmented and unbundled as it is, which will actually make it a smaller market than people give credit to.
- [32:07]
Rory
I think it will. I do think there's about five or six legal process specific processes like patent that, immigration that stand on their own. And then I think there will be the general corporate solution for general corporate law, which would be the Harvard, the Gores. But yes, you know, you peel off 50,000 patent lawyers, that's gone. You peel off another 50,000 immigration lawyers and then you have even up, you know, 50,000 personal injury lawyers, of whom 40,000 live in Texas. And you know, pretty soon that million dollar legal market is down to half a million dollar kind of core corporate litigators and contract writers. So you're right, you start unbundling it. I mean we did the math on lawyers and look, the truth is if you're doing, doing plaintiff law, you don't need Harvey. If you're doing patents, you don't need Harvey. But if you're Wilson Sonsini, you need Harvey. If you're Latham, you need Harvey. If you're a mid tier law firm in, you know, Phoenix and you're a 400 person local firm, you need it, but probably halve the market, which is why the math only works if you start to eat that work, baby.
- [33:06]
Daniel Gross
You know what the triggering thing is about the Crosby thing? How much human labor is going to be replaced by AI? We're still learning. The truth is, we're still learning. But what things like Crosby show is, it just highlights the mediocre with a blinding spotlight. Because if that associate. Forget about the senior partner, I'm willing to pay the senior partner. Yeah, because there's only two ways to win in services. You have to be the best of the best or hyper responsive. Everything else is almost worthless. And when that mediocre associate takes a week to get back to me and it's wrong, and Claude told me the exact answer from my lpac. Like those folks are all going to be out of a job. Like the mediocre. The mediocre in everything. There's no need. Need. It's not just NDAs, Rory, just Claude alone can review very detailed commercial agreements like, okay, I want to get out of my salesforce contract. It's a thousand frigging pages long. What are my options? Claude can give you that answer in five minutes.
- [33:56]
Rory
Yes, it's Just a big no you cannot get out of your salesforce contract. It's the rules.
- [34:00]
Daniel Gross
Well, okay, but then what if. Will they sue me? What are the odds they'll sue me? What happens if they sue me?
- [34:05]
Rory
Joking aside, you're exactly right. I mean, I think that AI is just going to pound on the efficiency. I remember 30 years ago, someone saying mediocre. Yeah, the Internet. The Internet ground out commercial inefficiency. They ground out middlemen, travel agents, anyone who's connecting buyers and sellers. And that was their only thing. The Internet exposed that this is going to grind down knowledge, work, mediocrity, anyone who's just literally recycling stuff that's easily known and is just slow and unresponsive. You're exactly right. And you know, it's pretty impressive. And that's the way capitalism works.
- [34:38]
Jason Lemkin
Rory, when you ask me next time why I'm responding at 1:30am, within a minute's notice, I'll remind you that the to win, you either have to be the best or hyper responsive. And we know I am the last.
- [34:49]
Rory
Yes, and we know you can to the former, so you've got no choice. Baby.
- [34:52]
Jason Lemkin
Listen, humility is crucial to everything.
- [34:54]
Daniel Gross
Yeah, they both.
- [34:55]
Rory
They both work.
- [34:56]
Daniel Gross
I mean, if you think venture is a service business, which most people think it either is between 10 and 99 a service business, it holds true, right? I mean, there's someone in your investor syndicate that like speaks from the top of Sinai and knows everything. And then there's the one that responds to you in 60 seconds. And then I don't care about anyone else on my cap table.
- [35:12]
Rory
Totally, guys.
- [35:14]
Jason Lemkin
You know, there's so much doom and gloom every week. We also have new IPOs. This week, Navan filed for their IPO. This is going to be a big one. I mean, I think their last valuation. Jason, you'll be able to tell me, but it was in the $10 billion range. There will be several venture firms here who make a lot of money from this. How did you guys analyze this one? Going out and filing now at this.
- [35:37]
Daniel Gross
Time, IPOs by number are up 62.5% this year, apparently, based on data I saw today. Right. And just about every IPO is up and everyone's ready to go today. Right. Even when we did this, a couple like we weren't everyone. Other than Canva doing its tertiary at 40 billion or whatever, or stripe. Everyone else is now planning their ipo. They are just, just planning it today. This is just too good a start to the year. Anyone that's got the Numbers. Anyone that's got the numbers going to go public, right? In the next 12 months, they're all going to go public.
- [36:06]
Jason Lemkin
Is there a limit to how much the public markets can take so quickly? With the stampede that is coming on the supply side, is there a limit to how much the demand side can ingest?
- [36:16]
Rory
You know, Jason reminded me a while back and in 2021 there was an IPO a day. The ability of the US investment banking business, business to shovel shit out the door is unparalleled. When someone does circle, we're all very Pavlovian. When you do circle at the IPO, when you buy a 31 and you know, three weeks later it's trading at seven times that amount. Let me tell you what your little Pavlovian reptile brain says. Do more of that and the next one won't be quite as good and the one after that won't be quite as good again. But as long as it still feels good, you know those rats will keep pressing the button. So no, it's going to happen. There's not a practical, there's not a cash limit. As long as this stuff keeps working and nothing exogenous happens, they'll be able to get deals done.
- [36:59]
Daniel Gross
Navon is clearly a top point 1% startup. But even say being objective, is it better than say ramp, right? I mean, I know not a direct competitor, but my meta point is just this. My only question, when you have a 0.1% but it's not, you're not sure it is the generational company, how do you know when you to put push all the chips in to Harry's point, right? It's easy, it's fun to do it, right? I've done it twice and I don't know, it's kind of not to that level. It's fun to push all the chips in, but you got to make sure it's at the edge of generational, don't you? That's the Roblox point that Altos always makes, right? You got to wait for that Roblox and then push all your chips in. Is Navon as good as Roblox? I mean, it's generational, but I mean it's great. Is it as good as Roblox though?
- [37:39]
Rory
I mean, the fundamental point you're saying is your concentration without absolute excellence will beget subpar returns. You gotta be right relative to price. Because the trick is not just you gotta concentrate, but you gotta concentrate while the price is still attractive. Because remember the other thing, it's Just worth stating is on the last, you know, five or six IPOs, there's been at least one round that was in the private side that was clearly priced rock. Now, you know, we've seen it in a bunch of them. I mean, obviously we've seen a chime, we've seen it unhinged. I doubt there was a circle round that was priced as high as it's currently trading. So everyone is golden there. But in general, it's hard to concentrate, and it's even harder to concentrate and get the price right. So, yeah, when you do it and you pull it off, you obviously get a stellar return and, you know, more power to him.
- [38:22]
Jason Lemkin
Circle today is a $68 billion business, which makes it more valuable than Robinhood and Nubank. Just set some parameters.
- [38:30]
Rory
And even more compellingly, more valuable than Coinbase, to whom it gives half of its gross revenue.
- [38:36]
Jason Lemkin
Will it survive falling interest rates? And is this peak meme stock too.
- [38:41]
Rory
Extreme on both sides? Of course it will, quote, survive falling interest rates. It won't go bankrupt. But there's no doubt that its current model is all about, as someone succinctly described it, letting people give you their money and getting to keep the interest. So if the interest is less, they keep less. It's a far worse business at 2% money market fund than 4,5% money market fund. So to the extent rates go down, obviously it won't be as compelling, but it will survive. And then the second thing is, it's a peak meme. I mean, I think there's definitely some element of right deal, right time. With all the crypto reform in the House and Senate, it just feels perfectly on point. There's probably a fairly thin, probably reasonable float, actually, because there was some secondary. But it's the kind of stock that can run. It's an N of 1. The story makes sense. And yeah, it's obviously gotten carried away. I don't for a second, I don't think anyone believes that it's worth 57 times run rate, 50 times run rate revenue. I don't think anyone thinks that.
- [39:41]
Daniel Gross
But here's the question I struggle with. Rory, you've got more experience here than me. I do believe it's a meme stock, and maybe that's the answer to this question. But how. How do you go from June 5th at $83 a share to $231 a share in two weeks with no news? I would get. If a quarter or two goes by, I would get. If you have a beat or two, I would get if something radically changed in the. In the crypto market, this is the same company, that IPO. Is there any difference between this company that IPO'd just a fortnight or two ago?
- [40:10]
Rory
So I first of all agreed it's the same company. So therefore, one mitigation comment to the bankers. I think this is the old Hollywood quote. No one knows nothing. No one knows anything is that we give people that agree. Oh, my God. You priced it at 31 and it opened at 67. You must be dumb, Mr. Banker. Well, we saw it opened at 67, Jason. You did. I did, and Harry did, and now it's 270. Did any of us buy at the end of that first day? We left a 5x on the table. No, we didn't. So I think one of the things you have to conclude is some parts of what happened in this kind of thing are fundamentally fairly unknowable. And so to your point, Ui, Jason, nothing's changed. And you do have to say then at some level, you probably have some. I hate the word bubble because you're making a call, but you're definitely having something where people aren't buying it because they think it's worth 57 times revenues. They're buying it because they think somewhere out there someone else thinks it's worth 58 times revenues and maybe they can flip it to the. The next guy. And that kind of thing always ends badly. So do I think there'll be a. Yeah. Significant correction? Yeah. But it's still a great company and a great win.
- [41:10]
Daniel Gross
We could argue whether the IPO is mispriced, and someone could play the role of grouchy Bill Gurley, who's definitely smarter and more successful than me.
- [41:16]
Rory
Totally.
- [41:17]
Daniel Gross
But the last five days, it's up 46.4%. What? Rory, what changed the last five?
- [41:22]
Rory
Nothing.
- [41:22]
Daniel Gross
Nothing. 46. Forget about making 5x. Harry and I could have just taken our funds, totally stuck them them all four days, five days ago, and made 46 point. What's the IRR? I can't do the IR math. Good. Roy. If we did 46.9 in five days, what's the IRR? Annualized.
- [41:37]
Rory
It's awesome. It's all. No, you're exactly right. There's no logic to it. It's a trading asset. And it's all the. I mean, again, it's all the symptoms of what you see in, you know, speculative bubble behavior, which is vast price movements in short periods of time for no information. The efficient market hypothesis. People get all mad and say, they're really, I mean, you know, pharma. They'll say there are no bubbles and you'll go, go, hmm, this looks pretty bubbly to me. Large numbers of small volume, ill informed traders in a stock where relative to the float there's not a lot. And I have no doubt in my mind that when the other 80% of the stock comes off in six months, I don't think it'll be trading at 57 tons revenues.
- [42:13]
Jason Lemkin
If you're looking at this as the CANVA Exact team, can you genuinely help me understand why do you delay an ipo? You're looking at CIRCLE being price winners, but everyone else, everyone enjoying the fruits of public markets, treating them well, why do you delay?
- [42:28]
Rory
It's a great question because it's actually the only reason to pose the question. Let me tell you what I mean by that. When you have all these things, should you stay or should you go to coin a music phrase on the ipo? And you have all the private is great. The real question is, is the cost of capital cheaper in the public than the privates? And for a long time the private has been cheaper. We've been wonderful. Cost of capital. We give you money, provided you get a preference. We leave you alone, we don't bug you, you don't have to do analyst day. We're not really that mean. I mean, some people think we're mean, but compared to, to the guys in New York who run hedge funds and various kinds of funds like that, Activist funds. That's the word I couldn't think of. Yeah, we're nice. So it's been really nice being private. The only thing that's going to change that is not some kind of. I was thinking about it because you'd asked the question two or three weeks back, what would you change in the public markets? And I hadn't a good answer. You know why? I realized it's kind of the wrong question. Price is the lever for 90% of economic transactions. If you can get a stupid price in the public market that's higher than the stupid price you're getting in the private market, then at the margin, most of you should go. And I think you're right. Maybe not canva. Maybe people have ideological reasons not to. But let me tell you, if you're owning a bitcoin trading operation, a stablecoin operation, you are typing as fast as your little fingers will let you. And there are bankers locked in rooms as we speak doing that. Because price is how the public market sends a signal to the private Market. Hey, come on in.
- [43:53]
Jason Lemkin
Would you not argue that as a relatively naive way to think about going public based on a transitory moment in time of what public markets will price you at? I was with a dinner with a $10 billion public CEO last night who's a friend of mine, and he was just moaning about being public. And very simply, it's a transitory moment in time you will appreciate depreciate. Who gives a fuck what you went out at?
- [44:16]
Rory
First of all, I'd say it's less naive than reductionist. And look, you're right. All the other negatives and positives of being public that are hard. My point was, at the margin, if you get all the grief of being public, and on top of that you get a lower price than the private side and a consistently lower price, then you never bottle. But if you get all the grief of being public and it's still a pain in the ass, but in return you get a liquid stock and a 50, 80% consistently higher price, then the argument is hard to resist. Now, you're right. If it's a flash in the pan and it's gone in two months, then it would be a naive reason to go public. But if on average the capital is cheaper in the public markets, then over time it'll pan out.
- [44:56]
Jason Lemkin
If we just go back to Canva, though, I just don't get it. It's a very strong consumer brand, very well known, with incredibly strong financials that we know of. It's north of 3 billion an ARR. Why would it not go out?
- [45:09]
Rory
They don't have to sell securities. They're kicking off cash, which means that their net buyers of their security for employees, not sellers. So they don't need to raise money. I mean, fundamentally, you go public to raise capital. What's odd about some of these companies, They've been private so long and they've done so well that they're post needing capital. They're just kicking off cash. So it's just not an imperative.
- [45:30]
Daniel Gross
If Canva's generated enough cash, like you could imagine Canva generating a billion dollars of free cash flow or more a year, maybe a billion and a half. It's easy to see, right? They could have 40% free cash flow, margins. Right, Right. If you have enough secondary interest too, you could just buy everybody out. There's enough cash at a billion and a half a year. You could buy out even all the growth, just about everybody. And no one listens to the guys that bought a few shares at the late rounds anymore. But forget about that. The Blackbirds and everybody got as much liquidity as they want, right? Return the fund if you generate enough cash. And the founders have given most of their shares away to charity. I don't think they're trying to buy the biggest yachts. If you could generate 20, 30 billion of free cash flow the next decade, why, maybe you don't need to go public at all. Just buy everybody out and pay dividends as founders just pay a billion dollars out as common stock dividends a year. If the founders own 80% of the common, most of us could live on 6,700 million a year in dividends, couldn't we?
- [46:22]
Rory
I think even you could manage it, Jason. And you know, look, you're right. Is that.
- [46:25]
Daniel Gross
Seriously?
- [46:26]
Rory
It's not.
- [46:26]
Daniel Gross
There hasn't been so much. I'm trying to figure out exactly how much has gone in in real time, but it's not so much. They can't buy the out.
- [46:32]
Rory
I don't think they could buy it all out. It would take too long. But I get your mental.
- [46:36]
Daniel Gross
They raised less than a billion, I think, think.
- [46:37]
Rory
But they might own. If they own 30%, then they need 10 billion. But yeah, it's not crazy. Andre, when we talk about Oracle, when we talk about Oracle, unlike a lot.
- [46:45]
Daniel Gross
Of these startups, it is possible to buy them out, right?
- [46:47]
Rory
Yeah. If you've got low capital raised and high cash flow margins, you could. I don't think that's the reason. I think a lot of what they said is they're really trying to focus technically on their AI development because they got a lot of new stuff to build and they just don't need the grief and the distraction and they don't need to do it, which is a perfectly rational way to.
- [47:03]
Daniel Gross
All I'm saying is if the three of us were running Canva, and let's say we're still growing north of 30% or 40% like they are, and we sat around, listen, guys, we could buy out our last investors at 3x. It may take a few years to get there. They'll make the 3x. Blackbird made 50,000 500,000x and friends, let's just chill. Let's just pay ourselves a billion dollars a year in dividends like, like the base camp guys do on steroids. And let's buy out our guys at 3x when the time comes. And why, why would we want to deal with like, I don't know, a single public CEO that's happy going to Harry's point? I literally don't know. I mean, even the most successful ones, Palantir and Cloudflare are the two most successful public. I mean they're great, but they don't seem happy, do they? Do Matthew and Alex seem. They don't just seem like the happiest people on planet Earth, they're driven like mad. Respect. But I would have that discussion with the three of us. Why don't we buy them out? We've raised less than a billion, right? We can get to 10 billion, generating 4 to 5 billion of free cash flow a year.
- [47:55]
Rory
It's a legitimate question. If you are post strongly cash flow positive such that you don't need to sell shares, in fact, you're a net buyer as you point out, either because you're doing buybacks for employees or because you're doing buybacks of founders, then in fact you're not trying to optimize valuation. So going public might make sense. I think you end up doing it for other reasons, mass liquidity, including your own.
- [48:17]
Daniel Gross
But isn't like Larry Ellison kind of doing that? In a way?
- [48:20]
Rory
Yes, he is.
- [48:20]
Daniel Gross
They just reported he's at 41% ownership of Oracle now.
- [48:23]
Rory
No, that's really funny.
- [48:24]
Daniel Gross
He's buying out his shareholders every year with cash flow like we've never seen before. Why don't we learn that lesson and do it it before not even bothered ipo?
- [48:32]
Rory
I mean, first of all, you're right, let's talk about that now. I mean, I think that because it's been interesting because at IPO, I think Larry Ellison owns something like 23% of Oracle. Typically that goes down over time. He now owns 41% of Oracle. What's he done every year? He's run that business superbly. It's got 43% operating margins and he's used that cash to buy back shares. He hasn't sold any. So his ownership has just gone up over time. It's exactly what Jason said. It's a beautiful thing. Now, really interestingly, two things happened this year. One is the Stock really popped 40% and he got a lot of cloud credit. But the interesting thing is this is the year he actually abandoned the buyback strategy because this is the first year where instead of taking all that cash and buying shares back, he's taken all that money and put it in Capex. Oracle was not free cash flow positive this year.
- [49:19]
Daniel Gross
His own money, really?
- [49:20]
Rory
Yes, he put his own money and he said no, we're going to take this lovely, mature, cash flow positive software business and join the other crazy people in this Capex crazy hyperscaler land. So I think the Capex budget was. I'm winging it here. Something like 30 something billion. And effectively you were free. Cash flow negative. The trick that he used to get to this point is now not happening. But luckily for him, it's so clever. He bought when it's cheap for 10 or 15 years, then invests in AI and then gets a 40% stock pop from that investment in AI. Just when he owns most of the company. Company. It's a thing of beauty and puts him firmly number two richest man in the world. I think for a period of time. You gotta love it.
- [50:01]
Jason Lemkin
What a strategic mind. Also I. He looks phenomenal for his age.
- [50:05]
Rory
Totally.
- [50:05]
Jason Lemkin
I don't know what he's doing, but someone needs to give him more credit.
- [50:08]
Daniel Gross
Whoever his people are, I need all of them.
- [50:10]
Jason Lemkin
I haven't told you. I'm actually his blood boy. That's why I didn't sell the company. He pays me much more. No, yeah, there you go. I totally agree with you guys.
- [50:18]
Daniel Gross
30 billion in 2024 into cap capex alone instead of buybacks. Right? Totally agrees.
- [50:23]
Rory
It's just a totally. What's fascinating about it is it's such a different bet at a time when most people in the 80s are getting conservative. It's like he took the Warren Buffett Bible for 15 years and did the cash buyback like Buffett did at the Washington Post. And then last year he said, fuck it, I'm 80. I'm just going to double down here and just switch strategies. It's just fascinating. If it works, it'll be a legend.
- [50:45]
Daniel Gross
Once you buy like a couple Hawaiian islands. I mean, honestly, there's really ran out of things to buy, right? You gotta buy a planet. We talk about yachts. I mean, Larry Ellison owns a big chunk of Hawaii. I mean, there's not much left to buy.
- [50:57]
Jason Lemkin
Actually, a very famous billionaire told me that once you conquer earth, there's only one place to go and it's space. And that's why we have Elon and Bezos. Jason, you've mentioned Cluly a couple of times. We have to talk about this company. Jason, why are you a fanboy? I have thoughts, but I want to hear yours first.
- [51:12]
Daniel Gross
I'm a fanboy. If we look at AI for coding. Okay. If we look at Replit, 10 to 100 million million in 5.5 months, right. Announced yesterday. Crazy, right? If we look at lovable, not far behind. On and on and on. Right. Cursor. And what kind of bums me out is that on the GTM side, on the sales side, I know everyone's made investments in there. They're not as good, they're slow to release features, they don't work that well. They're just not like the sales tools for AI are not as good as the developer tools for AI. So what I'm looking for is who's approaching this from a consumer level level that has a consumer grade experience that could work for gtm. Listen, I love my old sales team. Everyone to work with is great. But overall the sales reps I talk to for all the products I buy, they're terrible. They don't know their product, they know nothing. They add no value. So they all need to cheat. All sales reps need to cheat because they don't know anything. And they all need something like Cluli and I've used. There's a limited number of tools that do this in sales but they're either not real time, right. Like I'm using. Using Cluli right now or they're. They have an enterprise niche or they're glorified note takers. This is what every sales team needs. And at will it be Cluly? Maybe not, but once in a while like, like a slack or something, you need something to come up from the bottom to disrupt a market instead of coming from the enterprise. And I just don't see sales tools. We can look at crazy things that are crazy successful like Clay and others. But Clay is like a, you know, multi month deployment period with an agency that you pay 50 grand to. Right. I want tools that you can use in five minutes. And I'm not saying Cluly does all of it today, but I can already see hints. If it could do like two things today, it would be the cheating tool. For sales reps it means like two features they could build in a month. That's why I may be an intern. I was invited to be an intern this week. I may take me a week to get up there. But I. You think I'm kidding, but when I joke, there's always seriousness in it.
- [53:00]
Jason Lemkin
Jason, you're taking a way too academic approach to the this because the right or the right tact or the real question is are they going too far in their bid to get attention? Posting pictures with strippers on sofas, police cars, arresting people outside of parties.
- [53:16]
Daniel Gross
I, you know, I thought that at first and when that initial stuff went out right. I didn't even know it. Cluley was seemed crazy, right? And if you look at that social network thing he did along with Andreessen fundraising. The other stuff went to other folks queuing back to the social network went to me. It went to maturing the company just slightly because there's a whole generation of us in B2B, Harry. This is where I am a couple clicks older than you. I can't tell you what it was like when I took my team to see that movie. It was generational. You don't know what it was like when everyone was piling on Zuck saying this was a terrible company, hoping it might be worth $1 billion today. What is it worth? We started this episode 1.8 trillion. And his point when he did the interview was like, listen, you guys on Twitter and LinkedIn are like two or three years behind what's going on on TikTok and Insta. You're in the middle, Harry. And he's like, I'm gonna bring some of that knowledge to the Twitter LinkedIn. And I thought that was the social network thing he did. I thought it was a 10. I know you can laugh.
- [54:13]
Rory
Can I come in? Harry, I wanna come in on this because I don't even know who wrote it. Cause notion's got such a shitty ui, I can't figure out the read, but I got a piece sent around internally called leveraged beta is all you need. The LLM business, it was so clever. And it gets back to this because there's two separate questions at stake here. One is how much should be steak and how much should be sizzle? In other words, how much should be core product versus marketing? Which is a general question. And then the second question is, are there certain forms of marketing that are just go too far? Which is cluly. And you could argue the Harvey comment I made was, you know, they did marketing. This was such a good piece. I got to read out a couple of lines from the Brutal Truth about the LLM business. Here's what nobody wants to admit. When LLMs finally work at something, the implementation will be boring as fuck. Harvey isn't some breakthrough in legal AI. It's chatgpt with a law costume. Lovable isn't revolutionizing code, it's clawed with pretty buttons. So you have two choices. Option one, wait until the LLM actually works, then scramble to build your ChatGPT wrapper along with everybody else who just relies the same thing. Option two, start now while the tech is garbage. Lie about how good it is. Burn money on marketing. Claim the territory while everyone else is still laughing at you. The companies winning at leverage beta aren't the ones building better products. They're the ones who understood this dynamic first. They're either lying about the present 11x or icon or arbitraging the obvious Harvey or lovable. It's a great piece. What he's basically saying is the models are getting better so fast that even if you can't do it now, you will be able to do it in a year from now. So your choices are wait for a year and just complete the course along with everyone else or lie complete the course now, establish this kind of mental perception of the winner and then collect the check when the time comes. Harvey did that in a high class way because I don't think you sell to law firms by hiring strippers. I don't just right. And you could argue.
- [56:09]
Jason Lemkin
You never know.
- [56:09]
Rory
Actually I'm not going to speculate. I'm going to keep this thing high falutin. Right. Cluly is doing it in a different kind of way. We can discuss reputation. Does that kind of marketing work? But the meta comment of claim the ground with marketing and let the product follow on because it's going to get there because the models always get better. It was a widely insightful piece in point. I would give him or her credit if I could just figure out a notion where the writer is. But there you go.
- [56:36]
Daniel Gross
Cluley might know what I'm going to ask.
- [56:40]
Jason Lemkin
I Jason, why didn't you invest in this company?
- [56:43]
Daniel Gross
I didn't get a chance. I would. I wouldn't have invested in the company three weeks ago like or whenever Suse did but I would invest in it right now that I get it right. I'm not always that fast, Harry.
- [56:52]
Jason Lemkin
So actually to be fair, my partner Paul actually picked this guy out when he was like kicked out of Columbia cold DM'd him. Jason, would you do this 15 on 100 would you do it clearly says.
- [57:02]
Daniel Gross
Author is not named. Rory doesn't know and he doesn't have enough data notion. Right. Show me that if you can show your transcript to clearly though truly clearly can look it up.
- [57:10]
Jason Lemkin
Jason, would you do clearly 15 on 100?
- [57:12]
Daniel Gross
I could do like 5. I don't think I could get to the other 15. That's too much risk.
- [57:16]
Jason Lemkin
You might D5 from your fund.
- [57:18]
Daniel Gross
I get excited about companies in general and then sometimes you meet the founders and it's not what you thought. Right. We're all on our own journeys and there's a probably a good chance what I see include is not what the team wants to build. Right. I mean it is started off as a cheating app but if it is, I just think all the B2B people are so subcursor grade that I'm looking. This is all I want. I'll take the risk. If someone can pull together an S tier team in gtm, I'm in on it. For real. They all claim they do and they're just pretty good.
- [57:49]
Jason Lemkin
Yeah, we mentioned, I'll tell you afterwards, we mentioned like buying islands, being in Hawaii. The thing I just can't get and a lot of my companies are really perplexed by it is the slack lockdown, cutting access to it. Can you just help me understand like will it work? How do we think about what this actually means for slack moving forward?
- [58:09]
Daniel Gross
You know, all the leaders in B2B, I think most of them are going to circle the wagons and become more locked down. They have to be. They have to be. And when you're sitting around the table, especially with the CRO and others who are, who are under stress, what does the CRO want to do? Lock it down, Move to multi decade contracts and raise prices. Like that's the strategy when things are stressful. And I think we could argue whether this is a mistake, but I think MCP is an existential threat within 12 months to every B2B company. And so folks are going to lock stuff down more because you, you can lock down your API, but when your MCP servers open, it's rough. And I love what like Zapier is running like a thousand times faster now to become like Zapier prime because of this. They get it. HubSpot is figuring it out. But they were first, right? And Salesforce, I think most people do what Salesforce is, which is lock the S deck down, lock this down.
- [59:00]
Rory
That was helpful context, Jason, because you know, my instinctive reaction is no, you can't do this. I'm a Salesforce customer. If you were telling me I can't integrate in and out and you know, access my data, I'd be miffed. And then what you did nicely, Jason, is remind me of the duplicitous and sly ways that especially the closer you are to having a monopoly, the easier it is to start locking stuff down. And you're exactly right. LinkedIn, obviously, I mean everything epic in the medical record space is notoriously difficult to integrate to. You have to pay fees and all that. So it is interesting that as you get big and defensive, you're right, there is this instinct to lock it down. I mean, part of me says they won't be able to get away with it. That the customers will say look, if you're going to do that then the value of Slack goes down so much to me that you can't do that. So my God. And I think you said this to me, Jason, I was talking to someone. Is that probably this reverses to some kind of of fee based thing which is MCP access to my Slack information is a priced API call. I don't know if you can get away forever in a horizontal app like Salesforce with a channel like Slack denying the customer access to their own content over the medium term. I don't think it stands intuitively. I could be wrong and I and you and you did well to remind me of other areas where they do it. But I just think it's a sign of a decaying empire higher. It's a sign that you can compete on the merits. It's a little bit of a dangerous sign. It's one of the signs that says this would be a good time for you, Mr. Customer, to consider your options. Right. It's like when PE moves in, price rises are coming.
- [60:35]
Daniel Gross
That's why I have the most respect for HubSpot and especially Dharmesh for being number one here. Like launch day, MCP, OpenAI partner chat, GB partner, launch day. Because I think it's a threat to HubSpot. I think it's an opportunity. Of course it's an opportunity. Right. Which is why they're doing it. But to embrace the threat, I mean it's. That's bad ours. That's the way you do it.
- [60:53]
Rory
Totally.
- [60:53]
Daniel Gross
It is a sign of deteriorating everything. Right. And you know, and as Slack deteriorates more and more like it becomes less and less. This, our neural network, it's going to get locked down even more, isn't it?
- [61:04]
Rory
Yeah. It's hard to imagine a world where you say this is the means by which we all communicate with each other, but no one can access that information for the use of AI. That's just not a thing in. It's not a sentence that survives.
- [61:16]
Jason Lemkin
Final one. I have dinner with Benny off in London in a couple of weeks. What question should I ask him?
- [61:22]
Rory
Taking Jason's team this idea of agents, I would say kind of. I'm trying to get some data and dialogue around it. How do you measure the efficacy of Salesforce agents running on the Salesforce stack? And how does that compare to third party agents running on the Salesforce stack? Are you better because you have the data? Are you worse because you're a little behind? Do you even object to measure it? Do you understand if you're using your sales agent how you measure success? Do you understand? You know we have a wedgie in the AISDR space. There's a bunch of others. How do you compare to them? If you're in Service Cloud, how do you compare to all? How does your agent compare to all the independent agents? Because to Jason's point, what would make it go faster? It's really simple if the resolution rate on Service Cloud was 20%. So you can only, let's be honest, eliminate 20% of your service center personnel and the resolution rate with some third party product decagon fin Sierra is 50 or 60%. Then you're going to lose business pretty quickly. And are you measuring that? That's the question I'd ask him.
- [62:28]
Jason Lemkin
Do you want to come to dinner instead, mate? I'll have dinner with Jason. That's a really interesting question.
- [62:33]
Rory
I'd be too scared. I'd be too. He might get mad at me and then. Then he'd cut off access to my slack and then I'd be screwed.
- [62:39]
Daniel Gross
Right.
- [62:40]
Jason Lemkin
We're going to do a Kalshi Quickfire. As you know, this is like an incredible betting platform which does predictive bets on world outcomes. So we have will OpenAI accuse Microsoft of antitrust violations this year, yes or no.
- [62:56]
Rory
And the odds are 36%. You always have to state the odds. Otherwise it's just a meaningless 36%. Which means if you bet only 30% probability which means if you bet a hundred bucks and it turns out to happen, you get 246 bucks back. That's what it means. So I take that bet. Yes. Accused, by the way is a wonderfully vague word. Will they file a lawsuit and prevail? Maybe not. But will Sam throw words out? Absolutely. Yeah. That 2 1/2 x on a yes. I'd take that chance.
- [63:24]
Daniel Gross
No chance.
- [63:25]
Rory
You think?
- [63:26]
Daniel Gross
I'll tell you in my my opinion, zero percent. I'll tell you why.
- [63:29]
Rory
Why?
- [63:29]
Daniel Gross
I think he already did there.
- [63:31]
Rory
He did. So I win. Yeah, I think that's right.
- [63:33]
Daniel Gross
They already accused Microsoft of antitrust.
- [63:35]
Rory
They floated it internally. They didn't have.
- [63:37]
Daniel Gross
Yeah, everything. Sam. You know I'm a little slow, Harry. I'm not as quick as you with Cluley and some of the others. It took me a while to figure out that everything Sam says that seems off the cuff or like on the side or a little futuristic. He's very clearly telling you what's going. He's very direct and when he says. When you hear that they're thinking about it, he's done it. Okay. It's the same as filing. I'm not saying literally so. I already think he's threatened it in a pleasant way way. The question is, does he have to go through on this threat which has already been made? And I think it will. I think it's enough to have said it. I don't think Microsoft wants to be sued by any trust. So I think it's going to get worked out.
- [64:13]
Jason Lemkin
By the way, I completely agree. I think he's one of the most strategic communicators. The interview he did with Jack, who I love. Jack's great. But like what brilliant time man for the message he wanted to land. He knows the message, which is meta's poaching for 100 million. He's just put a stagger in the heart of the recruiting campaign of Zuck to take from OpenAI. Brilliant.
- [64:33]
Daniel Gross
It makes it feel like he's just sharing things with you, which he is. Right. But I didn't get how clever it is. I didn't get how clever his communication strategy is. Right. It's as good as it's the best of anybody. Isn't it?
- [64:42]
Jason Lemkin
Beautiful. Beautiful. Okay, so the next one is will the US government take control of any AI company or project in the year of 2025? And so the odds 100 bucks gets you 297 back if it's a yes and 100 bucks only gets you 125 back if it's a no.
- [65:02]
Rory
I still think no. I think just the push from the folks on the tech side has been very much AI for good, not AI to control it. I think all the very active tech people from David Sachs to Andreessen Horowitz, their approach has not been AI is dangerous. It is entirely corrected. By the way, Bean, in my opinion opinion AI is wonderful and we should make lots of it right here in America. While it's pretty clear that the tech bros don't run the administration, it's pretty clear that the big guy runs the administration. My guess is this is just not important enough for the big guy to give a shit. So thanks for the money, guys. In this you can do what you want. So no, I don't think there's any impetus to say let's seize control of Entropic or something like that. No. Even though I only get 25 bucks more than I put in. I would I take a note.
- [65:51]
Daniel Gross
I don't know. But I haven't seen watching what David says, which I think is very careful on the government side. Right. Very, very careful. What he's. Kudos to him, but I haven't even seen a hint of this right. From our AI crypto czar. Now if he knew it, he wouldn't say it. Right. I mean here's where having an ex lawyer very briefly a long time ago in one of these roles instead of Elon probably helps. Sachs knows exactly what to say. But I feel like there'd be a heavy hint this were true. Given that we're halfway through the year.
- [66:18]
Rory
Agreed. It's far more likely to see some kind of regulation of Chinese AI companies not obviously taking control but some kind of pushback there. I think that's highly likely. But not us.
- [66:28]
Jason Lemkin
Short detour before the final one, Sachs had to divest a load of assets, including a load of crypto and also late stage companies. Do you think he was hurt or helped by divesting? He divested in a pretty good period to divest at a pretty buoyant part of the market.
- [66:43]
Rory
Market. The markets since then have been down but then back up. I mean just facts. The overall S and P roughly flapped. And so no, not again, not lost, but crypto up. So it probably cost him money and again credit to him. You don't have to like a ton about it to say, you know, he's doing public service, he's sold his assets to do that and there probably has been a cost to it, you know, putting his money where his mouth is. I mean there are famous occasions of people having to divest to join public service and then taking part in administrations that totally shank things up. And as a result the divestment looks like genius. But I don't think that's the case here. I think it cost them money because look, look at crypto alone. I think since the election we've went up a little bit, then we dipped down a lot for liberation. They then moved back to roughly flat. It's been kind of a no op.
- [67:29]
Jason Lemkin
Final one, boys. Trump mobile smartphone. Will it be released before September? The odds are $100 gets you 716 back on a yes. 100 only gets you 108 on a no. The man moves at speed, boys. What do we think?
- [67:46]
Daniel Gross
It's impossible. There's no supply chain evidence of any phone in production. There haven't been any leaks of an actual phone in production and there haven't been any leaks to sites of true product development other than a mock up of a golden phone.
- [67:57]
Jason Lemkin
I thought he was doing a product partnership with AT&T& he was basically just sticking a Trump sticker on. On top of a different phone.
- [68:04]
Daniel Gross
Well, listen, maybe I'm dated, right? The idea the. The press I saw was launching a phone, so clearly quickly researched it for me while we're here. In terms of all the supply chain evidence, there's no notice of anything happening. If they're going to put a sticker on the phone, they. I'm sure you could do that yesterday.
- [68:17]
Rory
It's pretty clear that Jason has. I mean, okay, Jason's actually.
- [68:20]
Jason Lemkin
He's put money in, Rory. He's put money in already.
- [68:23]
Rory
He's got 5 million in. He's talking to stock. But I will say that was pretty impressive because, you know, it's sitting there. There. It's doing its work.
- [68:28]
Daniel Gross
What did he say?
- [68:29]
Rory
No, no, I get you. I have to actually understand what's going on. Jason just has to be able to read, you know, it's really lowering the bar for competence here, people.
- [68:38]
Daniel Gross
I barely have to read. He just listens. Cool. He just listens and watches the screen.
- [68:42]
Rory
Yeah, as long as you can read it back. No, that was. That was. That was a win. That was a win. As to the phone, look, I'm with Jason. There's no. And if it ships, it's meaningless. It's not a thing. I'm not going to dunk on, you know, the attention span. I mean, there's a lot of initiatives in the administration that come and go. It's been a while since we've talked about Greenland for examp. Look, this is a week when the administration had a big win. Let's just take it at that. I don't think the phone is going to be the biggest win. I'll make a different. If I were Tim Cook and Apple, I would move heaven and earth to even make some kind of phone here just to do enough to say we're trying. That's a company whose business model, a big shill, is so exposed to China risk. If the solution on the making side is we don't make it in China, we do make it in India. Yeah, that makes logical sense, but I just worry you could find yourself in the political crosshair. So just even trying to make some phones in America, even just one, would, in my view, be a shrewd thing.
- [69:37]
Jason Lemkin
I agree with you. Make one. Get Trump there. Get the picture, get the marketing message. Made in America. Trump did it.
- [69:43]
Rory
Absolutely. That's exactly right. Make a little lot of 10,000. You'll sell them for twice the normal price, and you'll discover that Americans won't buy them and you'll have tried. Make a good fade effort. Get him off your back, boys.
- [69:55]
Jason Lemkin
Thank you so much for doing this. This episode was brought to you by Cluly. Jason actually won't be here at Harry's house.
- [70:03]
Daniel Gross
It's whatever.
- [70:06]
Rory
Let the record.
- [70:07]
Daniel Gross
Actually, let's just do it at the 20 VC office because we can spill out onto the streets and then behind it. That's a great place to have a party, isn't it? Two floors. What's the rules on spilling the party out into the streets? Is that cool?
- [70:17]
Harry
It's a private.
- [70:18]
Jason Lemkin
It's a private road, baby. No.
- [70:19]
Rory
Yeah, I'm Guys, given the clearly context, ending with a comment that says clearly party, no rules is not how I would suggest we end this movie here, guys.
- [70:31]
Harry
I mean if you can't tell, we just have so much fun doing those shows. It really is special when you do it with two people you respect and like as much as I do. Rory and Jason.
- [70:41]
Jason Lemkin
I so hope you like the show.
- [70:42]
Harry
Let me know what you think on Harry at Twitch. I always love to hear your thoughts. But before we leave you today, here are two fun facts about our newest brand sponsor, Kajabi. First, their customers just crossed a collective $8 billion in total revenue.
- [70:57]
Rory
Wow.
- [70:58]
Harry
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- [73:48]
Jason Lemkin
As always, we so appreciate all your.
- [73:50]
Harry
Support and stay tuned for an incredible 20 sales episode with the Head of Sales at Notion, Kim Graves.
- [73:56]
Jason Lemkin
Tomorrow.