← The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC OGs: SpaceX Valued at $800BN & Harvey Raises $160M at an $8BN Price | Airwallex Raises $330M and The Battle with Keith Rabois | Netflix Acquires Warner Brothers | IPO Market Predictions for 2026: Anthropic, Stripe, Databricks and SpaceX
01:31:48
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- [00:00]
Rory O'Driscoll
Every time that private market valuations came into contact with public market valuations, private market valuations were found wanting. And money is a great fruit serum. Don't tell me what you think, tell me what you do. It is possible to lose money on a great company.
- [00:16]
Harry Stebbings
Air Wallix at 8 billion or ramp at 32? Which would you rather own?
- [00:22]
Rory O'Driscoll
Jason, bail me out here.
- [00:24]
Jason Lemkin
VC condescending to tell the CEO how they're going to work it out. It's beyond condescending. The great CEOs will figure it out.
- [00:31]
Rory O'Driscoll
I'm going to push back hard on that.
- [00:34]
Jason Lemkin
People are going to see you as condescending where I wouldn't.
- [00:37]
Rory O'Driscoll
I disagree and they're welcome.
- [00:39]
Jason Lemkin
They like you a lot now. Don't make them think of you as condescending. It doesn't help. At the end of the year, push back. Take a mulligan and delete this.
- [00:45]
Rory O'Driscoll
No, I won't.
- [00:46]
Harry Stebbings
This is 20 VC with me, Harry.
- [00:48]
Sponsor/Host Voice
Stebbings and it is the spiciest show.
- [00:50]
Harry Stebbings
We'Ve ever done with Jason Lemkin, Rory o'. Driscoll. The biggest news in tech.
- [00:55]
Sponsor/Host Voice
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- [02:25]
Harry Stebbings
Put your work out there.
- [02:27]
Sponsor/Host Voice
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- [04:13]
Harry Stebbings
You have now arrived at your destination. Guys, it is so good to be back. Jason, I am loving this 20 VC swag that we've got going on here. I mean it looks fantastic.
- [04:23]
Jason Lemkin
Rory, a reminder and others out there. Swag works.
- [04:27]
Rory O'Driscoll
Swag works.
- [04:27]
Jason Lemkin
It works. It's a good investment. It's a good investment.
- [04:30]
Rory O'Driscoll
It is quality. Swag works. It's got to be good enough that you want to wear it. That's the test.
- [04:35]
Harry Stebbings
Or play with it in the case of a paddle bat.
- [04:38]
Sponsor/Host Voice
Hey Rory, we see yours behind you.
- [04:40]
Rory O'Driscoll
Oh yeah, yeah, yeah, yeah, yeah. The others are paddle bat.
- [04:44]
Harry Stebbings
Okay, okay, we're going to start. We're going to start.
- [04:45]
Sponsor/Host Voice
We're Starting with number one, SpaceX pursuing.
- [04:48]
Harry Stebbings
$800 billion valuation through secondary sale. This is obviously not the first we've seen in recent times with SpaceX doing large secondaries.
- [04:57]
Sponsor/Host Voice
It's the first time, it's obviously been 800 billion. How do we think about this?
- [05:00]
Harry Stebbings
News.
- [05:01]
Rory O'Driscoll
It's an amazing. Let's start with that. It's just an amazing company. It's actually amazing two companies. It's an amazing rocket company and then amazing communications and starLink company doing $15 billion growing plus or minus 30% this year. That's a pretty hefty valuation. North to 40 times run rate for a company this year going 30. Now you could argue maybe there's some extra Starlink growth buried in there but I remember thinking I'm not sure I'd be a buyer at that price.
- [05:33]
If I don't sell, I might be looking to my seller. So yeah, I think there's a huge amount of Elon magic overlay and so far that magic has worked. But it's definitely a lot of non obvious math baked into the price.
- [05:47]
Jason Lemkin
It may segue into the IPOs of 26 and 27. I think it's going to. Our jaws are going to drop with the IPOs. One question, I guess it's a minor question, is there's so many brands that will IPO. We had 20, 25, we had no brands IPO. I mean we had some good IPOs. We had some IPOs that traded weak like Figma. But it's not like folks on the street knew who Figma or Coralweave was. Right. Who knows what retail will do to to to Space X and Stripe and street names like Databricks which everyone talks about. A little facetious there, but I don't know what the retail premium is for a hot name but it's boosted Tesla over the years for sure.
- [06:22]
Rory O'Driscoll
But I'll push back.
- [06:22]
Harry Stebbings
Jason, does this secondary sale not actually just show the lack of need for these names to IPO? The fact that you're doing it at $800 billion and furthering the discussion that we have with Tom Tungas of like the lack of need for these companies too? I actually think it's not going to be a good 26 because of secondary.
- [06:38]
Sponsor/Host Voice
Sales like these at these prices.
- [06:40]
Jason Lemkin
But I mean if anthropic really IPOs at the end of next year it will just, you know, we haven't had an IPO like that almost ever. It will, it will just change the coin, the amount of liquidity, the scale. I mean who knows if it's worth 800 billion or whatever it trades at. These are just not like the VC deals we just used we used to do even just two of them even. You're right. Maybe Doug is right. Maybe these guys never ipo. Eventually they will want the capital I think and I don't think databricks and Anthropic are hiding from an ipo. I don't think they're doing a Stripe. I think they've been very clear they're on a path to an ipo. We just don't know when databricks and anthropic will ipo.
- [07:16]
Rory O'Driscoll
Some of these are destined to go public in a way that maybe Stripe chooses not to. I think the question will be if you get locked into a high price on secondary, even if it doesn't have an IPO block, even if it's entirely secondary shares, will you get into this weird dynamic where it doesn't feel like a win if the public markets don't think you're worth 400, 800 million billion, they only think. Only. Did I really say that? Only think you're worth 400 billion? I think that's one of the weird things about, you know, private rounds providing a high water mark. Does it make IPOs, for lack of a better word, emotionally unattractive? Because it's gonna not feel like the win you wanted it to be.
- [07:53]
Jason Lemkin
I mean, it's worth pointing out, does anyone care anymore? Rory, if. If it's a down, literally, does anyone care any. I think we've given caring about a down ipo.
- [08:01]
Rory O'Driscoll
Let's talk about that. First of all, you're right. I mean, I think almost every IPO this year, 2025, was a down round on the prior private round. Every time that private market valuations came into contact with public market valuations, private market valuations were found wanting from a do you care? Perspective. Yeah, you survive it, you move on. It's not like it's. You're right, it's not like the end of the world. The person who obviously does care is the person who bought in the private markets at a price that's not now available in the public markets. And this is back to the.
- [08:32]
Jason Lemkin
I don't know if they care, though. No, what I mean is. What I mean is, seriously, going in 26, of course they care, right? Especially without a ratchet. My sense is it's baked into the business model, right? For Harry, on the off chance Air Wallix is worth less than he paid. Okay. I don't think Harry's here is going to quit the business, right? I don't think he has a 3x ratchet on his investment. I'm just saying, I think it's much like coming out of a hot accelerator, raising at 60 post with trivial revenue. I think even seed investors have internalized this, right?
- [09:00]
Rory O'Driscoll
You are right, it is in the business model in the sense if you think about late stage investing and obviously I think we can stipulate that 800 billion pre is definitely late stage by any man's defin, you're not running any other kind of meaningful risk except valuation risk. So you can't cry like a baby when valuation risk bites you in the ass. So at one level you are not only is it baked in the business model, it arguably is the business model. Just like investing in stocks, the business model is some go up and some go down. So yeah, I agree it's not going to be oh my God, we'll never do that again. But what it will lead to is perhaps that's the point in time at which either there's less capital or more circumspection in the private markets. I mean if you continually price something at a high price and you're continually wrong and it goes public at a lower price, at some point some adult in the room will say maybe we should stop doing that and wait and buy them when they're cheaper. You're right, it's not the end of the world. But that's the As I look at these, as I look at $800 billion pre for a $15 billion revenue business, as I say, in the absence of the Elon premium, I think that price would look pretty sick in the public markets now because of the Elon premium. I freely admit it's just not knowable to me in the short term. I think in the long term everything as we said is a weighing machine and the cash flows will dominate. So they're going to have to do a lot of going to get to that price.
- [10:17]
Harry Stebbings
I want to expand this discussion to the broader IPO market because we've seen not a huge amount of liquidity come back. It not be as exciting or as exuberant as we thought it would be in 2025. Two questions as directors can be Will 2026 be the year of the IPOs? If so, what will be the catalyst to drive that excitement we were just.
- [10:37]
Rory O'Driscoll
Doing when you kind of sent out the note, you said what happens if entropic and databricks go public? Right. And just doing the math here, I did it. It's like 800 billion for SpaceX, 400 billion for Anthropic and 200 billion for Databricks. That's 1.4 trillion of market cap, let's say VCs own on average little under half of that, plus or minus. That's 700 billion of money returned to VC that would obviously, to state the banal, be a pretty darn good year. Now sobering to realize it's only about 20% of the total private FMV because the total private FMV of Venture is something like 2.8 2.9 trillion. It's a big chink in the deficit. It's not all the deficit, but it would be a great year. And that's plausible. The weird thing about power law math is it only takes one or two of the top of the power law to go public to dwarf 10 little $2 billion pre IPOs. It's all lost in the noise of the banker fee. If SpaceX goes public at anywhere from 400 to $600 billion, one of these years will be a bumper year for IPO. And the thing that will make it a bumper year is just like 2012. You don't remember, but 2012 was a bumper year for IPOs. Why? Because Facebook went public. The year I can't remember 2018 was, quote, a bumper year for IPOs because Alibaba went public and both of them were huge and ginormous. And if you look at the little bar graphs, it's like, oh yeah, that was the year of Alibaba.
- [12:04]
Harry Stebbings
What is the Facebook or Alibaba of 26? Is it SpaceX, anthropic or databricks?
- [12:09]
Rory O'Driscoll
Oddly enough, any of them actually it's not true. At 200, I can't remember Alibaba, but SpaceX and Anthropic would be bigger than both. Facebook was around 70 or 80 billion. I remember Alibaba being bigger, a couple of hundred billion. But yes, any of these would be bigger. At some point in one year, two or three of these will go out at the same time and it'll be like the mother of all years.
- [12:29]
Harry Stebbings
Did we not feel pretty good actually looking at this? When you add in an OpenAI on top of that into an H127, which is kind of where people are projecting it to be, you're looking at 18 months of pretty phenomenal funnel and liquidity.
- [12:42]
Rory O'Driscoll
If the market stays strong and that happens, the overall return to equity will be extremely. Return to venture will be extremely good. Just to say it out there, because I am Mr. Debbie Downer, Markets are at an all time high, both in index terms, which is meaningless because they're often at an all time high, but just in terms of valuation on a pe, any kind of shill or PE basis in a much more normalized market. If all these companies went going back to Perhaps disagreeing a little about something. If all these companies went public and every one of them was significant significantly down on the last round, let's just say instead of being worth 1.4 trillion, they're just worth 7,800 billion. Still the best year ever. Still three amazing companies going out. You could still have a weird feeling of, ooh, maybe I shouldn't have bought at 800 billion pre. Or even 400 billion pre. That's the dilemma here, I think net, net to your point, it would be good overall. I mean, the capital would come back, all the prior rounds would make money. You might just have this odd phenomenon of people going, ooh, that last price was a little, little, little reach here than the public. But you're still in a good shape.
- [13:44]
Harry Stebbings
Jason, do you want to lose some more money? Remember, I mean, I'm already out 50.
- [13:47]
Jason Lemkin
Like I already thought this was going to happen at the end of 24, already owe you 50 grand plus interest.
- [13:52]
Rory O'Driscoll
Wow.
- [13:53]
Jason Lemkin
I was too optimistic. I really thought that we would have A blip in 23 and 24. All the B2B leaders would come roaring back because, you know, growth stayed high for a while right through 2023. So I thought 2024 was going to be. I thought we were going to have an IPO a day again because of the unicorn backlog. Little did I know they would all stop growing except the AI ones. All the, except they would all stop growing. So I don't even want. Hopefully the interest rate's like 1% like Elon's loans. We'll have to have to figure out I'm good for it.
- [14:22]
Rory O'Driscoll
If your plan involves assuming we ever get to 1% interest rates again, I, I'd abandon that plan because I can.
- [14:29]
Jason Lemkin
Double down on the bet. Yeah, but my bet is now it has to happen by the end of 2026. It is tight, right? I, I think I'll take that bet. I'll double down on it. I think anthropic and data bricks have an incentive to ipo. As best I understand it, they have an incentive. As Rory said, times are great unless the market crashes for some reason. I think they're going to do it when the timing is perfect. I think they're both going to IPO in the back half of 26.
- [14:49]
Rory O'Driscoll
I do agree with you because I think oddly anthropic has been obviously very different in terms of founding story and effective altruism and angst about AI, but remarkably sober minded and sensible and kind of mainstream in terms of the financial plan all along. They've stated they're going to be more efficient, burn less. They've talked about converging early. It feels like they will very sensibly go when they can. Because in this kind of capital intensive business, I think at some point there will be a strategic advantage to going public. So just logically it would be the right thing to do. And they've been pleasantly more logical than the other player in this space. And more small C conservative, which is ironic, as I say, given the philosophical approach there. But in terms of finance, they've been conservative and I think they will be. And conservative, sensible, conventional maybe is a better word than conservative. The conventional thing to do when you're valued at 400 billion and you and you need to raise a lot of money would be go out and access the public markets at scale.
- [15:45]
Harry Stebbings
Jason, I'm keeping my gain. No deal. I think you're right. I think 2026 is when they go out.
- [15:51]
Rory O'Driscoll
Harry's pocketing his 50 grand and moving on. I love it.
- [15:53]
Sponsor/Host Voice
I'm pocketing my 50, baby.
- [15:55]
Rory O'Driscoll
But also remember, we've been. I saw it in one of the chart guys I follow is that from April 15, when, remember we had the tariffs and the implosion then this has been the strongest bounce back from a bear market since 1982. It's been the biggest jump. Right. So where everyone's head was in April versus where everyone's head is today, and you should remember it can go the other way just as quickly. Everyone can think they're filing and then something can go wrong. So you're right. When equities are at an all time high, the window is open and you know you're going to need more money, maybe you should think about grabbing the moment.
- [16:28]
Jason Lemkin
But if Anthropic's predicting their revenue is going to triple next year, difficult to imagine, even in an amazing market like today, you're going to get a much better multiple than in early 2026. Right. Will it triple from 26 to 7 to almost 80 billion? I mean, maybe, but I mean, just the fact that you've got a 3x at that scale kind of in the bag, that's a good time to ipo.
- [16:49]
Harry Stebbings
Jason, baby, I got a new bet for you. Before we do the bfd, the new bet is Anthropic going out. What price does it go out at? And Rory, you're involved in this bet.
- [16:58]
Rory O'Driscoll
Some chance, I think just talk about a private round at 300, 350. Again, looking at public information, when you look at the growth rate, when they were doing the $170 million round. You can see the math working. So you could easily justify a 350 million type valuation in the public markets. So that doesn't seem crazy. I mean, it's amazing as a result. But Jason's right. One more year of 3x growth. I mean, the thing that would derail all this stuff, as we all said, would be sustained deacceleration. But if the acceleration we're seeing attenuates but doesn't collapse, then that kind of number's totally plausible.
- [17:33]
Jason Lemkin
I'm going to say 500, which I think ties to the round.
- [17:36]
Harry Stebbings
I'm writing this down, Jason, 500 and.
- [17:38]
Jason Lemkin
I'll tell you why. And I think you've got to be careful to use ARR math when it's really forward growth, most likely. Right. But if they do hit 25, 26 next year, if it's in the bag, doing simple math, 20 times is what Databricks is. 20 times what other. I mean, it, it's not even that high for a public multiple. 20x right. For the top to the top 10%. So 20x times 26 is 520. I'm going to guess 500 billion IPO. Right. And it, and it ties to a mediocre deal in this round. Right, but still a good IRR. Right? If they raise it 300 to 350, the IPO at 500, that's still a pretty good IRR.
- [18:10]
Rory O'Driscoll
I mean, if you think about the two conversations we've had, and I'm disappointed because I had all my homework done on SpaceX and we blew past it. But if you think about it, we're basically saying one company is going to get roughly 20x, 2025x going 3x next year, down from 10x this year, 10x and 3x and the other one's going to get 40x revenues growing at. It grew mid-20s this year, but probably a little more next year because of Starlink at 40%. So it's just interesting. I mean, we talk about these things in isolation, but when you zoom out and look across, would you prefer to buy the thing at 20x growing 300% or the thing growing at 20 30% at 40x? It's just anomalous. Maybe it does speak to some kind of. Hey, to be fair to SpaceX, it's an N of 1, it is profitable, it doesn't have a direct competitor, huge market. But I think a lot of that is just the great leader premium.
- [19:03]
Harry Stebbings
Rory, give me a price.
- [19:06]
Rory O'Driscoll
350 I don't know. At Tropic 3, 5400, you know, I'm not spending a ton of time.
- [19:10]
Harry Stebbings
Okay, we're going to put 350 down for Rory. I'm going to go for 420. Okay? The big fucking deal, Netflix acquiring Warner Brothers, $82.7 billion. First question is, how do we analyze this? Second question is, will it even go through? How did we think about this?
- [19:29]
Rory O'Driscoll
First of all, you're right. You say Netflix acquiring Netflix hoping to acquire, but with a lot of opposition from a hostile empowerment. I think the big zoom out venture comment is Netflix won. They ate the media industry. Their market cap is $470 billion. The biggest studio is sub $200 billion. Comcast is worth $100 billion. Netflix won. They can ingest this by that. It's less than 20% dilution and keep powering through. That's the zoom outcome. They come to the table here. I mean, it's just so interesting how outmatched the other player is. With one caveat that'll come to. I mean, Netflix is, call it a $470 billion market cap company putting just under 100 billion bucks on the table. Paramount is a sub $20 billion company putting 100 billion on the table, relying on debt plus PE investors like the Kushner fund and a bunch of other funds to bridge the difference. Those are very outmatched competitors in this hostile bid. And again, as I say, back to the big picture is the outsider. The venture backed company has basically a far better business model than any of the studios and is eventually going to, as you're seeing it here, start to eat them. That's the big picture.
- [20:43]
Harry Stebbings
Do you think it will go through?
- [20:45]
Rory O'Driscoll
I mean, there's so many dimensions of going through. First of all, it's clear the board of Warner Brothers Discovery, which is their technical in wbd, wants to do this deal. Paramount had put the thing into play. But the board dynamic is what do you do as a public board? You say, what's the certainty of close? The person who has $500 billion plus or minus is more likely to close than the person who has $20 billion plus or minus. I'll go with him. So they want to get that deal done, but you have a whole bunch of regulators and then you have political overtones. And we also should put in the Hollywood artists because they're fun too. From a regulatory perspective, Netflix is much more concerned for the FTC because of monopoly power, alleged monopoly power, because HBO is a streamer and Netflix is a streamer Paramount is much more of a concern to the FCCC from a broadcasting license perspective. So both of them have to go through everyone. But there's a different regulatory pushback for each of the two. All other things being equal, you'd say would go true. It's a classic thing. If you do the near end analysis, oh my God. If you just focus on streaming, then Netflix is big. HBO puts them a little bigger. They're over 30%. Everyone wrings their hands and says, it's over. Netflix will say, zoom out, call this entertainment, take into account YouTube, take into account broadcast TV, we're still teeny tiny. Push it through. And that's a known regulatory issue and it'll get debated and litigated. The two other things we have to talk about, both of them are fun in different ways. One is more than ever, you have political overtones here. Obviously the investor base. Even leaving aside Kushner, you obviously have the Ellisons appear to be pretty tight with the White House. You have Trump already commenting a little bit on the Netflix side. So you do have the thumbprint of the executive office probably coming in on this one. He said gently. And then the really fun one is Hollywood hates the Netflix deal. And you have to ask yourself why. It wasn't obvious to me until I did some reading and like, yeah, Hollywood is all about the creators. It's not monopoly power screwing the consumers, it's monopsony power. If Netflix becomes the biggest single buyer of content, then if you're making content, which is what Hollywood does, the media buyer for Netflix becomes the most important person in your life and your biggest customers. And they correctly hate that. And you know, they'll say it's because it'll be bland and boring content and it will be because corporations are more boring with content than individuals. But it's also, let's get real because Netflix will exert its power to not overpay. It's always interesting because regulatory's approach kind of really focus on the damage to the consumer. And that's not the case here. But if you're a producer of content, if you're name me a famous movie star, you hate this. You're like, I do not want Netflix to have all that leverage on me or they'll have me grinding out rom coms on a low budget somewhere in Romania. And I'm not going to like that. It's not going to be fun.
- [23:35]
Harry Stebbings
I'm sure Leonardo DiCaprio is terrified about that. Yeah, absolutely.
- [23:40]
Rory O'Driscoll
I mean, you might have to go down into single digit millions for those 20 minute movies. So many ways to pile on on that one. But yeah, interesting.
- [23:47]
Jason Lemkin
You know, a small thing that's interesting to me is, is the CEO Zaslav. Is that how you pronounce his name? David Zaslav?
- [23:53]
Rory O'Driscoll
Yeah.
- [23:53]
Jason Lemkin
Clearly he does not want to do the Paramount deal. It is interesting. And if you've been. For folks, if you've gone through M and A, you really want to have two, two real offers. Backup. You want to have one real and one fake offer, like one stop, at least one fake offer. You can tell Corp Dev you have another offer. But if you've ever had two as a founder, and I've done both, had to and had a, had a pseudo offer. But when you really have to, you really think about what you want to do with your life more just the interesting dynamic is I just really don't think he wants to go work for, for, for Larry Jr. At Paramount. It's confusing whether he'll make more money under that deal or less versus a deal where he gets to control more of his destiny. Some of the assets stay on as a separate company. As a founder. And he's not a founder. As a founder, I would take the Netflix deal in a heartbeat. And I do think that is some of this, hey, go away Paramount. Because management doesn't want to do the deal. So it'll be interesting when they do a tender, the hostile offer. Right. And 51% of the shareholders take it because this may be a divergence of interest at the margin between the two. But I don't think management wants to do this Paramount deal.
- [24:53]
Harry Stebbings
I thought it was interesting. David Ellison said the board have not even responded to Paramount's offer. No response at all. To Rory's point earlier in terms of where the appetite is from. You know, WBD clear.
- [25:05]
Rory O'Driscoll
They were talking earlier. It's clear, as Paramount said, they put the deal into play. And then, you know, again, that's the problem. When a small company puts a deal into play. The company that you're trying to acquire kind of mentally gets its head around selling itself and then it can just decide to sell itself to someone else. And again, going back to the big picture here, someone else is a $480 billion market cap. And you don't. That's what's happening here.
- [25:29]
Jason Lemkin
And at the margin, I don't know how important it is. But at the margin, Netflix also has a revenue arbitrage. It trades at a much higher multiple. Yeah, that can come under a little pressure when you buy a large asset, but it still remains true Netflix. Netflix's equity is cheap, relatively cheap to buy this asset. And they may be able to inflate all the assets to 10 times revenue. Right. If they do that, this is an incredibly accretive deal for them versus the most expensive deal Paramount could do. Even if it's do or die. Right. The revenue arbitrage is not to be understated in a deal like this.
- [25:57]
Rory O'Driscoll
Though it is interesting. The Netflix stock ticked down slightly, but I think that's a little short termist. I think even aside from the revenue arbitrage, the beauty of Netflix is again zooming out. Because you have global distribution, you can monetize content better than anyone else. You can pay more for content because you got more people to sell the content to. It's just that simple. The business model won. But I actually think that the fun question you asked Harry was what other examples of this will there be? This is the digital world taking over old school industries. Yet another old school industries rolled over and died. And I think that's a super question. I was thinking about it a lot.
- [26:35]
Harry Stebbings
What is the other industries?
- [26:37]
Rory O'Driscoll
I think there's a bunch. And that's the interesting thing, because When I started 90s, it was exactly that. It was information technology and most of it was sold to corporations to effectively account for their shit. You had computers to count people to count money. That's all it did. Hence the name. I mean IT Information systems, those boring names. And that's still the bulk of core IT investing. You have software to run B2B. But the amazing thing this is to your point, Harry, is that only since the last 25 years, digitization ate a couple of industries. I mean the obvious big ones it ate is it ate advertising. I mean, Facebook and Google have 70% of not just all digital advertising, but all advertising. Thanks for playing newspapers. Thanks for playing broadcast TV. They won. So from 95 on, Venture backed Silicon Valley startups ate the advertising industry and took all the money. And now you're seeing the second big one. The second, I mean, near Mad Men, it looked like it was fun to be in advertising in New York. And now little tech weenies in Silicon Valley. We just did it to Hollywood. Thanks for playing, guys. I know you have these cute studio businesses, but we've got distribution on the Internet. We've got our algorithms for predicting which software works. We're going to take over your sexy Hollywood business too. You're right, Ari, what's next? It was a great question. I mean, to me you actually talked about it last time. The Next one is FinTech. What point does someone like Revolut say, oh, I woke up and realized I'm the largest market cap bank company in Europe. Maybe I'll buy one of you branch baby thingies like Amazon bought Whole Foods because that's the third one that got swallowed. Retail got swallowed. I mean if you think about it, they swallowed advertising completely. They swallowed a lot of entertainment, not all of it. They swallowed a good slug of retail. Probably banking's going to go that way and at some point, maybe auto. I mean it's just amazing over an elongated period of time, just the power of digital software enabled technology in conjunction with the Internet to just eat entirely destroy and consume other businesses.
- [28:41]
Harry Stebbings
Before we move to some of the biggest AI deals that we've seen go down, a couple that I thought were super interesting and you can choose tiger's new $2.2 billion fund downsizing. I know it sounds crazy. $2.2 billion is a huge amount of money. But from the lofty heights of 21, it's a big change. Anything of note that we should think about here?
- [29:01]
Jason Lemkin
You know, I thought the most interesting thing in the reporting was that. So they did raise a prior fund about 2.2 billion. Right. In 23. They only did nine deals this year versus 100 and some odd in 2021. I think what's just interesting is this is a super smart group of folks. I think both strategies are of the moment. I actually think the tiger strategy in 2021 when we had an IPO a day and every recurring revenue company could IPO at a couple hundred million in revenue growing 50% with 140% NR. I think that was the strategy of the day. Now Tiger seed itself reinflate with Open Air and others. Right. It's seen everything we've talked about, the huge growth, the unlimited growth for the winners and now they've tilted to that strategy. And I think growth investors probably should tilt to the strategy of the day. But it's. I just think it's interesting and we'll see what the 2029 fund does. But doing nine deals at that scale is pretty tight. Right? It's a pretty, It's a pretty concentrated focus, isn't it?
- [29:54]
Rory O'Driscoll
It is. I give them credit. I just want to say I'd start with. Because it takes. Look, the guy running that has got billions of dollars doesn't need the grief. It speaks to a love of the game that he says, I'm going to swallow my pride because I don't think he's going to say the 21 fund was a success or the right idea. You might get bailed out by some of your big investments like OpenAI, but you don't look back. I mean, we all have periods as investors that we don't look back on. In pride, where you go, I got that wrong. And I'm sure a team as smart as Jeff Goldman looks back on 2021 and says, that was Huber, a scientist. And I was wrong. And I give them huge credit for not going. And now I'm just going to take my $2 billion, $5 billion and stay in my house in Palm beach or whatever. I'm going to get back in the game, raise a smaller fund, take the little bit of knocks from the knockers that say you're wrong and just do my job and do it well. I think it's great. All credit to them and what you're seeing is, which is always true, is that the original strategy they had of doing the very best deals, doing them late, doing them with concentration, was the right strategy. It worked with JD.com in 2012 or whatever it was when they did that in China, it worked early on in Internet land. They got carried away, they made some mistakes and now they're sobering up, flying right and staying in the game. So, you know, all credit to them.
- [31:07]
Jason Lemkin
And a 20% GB commit is not small. 20% is at the limit where it's almost not worth doing. You might as well just direct invest. You're just not getting enough leverage on your money. I've always thought 20% was a weird number, right? Assuming you have 20% carry, right? You're not making enough money. You're not like all the grief of having LPs isn't worth it at 20% GP commit, is it?
- [31:26]
Rory O'Driscoll
Well, it is because you need, you need the bigger check size. At 400 million, you wouldn't be a late stage fund. No, I actually think you get to.
- [31:32]
Jason Lemkin
Write bigger checks, but you don't. You don't make so much more money versus investing. In theory, you don't make enough money for the grief.
- [31:38]
Rory O'Driscoll
I think I understand what you're saying. Because the math is easy. You can do it in your head, it roughly doubles it. You have 20% of your money and then you have 20% carry. So if you 2x the fund, half your gains come from your capital and half your gains come from your carry. It's easy math, ignoring fees.
- [31:53]
Jason Lemkin
But in theory, now you're right. This breaks down on late stage funds for early stage investing. I actually think it's worse because it's harder to get into the deal. Right. It may be the opposite for growth.
- [32:02]
Rory O'Driscoll
Jason, you're exactly right. If you were running, if you had 400 million of your own and you were doing an early stage fund, becoming an $800 million fund to take other people's money, this is silly. You're exactly right. I would argue, though, on the late stage business, there's a critical. I mean, look, you can't show up at a $200 million round with a $30 million check and say, pick me. That's just not a thing he's sizing for the business at hand. And I agree. I think every LP probably draws a huge amount of comfort from that check. I mean, I personally think, especially when you're dealing with wealthy people, where they put their money is what you want to know. And I actually think LPs don't focus on that enough. I find that enormously reassuring that someone cared enough to write 20%. And when things get tough or when you're trying to, God forbid, get your capital back versus play to win, that 400 million will keep these guys focused. So I think it's great. Again, everything about that's good. I hadn't picked up on the 20%, but that's.
- [32:52]
Jason Lemkin
That's awesome for folks who might be founders or others. Like, that's a lot for a fund, right? I think the average growth fund is about 1%, and even that can be manipulated. And where you come up with 1%, maybe one or two of the partners that are richer are putting the money in. It can be from loans, it can be from cashless things. 20% is, to Rory's point. You got to love the game. If you're that rich, even if you had a rough couple of funds, you got to believe this is. This is worth it, right? So much.
- [33:16]
Rory O'Driscoll
And money is a great fruit serum. Don't tell me what you think. Tell me what you do. Do you love the game is one question. Do you love at 400 million is a very different damn question. And clearly they do. At 400 million, you're exactly right. 400 million. You're in because you're in.
- [33:30]
Harry Stebbings
I also think it pains him greatly that their brand has been tarnished in the LP community, and he will do everything possible to make other people money again. I think he is wounded and an incredible dud. Actually, I'm a big fan of Chase.
- [33:44]
Rory O'Driscoll
I've never met the guy, but that's how I read it. Absolutely. There's a point at which you're not doing this for the marginal money. You're doing this because you like it and you like to do it well. You take money from LPs, you value that relationship. I totally agree. I think that will be a highly disciplined, highly focused machine.
- [34:00]
Harry Stebbings
Next, Naveen DataBricks, head of AI, announces his $500 million seed round at a $5 billion price. We actually discussed this months ago. I don't know if you remember it, but well before it was announced this week. It was just announced this week and caused a stir at the $500 million seed. Anything to discuss? We haven't Sure.
- [34:24]
Rory O'Driscoll
I can't remember who wrote the book about another entrepreneur where it perhaps didn't apply as much, but it was. The title was once you're lucky, twice you're good. And Naveen's done it twice. I mean, you just look at that and you go, at this point, you can draw a line. And once you can draw a line, the VCs are going to just show up en masse. It totally makes sense. And everyone's doing their I'm delighted to back Naveen tweet yesterday morning. Yeah, and it is true to some extent. There's such a lot of data in someone who's been successful twice, you just got to look at it. I can totally see how you can extrapolate to that. What kind of seed deal at 5 billion can give you a 3 to 5x return? I don't have clarity on that. It's a lot of enterprise value to be created. I know how I'd write that investment memo. If I was writing it for my colleagues, it would be once you're lucky, twice you're good. This guy's done it twice. Price back him. Different than saying, I see a $25 billion outcome here. I just don't know it.
- [35:12]
Harry Stebbings
The one lesson that I've learned from a lot of these deals, whether it's thinking machines or this or some others, is that although it's 505 billion on the sticker price when it's announced, there's actually several rounds before that Sequoia and Andreessen have done that are considerably cheaper. And the $5 billion sticker seed is actually very different to the first two rounds before that. No one's picked up on.
- [35:34]
Rory O'Driscoll
I don't know if that's the case in this case, and you might know better than me, but you're right, we're seeing a lot of that. It's just so weird. And just for listeners, what you're seeing is it can either be different investors doing earlier rounds and not getting announced. Or even weirder, where you see one investor commit and they commit some money to you at 300 million, some money at 500 million and some money at a billion. And from the investor perspective, they make the commitment and even the checks at the same time. So their blended cost is 5 or 600 million. So that's their economics and that's the facts. But the entrepreneur can then announce a headline billion dollar raise. It feels a little fomo y. Obviously the idea is both that you get attention and maybe that the next round investor is foolish enough not to realize what actually happened here. And maybe it works. But when professional economists make lists of things that you see in bubbles, this is widely up there on kind of weird stuff you see at top of markets.
- [36:28]
Jason Lemkin
But it is, it does work in my limited experience. Because even if you do three rounds at the same day at 300, 600 and 900 or whatever it is when you're oversubscribed, it's just a message to the new investors, the price is 900. The price might even go to 1, 2. Like I've seen it too. It's just a step function. And investors that that are struggling to get into the round accept it. They acquiesce to it because it just is what it is. As long as there's a. I think sometimes in venture and when deals are high, but you just have to pay the price that it is. In hot deals you just have to walk or pay the price it is. So if you can stairstep around even in a matter of hours so that the outcome is logical, then investors can either opt in or opt out. It is a little douchey, but it actually leads to a very efficient process for folks to opt in or opt out. Right? I mean YC has been doing this for over a decade. You know, even in the old days you get in before YC demo day, you paid six pre, you got an after YC demo, it was always nine, there was always a 50%. Now the step ups are even higher before or after demo day. So this has been going on since I started investing in YC companies right in 2014. The first did one. Everyone had a step up after demo day. Just didn't used to be up to 60 or 100.
- [37:33]
Harry Stebbings
Listen, it's not three rounds in a day, but it is three rounds in a year. Our favorite, the trustee. The trustee, Harvey is back announcing $160 million round led by Andreessen. $8 billion valuation just to give the metrics. 150 million in ARR growing. 300% year. 98% GDR, 168% NDR.
- [37:58]
Sponsor/Host Voice
Good numbers, small raise.
- [38:00]
Harry Stebbings
In comparison, 160 million led by Andreessen at 8 billion. So like less than 2% dilution tools.
- [38:08]
Jason Lemkin
You know, it's funny when you can get around for this for like 3% or less dilution, I'm super in favor as an early investor. Right. It's a great deal, especially if we no longer care about the downside risk. If we no longer care if it's worthless. I think it's an amazing deal. The funny thing is, when I started investing, I was taught, and in fact I was told by one of my anchors, these kind of deals, you can't recognize the markup, it's too small. I had a deal like this during the 2021 boom. It quickly got marked up to 3 billion by a good investor. But it was 2% of the company, right? To get into the company. And I never recognized the round or marked up my LP said, you can't do it. I guess here it's 160. That's not chump change, is it? No, but it's so small. It's so small. Is it a real valuation? I don't know.
- [38:50]
Rory O'Driscoll
Just a push on that.
- [38:51]
Jason Lemkin
Right?
- [38:52]
Rory O'Driscoll
160 over 8 billion is 2%. Right. I mean, let's just do the math here at 800 billion in SpaceX, 2% is 16 billion. They're not doing a $16 billion second win. We just took that valuation seriously half an hour ago. And then the interesting thing is, again, we said it a million times. So there's no. There's no legal. I mean, so 3x is 24 billion. There's no legal company, software company, been worth more than 2 billion ever. So it's 10x that the data companies, the Westlaws and the Timevests are worth more than 2 billion. Fives and tens of billions. So still less than this. This implies huge time expansion into labor. And then if you go on the website, huge TAM expansion, I'm sure beyond just legal, into other professional services.
- [39:38]
Harry Stebbings
That's what you have to believe if you're going to see this being attractive.
- [39:41]
Rory O'Driscoll
Yeah, you do.
- [39:42]
Harry Stebbings
And you also have to see market dominance. I think you've also.
- [39:45]
Rory O'Driscoll
Oh, yeah, you have to be the winner. Like number two. This is not the prize for the.
- [39:50]
Harry Stebbings
Not only the winner, though, Rory, I think actually market dominance in a way that Uber Lyft is. You can't have a cloud composition There where four players take but there are so many and there are so many fragmentations of this. You know you did gci. I mean so I think you need to win the whole mark.
- [40:06]
Rory O'Driscoll
That's actually a good comment. What you're saying to paraphrase is not the typical apps oligopoly but almost like you know the way Netflix to go back to dominate streaming. It's like not only did I win, I have 80% market share of stream or whatever it is. You know I, I'm the winner, I'm the Uber because yeah, you got to extract a lot of money but also not the unbundling.
- [40:24]
Harry Stebbings
Rory, as I said, we're seeing this vertical unbundle into lots of different niches that we are both in and invested in. I think you have to believe they subsume all of those and be able to expand broader.
- [40:35]
Rory O'Driscoll
And the theory would be first marquee customers in the law firm in particular. That's the investment thesis top of class metrics.
- [40:44]
Harry Stebbings
And the challenge to that though is ligora 40 million ARR.
- [40:48]
Sponsor/Host Voice
So a lot less.
- [40:49]
Harry Stebbings
But they're doing 10x year on year growth on a smaller base. Admittedly yeah they are doing very well in Europe like Ligure's European progress can't be underestimated. And really the analysis from investors today is that Harvey won the US and Lagore are winning Europe.
- [41:06]
Jason Lemkin
I think we're making it too too, too dramatic for VCs. Here's be my analysis, okay. If Harvey went from 50 to 150 this year and 10 to 150 in two years, I would just do some classic math and just draw the chart out. And my entire Life in B2B as a founder or investor. Every time we try to be too negative on tam, it bites us. Now we talked about what we talk about live in London. That something tam. What do we call about the TAM trap? I believe in it. I'm living it with my portfolio.
- [41:35]
Rory O'Driscoll
But, but we agreed that those were older companies. I agree.
- [41:38]
Jason Lemkin
When you go 50 to 150 in, in one year and if, if the last quarter last four months, if the growth is consistent so you can see a path to 400 next year. This isn't. This is the same multiple we just talked about.
- [41:51]
Sponsor/Host Voice
Jason, you could extrapolate that for infinity.
- [41:53]
Jason Lemkin
But that's our job as investors is to find outliers. And if this growth is. Here's my point. Listen, I'm a simple man, okay? If this growth is durable, okay, if we're seeing signs that it's Durable. If it has. It really has 170% NRR and 98 logo retention and it's accelerating at 150. This is just the bet. You do. You don't, you don't. You don't pull your hair out or have to have lengthy dinners about supplanting labor with AI and, and whether it'll be 10 trillion tokens. You just do the deal. If the revenue is durable and it triples from 50 to 150 in one year, you just. And the guys that got in at 3 billion in the beginning of the year got an insane deal. It's just, it's not that complicated. Worrying. I can go back to old SAS spreadsheets and justify this deal.
- [42:34]
Harry Stebbings
You cannot assume that it will grow infinitum at the same growth rates.
- [42:38]
Jason Lemkin
Great. Then step out adventure and return your last fund to.
- [42:43]
Rory O'Driscoll
You guys, as usual, are doing the extremes that loses the plot.
- [42:46]
Jason Lemkin
This is a pretty simple math.
- [42:50]
Rory O'Driscoll
Your big picture point's a fair one. But let's just talk about the numbers behind it. Because Howie, he's not saying the same. I mean, what we're basically saying is it grew 10x last year, it grew 3x this year. This is amazing. Growth lean in. That's the sort of Jason's saying. And the only argument against it is 3x this year is slower than 10x last year. So probably next year is 2x. It all boils down to the same thing is Multiple companies doing 10x growth rate is not something you saw in SaaS. One of two things is true. Either they'll have that kind of 10x growth rate and then decline with the same rate of decline as SaaS companies, in which case they'll continue to grow for a long period of time. Or they'll grow fast and they'll slow down fast. If it goes 10x3x50% growth, then you might have been wrong. That's the gnawing fear. I mean, I agree that you lean into the things that are working because I think the alternative, which is trying to be clever and do things that aren't working, that might work in the future, is just too hard.
- [43:46]
Harry Stebbings
So help me just understand this. 10x to 3x totally get. Then let's say it does 2x. Okay, so 150 turns into 300. Fantastic. Then let's say it goes to 80%. That 300 is now.
- [44:00]
Rory O'Driscoll
Howie, that's exactly the right math to do.
- [44:03]
Sponsor/Host Voice
Okay, great. So then, then why would you pay 8 billion? Because you are paying three years ahead.
- [44:08]
Harry Stebbings
Of time for a public Company multiple.
- [44:10]
Sponsor/Host Voice
That that would be.
- [44:11]
Harry Stebbings
So, Jason, you say do the deal.
- [44:13]
Sponsor/Host Voice
I don't understand. I'm really naive here.
- [44:16]
Harry Stebbings
I'm not arguing, I'm trying to understand. You're paying three years ahead of time for what that would be in a public market.
- [44:23]
Jason Lemkin
Well, look, if we go from 150 to 450 next year, then we're paying 20x revenue at the end of next year. So we're paying a year ahead. We're paying a year ahead if it triples next year.
- [44:31]
Rory O'Driscoll
If they can peg the growth. We're all saying the same thing. If the growth stays the same at 3x, even then you earn your way out very quickly. If it declines even to 2x, which is still amazing growth, then you could be a little ahead of yourself here. That's what we're saying. It's as simple as that. We published on this like 10, 15 years ago in SaaS. You could use this following rule of thumb, with a high degree of accuracy, the growth rate for any year was really roughly 85% of the prior year's growth. So if it's growing at 100, it would probably grow at 85. If it's growing at 85, it'll probably go in the high 60s. Just rough rule of thumb, it was roughly right. The thing here is, instead of seeing that best in class 3x growth, you're seeing best in class 10x growth. As I say, if that only declines slowly, if it goes 10x to 6x to 3x, these are amazing companies and any price can be paid. If it goes 10x to 3x to 2x, then good prices can be paid. But you could get ahead of yourself. And if it ever slows down to sub 100% growth before you hit, like if any of the things go down, then you're just way wrong. It is possible to lose money on a great company because it's the only risk you're running. When you're paying 8 billion, right? There's not going to be risk that Harvey's not one of the greatest companies. It's a given. It's clearly the biggest. There's only one risk you're running. It's back to where we started, actually, about price. You have no operational risk, you have no business market risk, you have no TAM risk. The only risk you're running is you're paying eight for something that might be worth four. And if it's worth four, you're wrong. So you can be wrong on price. So far, no one has been in AI the stuff that's worked has been marked up and marked up again. And right now that's the right bet to take. So Jason, to your point, you go back the short form version, what you're saying is it has been the right bet to take so far. It could turn and if it does, everyone will be over their skis. But so far, as you say, the person who was agonizing about his $3 billion bet debt and biting his nails at the start of the year, it's like, oh my God, I'm so smart. I'm so smart. I have a two and a half X and you know, six months because the momentum kept coming.
- [46:25]
Jason Lemkin
I think Harry's though, got an important point going back to 2021. I think in 2021 we kind of reached peak of people paying three years ahead. Yeah, right. In terms of multiples, maybe we're back to that. Maybe. And that would be logical, right? Maybe three years ahead is the limit of VC can do. Even with the most optimist like you, it has to tie to something when you put together the investment memo. Right, right. And in the old days it was 1x like box and others. When Rory was there, their growth rounds were often at a modest discount. Right. You weren't paying years ahead, you were actually paying a discount. And I think it peaked around three years ahead. Right. Three, the classic 100x arrs in 2021 were really three years ahead.
- [47:02]
Rory O'Driscoll
Between two and three years ahead. Yeah, Jason, that's right.
- [47:04]
Jason Lemkin
If Harry's asking, is that crazy? Time will tell. Like it might be. It might be peak. Peak AI bubble.
- [47:10]
Rory O'Driscoll
At least it was crazy in 2021 because two bad things happened. Not one, but two. One is you had a recession and then on top of that, a lot of those companies became functionally obsolete in terms of where the excitement was with ChatGPT, paying up in 2020 was a horrible decision. I do believe in this case, the big advantage you have is, as I say, I think that the direction of travel is pretty clear here. I don't think we'll wake up in two years and go, oh my God, we're not using AI for legal. That's not a thing. So I can see why people are leaning in, which is why I go back to my common the only remaining risk is some kind of TAM and competitive dynamics. Can you get enough of that market and is it big enough? Which is why the leaders are getting this premium. Because you can just say, I'm going to be the leader. It might take time, but it's a Big time. I got it.
- [47:58]
Harry Stebbings
We'll see.
- [47:59]
Jason Lemkin
Yeah, well, it might be we're underestimating a risk that a lot of apps can be Jaspered.
- [48:04]
Rory O'Driscoll
Agreed.
- [48:04]
Jason Lemkin
There might be a GPT 6, 7 anthropic 5 risk where we thought we had a stable place in AI. So of course Harvey and others are going to win, right, because they control the customer they can swap out. But the Jaspers of the world and multiple others thought they had winners. And then I changed and they became a very limited value. I don't think we should assume AI is stable and I think that's why there's a code Reddit open AI because Sam said it's not stable.
- [48:31]
Rory O'Driscoll
I think that's fair. I think I actually saw a good piece. I can't remember the gentleman's name. And he was very skeptical about moving most software apps companies in the age of AI. His comment was models will do most. So you either help make the models which is building the AI, or you have to do very different apps that were only possible in the age of AI. But the comment he was making is exactly that, which is whenever you do an AI app, one of the non negotiable disciplines before you do it is you should go and try and use the core models to do the same thing and you should try and build a functional version of that as simply as you can. And if you can get even vaguely close to it, you need to pause because I don't think, for what it's worth, I don't think every app goes away. I don't think someone wants to maintain their own salesforce. But I do think, Jason, you're right. One of the gnawing risks in all these investments is just model improvement. I mean we're seeing it in coding where the models are clearly trying to eat the apps.
- [49:26]
Jason Lemkin
Yeah, just there could be. I'll give you an example. I mean, Replit was around for eight years before Claude 4 made it work. Gamma was around for four years before it worked. We feel like there's a stable plane. But it could be that as AI evolves, as we're able to do incredibly complex long context windows, deep reasoning in seconds instead of 15 minutes, I could imagine a new generation of founders develop legal software, other software that takes advantage of deep thinking in milliseconds, which seems impossible to say, and all of a sudden we don't. I don't want to wait forever for these slow analyses. Like all of a sudden it works like magic again, like it's an order of magnitude better and all of these apps, we could say, oh, they'll just rotate out their lms, but it might not be that simple. These could all become obsolete. In an area of infinite deep reasoning, they could.
- [50:11]
Harry Stebbings
I think this actually goes back to our discussion about Sierra's implementation within Enterprise, which I've seen with Solve, which is like a lot of the defensibility, the moat, the skill is in the GTM and the implementation. And so I don't think it's just quite as simple as like, oh well, like a new model will happen. I think that's like a really, respectfully, Silicon Valley view.
- [50:30]
Jason Lemkin
No, but Sierra. No, I disagree. I think that if you could take a Sierra example with like Macy's or wherever else the customer says, if you could ingest all their data, do massive deep reasoning with a different model, and solve customer problems in milliseconds. None of these products work in milliseconds and they all still have have some set of issues around them. Right. People would, would immediately move to a vendor that could be 10 times better than all of them. Sierra, Finn, Schmidtin, win these, they are 10 times better than what we had two years ago. If you've used these products in the field, you can see, on the one hand they're amazing. On the other hand, they are slow. Okay. On the other hand, they are complicated to set up and ingest data. On the other hand, hallucinations are a minor issue, but they're not a non issue. They're not a non issue, especially when the answer has to be correct. So I'm just type, like if, as investors we have to imagine a world where that all goes away in the next two years, okay, and it's not stable, and, and all of our investments could go to zero.
- [51:28]
Harry Stebbings
I'm pushing back on you. I'm saying Wilson Sonsini, Cooley, the biggest law firms in the world have all been piloting and building relationships, building implementation pathways, integrating them into their workflows for the last year. And just because Anthropic comes out with a new model that is 3 to 5% better.
- [51:44]
Jason Lemkin
You're not listening to me. I'm not saying 3 to 5% better. I'm talking about a step function can.
- [51:49]
Harry Stebbings
Well be coming, but we benefit.
- [51:50]
Jason Lemkin
How much time do you spend coding with Deep Reasoning?
- [51:53]
Harry Stebbings
How much we benefit? We benefit from.
- [51:55]
Jason Lemkin
You don't, you don't even know what you're talking about here, Harry. I know what I'm talking about.
- [52:00]
You have a hybridic VC argument that you think because Wilson Sonsini invested in Harvey, they're Not going to switch in five years.
- [52:08]
Sponsor/Host Voice
We sit on top of them, Harvey.
- [52:09]
Harry Stebbings
Sits on top of it. It benefits from it getting better.
- [52:13]
Jason Lemkin
Okay, that is.
- [52:17]
Hooray. Like I, I literally today, I'll tell you today, for example, this is not even what I'm talking about about deep reasoning, right? But literally today repl, it changed. I don't, don't want to over talk about replit. I just spend so much time in it. Okay? Now with replit you don't pick your model anymore. It's all dynamic, it's all gone. You don't pick a high reasoning, you don't pick short reasoning, you don't pick anything. It just, and it rotates Google and others that, I mean in a way that placed your point, but it's so much change. But that pays. To my point, you're right, but I don't, I don't think you use the deep reasoning enough. I mean 15 minutes, 10 minutes to get an answer. I'll tell you we can, let's find a criminalization because I've tried with Decagon and all the rest, they make plenty of mistakes today. So does Fin. And these are great products. They're not 100% right.
- [52:58]
Rory O'Driscoll
I do believe that, you know, the domain focus, the workflows, the customer commands gives you some kind of lock in. And if the models move slowly or you stay on top of them, I think the apps companies should be fine. But I do think it's fair if you snooze if like I can imagine if instead of the next generation of either Entropic or OpenAI being another incremental turn of the grind, there was some kind of reasoning step function which I'm not holding my breath for by the way, but some reasoning step function or AGI step function, I can't even say that without snickering. You could imagine another turn of the crank that made everything you've done so far be not the way you do it anymore. As long as that risk is there at the bare minimum. I mean what I would say is I haven't seen any of my companies at the apps level totally go, oh my God, we used to do this, now we don't. They haven't meant to use your phrase, Jasper. Right. But I have seen a lot of them have to wrestle with their offering quite significantly because some things you thought you could do on economic and then other things that you couldn't do six months ago are now way more compelling. And what I would say is, as I said, product market fit is a rolling feast at the moment. And it's a moving target. Which is why if you look at all your good apps companies, one of the things you see is when the new model comes out, they're on it that afternoon. You know, it's pizzas and late at night. And you gotta know what's in the box pretty damn quickly because until this pace normalizes, you can be displaced.
- [54:21]
Jason Lemkin
I guess here's my point. We'll just see. I'm just Talking about for B2B apps, I don't think. Sorry, Harry, maybe I wasn't being clear and I was making two seemingly conflicting points or making two points at the same time. I think we haven't even begun to see deep reasoning in B2B apps. We haven't even started. We haven't even started. We are doing relatively simple prompts that can get answers back in a second or two or less. Okay. You can't wait five minutes for Sierra or decagon or Finn to give you an answer. No one's going to wait five minutes for that for that answer. Okay. And this is part of the code red at OpenAI is is they want to move away from reasoning. But I think when that goes from five minutes to five seconds or better yet, a second, just like we thought Jasper was amazing. We haven't even begun to imagine what B2B will do to AI when it can do deep reasoning in a second. It's just not accessible to B2B apps. We just can't wait five minutes for Fin to tell us an answer. We just can't wait. We don't got that time. I need to find out what happened with my sweater.
- [55:18]
Harry Stebbings
It's what I find so funny when people compare the LLM market to the cloud market though, because the thing that you don't have in the cloud market is the promiscuity that you do in the LLM market. I've spoken to two companies today and they're like the upgrades in Anthropic recently have meant full shift to anthropic away from OpenAI and improvements in our product that we really didn't expect. Which is amazing. We're so grateful to Anthropic but this real shift overnight for them.
- [55:43]
Rory O'Driscoll
Agreed. And actually that segues to. Clearly you're not capable of keeping us on track anymore, Harry, so I'll just cover the agenda from my side. You were going to ask us about the Benioff comment on LF LLMs being a commodity, which is exactly where you're going here. And it's a Super interesting comment and let's start with the point you made is that yes, I've been struggling to find because you always try and think in analogies as an investor like how sticky, commoditized, profitable. All of these are related terms, but not the same are the models. You start with the basic comment. In Cloudland there was an oligopoly of Amazon, Microsoft and Google, but you couldn't easily switch between. People muttered cliches about how I want to be multi cloud, but no one's really multi cloud and many of my companies move from cloud A to cloud B. It's two years, it's millions of dollars, it's a pain in the ass here. You're right. These are APIs and most companies have multiple providers on the same system and switch between them. In fact, Sierra did an interesting piece on how a lot of their application is a constellation of models. So in real time you're always looking at multiple things. So you're right. But it's way more fluid in terms of your ability to shift between than anything you've seen before. So yeah, I do think that's true. And the question is what does that mean?
- [57:02]
Jason Lemkin
And of course Mark's right. Mark, just like replit today can auto rotate models. Right. Without you knowing it. Salesforce is and should be doing the same thing and they have their own LLMs as he talked about. Right. You know, and that's great today and I think it's an interesting topic for 2026. Just going back not to push but we use agent force ourselves. It is great. I can talk to you how it really works. It takes about 30 days to train and deploy and then you've got to keep going and upgrade and it's great. And it works just as well as the other agents. And in one way it works better than all the rest. Just one way. And it's captain obvious. It is native to Salesforce data. So it actually works better than all our other agents.
- [57:37]
Rory O'Driscoll
Absolutely.
- [57:38]
Jason Lemkin
In Salesforce we can show you that I can. Okay, so it's great. Use it. It's going to be a multi billion dollar business. But. But imagine when instead of taking a month to train and a couple other months to iterate, it can happen in minutes. This will be nothing like the AI we have today. We're just starting. Not only will that make Salesforce a better company, probably it may disrupt all these incumbents when all of this can be done instantly when the Harvey that we used in 2025 seems just quaint in two years, like what A joke that we had to spend all this time training and ingesting and all the mistakes it made and the associates and so I don't know. I think it's very exciting, but I think it makes our investments even less stable. This is going to change. We're not. It's. And it's going to be very exciting to go from months to training an agent to minutes. It's going to come.
- [58:21]
Rory O'Driscoll
I think the interesting question on this from the mock comment was there was an implication there that because they're, quote, swappable, which is true, that the LLMs themselves are bad businesses. Right. That was the. The implied.
- [58:35]
Jason Lemkin
That was the dis. The disk.
- [58:37]
Rory O'Driscoll
I read that as the implied statement. And it's interesting to say why that's not the. Because I don't think it is. And I think Mark actually used the analogy of it's like hard disk drives. And if you read Clayton Christensen, it's the prototypical example of a wildly competitive commoditized market where there were 30 providers. But I think the analogy breaks down because if you look what happened in the hard disk market, capitalism works. If you have 30 commodity providers and you don't ingest antitrust 27 go bust and you end up with two or three providers, the survivors. And that's what it takes so they can extract enough profits to survive. Not 30. People don't get to make it. And I think so if you look at the hard disk market, it was brutally competitive for a while. It remained a commodity even after it consolidated to three, but they were able to extract enough profits from it. So I think Mark sentence, oh my God. This is a commodity market like the hard disk. It might be true at the start, but there's an embedded comment there that isn't true. I think it's totally plausible that even though there is a fair degree of switching possible between models, you still will evolve to an industry structure where those model companies make decent money. Actually, Noah Smith had a good piece on this, even though he was negative on the comment. But he made a comment the model companies could be a little like the airlines, super high fixed cost, easy to switch. And his implied comments, that's a bad business. It's not an awful business if you consolidate. If the antitrust people would let them, we'd only have United and San Francisco and then they just charge through the nose. So I think you would see consolidation.
- [60:14]
Harry Stebbings
How do you think about the volatility of revenues that's inherent in a business where the quality derives so much of the switching so like Anthropic will have suddenly mass usage that will drive revenues and then others will lose it.
- [60:28]
Rory O'Driscoll
It's a good one. I think what happens, businesses evolve. If you're going to be surviving business, you can't live like that in the long term. It's just too hard. Microeconomics will make it happen. I think it's probably two things. One is as the cost to enter gets higher, the fixed cost barriers. I don't know if there's going to be 10 of these. There might be three or four, but I doubt there'll be 10. If it really does cost a lot to make these, if it doesn't cost a lot to make these models, then you're right, all bets are off. That's one way. Then obviously the second way, and you're seeing it right now is, is hey, if at the API level I'm a commodity and there's me, OpenAI and Gemini and the swap in between us, I have got to grab the apps. And that's what you're seeing. I mean, Anthropic is grabbing the coding app and obviously OpenAI is grabbing the ChatGPT consumer app. Right? Because you're basically saying I can't be sitting in the back here getting swapped out by some rotational round robin on AI. I got to own the end user here. I think Mark is right about the, it's a competitive industry, but I don't.
- [61:34]
Harry Stebbings
See the volatility of revenue on the consumer side because you have memory. And I think. Now I don't know about you guys, but I'm seeing this so much in the LLMs that I'm using where memory drives so much of the actual end product that I get and that's incredibly sticky and will drive a lot of value. But on the B2B side, where you can have our companies on the B2B switching so easily, there isn't that stickiness.
- [61:53]
Jason Lemkin
Well, just two thoughts. On the B2B side, we talk about a couple LMS, but like so many of the hot companies use their own LLMs and their Chinese models, Cursor zone model, Chinese model, Windsurf. So like all of our portfolio companies that are using their own LLMs, they're not really using their own LLMs, they're using cheap open source or if they could, they would use Chinese hosted models and sometimes they do because a fraction of the cost. So where exactly this all goes we don't know. But all of these startups that have their own model, they're, they're Chinese open source models. They all are, including Cursor. Right. So there's a whole another group that is competitive that because they're not raising massive venture capital and maybe they're inferior in some ways, but if Kersha is using its own model 3 or 30 to 40% of the time, it's not that inferior because Kersha is doing pretty good. Comment number 1, Chinese models are already being used by our hot startups. It is a real threat idea. Number two, Harry, you think memory is. Is a moat and permanent, and it absolutely is. But I think why Sam called the code red is imagine today. Imagine today when we're doing this. If Chat GPD went away tomorrow. Okay, here's what's changed. Google AI mode's pretty good now. It can't. It's not going to be our therapist. It's not going to have as much memory. But AI mode's pretty good. The Google stacks pretty good. And if OpenAI, for some reason just ChatGPT went away tomorrow, we would survive. We would complain. Keith would have some good comments. You'd have some comments that Twitter would explode. And in a week we'd be like, whatever, we've moved on. Some folks would go to Claude, even though we've forgotten about Claude. But Google's pretty good. This is why I think Sam called the code right, because Open AI is a consumer company and even said, listen, we're going to do even more on Chat gbt. We're going to do less on apps, we're going to do less on imaging and video. We got to make it good. Because we would be in a tough spot for a while if Anthropic went away because all our apps wouldn't work. That would suck. But if ChatGPT went away tomorrow, we'd be fine in a couple days. We'd lose a little memory. We'd have to rebuild it in Google. But we use Google every day. Would not be the end of the world. It really would not be the end of the world if this massive thing, which is the greatest consumer app, went away. It would not be the end of the world.
- [63:58]
Rory O'Driscoll
I don't know if I buy that. Yeah, it's not the end of the world because nothing is the end of the world unless it's the end of the world.
- [64:03]
Jason Lemkin
Be worse to lose Netflix that has more proprietary use cases than ChatGPT.
- [64:08]
Rory O'Driscoll
That's a more interesting comment, actually. Genuinely, it's like I paid 20 bucks. Could you not apply that to all.
- [64:15]
Harry Stebbings
Of them, like, including Anthropic? I'm genuinely asking Here, Jason, you're the coder here, and I submit to you on this one, you could switch Anthropic out and it would get like a 90% efficiency on other models, Netflix, it.
- [64:26]
Jason Lemkin
Would just be like, well, there aren't that many. I do think, look, look, the Anthropic is more enterprise. In my experience. It is stickier because of that. There's more work than just moving in a day. That's why I slightly challenged your point that you're saying consumer was stickier. I do think memory is a big deal, right? It's getting really, really, really good. Good at the edge of creepy. But it'd be like a TV show. We would just shrug and we would just switch the next day. Life. Life would the greatest consumer app of all time so far. We'd be fine.
- [64:54]
Rory O'Driscoll
Put me down for not agreeing. I think we. Look, obviously we would get on with life because, you know, we three years ago, apparently we were without this and we were fine. But I think it would leave a significant gap. I think, you know, there's no doubt that it's a superior product and you'd miss it. So I disagree. I think that the test you use is this. When we were looking at consumer hardware once, one of my colleagues gave me a mental test that I actually think was one of the most insightful things I heard about consumer products ever. He said, the only test you need to run on this one is this. If you lost it today, would you go out and buy another one tomorrow morning? If you lose your phone, you instantly go out and get one in the morning. If I lost our coffee maker at home, I would be down to solar table in an hour. Then there's other things where you go, yeah, would I take a week? I might get around to it, maybe. I wouldn't bother. Right? And it's just a really good test. Using that test for ChatGPT, I think if I lost ChatGPT now, I'd be like, I gotta go find something. And I don't think Gemini's quite there. So I think it would leave a void, which I think speaks to their strength because maybe it's not a I would die void, but it's 800 million people who use it. So I think there's a lot of gravity in those individual consumer users and the habit involved. I think it's the biggest asset.
- [66:06]
Jason Lemkin
But it could be just as sticky as Yahoo Mail. We survived and moved to Gmail. It was okay.
- [66:11]
Rory O'Driscoll
It was. But it took a sustained five years of under execution by Yahoo to get that done. And I think the Yahoo Mail and Gmail were more similar. I would argue even today, despite all the progress in Gemini, the ChatGPT experience I think is still better. Controversial take.
- [66:25]
Jason Lemkin
Perhaps play on it some more. Let's talk about it in January. I think you're going to come around to my position that it's just the same one that Sam has, which is pretty good now. I don't think it's going to stop OpenAI's future, but everything's just unstable, including Harvey. I think.
- [66:40]
Harry Stebbings
I think what you're seeing with OpenAI is the awareness that they've been massively diversified way too much. They need to consolidate, they need to concentrate. They are absolutely aware that they have fumbled the ball over the last 12 months and they need to massively reduce the portfolio of products that they have. There's a focus on healthcare, there's a focus on Codex, and there's a focus on obviously the consumer product. And that is the BFD for them. And I think Brad feels the pressure, I think Sam feels the pressure, and it's game time.
- [67:09]
Rory O'Driscoll
Yeah, I just think the way markets work is there's this formative period where there's a lot of change and then it locks in and then change is much harder to happen. Remember we're talking to Tomas. He had some congealed grease thing. My mental model is always, it's like the big bang. Early on in the big bang, everything happens and from then on, one, it's just expansion and nothing changes. This is one of those moments in time where how you end up ranking by the end of 26, 27 probably, I think, will determine the trajectory for 10 years. And I think the variance, the high fluctuations we're seeing now will steady out. I can't prove that you could have a world where it remains constantly changing, but in my gut, economics tends to force that kind of stability. So you really want to be sure that when, when things start to lock down, you lock down in the number one position.
- [67:57]
Jason Lemkin
We'll move on. But Andreessen said a couple months ago that 80% of its startups use the Chinese open source models for AI.
- [68:03]
Rory O'Driscoll
That's not a correct quote. Martin Casado then tweeted and said, that's not quite a correct quote. I think it was something like only 20% of the time my companies are using open source. And when they are using open source, 80% of that open source is Chinese open source, which is a very different thing, but still a significant, significant thing. It's an interesting comment here. What it says is that there is a demand, no surprise, for a cheap open source model. And given that both formerly idealistic, now highly commercial corporate entities have stopped providing state of the art open source models, there is a latent demand for that, which for their own good reasons, which we can speculate about in a second, the Chinese tech industry appears willing to fill even though the market tells them to stop doing it. It was nice when Zuckerberg was willing to fund R and D development and keep churning excellent llamas for everyone to leverage.
- [68:54]
Harry Stebbings
Jason, should us startups be able to leverage Chinese models?
- [68:59]
Jason Lemkin
Listen, assuming there's no security issues, I don't care. I think the issue that I don't fully understand inference because for most cases if you're running a Chinese open source model on Amazon, it's really not any cheaper. You're not saving that much, you save a little bit of money, corre you don't have to pay for the model. But the inference is where most of the cost is. So I think there's still this gray area where it, where obviously it works for cursor right at scale. Whether exactly where it works, I don't know. But look, as long as we're not sending data back in a way we shouldn't, I couldn't. And more importantly, listen, I just want to make money. Like everyone. It's 2020 going into 2026, Harry, don't tell me about it. As an investor, I. This, this is an area of unlimited greed. I don't want to hear about it. We're going to forget about it in a week anyway. We already forgot about real and dipling. We forgot about all of it. I just want to make money and be quiet. Okay, just don't talk about it. I just want to make money.
- [69:50]
Rory O'Driscoll
The question on quote Harry's should we use Chinese open source models? You have to break it into two Are there national security issues or regulatory issues? And it's the job of the government to figure out that. And we should take our lead from that. If the government says no, you should abide by the law. If the government said yes, you should at least take that into account and you can say there's not national security issues. And then separately from that you have the business issues, is it good value, is it cost effective? And all that stuff. I mean, I think the interesting thing is because Harry, I've watched your little dispute with Keith on Airwallocks on Twitter. The odd thing is I can't quite figure out what I'm the national Security guidance on China is quite confusing because obviously we're now back to selling them advanced Nvidia processors. I think the logic is some version of they're going to figure that anyway, so we shelter them. So it's not clear to me where we can say we can do it and where we cannot. And then separately, if you can do it legally, then after that it's just practical, functional, if the models work and you do what you can.
- [70:45]
Harry Stebbings
So I'm getting into a very dangerous zone because Keith Rabois is a friend and an LP of mine, and Airwallix is a $7 million investment of mine. And so I am screwed both ways on whoever wins and loses in this one. But Airwallex raises 330 million at an $8 billion valuation, led by Lee Fixel at Edition, big investor in Stripe. And then in the last few days, Keith Raboy has been very public in stating that there is a data concern about the data flows that will go back from Airwallocks to potential Chinese officials, government, you name it, whatever institution that is. And that is the news based on.
- [71:30]
Jason Lemkin
The conversations we had. A billion in ARR. 8 billion revenue. Why is it so cheap? Cheap?
- [71:34]
Rory O'Driscoll
It's because it's a excellent, excellent payments company. And it'll be valued like payments companies and payment companies. I mean, excellent growth rate, excellent payments company with an Asia discount. Right. Cheap in the context of it's not the AI magic pixie dust. So you probably would have a higher. And then on top of that, you have the Asia discount. You're exactly right, Rory.
- [71:54]
Harry Stebbings
It's doing the same revenue that Ramp does. It has more integrations and more underlying infrastructure. It is absolutely the Asia discount. Discount.
- [72:02]
Jason Lemkin
Yeah. Let's assume it's growing the same as Ramp and has the same gross margins. Right. It's the same ARR. Let's assume maybe the margins are different, but let's assume it's the same. For the sake of argument, it's trading at a quarter of the price is the Asia discount. I get why it's dual headquartered in sf. Just seems a quarter of the price. It seems.
- [72:18]
Harry Stebbings
I completely agree with you, which is kind of why it's such an obviously good deal.
- [72:22]
Rory O'Driscoll
I'm not sure. I think some portion of it is a significant portion of the Asia disk. I also think.
- [72:28]
Sponsor/Host Voice
What is it if it's not that?
- [72:29]
Harry Stebbings
Rory, I would love you to.
- [72:30]
Rory O'Driscoll
I think it's a slight. I mean, one is, I think Ramp has versus the median fintech. You're taking the other extreme. Ramp has an extraordinarily good revenue Multiple, I think most. I mean my wider comment is fintech multiples tend to be significantly more bounded than open ended AI multiples. Ramp. You're right, it's the most extreme.
- [72:48]
Harry Stebbings
No, but I would actually push back and say look at Brax at 13 or $14 billion with a much worse growth rate, much less profitable and 400 million less in ARR.
- [73:00]
Rory O'Driscoll
I agree with that. Difference between, I agree with that. Between that median 1 and where you come out, that is some kind of Asia discount. You're exactly right. My point is between that and ramp, I would argue because look, there's obviously different Ramps and Brex and I think that's the high end execution, et cetera, et cetera market. So there's two things in the discount is all I'm saying. But yes, let's stipulate to advance the conversation that there's a significant Asia discount in here.
- [73:24]
Jason Lemkin
75% off is a lot.
- [73:26]
Harry Stebbings
It's a huge amount. The question for me becomes actually when is that shared? Because in the case of a ByteDance it's never shared. ByteDance is still the massively discounted versus a meta despite it being a phenomenal business both in margin and revenue scale.
- [73:42]
Rory O'Driscoll
That's a good question. And first of all, I think that the ByteDance situation is trickier because one, ByteDance itself is clearly a Chinese company. And then what you're really talking about are you talking about the bite dance? I didn't talk about the fact that you have the whole TikTok dynamic because that's a media company present in the phones of millions of Americans who has an end owner that is ultimately based in China. So that's that discount.
- [74:06]
Harry Stebbings
I'm saying ByteDance is the overall company with.
- [74:10]
Rory O'Driscoll
Well, there should be a China discount. Not just because of us, because for all the problems of our government, the Chinese government, the dictator of China said about five years ago, you shouldn't be doing social media, you should making hardware shit. And he has completed Untrammeled Power. So there's a reason there's a discount. The reason there's a discount is the one party dictatorship that runs the country doesn't think those are good businesses. So it's not like it's a China discount for nothing. Now the question is, is it too much?
- [74:36]
Sponsor/Host Voice
Can we just appreciate. Sorry, our Wallace is not a Chinese business.
- [74:39]
Rory O'Driscoll
I know, but you mentioned bytedance. Let me dress.
- [74:42]
Harry Stebbings
No, I'm just pushing my Zoom. Zoom has many more engineers in China.
- [74:47]
Rory O'Driscoll
This is what I'm going to say. You mentioned by that. So I went down that rabbit hole. What you really talk about in the context of Airwallex and many other companies is something like the following. These are absolutely not companies that were headquartered in China, not owned by Chinese investors. They are US or international companies. International in the case of Airwallex, I think, originally based in Australia, headquartered in Australia, subject to Australian law, et cetera, et cetera. So when someone says that something like a Chinese company, that's a gross. That's incorrect. What is true, however, is if you have a significant number of engineers, our data centers based in China, then you are also subject to Chinese law. Just as when you have data centers in Europe, you get the Europeans on your case. And if you're a European country based in America, you get the Americans on your case. All the superpowers, if you lump Europe kindly into that, any of those countries are entities. In the case of Europe, regardless of where a company is headquartered, they have a regulatory role to the extent you're operating in those countries.
- [75:48]
Harry Stebbings
So my legitimate question back to you is if Zoom has more engineers there than Airwallets does, why are we not holding them to the same account? Microsoft and Apple do too?
- [75:58]
Rory O'Driscoll
It's a great question. And I think every one of those, to the extent that these kind of issues start to crop up, I think it's going to be a thing. Once you start doubting the other side, bona fides, things just get worse. And it's probably true to say if you have critical mass of engineers, and particularly if a service center based in China, you should assume, just based on the standard Chinese law, that government entities have the right of inspection. Just as in similar, not quite the same way. When you're based over here, you have all the rights of inspection the US Government would have and access to information. I think we're a more rule of law country, but I still think all three of the big entities, including as I say, Europe is the other, have some version of that, that. So if you choose to put your back end data center or backend employees in China, you're taking on that risk. And you're vulnerable to this kind of statement where someone says, oh my God, your key information is flowing through a Chinese data center, flowing through Chinese employees, maybe it shouldn't be. The further apart the countries grow, the more this kind of thing gets problematic. If you're trying to sell one of these companies, the embedded risk in China would be a key consideration. A US domicile company buying one of these companies would be thinking about that. You probably will struggle to get some US Government contracts. It's just going to be a thing more and more. So I think you're just going to see a gradual separation. You'll just examine the risks and go, yeah, I can get great engineers. I can save 20, 30%. But in return, I get embroiled in arguments on Twitter. But more importantly, I'll probably get precluded from government contracts. I have an extra layer of due diligence. It's just too hard. Just like all those Chinese companies that went public in the U.S. let me give you the counterexample because we all see it from our perspective and I do think we are the good guys. But it's also interesting to step in the other party's shoes. A lot of Chinese companies went public in the U.S. and the SEC said as part of being public in the U.S. we want to have access to your audit papers, including the audit papers for, for your Chinese auditors. They said no. And as a result of that, we pushed a lot of them off being listed in the US you're going to see this kind of thing happening more and more. I mean, look, we're not even friends with Europe anymore after our national security policy, so you're probably going to see some of the same thing. I mean, we're dealing with a gradual unwinding of globalization. And this is what it looks like. And to your point about no one except Keith yelling at you, the competitors are going to be the people who use it first. Because if I was an all American fintech company, I'd have my all American flag out there and say, these guys are a bunch of commies. They have commies looking at your data. Our stuff is in Texas. We win. That's going to happen.
- [78:37]
Harry Stebbings
I think the thing I would say to Jason's point of no one cares. No one cares. You know what? I know Alex very well at Deal. I'm not commenting on what happened there, but zero churn. I know Jack and I know Airwallex. Zero Churn.
- [78:50]
Jason Lemkin
Well, I suspect. Listen, a couple things. First of all, I suspect this, this won't lead to churn. I think this is probably an offensive to. To dent progress. Right? Let's be clear. I believe you that it helped. I do think the goal is to, To. To impede. Right. Whether it worked or not. I would just say two things. One, just. I don't know the CEO, he seems ultra impressive from afar. Not just from the recent press, but from following for a while on social media. You just. When this happens, you just have to not only say no It's US Data sent to China. You have to make it unimpeachable. You just have to remove the objection. An objection has been added to a sale. Let's just step back for a minute. Two thoughts. One, an objection has been added to a sales process, maybe to derail the financing, maybe to. To limit the size of the round. Who knows? It's probably linked to the timing of the round. So it's an objection. Is there maybe a racist element to it that I don't like? It feels like it. It feels racist to me. I don't like it. But. But my point is, from a sales perspective, it's an objection. A lot of are going to come up, right? Maybe RAMP has a security issue next week they have to deal with. For example, okay, you got to deal with it. If I know my data isn't going to China 100%, I think outside of the US government, the objection's over. I do think, to Rory's point, in my experience, you're never going to get a government contract, but so what? The world's big. You're just never going to get a government contract. So what? That's just life.
- [80:03]
Rory O'Driscoll
Got my God sentence. I never thought I'd say defending Keith. Well, I don't think it's racism. I. Look, I genuinely don't. I think, you know, we're in.
- [80:11]
Jason Lemkin
I don't think Keith is racist, but I think there could be an element of racism here. It's very easy to pick on someone that is, my understanding, is not Chinese, is Chinese, Australian. And they did it with aroand Zoom. It was very racist for a while. It was very racist when people wanted to make it a Chinese company. And Harry's right, they do have a large Chinese presence. It was a vulnerability for Zoom. Right.
- [80:30]
Rory O'Driscoll
I'll disagree. I don't want to devolve down to it. I think there are legitimate security questions when you read the laws of the relevant countries, just like our laws can seem very own. Just let's give another example. When the Europeans get all bent out of shape about our, you know, our lack of privacy laws, and they put up their own weird laws to stop because they're worried about us. That's just a mirror image of this. I don't think this phenomenon is driven by anything other than large country blocs with very different perspectives increasingly being uncomfortable with how the other countries or systems are governed and wanting to exert power in a world where they can. It was great when we were the dominant power. Everybody did what we wanted and it was fricking awesome. And everybody did what we wanted because they wanted to be in our game. Now, for whatever reason, we've convinced ourselves that that was bad. And now we're going to have a world where people don't want to do what we want. Then we're going to find it's a bigger pain in the ass.
- [81:22]
Harry Stebbings
All right, boys, this has been fantastic. I'm going to push you to three companies and you've got to pick one, okay? Yeah, I know, Roy, you love it. I always do it because I know that you do it.
- [81:33]
Rory O'Driscoll
To humiliate.
- [81:34]
Harry Stebbings
No, no, not to humiliate. To force. Great thinking.
- [81:38]
Sponsor/Host Voice
Air Wallach.
- [81:39]
Harry Stebbings
Airwalls at 8 billion or ramp at 32? Which would you rather own?
- [81:44]
Rory O'Driscoll
Jason, bail me out here. I'll tell you. Let's assume the revenue and the growth rates are the same. And I don't think they are. I don't have the time, but I think Ramp is a more enterprise y product and Airwallex is more money movement. I think that's a significant point. But just to give you an interesting discussion versus a boring one, if I was on the Airwallex board, because I don't think it's, quote unquote, a Chinese company, I think it's a perfectly normal Australian company. I would put in 8 billion and part of my closing condition would be within 24 hours. We do not have a single paid employee in China and we relocate the entire service organization to some other jurisdiction. Then I would do it at eight if they are equivalent because I think that's something you can do. I'm going to give them credit. I think Madness did a great job on that. I think it's very much not a. I think benchmark. Did a good job of making it very much a company from people who used to live in China. That would be a value add moment. I've had that with another company where I'm not going to mention names. We had a significant Russia presence and this was before 2014. I was like, let's just hire people somewhere else. It's not worth the extra 20%. So I think the same thing here. I would do airwallocks at 8 or 9. I would go on that board and I would say, figure your location strategy and get relocated out of China within the next 12 months.
- [82:54]
Jason Lemkin
I wouldn't make that a condition at all. I would just trust Jack to figure it out. Obviously, he's well aware of the issues, he's well aware of the trade offs, he's well aware engineers are Global VC condescending to tell the CEO how they're going to work it out. I think it is the kind of VC I, I think it's, it's beyond condescending. The great CEOs will figure it out.
- [83:14]
Rory O'Driscoll
I'm going to push back hard on that.
- [83:17]
Jason Lemkin
But people are going to see you as condescending. Rory. I wouldn't.
- [83:19]
Rory O'Driscoll
I, I disagree. I'm. And they're welcome.
- [83:21]
Jason Lemkin
They like you a lot now. Don't make them think of you as condescending. It doesn't help. At the end of the year, push back. Take a mulligan and delete this.
- [83:28]
Rory O'Driscoll
No, I won't. There are few things where it is a boring place to say something and this is one of them. Where you're like strategic fatal error. Risk is exactly what a board has to do. The ability to sell the company, something a board has to work on. I remember this other case saying to CEO, look, you will limit your pool of buyers dramatically if you have this significant exposure to this thing. How you get rid of that, you can talk about as a CEO, but it is one of the few things where you as a board member might have a little more perspective than someone. Because when you're down in it, you can go, that's silly. It's wrong. I know this. These people, they're trustworthy. It's not really an issue. They don't have access to the data. And one of the roles of the board members to say, step back, dude, everything you're saying is true. But when it goes to shit, no one will care. Why pay the tax? How much extra would it cost? So I disagree. That would be one where I would think that would be something you should say. But this is good because we're meant to have disagreements.
- [84:18]
Jason Lemkin
I think you just do the deal at Airwallocks and trust him to figure it out. I think it's that simple. 8x ARR is a good deal. You trust great founders to figure it out. I think it's a fine deal. It sounds like a dislocation in the market. You could do worse than invest in a dislocation in the market.
- [84:31]
Harry Stebbings
Kal, she raised a billion. Eleven billion.
- [84:35]
Jason Lemkin
That doesn't seem like a dislocation in the market. That seems like a location in the market.
- [84:40]
A very precise heat seeking missile. Just like Maverick and his team of Tomcats hit that right and right in the movie.
- [84:48]
Harry Stebbings
Dude, prediction markets. It's a thing. You can have Kalshi at 11 or you can have Poly Market at 13.
- [84:55]
Jason Lemkin
I want whichever one is Better for insider trading I'm going to do. Right? Because that's really the exciting part, right? Either betting illegally on sports or even better, is betting legally on confidential Google information and Meta information like they're doing right. This is a great time to be an engineer. You don't have to be Nancy Pelosi to make money legally out of confidential information anymore. You could just be a senior engineer at Meta or Google and make millions on the side. It's a great time to be alive.
- [85:21]
Harry Stebbings
He's come on punching today, hasn't he Rory?
- [85:23]
Rory O'Driscoll
And just in case anyone doesn't notice, these doesn't know this. This driven by an anonymous prediction market person had made literally millions of dollars betting on things like what will the number one query term on Google be today? And getting it right, like sequential days in a row leading the suspicious mind to assume that they have in fact access to that data. Correct, Jason, you're exactly right.
- [85:46]
Jason Lemkin
Also Pony Pony's bet on OpenAI News. He's doing great. Just being able to sell 20 million every two years isn't enough. Now he can day trade on the influence. These are great days.
- [85:55]
Rory O'Driscoll
No, I think you're exact. It is quite a phenomenon that will probably result in some level of regulation because you have both insider trading on these kind of arcane information and you're beginning to increasingly see concerns in the sports gambling side that do you have especially when you can do these micro bets. It's one thing to say am I going to throw the game for my bet on the side? But if you can actually bet that in the third, third quarter XYZ athlete will only score one whatever basket or whatever, you can have these micro bets that don't change the thing. And you really are very vulnerable to person betting on something that they can control either themselves or choose someone else. So I think super interesting bets. God, I wish I was in one because it's interesting. But there's a cesspit of issues coming here and if there was a turn to regulation ever, there's going to be a bunch of congressional in about three or four years, just like the Quick Games in the 50s, there's going to be a bunch of congressional hearings where someone's going to be asking the Kalshi and Polymarket CEO, how did this guy get that right 27 days in a row, do you know your customer? And he's going to go, it's all crypto based, I don't know. And they're going to say maybe that's not how we're going to roll anymore. It's good times, but super interesting because you can also assume that back to the value of prediction markets, just kind of taking both sides of this argument, you can assume that people betting these arcane things really strong, strongly, almost certainly have inside information. So in fact you get to know. I mean, that's the whole way prediction markets are meant to function. Because there's two levels of, I won't say quote, there's the. I know the information, so I'm just betting with inside information. And the good thing about that is it's actually, it's why insider information used to be legal. It's actually contributing to the information in the system because it's a fact, it's correct. And then you have the even more invidious thing where the person betting not only knows the the information, but can manipulate the information, which is where you go from merely insider trading, which is illegal, to something worse than that where you're actually changing the outcome by virtue of betting on it. And that's the point at which the thing stopped working.
- [88:01]
Harry Stebbings
And that's where we have Pakistan play cricket.
- [88:03]
Rory O'Driscoll
By the way, Howie. Yeah. Someone reminded me, how are you guys doing in the Ashes at the moment?
- [88:08]
Sponsor/Host Voice
And that's a wrap to the show, baby.
- [88:11]
Harry Stebbings
Great times, great times, boys. This has been so much fun as always.
- [88:16]
Sponsor/Host Voice
Jason, you brought some spice today.
- [88:18]
Harry Stebbings
The Rory's conda sending and I need to go and learn code and do replit. You are no just more spend more.
- [88:24]
Jason Lemkin
Time on reasoning, that's all.
- [88:26]
Harry Stebbings
No, dude, the 20 VC jumper is giving you superpowers. You're.
- [88:30]
Rory O'Driscoll
It's all, it's all in the sweater.
- [88:33]
Sponsor/Host Voice
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Harry Stebbings
Okay?
- [90:52]
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