← The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: OpenAI's $3BN Acquisition of Windsurf: The Breakdown | Are Endowment Funds F******* & How LP Deployment to Venture Will Change in 2025 | Why Revenue Multiples are BS, The Rise of AI Rollups and Multi-Stage Funds Destroying Seed Investing
01:25:42
In Today’s Show We Discuss: 04:49 Breaking Down the $3BN Windsurf Acquisition 06:18 Why Sam Altman is Playing a Master Game 12:40 Why Multi-Stage Funds are Destroying Seed Managers 21:52 Are Endowment Funds F****** 27:38 What Would Rory Do If...
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- [00:00]
Jason Lemkin
Where is OpenAI slightly weak compared to anthropic it's encoding there are like different levels of deals. 10% is bet the farm 1% is like an SVP deal.
- [00:09]
Rory O'Driscoll
The evolution of the story from the models are everything. All these apps are just AI wrappers to the models have such market cap they can buy the apps and what you recognize here is no one knows nothing.
- [00:20]
Jason Lemkin
Any deal where you have 100% conviction you'll 5x I'll just do it.
- [00:23]
Rory O'Driscoll
If I was the CFO of an Ivy League university, let's just say my cash planning for this year would be dramatically different than my cash planning normally.
- [00:34]
Harry Stebbings
So last week we did this incredible.
- [00:36]
Unknown
Episode with Rory O'Driscoll and Jason Lemkin breaking down the biggest stories in tech, financing, IPO, M&A and venture.
- [00:44]
Harry Stebbings
The show did so well.
- [00:45]
Unknown
I was like shit, we have to.
- [00:47]
Harry Stebbings
Do this every week.
- [00:49]
Unknown
So this week we discuss the endowment fund crisis and how they think about financing their commitments in venture, we discuss the Windsurf acquisition and we discuss whether in this environment every hot talent in.
- [01:02]
Harry Stebbings
Venture should go their own fund or not. This show is incredible.
- [01:07]
Unknown
Rory and Jason are two of the.
- [01:08]
Harry Stebbings
Best in the business to break down.
- [01:10]
Unknown
The news and honestly, I just love doing them.
- [01:12]
Harry Stebbings
Let me know your feedback.
- [01:14]
Unknown
You can email me or you can.
- [01:15]
Harry Stebbings
Tweet me at Harry Stebbings. I love to hear your thoughts. But before we dive in today, here are two fun facts about our newest brand sponsor, Kajabi. First, their customers just crossed a collective $8 billion in total revenue.
- [01:28]
Unknown
Wow.
- [01:29]
Harry Stebbings
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- [04:20]
Rory O'Driscoll
You have now arrived at your destination.
- [04:23]
Unknown
Guys, thank you so much for joining me again. I was inundated with messages from my.
- [04:29]
Harry Stebbings
LPs from LPs that I don't have.
- [04:32]
Unknown
Asking to invest in funds. So thank you so much for that saying how much they loved our prior conversation. So both of you, thank you for joining me again.
- [04:40]
Rory O'Driscoll
I'm not here to help you dude. I might just crash out now, but okay, we'll go at it.
- [04:45]
Harry Stebbings
For now guys, I'm going to kick.
- [04:47]
Unknown
Off with the topics I think we have to discuss first. Windsurf's $3 billion acquisition. It broke news. How do we think about this? How did you guys read it?
- [04:58]
Rory O'Driscoll
I mean, the first thing you do as a venture investor is you go bummed you're not in it. I mean, let's be honest, it's like an IPO perspective. The first thing you do is you look at the ownership page and go, damn right. So that's the first response. You have to get over that. It takes a little therapy. And then you go, what does it all mean? And first of all, it hasn't happened yet. As I understand it. It's been rumored, but tbd. But it makes sense. I mean, if you're OpenAI, if you're looking at what you're doing here, there's two or three mongo huge use cases for your product, and you probably want to be relevant in those cases. And one of them is obviously one of the most visible is coding and picking up something in the space. I mean, just for 1% of your market cap probably is a sensible bet. So that was kind of the big picture response. Now you can get into should they bought cursor, did they try and buy cursor? Are there a whole bunch of others? And then we can come back to the is it defendable Argument, which I'll come back to in a second. But zooming out a million miles totally makes sense when you're running a $300 billion market cap thing that's predicated on a bunch of different end use cases. Getting closer ownership of one of those big use cases makes sense.
- [06:02]
Jason Lemkin
Jason, I'm not convinced this deal will happen. I think Windsurf is pretty epic. I think Varun's a great CEO, but we don't know, right? We don't know if it'll happen. Maybe. Harry, you are closer to the pulse of anything on planet Earth, so you may know, but I'm honestly not sure the deal will happen. Listen, I do think the learning is 1% really interesting. I'll tell you what I learned being a VP at a big tech company, okay? There were like different levels of deals and like 10% is bet the farm. That's like Adobe buying Figma. Like that wasn't the end of Adobe, but it's a big deal. Okay? Instagram, 10% of Facebook, WhatsApp, what's the magic number? 10% of face back value. Okay, this is. This is not just a SVP deal. This is the CEO saying, I'm betting the farm is 10%. You don't lose your job, but it's betting the farm. 1% is like an SVP deal. This is an SVP saying, I'm betting my BU. So my guess is whoever is at OpenAI. And where is OpenAI slightly weak compared to anthropic. It's encoding. It's the one area it's weak. I mean, OpenAI, ChatGPT has pulled away. You cannot catch it. No matter what anybody says, you will never catch that revenue. And Anthropic's even given up there. Right? But they own this coding. Not just the developer, but the coding. And so 1% of your market cap to catch up. You won't even notice. 1% right now, the VP may get fired if it doesn't work out. It's possible, but you really have to see when companies stall. M and A bets are very different, but when they're on the growth path, these 10%, 1% thresholds are like the bets you got to make. The clock's ticking, right?
- [07:33]
Unknown
My analysis honestly was like, you either had to cede the market entirely or make this acquisition. They had to catch up with Anthropic, who are so far ahead head in terms of that developed community. Community and advocacy as they had to. And I think cursive, bluntly, they couldn't buy. They just raised a new round. It was too expensive and I don't think they would have sold.
- [07:51]
Jason Lemkin
Okay, I'm not even. You know, Sam Altman, he doesn't have any shares. I don't know whether he's the founder or not. It's a little confusing. But he can spend 10%. He can spend 30 billion. 30. Interestingly, 30 billion is 10% going to Rory's point 3x the last round. So you can, I guarantee you the VCs at the $10 billion round will take a quick 3X.
- [08:09]
Unknown
But would you buy it at 30 billion? If it's not as defensive as people think.
- [08:12]
Jason Lemkin
I'm saying that it could. I don't believe it's unbiable. I do not believe for 30 billion it was unpurchasable. It's possible. Like, we've all seen deals like Rory can share a few crazy stories of folks that turned away eight, you know, the whiz deals. But even whiz, it was just a game in the end, wasn't it? It was just a game to hit the number.
- [08:30]
Rory O'Driscoll
I think the zoom out thing here is this. You know, we all operate in one order of magnitude, and it's very hard to imagine what life is like two orders of magnitude further up. But people exist. Companies exist to orders of magnitude further up. I mean, 3 billion is a home run venture deal. But these guys have a market cap of 300 billion. They're playing for one of the three or four companies on the planet that have a $2 trillion market cap. So you do what it takes to make that happen. And there's a period in every market where it's exploding. You really don't know how things are going to end up. It's actually very smart and savvy to make some bets just in case it turns out that way. And picking two that are very opposite in terms of outcome. No one even remembers to the nearest basis point how much dilution Microsoft took to buy the elements that became Microsoft Office. I remember they bought something that was like PowerPoint. I think they bought a word processor. I can barely remember. I was around then, but it was the early 80s.
- [09:23]
Jason Lemkin
Tens of millions, I think for PowerPoint.
- [09:24]
Rory O'Driscoll
Tens of millions in the noise. Who cares? Got it done. Fast forward example that didn't work. Exciteome search company public and the big idea was, oh my God, you gotta combine search and literally the underlying piping. Let's combine with at home, the cable infrastructure company turned out to be a deal as dumb as rocks. But what you recognize at the point in time when everything's happening so fast and nobody really knows, you're probably better off making some bets. And if you think about this particular bet, I mean if you just look at the scope of the chatter, and I don't love chatter, but like the evolution of the story from the models are everything. The AI, all these apps are just AI wrappers. That was kind of conventional wisdom to a year ago. An infinite amount of time, but just a year to oh my God, models are commodities. AI apps are all it's going to be to oh my God. Now third iteration, the models have such market cap they can buy the apps. And what you recognize here is no one knows nothing. Right? So the thing I admire about Altman is a bias to action. You know, you sit there and you go, there's two or three massive use cases for AI. One of them is direct chat tick done. Second one is coding. Third one is customer success. TBD later. Right? You're just moving down the to do list. So I think doing something makes sense here and you can't unsee it. Now to your point on Wiz, even if this deal doesn't get done, the mighty corporate intent has been stated. We need to own one of those things. If they don't do Windsurf. Now, the line of other coding apps outside the OpenAI office is gonna go around the frickin block and at some point someone's gonna buy something. Will it work again? Who knows? Will it be PowerPoint or will it be excited home? That's as they say, why they play the game. But not making a move is like akin to losing.
- [11:11]
Jason Lemkin
Another thing that maybe people miss a little bit on M and a is if OpenAI does buy windsurf, you don't have to do the brutal Salesforce Oracle strategy and say it's us or nothing. You can build a platform and let the customers decide. You really can. You can say, listen, this is, it's now windsurf powered by OpenAI. We're gonna put a thousand engineers on this. If, but if you want to use cursor, if you want to use, if you want to use any, any other system, we still love you. And you don't have to over favor your platform. You do not. And I think OpenAI, my guess is they'd handle it very well. They do both. And you actually a lot of companies that do this, they have different teams, right? And they let, and they just let the market decide. It doesn't have to be ruthless. If you have a platform, you can actually see them both. It does happen.
- [11:53]
Rory O'Driscoll
And the best example of that is obviously Microsoft where you know, they had the operating system, they had a dominant set of apps, but there were other apps out there. And you know, Jason, one thing I would disagree with, you say you don't have to be ruthless, you don't have to be ruthless in the short term. But you know, one of the things you see is in the end there was a grinding you down element to it. You know, after 20 years of the PC wars, there was really only two or three companies at scale that were selling apps that were personal productivity apps independent of Microsoft. It was, you know, you had Adobe, you had Quicken, and maybe some of the security apps. So I agree with you. They can definitely, if they buy this and favor this, everyone else will have to use their shit because it's one of the two things out there. But it'll be a long 10 year grind if you're the independent as they kind of, if they can make it better and better.
- [12:40]
Unknown
As a venture nerd, my takeaway was going through the cap table and seeing who did the first rounds. And what do you see? You see Neil Mater, Green Oaks Neil Mater. And it brought me to something that I was just talking to a massive LP about today. They said, harry, tell me a seed manager in San Francisco to back Give me a seed manager. And I said I wouldn't touch it. I wouldn't touch it. The multi stage farm product at seed is so good, so efficient and their cost of capital is so low that that just crushing everyone at seed. And this for me is another example. Green Oaks leading the seed doubling down on the A. All of the multi stage firms are pushing out the seed firms more than ever. And I think this is a great example of it.
- [13:24]
Jason Lemkin
How big is that fund, Harry? That, that Green Oaks fund?
- [13:27]
Unknown
Between one and a half and three. And I know it's a big range.
- [13:30]
Jason Lemkin
So if they own 10% with dilution, going to your point last time of insight and whiz, even if they own 15, how much of the fund does it return?
- [13:38]
Unknown
It reportedly returned between 500 and 600, which is less than a third still on the smaller ventures.
- [13:45]
Jason Lemkin
Brutal.
- [13:46]
Unknown
Yeah, less than a third.
- [13:47]
Jason Lemkin
So you need to do a 5x fund. How many, how many windserfs do you need? Help me do the math.
- [13:52]
Unknown
Just 15.
- [13:53]
Jason Lemkin
Just 15 per fund.
- [13:54]
Rory O'Driscoll
Yeah, but still, it's been my experience you still cash the check for the first 500 million and smile. I always say that to people when they say, oh, it's only a 3x or it's only a 5x. I've been doing this for 30 years, everyone cashes the check. But going back to that, I just got to say, going back to the Green Oaks comment, I'm not sure it says something systemic about seed versus non seed. I just think it says extraordinarily good picking from a very connected investor who just most of whose stuff is working really well at a much higher level. And to go from, you know, later stage deals to reach down into the early stage and unerringly pick a winner like that, all credit to him. I mean, just got to say, great success. Go team. The only thing that counts is winning and no one gives a damn how you do it. Well done.
- [14:41]
Unknown
I totally agree. Jason, anything to add there?
- [14:44]
Jason Lemkin
I'm with you. I don't have anything profound to add. I do think your point though about the squeezed white space for seed funds is a good one. And I do think if nothing else, it pushes ownership down right at a time when seed funds are larger. Going to Rory's point last time of risk, I think it increases the risk for seed funds. I think when this multi stage thing, now that starts to get perfected like on a wind surf, right? If you're scraping for 2 to 3% as a seed manager instead of 12 and your fund has doubled in size Right. So the outcomes have to be double. It's like a. It's a compounding set of risk pressures. Right. On seed and for seed managers, can $1 billion outcome even return the fund anymore? For a seed manager? Like that's the old line for seed. Right. $1 billion outcome can return the fund. I don't think it's true of a lot of seed managers anymore. I don't think $1 billion out, let alone do 3x net. I don't even think it can return the fund. And that's a big, big challenge for seed if a unicorn can't return the fund. Yeah.
- [15:43]
Rory O'Driscoll
No, I. Funny, I was reflecting on our conversation last week and you know, Jason, your comments and seed, and I was laughing about it. You know, your quote, unseed for suckers is that one of these I've internalized is everyone is looking at everyone else's sp. My spot is hard. My God, theirs looks easy and we all do it. Right. The dirty little secret is it's hard everywhere. There's a lot of capital, a small number. It's just really hard to make money because of the amount of capital in the business. So I don't know if structurally seed is risk adjusted, less attractive than A or B where we play, or is it then late stage where Green Oaks normally would play or whatever. Right. I just think every stage is wrestling with. And the proof of that is everyone is kind of drifting into the other stages and saying, oh my God, I need to do that to do my thing. And it's just a very messed up world at the moment and no one's staying in their swim lanes. And I think a lot of it is the super big funds doing everything, which full stock providers kind of make everyone question what they're doing. And we'll see over time.
- [16:39]
Unknown
The one thing that I really see that being at seed and A, there's a lot more dilution sensitivity at seed, where very often today the whole round is 10% and we're able to do seven and a half with two and a half for angels, whereas before it was 15 with 12 and a half and two and a half. Really seen that compression from 15 to 10 on the seed rounds.
- [16:58]
Rory O'Driscoll
You can afford to be dilution sensitive as an entrepreneur. If you can get cheap capital, you can only be as sensitive as the other side will let you. So dilution sensitive is another way of saying, dude, I have three more people lining up down the street to give me a better term sheet. So you're only taking 10%. And if you don't like it, Shove it. I got more money. It's a lot easier to get better ownership when there's just less capital. Barton Biggs used to have this saying, before, there's no business so good that excess capital can't ruin it. And here we are.
- [17:23]
Unknown
I mean, speaking of excess capital, I was with the team today. We literally just came out of an investment meeting. And what company that we were looking at has been done. It's doing 7 million in revenue, and it's been done at 700 million by some of the big funds. And I said, wow, we're back, huh? Return of the 100x.
- [17:39]
Jason Lemkin
Well, what's the forward multiple, though? I think 100x was always a misnomer. I don't. Maybe Rory would disagree. I think it was always. When we look at forward multiples, it's a better way to think about this, right?
- [17:50]
Unknown
Forward Multiple is about 33x.
- [17:53]
Rory O'Driscoll
Yeah. Which means it's 3xing. So let's start with that and let's. First of all, let's start with the very basic. And I'm going to say something here, you're a hypocrite. I'll tell you why I say that.
- [18:02]
Jason Lemkin
Me, not Harry. I'm the hypocrite. I'm deflecting.
- [18:05]
Rory O'Driscoll
Harry. Harry. Because you pay the highest investment multiple. The truth is this. The entire venture business starts off with an infinite revenue multiple and gradually comes down. And multiples go down over time as growth rates decelerate. And what you're trying to do is hope to God that the growth rate stays higher long enough to de risk the multiple before you intersect the public markets. And in the end, everything trades at five, six times the revenues if you're growing at 20%. So you've done deals. I mean, your last seed deal, if it's doing half a million bucks and you're paying 33, 50, whatever it is, it's 50, 100x. So the real question is, that's the first thing. It's stage dependent. And then the second thing is, Jason asked the right question. It's growth dependent. I mean, my partner Andy says, lily, we'll refuse to have a conversation about revenue multiple unless you state, also the growth rate. He's like, it's an incomplete equation not worthy of discussion. So when you say 100x, 100x growing at three or four times with high growth persistence, which is a term we coined for likely to stay growing at that rate in two years, you're out of the risk zone. 100x, if that growth rate is sub 2% and starts to decline, you're so screwed your head will hurt. It's situation dependent. So that's what you have to say. So kind of taking that and going back to 21, I think what happened in 21, a lot of people paid up for growth rates at 100x and then didn't get the growth. And that's a fiasco. This time it boils down to what people are paying up for growth again. Will they get the growth? Will that 7 million become 20 or 30 million? If so, and you get just one more good year of growth, you're at 60 or at 10 times. It's kind of a scary way to live two years of your life. But it's not impossible. If it slows down, you're screwed.
- [19:46]
Unknown
Totally agree there. And I think it's completely understandable to need the growth multiple alongside it. My challenge goes back to our point earlier though, which is just like understanding sustainability, the transience of product market fit the transience of revenue.
- [19:58]
Rory O'Driscoll
No, you're exactly right. If you lean in and it goes away. That's why those 10 years of SaaS were such a good business, because it was. Because it was predictable, because the input of sales and marketing to the output of revenue was predictable, because the revenue was sticky. In retrospect, it was the golden years of just apply capital and grow into the multiple. Right. And if it's not like that, I mean, you know, our younger partners, they don't say it, but you can see it in their eyes. They're saying to me, you idiots, you made money when it was easy. Don't give me shit now. It's hard today, brother. They're right. I don't like to admit it, but they're right today. Predicting which of these companies can keep up that growth rate, there's much more variety in it.
- [20:36]
Unknown
When I look at Klaviyo, when I look at UiPath, when I look at service titan, the list goes on and on of companies that actually took a long time to get to a million in era. They really went through the kind of idea maze and product maze to get to a a good number. Being the millionaire. My question is, are we in an entirely new world where kind of today, from day one you're at the start line and you don't have the five years to weave and snake. Or actually, are we still in the same world?
- [21:04]
Jason Lemkin
Well, weren't they all? We could go through a history. Weren't any sphere, Codium, whatever bolt was before weren't, didn't these all struggle for a year or two before they, they took off. I mean, I know Cursor almost died, right? Bolt almost died, right? And then finally it hit for Cursor. I don't know the whole story of Windsor. Even Windsurf was codeine before it, right? It wasn't even the same. Everyone talks about windsurf. 90 days ago windsurf barely existed. 90 days ago it was a chrome plugin called Codium. Now it's like taking down the market leader.
- [21:33]
Rory O'Driscoll
I think of it as this man, the walk in the wood period is indeterminate. It can be a year, it can be six months, it can be five years, it doesn't matter. It's up to them, right? You're financing that journey. It's seed and as long as they don't run out of money and they want to keep doing it. Once you lock in, the interesting thing is the trajectories now are different. The SaaS trajectories lock in and Jason knows it so well. Trouble, trouble, double, double in that steady thing. The weird thing now is once you lock in, as you say, in 90 days you go from, maybe be fair, a year, six months a year, you go from this company's not going to make it to oh my God, I think I'm going to turn down $3 billion. That's what's different about today versus Saasland. When you get to product market fit the action and the odds at the craps table are pre pretty wild in a way that just didn't happen in Fastland. I mean it's just like, yippee, we won 3 billion. Why?
- [22:25]
Unknown
Sorry, just help me. Why is that? Is that because the distribution, that's different. The adoption, that's different. The willingness from large enterprises to pay for AI tools is different. Why is it when you get PMF, it's like crack instantly to 3 billion in 90 days. In a world where it wasn't before.
- [22:41]
Rory O'Driscoll
I think it's all the above. Actually it's a pretty good list. I think that stuff is working quickly and people are adopting it quickly. So you have that just raw take up. There's a common consensus that the prize is worth taking. Important thing about AI is that if you compare the hype, if you look at PC hype, Internet hype and AI hype, AI hype is bigger than all the other hypes put together in terms of just raw belief that it's all going to matter. Four years into the Internet revolution, I mean Krugman was still doing the maybe it won't matter. And I'm picking on Krugman, which is not fair because God knows we're going to need international trade economists in today's world. But yeah, there was still. Is it matter? Is it all just a bunch of kids? Is it all stupid? Two years into AI, everyone on the planet and every company is saying, shit, I gotta do something here. So there's a common consensus across the entire knowledge worker world and the entire corporate world that this shit matters. And when you have that, I don't think you turn up to your board and say, well, AI really matters. But I'm a bit nervous, so we're not going to make a big play. Hmm, maybe we'll get another someone else to run this operation. So I think there's just a willingness to bet big.
- [23:45]
Jason Lemkin
Harry. I caught up with Marc Benioff the other day and about AI and his feedback was we have a group that's all in, right? And he had all those logos, the Leonard Homes and Singapore Post. And he's like, but I gotta tell you, it's so early for others, it's so early. And what I thought about that. Then I thought about it for a minute. What are we seeing happening? This is just my sense. Okay. I think what's happening with AI is every early adopter in the world is looking to deploy. Every single person, whether it's an experimentation budget, whether it's a restaurant that actually cares about AI for the. Whether it's the three of us, like we're, I mean, I'm running our sastry, I'm running on tools, I'm ready. And from 2021 to 2024, you couldn't like get me to look at anything. My life was too busy. So I honestly just think this growth, it is crazy. But it's a moment in time where every early adopter is in market. 100% of the early adopters are in market. And that's why I think it's early, because 90% of sales, the enterprise is not even there. They're just playing with service now and they're just playing with things. But I just think this growth is. And a lot of it is self serve and product LED and easy to deploy. And it's cheap. These products, if you don't use much, any windsurf, it's 20 bucks a month, dude. This is not high risk. You have to put it into production. But like this is not 400,010, it's. And yeah, they have an enterprise sales team 20. All these products are cheap guys My jaw drops how cheap these products are. And they make regular B2B look like a friggin rip off. And so every early adopter is like, I can use Higsfield for five bucks, I can use Windsurfer, why wouldn't I? I'm in market, right? If it was 20 grand, which is what a traditional, like just to get Atlassian to engage with you is probably 20 grand for the enterprise, right? For like some 20 year old tool. But man, 20 bucks. 20 bucks, right. So I just think every early adopter is in market and that's why we're seeing growth at the levels we have. I don't think it's as crazy as it sounds. Just instead of 5% being in market, it's 95% of the early adopters.
- [25:43]
Unknown
Completely. One of the other investors in Windsurf was kp. And there was surprising news when I saw that Bucky was leaving kp. Bucky's kind of heralded as like one of the successors. It's just like one of another younger people in venture leaving one of the bigger brand name firms. I'm intrigued to hear how you thought about it. Jason, why don't we start with you? How did you read this and what are you seeing in terms of younger people leaving brand name firms?
- [26:08]
Jason Lemkin
Well, first of all, honestly, in a way, I was accidentally an early version of this. Okay, if you have a hot hand in venture and you're not running the place, I would leave the next day. That's what I did. I had the same conversation with Tomas Tungus, who just already raised like 700 million. Everyone loves Tomas, right? And I, you know, I won't share all the conversation, but one of his things was I was. I should have done it earlier, right? As great as Red, point is he's basically a solo gp, managing coming up on a billion dollars. Probably better economics than being paid 400k to a million a year plus waiting 22 years for some carry. I mean, why. I'm not saying that's what happened with with Bucky, but probably if he was going to run the place in the next five years, he would have stayed, right? Or whatever the dynamics are. It's just if you can raise your own fund today, you would be silly. And I know it's not true at scale. I'm not saying it's true at scale, Rory, but at 90% of UC funds, why would you stay? Be given. You know, when I worked for someone else's venture fund, I was told what my salary was. I mean, f you, I did 10x in that fund and you're going to tell me what my salary is, and I don't even get to go to the management meetings in a tiny fund. F you. Right? I mean, it doesn't. Listen, why would anyone stay in those environments?
- [27:24]
Unknown
Rory, Listen, you're on the other side of the table. Fascinating. You have amazing young people.
- [27:28]
Harry Stebbings
Why do they stay?
- [27:29]
Unknown
And what would you say to them?
- [27:31]
Rory O'Driscoll
Well, first of all, I'm laughing. I remember meeting Jason for the first time. I'm gonna say you said, if I wasn't doing X, if I had a hot hand and I wasn't running the place, I'd leave. Knowing you as I do, Jason, you can delete the first part of the sentence. If I'm not running the place, I'll leave. Some people just want to run the place. And you know, that's you, and I totally respect that. Right? I'm giving you shit here.
- [27:53]
Jason Lemkin
No, no, no. Sometimes you just want to be a partner. As a founder, you don't need to run the place. You just want to be a partner. A true partner. Not a general partner or whatever. You want to be a true partner.
- [28:02]
Rory O'Driscoll
That's actually a much more actionable comment. I agree. I think, because I don't think it's as easy as, hey, you know, I just want to leave because it's non trivial. There's a bunch of stuff required with raising a fund and all that. And yes, if you pull it off, it's great. I like your distinction. I think people want to work in an environment where it's fair in the sense of their return. The compensation they get is roughly commensurate with the value they put into it. That's hard to do, especially in a business with ours, which has such long lead times and such long proving out times. But if you don't build that kind of organization, then you don't have. You need to do that to have generational stability. So I think starting with that comment, because there's a lot in this comment, and, and you want to make sure in a rational world, everyone's incented to stay rather than leave, which means brutally put. And no one ever says this, but the implied statement in this is the hotter your hand, the more incumbent it is on the leadership of the firm to make sure you're in the circle, not out. I think it's centripetal, where you're pushed in. Right. If you're sitting there as a leader and you've got a heart, a talented younger partner, and they're killing it if you're not putting them inside the tent as quickly as humanly possible, you're an idiot. So the good thing about that is the system works. It's polite because venture guys are politer than your hedge fund guys. But in the end, well run firms make damn sure in the main that people who are doing well get promoted and cut in. And that's our job. And if we're not doing that, you'll start to lose good people and shame on you. That's the job of the established side of the table. The specifics are all over the map. And I'm not. I know Bucky, I know as well. I know Mahmoon very well. I remember when Moon was a young guy moving on from his first firm. We've all been on both sides of the table, right. I'm not gonna comment on specifics, but you know, there's a range of wise people leave. Sometimes it can be that I'm doing great and I am not getting the reward I need. Sometimes it can be I'm doing great and there is no fricking reward because everyone else has lost all the money. So no matter how hard I work in the next five years, I'm just digging out of someone else's hole.
- [30:04]
Unknown
Do you think we will continue to see spin outs from a grade firms from young, incredibly promising partners?
- [30:10]
Rory O'Driscoll
Well, I think it's the nature of the business for the last 30, 40 years, so I see no reason it'll change now.
- [30:15]
Unknown
It is, but the level of spinouts has been significantly increased.
- [30:19]
Rory O'Driscoll
Well, that's only again risk assigning or like that's only because your window of view is fairly limited. Right. If you look across 30 years plus. Right. It's exactly when it should happen. There's two reasons why it should happen now and one reason why it might slow down. The reasons why it should happen are, one is you've had five or six years of slowdown of what looked like amazing performance, lots of promotions and then a whole liquidity gap markdowns and everyone's looking at the last two funds and said, oh my God, I cashed the note if I was here early enough. I did great in those early funds, the last two funds. Maybe if I hang in another five years we'll make a 1.7x, maybe I'll make some money. If I'm a junior person and hot to trot on my career and I think I'm good, I'm looking at that going, the expected value of this isn't great. I'm a rational actor. And anyone who's running money should be a rational actor. So the first thing that's causing it is big ass firms where you're not sure you're going to get money. And then the second thing that's causing it is LPs still wanting to do the asset class, but it's really funny actually, and wanting to do new firms while simultaneously also doing huge checks to the very same firms that people are leaving from. And it's just quite a funny dynamic. And I think what's really happening here is this is perhaps toothache is that deep in their heart you're kind of looking at these mega platforms and going, hmm, I got no choice. Cause it's the only place to put a lot of money. But oh my God, I'm scared. I'd really like to feel good about myself in the morning. I should do some young up and comers too. So, you know, I put my $200 million into Megafund and I gave 20 million bucks to Tomas. I feel good. And I think there's quite a receptive market at the moment too.
- [31:52]
Harry Stebbings
Do you think you suffer from the.
- [31:53]
Unknown
Barbell, which is exactly that you want to put money in the sub 100 young new firm or the platform play with multiple billions and GC Lightspeed Andreessens?
- [32:04]
Rory O'Driscoll
I think suffer is an interesting word. I mean, I think we're all only as good as our last game. I understand what you're saying. In a world where people say there's only two things I want to do, the mega funds and the designer new funds, yes, in that world I would suffer. But that's not the world that worries me. Because there's something that worries me more. The world you really suffer is if you don't perform right. And if you do perform, no one gives a damn if you're small, medium and large. You know? Right. You know, Deng Xiao Ping, it doesn't matter if a mouse is black, a cat is black or white, as long as it can catch a mouse. That's why I said to my colleagues, I say, you know, like guys, we're competent. Our number one job is to be competent. If you execute, I believe there'll be a market for venture returns. If you don't, then you're right. Then you have the. In the absence of success, people can impose their biases and then you know different and you're right at the margin. People love these new firms, the new stories, because it's the promise of the new. The other wonderful thing about starting a new firm right now that no one will ever say, not only do you ditch your colleague's track record, you also ditch your own. You literally go there and go, I was at mega firm from 2016 to 2024. I did some deals, some are great, some are shit. It's not obvious yet, but deep in my heart I know I'm just going to sever that thing like a stage of a rocket, move it behind, raise money now and I will never be asked about my mega fund return ever again. As long as I make this new fund work. It's beautiful.
- [33:29]
Jason Lemkin
Well, you still tell the stories of your winners from the prior fund, right? And pick out your own returns and your own results from my winners. Right.
- [33:37]
Rory O'Driscoll
To take an example of that, who I think is by far one of the most talented investors of the last 30 years. I mean Fred Wilson Flatiron was wildly unsuccessful in the dot com crash, went on to do a new thing and killed it from day one. Which is why it might also be a sensible bet. You sever your own track record, good, bad or indifferent. That frankly was largely a function of the times. Not you. Which people don't ever want to say. You learn those lessons. You're way more intentful as a startup about what you're doing and therefore you kill it. Right. And that is the cycle of renewal that can happen. It's just one of those things that happens at this stage in the cycle.
- [34:13]
Unknown
The one thing I would say is I would not want to be going out fundraising at this time. The LP appetite for new funds I think is lower than it's been in a long time. LPs are not jumping at the bit to commit to new managers. Either existing re ups or net new LPs are waiting.
- [34:29]
Jason Lemkin
They don't want spin out. You would know better than me, Harry. I. I'm shocked that the spin out play but maybe it's for the reasons Rory said. I think the spin out of the successful GP, right it de risks it on the two by two. It's not the spin out. It's not the 2021 playbook of I'm getting three buddies together to do an $80 million seed fund. This is cherry picking a top manager from a known brand fund. You would know better than me. I there's still appetite for that.
- [34:54]
Unknown
It depends who and where from. You might volpe, he's from index all day every day can raise 10 times whatever he wants to raise 100%. But the withdrawal from endowment funds is very real. The awareness that fines is coming very likely for many of them. And tax exempt status is at risk means that there's just a lot of uncertainty and a lot of them are just waiting.
- [35:14]
Rory O'Driscoll
I agree. I think that, as is often the case, two things, especially when you have three people all busy talking past each other, two things can be true at the same time. I think that Jason said it right. The large number of new funds that were happening in 21 whenever needed to be in venture is way down. First statement, second statement. The funds that are getting done are talented mid career GPs from top tier firms with good track record. A much smaller number, but we all know them by name because they've been in our business for 20 years in a way that I didn't know. Joe XYZ, who raised in 21, I'd never heard of every single one of these people. You go, yeah, that makes sense. We're in a deal with them. They're smart, they're good, you do references, they're great. But I do think, to last your point, that was then and this is now. The interesting thing about the next couple of years will be, is there pressure on endowments, who are typically one of the best funders of new designer funds. High intensity, high conviction, smaller funds, are they in such a world of hurt in the last two or three months that even with the best will in the world, they're just not gonna be able to do these deals? And I think that's a legitimate question, which is why I think it won't always be the case that every young person says, yeah, I've been successful, I should leave. There might be, you might see in the next one to two years a little bit of clinging to the lifeboats here, guys, because it's not gonna be as easy as it was. I think 23, 24 was a unique time where it's never easy to raise a new fund. These are really talented people. But 25, 26, you're right, Harry, could be tougher. You can want to do something all you want. You can want to buy a Ferrari if you want. But if you haven't got the money to buy a Ferrari, you can't buy a Ferrari. And these guys are going to be really strapped for cash.
- [36:53]
Unknown
Rory, can I ask you, do you think the endowment funds are as in crisis as people seem to make out?
- [36:58]
Rory O'Driscoll
I wouldn't be surprised. It's a terrifying set of circumstances. I mean, if you're an endowment, you have. I mean, we'll talk in a second about the yield thing is that you have down public markets, you have illiquidity those two, and you have low venture returns for a long period of time. Those things alone would have put stress on the system. And what typically happens when you see stressors, then it's the exogenous variable that puts you over the top. In 73, it's the oil crisis. In 25, it's the Trump crisis. He has clearly taken on himself to decide to significantly change with brute force, a significant slug of the very institutions who have large endowments and are providing a lot of capital to these startups. So I think deliberately not commenting on the merits of it for a second, at least if I was the CFO of an Ivy League university, let's just say my cash planning for this year would be dramatically different than my cash planning normally. And if someone sauntered into my office and said, we need more illiquid assets, I would say, get the frick out of my office. Right? We don't. I'd be like, no, I'm thinking bonds here, dude. I'm thinking index funds. I'm thinking accessible cash at a Moment's notice when 30, 40% of my revenue could disappear.
- [38:11]
Unknown
Rory, I literally had, across channels, 50 plus LPs in my inbox post our last show. They will all be screaming, okay, but if I don't do these venture funds, I'm going to lose that trusted relationship with Mamoon, at kp, with Danny at Index, with Brian at Founders, you name it. I can't just go, no, I don't want more illiquids. So what would you advise them with that in mind?
- [38:36]
Rory O'Driscoll
Two things going back to your part, common new funds. What they're saying is, I don't want to lose what I have. And what you see then is the bias to I got to start by protecting what I have, the relationships I have. Yeah, it would be a mistake if you've been in sequoia for 30 years and you have one shit left this year. And option A is nuke Sequoia and do this new fund. Two really smart people, that could be amazing. And option B is keep a Sequoia relationship. And you know, because those guys do vindictive like no one else, that if you pull out, you're done forever. What are you going to do? You're going to probably stick with your existing relationship. So first of all, you're right. They themselves have to make choices. And I think we mentioned it last year. Then the second thing is, at some level, some choices get made one level above you, they can say, I want to keep rather than add A new one. And that's one choice. And then someone one level up says, I want liquid assets rather than illiquid assets. Liquidity premium is one of those words that doesn't mean shit until it means everything. And when you need money, when you need money to fund your students or to pay your professors or to fund your research, you end up giving up on upside, either by not pursuing new deals or even shock harbor selling existing assets, because you just need money.
- [39:52]
Unknown
And we are seeing that Yale are reportedly selling reported about $6 billion pool of different assets in a secondary sale. Are we gonna see that? Is that the start of a new trend for endowment funds and getting the liquidity they need for the outfit that they have?
- [40:06]
Rory O'Driscoll
I mean. And Jason, chime in here, because I've been. I went on a rant there, so I don't want to hog the mic, but I was thinking about this because it's a really. You know, I was listening to your list of questions, and this question is a big deal. You know, Yale has been the intellectual godfather of the endowment model. And in David Swensen's book, I'm sure we've all read it. I read it 20 years ago, and I'm like, that's the definitive book. I don't need to read any other. This guy nailed it cold. And, you know, the Yale endowment alumni have gone all over the world. You know, they've been hired. They've been at the court of the king. They know how to do it. It's spread across many endowments. And intellectually, as I said, this would be like if Vanguard said, you know, we've been thinking active management is the way to go. Right. So. Right. And the question is, what really going on here? So, because there are mitigation circumstances, I mean, I was mentally running through, first of all, the rumor might be not true. I think it is, but I don't know. But there's two or three reasons why they could be doing it. In how to put this ascending order of severity, the least severe is, hey, we just think we're gonna need money. It kind of sucks. We love these assets, but we just need capital. It's not a knock on the model. It's just a knock on. I didn't plan for the fact that the President of the United States might try and effectively take away our federal income. So there's no collapse of the intellectual theory. It's just you misjudge the amount of illiquidity you could afford because you misjudged the variability of your cash. Flows. That would be a conclusion that it's bad short term because it's bad and it speaks to other people having the same problem. But it's not saying the whole model falls to pieces. Obviously an even worse conclusion would be they've been looking at them thinking and saying the entire private sector's overfunded. I want to pull back a little and we just think systemically long term that's not the case. But it is a big deal because they're so damn good good and for good for so long.
- [41:57]
Jason Lemkin
You guys would know better than me. But in the few conversations I've had is one, everyone got their, their, their distribution planning wrong, their cash planning wrong. That's what happened in the industry. This is even pre trump pre everything this is conversations I had late last year with LPs is we're cool with our, with our paper returns. We're cool with our, with our, with our gross and our net rr. But we got our cash planning was just wrong. We did not plan for this liquidity drought to last this long. Okay, this is what I heard. So cash planning was up. I heard two things. The second thing I heard, and I know this is 20 VC, not 20 PE. The second thing I heard is venture. Whatever. It's PE is the big problem. They're really the same thing. I mean Venture is a subset of pe, right? And the P is so much bigger. And the fact that these deals are did not go public in two to three years is the bigger stressor. Venture, Venture, they don't love it, but they're, they're modeling 20 year illiquidity with regular cash outs. Right. But they don't sweat the VC as much as the pen. I think we're suffering for that. For the bigger cousin.
- [42:53]
Unknown
What does that mean?
- [42:54]
Jason Lemkin
Sorry.
- [42:54]
Unknown
We're suffering for the bigger cousin because PE hasn't had the look.
- [42:57]
Jason Lemkin
Because they're putting five times as much into PE or 10 times as much as Venture. Venture is a rounding error in most, most endowments. Right? It's a subset. Just like Seed is a subset of Venture Ventures a subset of pe. It's not that important. It's just juice, right? It's just a way to juice your returns. PE is where you put deploy more capital. And if it's been five years and your cash flow models are off there there. They haven't brought. It's great we bought Zendesk and Anaplan and Shmana Plan. But if none of them are returning cash, that's an order of magnitude bigger issue than these Little, you know, these little eight or nine figure checks into scalar 20 VC, those don't, those are rounding errors. Those are just juice. Those are to get some extra basis points and on the overall endowment. Right. I mean, there's exceptions right? There, there's. But mostly it's juice, right? Mostly it's a little extra alpha on, on the endowment.
- [43:44]
Unknown
Don't forget Cooper and Zooper and Duper.
- [43:46]
Jason Lemkin
I mean that's, that's, that's the stress that this is pre trump. But that's the bigger stress than venture illiquidity. Right.
- [43:53]
Unknown
We constantly go in and out of like denominator effect on their public books and where it's weighted according to their privates. And every time we have a big swing in public, everyone's like, oh, they're feeling the denominator effect. And I'm like, is that really a thing given the increasing volatility of public markets today? Meaning that you're constantly in and out of of denominator effect Danger.
- [44:15]
Rory O'Driscoll
It's a thing, but it's not the thing that we're wrestling with now. I mean, I think a lot of things in life can be problems, but the question is how serious a problem the denominator effect, Right. It often happens when just in case any of the readers don't know, is that you have a target allocation to private equity. Let's say it's 10%, everything's going great, but then the public markets take a bath and you're just at allocation 10. 90. Public markets take a bath, that 90 goes down. So your allocation and privates don't market as aggressively on either side. So your private allocation goes from 10 to 12. So you have quota denominator effect. It's an issue. And I've definitely had conversations with people over the decades where that's a thing, but I don't think that's, I mean, if that's all that was happening, I think people would power. True, right? I think Jason's exactly right. Which is it's a combination of at a minimum, maybe it's tweeting at a minimum. The cash models have been wrong and it's all taking longer. That's what we know for sure because it's true. The second thing we don't know, but that's the scary thing is we don't know are our models wrong on timing but our irrs good. In other words, are we still going to get the return we want from this asset class just over a longer period of time? Same IRR, but just compounding for 6 years rather than 4 in the case of PE or 12 in the case of 8 for venture. Am I still good for my 17%, which is 600 basis points above small cap return? Or more concerning than just timing, has that 17% gone down to 15 or 14 or 13? Am I getting paid? Because now I've got not getting paid for the risk. I'm taking the risk and I'm not getting paid. So that's the second issue of my returns there. But the third issue, and most catastrophic, which I think is particular to the endowments now and not anyone else, is I actually need the damn money.
- [46:00]
Unknown
I think that is actually very pertinent, though, to the endowments because they have a lot of the time mandated outflows which they have to spend on upkeep of community facilities, scholarships, where a lot of other institutions do not have the mandated outflows.
- [46:14]
Rory O'Driscoll
But yeah, when that happens, you know, things just get harder. Six months ago, I'm willing to bet if you looked at. Because endowments due June 30 to June 30, no one had on their plan for FY6 24 to 6 25, which is the current period. Don't forget the plan for the President of the United States taking away two thirds of our funding. Oh, didn't have that in the plan. So we're just dealing with such extraneous. And it's just so off the norm that I'm sure everyone got caught. It's like saying Covid. I didn't have a Covid plan in January 2020, but neither did you. Neither did anyone.
- [46:44]
Jason Lemkin
I hope they're happy, too. I hope Harvard and everyone's happy because I know I'm not going to write a big check because they poked the bear. I'm not sure whether I have empathy or not, but all the, all the emails saying, please give, give us more money, like it ain't going to work on me. I ain't gonna. I ain't gonna write a huge check because they poked the bear. It's not my problem.
- [47:01]
Rory O'Driscoll
Yeah, the last thing my wife said to me, because we are paranoid former green card holders who have now, thank God, naturalized citizens. She said, don't say anything that will get you singled out to the president. Literally last thing she said before I walked upstairs. So I'm just not being political here. I'm not joining your bandwagon. I'm not joining in on that. I'm not joining in against it. I'm just a simple, humble naturalized citizen who wants to stay in this country. I do feel a little empathy for some of these organizations, despite their prior sins.
- [47:32]
Unknown
The one thing I will say is I was surprised when we raised the fund last year, whatever it was nine months ago, you know, obviously spoke to a lot of tier one endowment funds. The amount who had over 30% in privates was shocking to me. And over 30% even in venture was shocking to me like that. In my head I didn't know there.
- [47:50]
Jason Lemkin
Were that many with 30% in venture that I did not know.
- [47:52]
Unknown
In my head it was a 6 to 10%. Honestly, Jason, when I heard 30 from five plus big names that you would.
- [47:59]
Rory O'Driscoll
Know reciting my David Swensen one, it's not shocking. If you have the perspective, which you should do correctly, that the longest lived institutions, political institutions in the world or corporate institutions in the world other than the papacy are the universities. Decades and centuries, timeline, a bunch of, yeah, Bologna was 13, Oxford and Cambridge were 13th, 14th century. Harvard is I think 18th century. These guys have multi century timelines. And if the longer the timeline you have, the more you can take on illiquidity risk, provided you're getting paid for. So it's not crazy for these guys to have done that. In a world where your plan was to disperse 3% of your endowment at most every year to fund scholarship needs, you just didn't plan for the situation where the world could change utterly. So I get why they're there. I didn't go to any of these, but I'm going to come back to it. Jason, I am more than mildly sympathetic despite their past sins. I think there's pounding, there's trying to drive change and then there's pounding too hard. I mean, I'm just looking here. My God. As a non American university graduate, I never thought I'd be given this commercial, but this is one of the best products we have in the country. We get foreign students to come over here, pop down 60, 70 grand a year without blinking an eye and pointing up for our education, and we get them to feel good about us afterwards. Right. It's not clear to me why killing this particular golden goose is a good idea, but that's not my mandate. So I've got that off my chest and I can move on now.
- [49:32]
Unknown
I think that was fantastic. I think your wife will be thrilled. Another one that I saw this week, which I thought was really important was actually, I think it was Bryce from Oat vc, but he was essentially saying if we're building single person billion dollar companies and AI makes it so much cheaper to run companies. Why are rounds bigger than ever? Traditional seed companies these rounds are bigger than ever. Why if everything is much more efficient.
- [49:55]
Jason Lemkin
Everyone wants to invest in the companies that don't need their money. As valuations inflate, they're just going to absorb more capital. So that's number one. We all want to invest in things we don't that don't want us to. Founders are utterly insensitive today at raising at astronomical valuations. There is no sensitivity to the risk of it at a hundred. I mean 100 million to me is the last chance to not go for it. Okay, so I tell every founder to stop at 100 million valuation. If you're not sure you're going to IPO now you may get it wrong but if your gut says I don't IPO man 50% of 500 million, that's not me. Don't raise that north of 101 billion. 2 billion. 3 billion. The kids these days, Harry, the kids, the generation after you, they don't care. They, they see no risk in raising at Billy Multi three ten billion dollar. They just don't see it. And so the combination of that and wanting to get into the the hot deals means they'll absorb up to a dilution threshold. They'll absorb lots of capital. They'll just absorb. I don't think it's anymore. There's other reasons but I don't think it's any more complicated than that. I don't think the amount of VCs want to invest in companies that are capital efficient and don't need their money. Excel. Figuring out how to buy 30% of Atlassian back in the day was the genius move. You know I asked when I started investing, I think I met with Rich Wong. I'm like why don't you do all these deals? He's like we just can't find enough. He's like we don't want to do anything except Atlassian. We want to be the only investor in own 20 to 30% of a bootstrap company. Right. VCs love companies that don't need their money.
- [51:21]
Rory O'Driscoll
I love it Jason, is that we VCs want to invest in people who don't want us, who don't need us. We want to invest in capital efficient companies and we want them and want to do that in a capital inefficient way. It's a paradox but it's true.
- [51:34]
Unknown
Do you know what I see more than ever? Insane amounts of AI roll up plays. Whether in legal, whether in accounting, whether in professional services, a lot of home real estate plays. Is this venture model? Is this not a venture model? How do you guys feel about the AI incentivized roll up play?
- [51:51]
Rory O'Driscoll
I'm modestly skeptical. Which means, ironically, I'm going to start by citing a success. We were investors in Nuance at Speechworks, which became Nuance in 2000 and they were a generic speech recognition company, AI prior generation, and did a lot of broad corporate stuff. And then they found this vein of gold in medical transcription. And the way they built that business over the decade from 2005, 2015 is they bought crappy little mom and pop transcription companies, injected the AI and made it work. So there's an example of where it did work over an extended period of time. But, and this is my but I think it's a crappy model just for contrast, right? You weren't expecting that, were you, Harry?
- [52:36]
Unknown
Why do you think it's a crappy model?
- [52:38]
Rory O'Driscoll
Because the bet you're taking is you buy a set of customers that weren't picked by you because they are suited for your product. They were picked by some mom and pop founder as being the 10 customers they could sell to. And then you come in and maybe your AI is so good it can address all the needs of all 10 of the customers. But in my view, you may find much more likely that you know, of the 10 customers, three or four of them, perfect sweet spot, you get them across to being all software, it's great. The other five or six, to a greater or lesser extent, the needs are slightly different because remember they didn't pick you because of your AI, because you didn't have their AI when they picked you. So you're going to have a lot of churn and people where you can't make it work. It's going to take longer to bring them across and you're not going to develop any new deal muscle. So I would worry that you end up just piling in this sudden mass of services with a relatively low multiple. And I don't know if it'll be a compelling business.
- [53:37]
Jason Lemkin
I love that insight that they didn't pick you. I mean, it's obvious now, but I'm gonna, I'm gonna take that with me because that's the, this isn't something new, it's just in some ways been accelerated by AI, right? This is since the first job I ever had. If you were overvalued, you always look to buy a terrestrial asset on the cheap, right? And, and tack on eight figures of revenue. This has Been true since the dawn of the Internet. But they didn't pick you. That's the problem. They didn't pick you, did they? They're not gonna. It's not durable revenue in any way, shape or form. Right. So it's financial engineering is all it.
- [54:05]
Unknown
In most cases I would actually push back on both of you. One of my fastest growing companies has gone from 0 to 30 million in revenue in two years with a pure roll up play, which is helped by AI tooling. And to your point on like the customers not picking you? The customers are all pretty much identical. It's a real estate management product. They are identical in the service that they require, the product that they engage with. There is zero ambiguity. And so the ability to roll out to a uniform customer base makes it a very efficient model actually. And so the thing that matters most then is just acquisition price. Can you acquire it effectively at a good enough price? What's your speed of turnaround in terms of your payback and what's your margin juicing like? We go from 5 to 40% in six weeks. That's a big increase in a short time.
- [54:52]
Rory O'Driscoll
Agreed. And the key sentence was, the first one is all the customers are exactly the same and it's all tuned to your technology. And I buy that there'll be examples of this that work. There's examples of everything that work. Right. But the more broad it is like people are going to just buying for buying called BPOs, you know, and everyone's.
- [55:11]
Jason Lemkin
Looking at buying BPOs, right? Everyone's looking at that in the contact center.
- [55:14]
Rory O'Driscoll
The more broad based you go, the less likely it is to be efficient. I'm not saying it's never going to work. I'm just saying it's probably a lot harder than you think. And it really does boil down to this very clearly defined use case where you can be certain that most of them will come across.
- [55:29]
Unknown
Where is no one going that more people should be going? If we're seeing roll up plays be massively overinvested. I see it more than ever. Where do you think not enough people are?
- [55:40]
Rory O'Driscoll
This is the moment where your little heart inside says, if I knew for sure, I'd be damned if I'm going to tell you. Harry Stubbings.
- [55:48]
Unknown
You'Re giving me a hard time today. Rory, you're like, delete your filters. You're like, no, you're a hypocrite.
- [55:56]
Rory O'Driscoll
Sorry, I just came off a board meeting. It's been a tense day already, so. And it's only 10 o'clock. I think we talked a little bit last time about we still both Jason and I would do the treble trouble double double core SaaS company in enterprise normally you try and throw out esoteric areas but all the esoteric areas are full. I mean there's people doing rockets, there's people doing defense, there's people doing healthcare. So there's a little part of it says it's not our focus area. But a partner said to me yesterday guys everyone's running away from consumer maybe you should spend some time there and yeah it's not our thing but if you were a personal investor, whenever you say to yourself whenever everyone's running away if there's still a technology that's animating progress as this thing from just being a trailing edge tech thing you do have to say to yourself maybe, but I don't have a ton of amazing.
- [56:41]
Unknown
New place insight especially it's so interesting you said that. I tweeted and thought this week like.
- [56:46]
Harry Stebbings
Five years ago there were two to.
- [56:47]
Unknown
Three competitors for everything that we looked at at now there's 10 to 15. I just got out of an IC where we were looking at a L and D tool learning and development tool for gen AI security and and then it came up with like red flags and then it came up with the market map and I was like oh wait, in the last 12 months these are the competitors for learning and development in large enterprise 4gen AI tool secure. Oh gosh.
- [57:16]
Jason Lemkin
But if you just step back for a minute, the LMS space this was already overcrowded before AI right way this is LMS was one of these classic spaces of too many vendors for a mid sized tam. Right? That's the worst area to invest in. I've done several investments like that but you have to be intentional if it's tons of vendors smaller tam but I will say just being very tactical there's not as much innovation in the true enterprise. Not B2B, not mid market but gnarly big problems. It's just not what all the kids in SF know and so there's always going to be less investment with A and S tier teams solving gnarly enterprise problems. Especially outside of security there's just going to be not that many. There's not going to be that 100 kids that want to build the next service now there's just not that many. And there's many other examples and the other one that is obvious but I think people miss is there's so much excitement around vertical agents. Whatever these are are there's Still, I believe vertical SaaS is still under invested in because the AI wave is just coming to vertical SaaS. It's just starting in a lot of these categories and you're going to see five competitors, but you're not going to see 500 in a lot of categories. In legal, you are in sales tools, but a lot of categories are not going to have 500 AI competitors. They just, they're just not going to know the markets well enough. So this deep market expertise and enterprise, I still think you're going to have fewer competitors.
- [58:37]
Unknown
You guys speak to all the companies in this space. Will you really map it that effect when there are 10 to 15, will you do that work?
- [58:45]
Rory O'Driscoll
You'll try to. Because everyone say you do it all. Everyone has their model on what works. And if you're doing seed by definition, I think it's really hard to at the stage we invest that. First of all, an observation which is when you look back on success, when you have this market and you can going in picking the winner to state the obvious, disproportionately greater outcomes and it's the first stage at which it's vaguely known, maybe that's a better comment. It's all unknowable, right? But there's this early proto market. Everyone has a million to 3 million in revenues. You can at least try and figure out who the winner is, right? Do you actually get in front of every company before you can pull the trigger? It's hard to do that because, let's get real, you talk to the first, you think it's interesting, you'd want to talk to the others, but you might have to make a decision now. So I'm not going to lie and say I never pull the trigger until I've seen all the players. But I'll tell you what, you got to be damn sure of. You got to try and figure out when you're pulling that trick. Do I know who the universe of competitors is? And have I a decent sense of how they're doing through Jungle Telegraph, customer references, third party references, whatever you can, you should do that. You shouldn't be blundering into deals. And therefore the fatal error by definition in our stage is this. You fast forward 12 months and it turns out the number one competitor is someone you hadn't heard of. You know, at that point you should be committing ritual suicide in the boardroom table because you screwed up. And so you do want to have a sense of the market map. You want to have. It's okay, look, maybe to say the earlier comment more succinctly. You often go into deals and you don't end up in the winner. Duh. That's what losing looks like. But you really don't want to go into a deal knowing up front you haven't got the number one. That's like saying, let's lose money here. We have a good plan, people. By definition, that is kind of one of the key things. You just got to do diligence at this stage. Is there some compelling reason why these guys are ahead?
- [60:32]
Unknown
When you look at the distributions that you've had, have they been markets where it is winner take all or much more distributed? Is it an Uber and a Lyft or is it a Salesforce and a HubSpot and a lot of CRM plays? And Aviva, Also for a specialized industry and much more fragmented, the data says.
- [60:50]
Rory O'Driscoll
Consumer tends to be more winner take all. And enterprises tend to be more oligopolies. And we were fortunate enough to be early investors in HubSpot, So yes, we can speak to oligopoly. That's just the nature of the beast. And even within enterprise, I would argue infrastructure, where my colleagues invest tends to be a little more winner takes all because you don't need a separate router for healthcare versus banking, you just need a router. You just need a gpu. At the apps level, the reason it tends to be more fragmented is there are markets and there are sub markets with real nuances between them. So there's a lot more because you threw out HubSpot and Salesforce. And you're right, they're both winners in CRM, but very different to the point where actually Salesforce was an investor at HubSpot early on, the markets were sufficiently fragmented that they could both build huge companies in markets that at one sound bite level, are the same, but one level down were very different. So much more oligopolies and multiple winners in enterprise apps than either infrastructure or consumer. Jason, does that kind of tie with you?
- [61:52]
Jason Lemkin
Yeah, I mean, when I look at the billion dollar exits I've had, they're all in brutally competitive markets that were oligopical or similar. I wish that. I wish. I wish it was marketplaces. Because you'd prefer that, right?
- [62:03]
Unknown
I mean, Jason and Rory, Can I be blunt? How many 10Xs have you had?
- [62:08]
Rory O'Driscoll
You can. I've had four or five above a 10X.
- [62:11]
Jason Lemkin
Jason, what is. What does 10X mean? Sorry, you mean cash distribution? I've only had $3 billion exits, I think. Right, you mean 10X just 10X deals.
- [62:20]
Unknown
No 10X distributed cash back on deals.
- [62:22]
Jason Lemkin
Well, only three, but I mean, hopefully there's more, right? I think only three. Maybe four. Maybe I got the after.
- [62:28]
Rory O'Driscoll
That's not the only. Dude, it's so damn hard to have four. You've been doing it a decade less than me, which is depressing in itself. But I remember it's so darn hard to get one of those, especially across the cycle. Enough with the only. I mean, so many people don't get any. So many people get one or two. I had a decade where I had none from 2000. And I said this, I think last week. I am more proud of my 2xs and 3xs in 2004 and 2005, 6, than any 10x that kind of sailed into the 21 bubble and made me a fortune.
- [62:59]
Harry Stebbings
Rory, did you ever have a crisis.
- [63:00]
Unknown
Of confidence as an investor? And what would you say to young people now who are looking at 20 to 23 and going, fuck, am I actually any good?
- [63:08]
Rory O'Driscoll
I have crisis of confidence all the time. And my most. Yesterday. Absolutely. It's actually an interesting question. This is such a hard business, and if you don't have angst about your ability to do it, you're missing the point. Because first of all, starting out, out of my first five deals, there was one point where I thought I'd lose money on four. I spent three years of my life not pretty much sleeping. Terrifying, right? I was dreadful at this business. It was 95 early on. So, yes, that was one crisis of confidence. Was there a crisis of confidence in 2000, 2010 when I was vaguely competent but no one was making any money? Yes. Was there five or six years where you felt amazing? Yes. Do I have more crisis of confidence in the last three or four years when, despite having 25 plus years of doing this, you start making dumb. You have deals that make it clear. You got it wrong again. Of course you do. I think anyone running money in venture or anything else does that. And the question is, what you can't do is say, hey, I was great then, so it'll work out. You have to say, what am I doing wrong right now in today's market? Am I playing the game correctly for where it is today? What did I miss? And just go back to basics. I do believe if you do the right steps in the right order, you can stop mistakes, but you can minimize them and probably do okay across the cycle. When I look back at recent mistakes, I think I kind of. I skipped a step. Shame on me. And when you Skip a step, it bites you in the ass.
- [64:31]
Unknown
Why do you think your scale is not playing the game correctly today? I'll give you an example for me, like, I have access to amazing hot rounds. Like some of the names, I don't do them because I just think they're crazy priced. They seem completely detached from reality and then I'm proved wrong consistently.
- [64:47]
Rory O'Driscoll
I see you're turning on me in revenge for your hypocrite comment, which I respect.
- [64:52]
Unknown
I wouldn't say it's revenge. I would say it's more tit for tat.
- [64:55]
Rory O'Driscoll
You know, I'm Catholic, I've done confession, I can do this. I think one of the things you are wrestling with is you have your strategy, you want to stick with it. We all get some version of bright shiny object, right? Which is like, oh my God, are the returns. You're looking at other things. And you do try and keep it focused on the main chance. A and B round with product, market fit, early revenue, looking to scale. So broadly speaking, we have kept on mission. But I'll say there's sometimes when you say to yourself, I don't want to drift off all the time, but I'd love to be able to do one of the hardest things, I think to do in an investment management firm, which is make the occasional exception without making it the rule, which is really hard to do. Can you reach for that $1 billion deal that you see it, you have good connections, you should do it and it makes sense without doing the five other deals that are massively overpriced at a billion. The ability to move beyond your strike zone once in a while is a muscle. That's hard to do, but. But it would have economic advantage if you do it, but would be catastrophic if you did it wrong. That's one area and I'm sure you have the same cause you imply to yourself, howie, you see this later stage deal and you go, it's not what I said I'd do, I shouldn't do it. But every once in a while you say to yourself, if I could do. I mean, dumb comment once in a while, should you? I wrestle with that.
- [66:14]
Unknown
11 labs at 25 million. I could have had 1% of the company. And I was like, 1%, 1%. And like, no way. It was a $25 million fund, fund, 3 billion dollar company. Now I would have been a fun returner on one.
- [66:27]
Jason Lemkin
Well, look, for what it's worth, there's a lot of complexity here, right? But I think any deal where you have a hundred percent conviction, you'll 5x a hundred percent conviction to 5x. You should do it irrespective of ownership or valuation, just to do it. If you've already met with the founders, you already believe that you have, and you are, you're not thinking you can make money, but you're like, I am 100 sure, I'll 5 exit. You'll always like to get an extra 5x x out of x millions in your fund. You'll never. It may not return the fund, but you'll never look back when you're in carry mode and say, you know what, if that. If that 5 had become 25, that's an extra 5 million bucks in my pocket. You'll never regret the sure thing. 5X. I know it sounds silly, but this is where I started investing and I lost track of it going to this. This is my rule. And this is my rule today, Again, if I'm 100% sure I'm going to make 5x, then I'll do it, period. Like, no matter what, I'll just do it.
- [67:14]
Unknown
I have $125 million seed fund. If someone in my team comes to me and goes, I want to write a three or four million dollars check, I'm going to 5 exit. I know, but I don't know if it's going to be.
- [67:24]
Jason Lemkin
No, that's what you get to do, running the place. Your team isn't allowed to use this heuristic. You're allowed to use it to join the dots.
- [67:29]
Rory O'Driscoll
And that's why Jason should be in his own firm. Right? Because it's a lot of comments here. I actually think Jason had the right answer. Because if you play back what I said earlier, if you establish an exception strategy in a team organization where there's broadly equal teams, then it's really hard to rein it in. That's what I'm saying. We're a broadly equal team at scale, seven people who can write checks. If you start breaking the rule once, then you've broken it for everyone. It's no accident that the firms that have high position betting variance, where they're willing to go anywhere, are single leader dominated. Jason, you're exactly right. If you're running your own shop, that's the joy of running your own shop. You can range high, range low. You're not trying to follow a model, you're not trying to build a thing. So Harry, he's right. If you know it might be corrosive to your entire culture and piss off your junior people. But the only person who can have the pulling out the exception card is you. We've chosen not to do that.
- [68:25]
Unknown
Jason's got no other investors. It is just him.
- [68:29]
Rory O'Driscoll
And then he can. And that's exactly. There's a reason why, you know, the guy in Omaha who doesn't list to anyone is the richest man on the planet because he's like, thank you all for your opinion. I don't give a shit. And this is the tension always between, I mean, building a firm, having a consistent strategy versus, on the other hand, doing the reach. And I think going back to what Jason said, Jason is actually right about his comment on high conviction because it's again with the caveat that it's not an institutional building strategy, but something you said, Jason, that resonated with me. There's a rule in engineering that you're only as accurate as your least accurate variable. And everyone gets all caught up with the revenue model and the price it actually is is the conviction level you have. If it's informed conviction, not bullshit, I swing from the gut and I. But if you have high knowledge that this is a thing, you've got to weight that extraordinarily highly because the future is so damn uncertain. Most things you don't know what's going to happen. Most things you know, a lot of things don't happen. So if you get to that unique insight of this is a thing and it's going to run and run, then finding a way to monetize that bet is actually your job. Because there's very few things about the future. You know, I remember realizing when I realized, oh my God, every single app for the next 20 years is going to be rewritten as SaaS, I should monetize that bet. In the same way, I give all credit to the people who said, going back to what I said, these AI models are a thing. You just got to get me a piece of the one or two that are going to work. When you have the high conviction and you're not trying to build a consistent internal strategy for management reason, reasons make the bet.
- [70:01]
Unknown
So why aren't you doing billion dollar rounds if you can see 5x + in them with the core fund?
- [70:07]
Rory O'Driscoll
When you're trying as a firm to build a strategy, it's very much that's a very idiosyncratic leader as genius. What Jason said is that when you're trying to do leader as genius making all the decisions, you do that. When you're trying to build a peer team that are doing deals, broadly speaking, you stick to what you're doing, and you have a plan and a strategy, and you just accept the fact there's going to be deals outside your core competence that work really well. But your job, which is hard enough, is to execute your core strategy really well. I'm far more worried about missing a 5 or a 10x deal that was in the scale sweet spot of 1 to 10 million in revenue series A or B enterprise software. When you miss that, or even worse, when you turn it down, that's when you have a bigger problem, because it's not the oh, my God, I missed the Hail Mary. That was outside my sweet spot, which might bother me personally, but in terms of building a team and a firm that's functioning, if you're not, you know, if you're not playing the system the way you want it and seeing the deals you want to see in your sweet spot, especially if you've defined down that sweet spot so you can be successful, that's where you should agonize a lot more. It's a difference between personal investing, frankly, and building a firm.
- [71:13]
Unknown
Rory, I'm aware you've got to rock and roll. This has been a pleasure, my friend.
- [71:17]
Rory O'Driscoll
Good to see you guys again. Fun to be back and fun to defend Harvard, which I never thought I'd do.
- [71:22]
Unknown
Do you know what, Rory? You are fantastic. And I'm a hypocrite.
- [71:25]
Jason Lemkin
You.
- [71:25]
Unknown
You know.
- [71:26]
Rory O'Driscoll
Well, I. We knew that already, Harry. No surprise there.
- [71:29]
Unknown
My favorite on the last show, when you're like, you'll just edit us all out and just make yourself sound disciplined. I was like, yep, this guy's.
- [71:36]
Rory O'Driscoll
Yeah. No. Yes, yes, yes, yes, you did last time. Yes. As they say in the civil service, why attend the meeting when you can just write the minutes?
- [71:45]
Unknown
Have fun. Jason, I wanted to ask you one more question before we wrap.
- [71:49]
Jason Lemkin
Sure.
- [71:49]
Unknown
And it's actually, you mentioned it on. On this sheet, which is the bay now has 82 tech billionaires per Henley and Partners, a firm and going up. Is there any point in being outside of the Valley? Is this the ultimate centralization of talent back towards Silicon Valley, unlike any other time.
- [72:09]
Jason Lemkin
I love living at the beach during that global pandemic. I have a beach house in Southern California. I mean, I know all the best brew pubs. I mean, it's good living, but man, it's. I mean, literally. Literally, I'm just, you know, I just got a DM yesterday from. I'm a. A new generation tech billionaire. I don't know. I'm just going to go meet him tomorrow in downtown. In downtown. I'M going to walk to this meeting and it would never have happened if I wasn't here. It's just one example from this week. Right? Man, the density here. Listen, you asked the question how, how often do you do like, meet all the companies in the space and investment. I only did it once on my first investment in Pipedrive and I gave up. I've never done it. I've never reached out to a competitor. I've never done any competitive diligence. Right. Was not once. And so the way I invest the Bay Area is just perfect, perfect for it because I can get to know people for real. I can kind of understand the space, I have some time and I'm just not the. I'm just not this Zoom guy. So I'm just so. It's so back. SF is so back.
- [73:06]
Unknown
Why would you not do compatible? My partner Paul would literally have a heart attack.
- [73:10]
Jason Lemkin
Right. Why don't I do any? For two reasons. First, do you have outlier growth? Okay, only so many can have outlier growth. If you invest, if you're an inception investor, if you invest pre product market, fit it. I get it. But like if you're saying, listen, I want to see someone growing, ideally this one to ten and five quarters or less, here's the thing, Harry. I only meet a handful of them.
- [73:32]
Unknown
When you do Algolia, when you do talk desk, when you do you name.
- [73:36]
Jason Lemkin
Owner, owner group grows, growing at its rocket ship today.
- [73:40]
Unknown
But your Algolia is your taught desk. When you invested your revenue cash, they were not rocket ships. They were like good and excited, but they weren't obvious rocket ships.
- [73:50]
Jason Lemkin
But they had top point one percent growth. I can pull up the old, I mean, talk desk went from 1 to 15 and 5 quarters. Okay. Algolia was growing 20% a month for the first two years. Okay. Pipedrive, as flawed as it was, was the fastest growing one in the space. So listen, I'm not saying this is the right way to invest. What I'm saying, I got to be honest. I don't meet every hour with a founder growing that quickly. That I believe in you. I have to believe in the founder. And they have to be growing at 0.1% rates. Maybe you with your, your, your. You're meeting someone going from one to 100 in a week. But I find that, that plus a founder you believe in, plus that the not every opportunity exists for a variety of reasons. You might not meet them. There might be ownership issues, fund size issues. There's a million issues too. Because I have such A narrow sweet spot. Right. Like I have to rule them out if they're too late or too early. That I feel like I do every single deal where every box is checked and I don't have the luxury of deciding. Is there one that's even better than top point 1% growth? I'm not saying it's not flawed, but it's worked. Okay.
- [74:54]
Unknown
Is there any box that you're less strict on it being checked?
- [74:58]
Jason Lemkin
Yeah, unfortunately, it's that competition box. Super loose on that. As long as the founder has a large piece of white space in the space, I'll do it. No matter how competitive the space is. Even though if I would prefer not to, everyone would prefer no competition a la Peter Thiel. Right. I just don't feel like in B2B to Rory's point, where we're building oligarchies, we have this luxury so often to have no, you know, Windsurf started. Our competition doesn't have any. No competition. Right. I would love to have no competition, but that's the box I just completely have given up on, despite wishing I could check it. No competition. I would if I could. That would be a gift. But it's the one I give on and it's harder than ever. Everything is more competitive today. Right. Going to your point earlier. So that's the one I give on. I won't give on growth. I won't give on co. I no longer will give give on cto. We've talked about that in the past. That's when I will never give on again. S tier CTO or I'm off. I'm off the. I'm off it, but I'll but competition. And I don't care about college. I don't care if you went to high school. I don't care about any of that. I'll give on all the educational.
- [75:55]
Unknown
If you have a super competitive market, is the core skill set that you look for in a CEO different to a non competitive market?
- [76:03]
Jason Lemkin
No. Because if you're post revenue and you're growing at outlier rates, you figured something out. Out. And I will be honest, Harry. For every single investment I've made, every single investment I've made, I have not truly understood its competitive positioning until after I invested. I'll do a lot of Internet diligence. Don't get me wrong, anything you can do on Google or chat gbt, I'll do it. But to really understand the market, like if you didn't come out of that space, it could take you the better part of a year, six months to really understand that market. How are you going to figure that out for sure before you invest?
- [76:30]
Unknown
So I mean I would tell you the guys will do 30 references, 10 with team, past and present, 10 with customers.
- [76:36]
Jason Lemkin
Oh my God. I love it. Yeah, I mean I just did an investment with Maritech and saw their due diligence. I've never seen something this good in my life. Oh my God. 100 customers they talked to. The notes were trans. Like I literally said to the founder, you got to share this with everyone in the capital. I've never seen such good diligence in my life. Right. I talked to two customers when I invest in this company and actually after the term sheet, I talked to two.
- [76:58]
Unknown
Do you know what's so shocking? That honestly, dude, this is just the entry to ticket for growth firms to get a meeting now.
- [77:04]
Jason Lemkin
That's, that's why the diligence is so good.
- [77:06]
Unknown
Yeah, it's so fucking difficult for them to get in the door with that $7 million. One to seven million in a year. ARR, Founder. That, that is just the ticket. Hey, it's worth your time to meet me because look at all the work that I've done on your company.
- [77:20]
Jason Lemkin
Yeah, well, look, for what it's worth, I'll tell you why. Why I have this strategy, right? Honestly, at this point, listen, I really do love a lot of the founders. I invested and you talked about revenue, Cat, you're right. I invested crazy early. I love the founders. No matter what, I love them, I love them. I love a lot of the founders. Right? But at a business model, I'm only in it for one big massive win. That's it. Everything I'm going to do for the next, next years, it's just for a whiz or better. I don't care about anything else from a business model. I don't care. So I'm going to do the best I can to find a wiz or better going forward. And any, anything else, it's, it's. These are just me means to an end. Right? So I got to check all those boxes and I think if you invest in enough folks in that top point 1% and you're lucky enough to do them, one of them, one of them will hit. One of them will be worth another true $8 billion outcome. Not fake 8 billion on paper, but a real $8 billion outcome. Right? That's it. Nothing else matters.
- [78:12]
Unknown
How able do you think you are to know whether you'll invest before even meeting the founder? And I know that seems strange, but if you know the market, the traction, the competition, where they sit, the background, revenue, revenue, growth.
- [78:27]
Rory O'Driscoll
Growth.
- [78:27]
Jason Lemkin
Every single time I've known I want to invest before the first meeting. 100%, dude.
- [78:31]
Unknown
If you get everything you need and you meet the founder and they are just boring. That uninspiring and dry, do you do the deal dry like you just like. They don't excite you?
- [78:43]
Jason Lemkin
Never met one. I never met a founder that could write an incredible email, express incredible excitement about a boring industry. Get me. I've never met a founder that could get me excited by email. That when I met him, I'm like, this guy's just dull because they're already so passionate about their business. Anyone that is like that passionate about their business, it's. It's like you could meet that, you know, whoever makes the best mugs in the world is going to be fascinating. Whoever makes. I would love to talk. Let's bring the CEO of Sure on 20VC. Going to be fascinating. So I've never met a CEO with this outlier growth. That's crazy. That didn't go to college, that dropped out after a month to do a podcast, whatever. I've never met this person and they're not interesting. It's just, I've gone to other people's meetings, I've gone to other VCs meetings where I literally wanted to cry from boredom and bang my head, but I've never once had a founder that legitimately passed the bar. Pre meeting where I didn't meet him. I'm like, this guy's pretty interesting. Owner is going to be a huge. It's a huge success, okay? But I don't think I've actually invested in a company with more competition than owner. Not a single one. Direct competitors, adjacent competitors, virtually identical competitors. Like, I've never. I don't know why. And Dean the CTO is so good and that's why I invested. But why is that? Just because, like, you can play with the app, doesn't make it fun to invest in, does it?
- [79:59]
Unknown
And in a shit market, like every investor does this and they always go, look at who's the winner now, dude, OLO Noah is great. Love Noah.
- [80:08]
Jason Lemkin
Great founder.
- [80:09]
Unknown
It's a billion.
- [80:11]
Harry Stebbings
Just one billion.
- [80:12]
Unknown
And it's been 15 years.
- [80:15]
Harry Stebbings
Brutal slog.
- [80:16]
Jason Lemkin
Listen, and I'm only, I'm only an expert in OLO from afar, right? But OLO is a story of doing the wrong end of the tail, right? OLO is trying to do an, basically an enterprise play in an SMB market, that's really, that's really brutal, right? It, it's the same problem in anything in B2B E commerce, if you're doing, if you're not doing some SMB in E commerce, like, yeah, there's a few niche players but like it doesn't make sense to fund it. Even say with Shopify, only 25% of the revenue is big brands. So if you're only big in rest, in anything that's like the consumer end of B2B, you're going to be niche, right? You're going to be niche, right? And the niche competitors to Shopify are dead or dying. Like Salesforce, right? And OLO is great, but it's like high end, right? It's chains and stuff. Like who. It's hard. There's just not enough tam.
- [81:04]
Rory O'Driscoll
Do you know what?
- [81:04]
Unknown
I love the amount of amazing founders and I don't think I've told you this and I didn't mean to rub it in, but the amount of amazing SaaS founders who tell me like, you're friends with Jason. I emailed him and he never responded. And now I'm like a billion dollar company and I'm like, oh yeah, I would love to have invested in everyone. Jason didn't respond well, that's why, that's.
- [81:27]
Jason Lemkin
That'S why the real. I just want to do it. All I want to do is one more whiz. One whiz, right? That's all I want to do for the next one year, 10 years or 15. That's the, that's the math, right? None of the rest matters, right? But yeah, I got to do better. But actually, honestly, Harry, the AI is already going to solve half that problem for me. And so it has a rule and I've still tweaking the rule, but if, if the metrics are good enough, it forwards an alert to me to look at the deal. So now it's better than an associate. Honestly, it's better than like it can. It will review your deck, it'll provide you feedback, you can iterate. There's no pressure, you're not being judged. The AI does not judge you. But the A is better. It will provide you all your feedback on your tam. Your. It'll tell you how good your growth is. It will compare it to other investments. It will tell you whether you're in the sweet spot. It'll tell you the check size we do and the ownership size we do. And then you just set up a trigger. Like if it hits these numbers, just send it to me.
- [82:12]
Unknown
I love talking to you. You've been amazing. Thank you for doing this and I so appreciate it, man.
- [82:18]
Jason Lemkin
All right, let me know what else you need, man.
- [82:21]
Unknown
I need to know what you think of these shows. Please let me know on Twitter at Harry Stebbings. I want your feedback. Let me know what we can do to make them better. And I so appreciate all your input.
- [82:31]
Harry Stebbings
But before we leave you today, here are two fun facts about our newest brand sponsor, Kajabi. First, their customers just crossed a collective $8 billion in total revenue.
- [82:41]
Unknown
Wow.
- [82:42]
Harry Stebbings
Second, Kajabi's users keep 100% of their earnings with the average Kajabi creator bringing in over $30,000 per year. In case you didn't know, Kajabi is the leading creator commerce platform with an all in one suite of tools including web websites, email marketing, digital products, payment processing, and analytics for as low as $69 per month. Whether you are looking to build a private community, write a paid newsletter, or launch a course, Kajabi is the only platform that will enable you to build and grow your online business without taking a cut of your revenue. 20VC listeners can try Kajabi for free for 30 days by going to kajabi.com 20VC that's kajabi.com K A J-A B I.com 20VC once you've built your creator empire with Kajabi, take your insights and decision making to the next level with AlphaSense, the ultimate platform for uncovering trusted research and expert perspectives. As an investor, I'm always on the lookout for tools that really transform how I work. Tools that don't just save time, but fundamentally change how I uncover insights. That's exactly, exactly what AlphaSense does. With the acquisition of Tegus, AlphaSense is now the ultimate research platform built for professionals who need insights they can trust fast. I've used Teagus before for company deep dives right here on the podcast. It's been an incredible resource for expert insights, but now with AlphaSense leading the way, it combines those insights with premium content, top broker research, and cutting edge generative AI. The result? A platform that works like a super charge junior analysts delivering trusted insights and analysis on demand. AlphaSense has completely reimagined fundamental research, helping you uncover opportunities from perspectives you didn't even know how they existed. It's faster, it's smarter, and it's built to give you the edge in every decision you make. To any VC listeners, don't miss your chance to try AlphaSense for free. Visit AlphaSense.com 20 to unlock your trial. That's Alpha AlphaSense.com 20 and once you've got the insights from AlphaSense, you're going to need a bank that actually moves as fast as you do. Well, that's where Mercury comes in. Mercury is changing how businesses think about banking. Just listen to Bryce Ferguson, the founder of turnkey.com which builds secure, flexible and scalable crypto wallet infrastructure and is a 20 VC portfolio company. So he says Mercury has spoiled us. There's no going back to a regular bank account after being with Mercury because everything just feels so easy and intuitive. It saves our team a ton of time from sending wires to paying bills, creating reports. Mercury has simplified our banking no end. Visit mercury.com to see for yourself how a powerful bank account can transform your business operating Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Column N A and Evolve bank and Trust Trust, members of the fdic.
- [85:33]
Unknown
As always, I so appreciate all your support and stay tuned for an incredible episode coming on Monday with Tarvit, founder of Transferwise.