20VC: Opendoor's CEO on The Greatest Turnaround in Tech | OpenAI and Oracle: How Can Either Afford to Do This | How Anthropic Could Lose 50% of Their Revenue Overnight | Replit Raises at $3BN | Figure, Gemini & VIA IPOs Broken Down

Summary

The Twenty Minute VC (20VC) – September 18, 2025

Episode Theme:
A high-velocity, candid roundtable breaking down the greatest turnaround in tech (Opendoor with CEO Kaz), the realities behind Oracle and OpenAI’s blockbuster cloud deal, seismic shifts in AI partnerships, analysis of red-hot AI startups like Replit and Higgsfield, and a clear-eyed evaluation of recent IPOs, VC risk, and the changing shape of exits.

Panel:

• Host: Harry Stebbings
• Guests: Kaz (new CEO of Opendoor, ex-Shopify), Jason Lemkin (SaaStr), Rory O’Driscoll (Scale Venture Partners), Howard

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1. Opendoor’s Radical Reset: New CEO Kaz Makes His Mark

[03:41-23:34]

Kaz’s Big Bet: From Shopify to Opendoor

• Kaz left a storied run at Shopify—“I never thought I would leave Shopify. I thought it was going to be like my job forever.” ([04:14])
• He joined Opendoor because he’s driven by mission: “If we can make buying, selling and owning a home easier, less frictionful, less terrible. The world will be a better place… We will figure out how to make money along the way.” ([04:14])

On Conviction and “Boom-Time Mindsets”

• Howard challenges Kaz: isn't “figure it out along the way” a risky mentality?
  – Kaz: “Fuck no. No, definitely not… Businesses should not exist to make money. Businesses should make money to deliver on a mission… I know how to make money here. What I'm saying is the mission is more important than the money.” ([05:37])

Meme Stock? Or Potential Powerhouse?

• Jason: “How do you deal with this meme stock element?... It’s crazy.”
  – Kaz rejects the meme stock label: “Opendoor is priced in the public market for its potential and it's an incredibly fair price for the potential... We’re going to go execute against the potential.” ([06:36])
  – He compares Opendoor's model to Tesla’s early market share.

Is Opendoor a Software Factory or Real Asset Company?

• Kaz: “Opendoor is a software company that happens to have some assets… You must judge companies based on where leverage comes from. The leverage from Opendoor will come from software.” ([09:19])

The Real Challenge: Pricing and the Power of AI

• Rory questions: “It’s easier to price a car than a house, right?... The nuance you have to get right.”
• Kaz: “I think you were right three years ago. This was an incredibly difficult problem... But there's a reason why God invented AI. This is a solvable problem.” ([12:47])

The “Shopify Analogy” and Value-Added Services

• Opendoor will generate margin by ensuring a fair price and building long-term homeowner relationships—not one-off “shady” deals.
• “The problem with having to make all your money in one transaction is that you by necessity have to be shady.” ([13:32])
• Company will launch a “network for buyers and sellers... over a series of products.”

On Asset-Light vs. Asset-Heavy

• The future isn’t all asset-heavy: “We will not choose to say and solely asset heavy world... You need to do is look at the problem space and solve all of it for the user.” ([16:13])

Leadership & Compensation: Aligning to Alpha Creation

• Kaz: “I'm no one's idea of a professional manager. We're going to create Alpha.” ([08:36])
• On comp: he’s effectively on a $1 salary; almost all upside is in stock options. “I think corporate executives should basically only get paid in options… it’s just so fucking weird where like the thing you have created is be inoffensive enough not to get fired.” ([17:42])
• “Entirety of my performance money is based on the stock price going up.”
• Would not have taken job without boardroom “air cover” from Keith and Eric. ([19:04])

A Generational Vision—and Personal Risk

• Kaz left “a few hundred million dollars” on the table at Shopify.
• “We will build a generational company here and they must hold us to account for doing that.” ([21:24])
• Personal mantra: “Was the week hard? Was it valuable? Was it fun?” ([22:34])
• Opendoor will be “the most aggressive in office public tech company.”

Notable quotes:

• Kaz: “We're going to screw a bunch of things up. We're not going to be perfect, we're going to launch things that won't work, but we're going to start fucking launching things.” ([17:18])
• Rory: “This is a refounding of the company...” ([19:21])
• Kaz: “Dude, the world can't have enough Canadians, man.” ([20:55])

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2. Oracle & OpenAI: Parsing the Cloud Megadeal

[23:44-33:55]

Setting the Scene: Oracle’s Blockbuster Announcement

• Oracle revealed ~$300 billion in future cloud RPO (mostly from OpenAI)—sent stock up 36%, briefly making Larry Ellison the world’s richest man. ([24:04])

Is That Revenue Real?

• Rory: “If you think OpenAI has $300B to spend... that's 60B a year… It’s just that then you say to yourself, the customer promising you $300B is doing $12B in revenue… is going to have to raise... a couple hundred billion dollars.” ([25:09])
• “This is a very levered bet on everything at OpenAI working.” Oracle is now a proxy for OpenAI’s fortunes.
• Jason: “Have any of us given up caring whether any of this revenue is profitable? ... this is a zero net margin business...” ([26:40])

Margin Myopia in the Market

• Massive public enthusiasm chases growth, not profit: “No one cares that this adds nothing to Oracle's bottom line and may never.”
• “Public market irrationality… is that not the height of irrationality?” – Howard ([30:03])
• Rory: “I'm shocked to discover gambling going on in the stock market, Howard.” ([30:18])

Doubts on Full $300B Materializing, But...

• Rory: “Do I think they're going to collect $300 billion in orders from OpenAI? Absolutely not... Do I think the full last $300B will be wired in five or six years? No, I very much doubt it.” ([31:28])
• Much of this is momentum: “Everyone is getting what they want from this press release.” ([32:53])

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3. Venture Mindset: From Investing to Trading

[33:55-39:45]

Market Euphoria and the Trading Mentality

• Howard: “The whole venture landscape's just moved from a game of investing to trading… we're all just hoping that someone pays a more irrational price than we paid and suspend disbelief.” ([33:55])

The Exit Calculus

• Jason: “Where we're going to make a lot of mistakes in Venture is not taking billion-dollar exits… We're gonna say no to those fun returners and we're gonna wake up and they're gonna be worthless.” ([34:31])
• Cautionary tales from 1999/2000 echo today—take the chips off the table when offered.

Difference Between Public and Private Liquidity

• Rory: “Part of the role of liquidity is to allow you to alleviate risk. That's just the game we're in, and that's just the nature of being private for longer.” ([36:41])
• Jason: “Every single founder this year that has had a strong M and A offer, I've told them to take it. 100% of the time.” ([37:31])

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4. Microsoft & OpenAI: The “Uncoupling” with Anthropic Rising

[39:45-45:44]

The Evolving Relationship

• Microsoft shifting from deep partnership to arm's-length with OpenAI, using Anthropic’s Claude as default for some products. ([40:17])
• Rory: “It was a marriage of convenience... both parties are moving apart.”
• The end game: Microsoft exits with a 20-35% stake in OpenAI, reaps a $100-150B return, but not game-changing for its $3T market cap. ([43:32])
• “Both these companies, ironically, just like Microsoft 30 years ago, used IBM and then left them an empty husk.” ([44:29])

What Did Microsoft Gain?

• “The real value to Microsoft has been the lift in its perceived market cap, its actual market cap, from the perceived AI buzz.” ([43:32])
• The real test: when OpenAI moves on, does Microsoft have the in-house AI it needs?

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5. AI Startups: Explosive Growth, Whimsical Markets, Ruthless Competition

[48:32-56:40]

Under-the-Radar Explosive AI: Higgsfield, Gamma, Replit et al.

• Jason: “Higgsfield… $50M ARR faster than Lovable and Replit.” ([49:25])
• AI is turning formerly niche creative domains (slides, videos, coding) into explosive markets—massive accessibility unlocks for “ordinary people.” ([50:12], Rory)
• But not all are created equal: some profitable (Higgsfield), others burn cash.

Sustainability vs. Whimsicality

• Howard compares it to Covid-era spikes: “Real difficulty in understanding what is a sustainable market trend… versus what is an experimental market that is cool to create but ultimately whimsical and doesn't last a cycle.” ([52:03])
• Jason: “If you're seeing triple digit NRR… it's hard to say no as a VC.” ([52:26])

Incumbent vs. Startup: Revenge of the Incumbent?

• WIX’s purchase of “a cheap clone by one guy” (Base 44) for $80M, quickly scaling to $50M ARR: “Imagine it's 200, 250 million.” ([59:17])
• Some incumbents (Wix, Workday with $1.1B acquisition of Sauna Labs) are breaking through, but for Adobe/Salesforce, moving the needle is tough.
• “If you're number two, just don't raise too much. Be acquirable, and you will be shocked… in frothy times, the offers you'll get.” ([62:34])

Existential Risk for AI Startups

• Jason: “Anthropic could lose half their revenue in the next 12 months because GTP5 codecs might be just as good. ... I could imagine it is 95% as good. ... Anthropic could lose 30 or 40% of its cloud code revenue in one year.” ([55:56])
• Customers are extremely price insensitive and quick to switch: “They would very happily move tomorrow to someone else if it were a comparable service.” ([57:03])

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6. IPOs, Liquidity Events & The Return of the Public Markets

[66:25-72:12]

Recent IPOs: VIA, Gemini, Figure

• Figure lauded as the most interesting—fintech with blockchain for loan settlement, led by repeat founder Mike Cagney (ex-SoFi). “Finally, a use for the fricking blockchain that's standalone and independent of its kind of a trading asset.” ([67:27])
• Market context: “Busiest IPO Week since 2021 isn't to be ignored or taken lightly.” ([66:56])
• IPO market’s revival is feeding much-needed LP liquidity.
• Rory on the new world: “Getting those [companies] funded is harder than ever when they're going from 10 to 20.” ([66:25])

Secondary Markets & Exit Regret

• Jason: “I would say more than 51% of founders regret it [selling]. I regret it. But as a VC… If the founder wants to sell, you sell. It's not your decision. That's the height of hubris in my experience.” ([63:08])

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7. Quickfire & Predictions

[73:19-81:18]

• Opendoor Stock Price end of year?
  – Jason: $24
  – Rory: “Somewhere between 9 and 24... I think it keeps going up... but it’s an extraordinarily hard business.” ([73:48])
• Adobe’s Share Price in 12 months?
  – Rory: “No more than 10% higher… It's just reverted to what it's probably worth.”
  – Jason: Predicts down 10%+: “…losing Scott [Belsy] a big blow… Any public company quoting billions of AI-influenced ARR does not believe they will have billions of real AI ARR.” ([77:41])
• On Adobe’s defensive posture:
  – Rory: “If you don't think AI fundamentally threatens your business here, you're delusional.” ([79:40])
  – Jason: “You can't cannibalize your seats … It's a tough one for Adobe.” ([80:42])

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Most Memorable Moments & Quotes

• Kaz on Leadership: “We're going to screw a bunch of things up. We're not going to be perfect, we're going to launch things that won't work, but we're going to start fucking launching things.” ([17:18])
• Jason on Market Exits: “Every single founder this year that has had a strong M and A offer, I've told them to take it. 100% of the time.” ([37:31])
• Rory on Public Market Rationality: “I'm shocked to discover gambling going on in the stock market, Howard.” ([30:18])
• Kaz's scoreboard for weeks ahead: “Was the week hard? Was it valuable? Was it fun?” ([22:34])
• Rory on Incumbent AI Risk: “If you don't think AI fundamentally threatens your business here, you're delusional.” ([79:40])
• On OpenAI’s Sam Altman: “Kudos to Sam Altman for dancing his way out of one of the greatest bear hugs of all time.” ([45:59])

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Key Takeaways & Tone

• Relentlessly Candid, Data-Driven: The conversation flows with a mix of hard-headed realism (“take the damn exit!”) and enthusiastic optimism at the scale of new AI-enabled possibilities.
• Kaz Sets a New Cultural Bar: Fearless about risk, optimizing for mission over money, and hands-on company transformation.
• AI: Disruptive, Growing, but Razor-Edge Survival: Markets boom, but margins and defensibility are more fragile than ever—even for decacorns.
• Liquidity Is Back, But Cycles Remain Brutal: IPOs and secondary markets offer relief, but regret lingers and macro euphoria masks underlying frailty.
• Public Market Exuberance is Detached from Profit: Investors care about vision and growth, not current margins.

---

For listeners in a hurry:

• Opendoor is staging a bold, software-centered turnaround under Kaz, who is betting his own fortune and career credibility on “hard, valuable, fun” execution.
• AI startups, market giants, and VCs alike are running headlong into an era that rewards speed and scale—but punishes hesitation and lack of sustainable margin.
• The Oracle-OpenAI deal is emblematic of a market where size and momentum matter more than profitability (for now).
• Liquidity (IPOs, M&A) is critical; take the offer when it comes, as cycles turn fast.
• Incumbents are beginning to strike back—sometimes with shocking speed (e.g., Wix/Base44), but most big companies still struggle to truly harness AI disruption.

Listen for:

• Field-level insights, rough-and-tumble debate, and honest reflection from some of tech’s most plugged-in operators and investors.

Transcript

[Kaz]

Opendoor is priced in the public market for its potential, and it's an incredibly fair price for the potential. Look, I think the bull case for Opendoor is obscene, just obscene. It's hard to exaggerate how big this company can be. I'm no one's idea of a professional manager. We're going to create Alpha. I think corporate executives should basically only get paid in options. We're going to launch things that won't work, but we're going to start fucking launching things.

[Harry Stebbings]

This is 20 VC with me, Harry Stebbings. It is my favorite show of the week. Jason Lemkin, Rory o'. Driscoll. And we have the hottest CEO in town, open doors, new CEO Kaz, who just joined from Shopify. He joins for his first ever interview as CEO of Opendoor. He did this show when he was just 24 hours into the seat. On top of that, we talk about OpenAI's relationship with Microsoft, their new deal with Oracle. We talk about the IPOs that happened last week, the busiest week of IPOs this year. And so. But before we dive into the show today, let's talk about agents. Specifically Piper, the AI SDR agent, brought to you by Qualified. The agentic marketing era has arrived. And if you're a B2B marketing leader looking to scale a pipeline generation, Piper, the AI SDR agent. Wow, it is here to help. Piper is the number one AI SDR agent on the market, according to G2. And hundreds of companies like Box, Asana and Brex have hired Piper to autonomously grow inbound pipeline. Fucking sign me up. Anyway, Qualified customers see massive business impact with Piper. 3x increase in meetings booked and 2x increase in pipeline. Wow, that is some results. Hire Piper, the 1 AI SDR agent and grow your pipeline today. Learn more at qualified.com 20VC that's qualified.com 20VC with the 20VC spelled out in letters, for goodness sake. And while Piper builds your pipeline, HubSpot gives your business the AI tools to scale faster. Think about listening to this podcast. Right now, you're probably multitasking and catching 70, maybe 80% of it. How dare you? This voice is so captivating. Now flip that and imagine catching only 20%. That'd be pretty crazy, right? Yet most businesses only use 20% of their data. All the important details in call logs, in emails, in chats, they're just left floating in digital space. Well, HubSpot gives you access to those insights to help you grow your business. Because when you know more, you grow more than. Visit HubSpot.com to get the full picture today. HubSpot keeps your CRM humming and when you layer in AI, Nexus takes it to a whole new level. Who's the biggest AI threat to your business? It might be your own employees. They use unsanctioned AI tools and personal accounts for work tasks and feed company data to places. Honestly, it just shouldn't go well. This is what we call Shadow AI and it could cost you millions. IBM found that 97% of organizations reported an AI security breach. That's in 2020 alone. As a CTO, a CIO or a head of AI, that's a mistake you just can't afford. Nexos AI fixes it with an all in one secure AI platform. Nexus AI stops Shadow AI in its tracks. So it's a unified platform for secure company wide AI adoption and productivity. Tech leaders set policies and oversee usage. Business teams get the models they actually need. Try it yourself. With a 14 day free trial at Nexus AI forward slash 20 VC, you.

[Rory O'Driscoll]

Have now arrived at your destination.

[Howard]

Guys, I am so excited for this. You all know it's my favorite time of the week. My mother even loves these shows now, which I think is incredibly heartwarming because.

[Harry Stebbings]

She listens to everyone.

[Howard]

But we're gonna start on news item number one. Kaz from CEO of Shopify to now CEO at Opendoor.

[Harry Stebbings]

Kaz, first, thank you so much for.

[Howard]

Joining for this first little stint.

[Kaz]

Thanks for having me. I appreciate it, man.

[Harry Stebbings]

I wanted to start with the question.

[Howard]

You left a great and huge business in Shopify. You must have the ult conviction that I buying is a good business. Can I be so blunt as to ask what led that conviction when it's been a challenged conviction to have over the last few years?

[Kaz]

I never thought I would leave Shopify. I thought it was going to be like my job forever. And I just genuinely loved the company, Loved Toby, love what it stands for. When I joined Shopify, everyone was like, what the hell are you doing? This is a tiny company, it's going to go nowhere. It was among the most shorted stock in the tech market. It was like very much like this thing will fail. In fact, it was like a very long like I think Citron wrote in a short report the day I joined Shopify about how terrible business it was and how it wouldn't last two years. But I think Shopify is a wonderful company. But look, the fundamental problem that Opendoor will solve is an incredibly important problem. Not just as a business, but for the world. If we can make buying, selling and owning A home easier, less frictionful, less terrible. The world will be a better place. We will figure out how to make money along the way. This will be a great business. We will make money. This will be a great business. But the problem space is a valuable one to explore and I think you need to do it unapologetically. The goal here isn't to minimize risk. We have a mission to go after. We'll go after it incredibly aggressively and we're going to make it easier for both people who are buying and selling homes to engage in that transaction because it matters to future of our society.

[Howard]

Can I be so bold and just ask, does that not feel like a bit of a boom time mindset? Oh, it's a valuable problem. And we'll figure out how to make money along the way.

[Kaz]

Fuck no. No, definitely not. Look, this is not like, I'm not saying we're going to figure out how to make money along the way. We will make money. That's not what I'm saying. We will have plans to make money and we have a couple of good bets already. We'll launch more of them. I'm not saying I have like a hope and a dream of profitability. This is a for profit company. Like it's very much a for profit company. We'll figure it out. But what I'm saying is that businesses should not exist to make money. Businesses should make money to deliver on a mission. And those are important things. We are a mission driven company and we'll make a profit such that we can deliver on our mission. And like, the shareholders will be happy, buyers will be happy and sellers will be happy. But that's the goal. Like, I'm not saying like, oh, I don't know how to make money. I know how to make money here. What I'm saying is the mission is more important than the money.

[Jason Lemkin]

A wildly successful software executive. How do you deal with like this meme stock element to the company? Like, I'm not a meme stock guy. I don't trade. I'm, I'm, I'm long and everything. This isn't Gamestop, but it's crazy. This memory pre you is crazy, isn't it?

[Kaz]

I'm not a trader. I own a one, like literally one ticker. When I was at Shopify, it was Shopify. I expect I will own two tickers for like the next little while. Shopify and open. Like, I'm not, I'm not a diversified trader guy. That's not what I do. That's not my job. My Job is to build great products and get people to pay for them. The second thing is I actually fundamentally reject the premise. Opendoor is priced in the public market for its potential and it's an incredibly fair price for the potential. And I think we will earn the potential. We're going to go execute against the potential. That's not that different on how startups are valued by VCs. You don't value the current cash flow of a company. You value the potential and say, what are the odds it will get there? What's the discounted cash flow odds of this thing being big if you do it that way? This is single largest market in the world. I think Tesla was not above 10% in any market it was selling cars in until last year. It is above 10% in some markets this year. Opendoor was above 10% in many markets it was selling homes in a couple of years ago. Like we will get back there. It's a significantly bigger market, Significantly higher attach opportunity, significantly longer ability to have a relationship with a buyer and a seller. By the way, I'm a math nerd, right? I was a mathlete growing up. If you do the math on a potential company and just discount it back, I think the stock is reasonably priced. I would have bought at this price. In fact, I did buy at a higher price than the current price.

[Rory O'Driscoll]

The meme stock thing is actually two parts to it. There's the price relative to value and then there's obviously the combination of meme stock and activism. I think the interesting thing here is a set of investors from outside have been able to agitate and drive change. In this case, I think very interesting and good change. This is what the evil activists would be like as they were VCs. And it was just kind of fun from a distance to watch it just rattling the cages of the board and saying you need to do something different. And eventually the board said, hell, you're right, let's do something different. Let's call Cass and put these other guys back on the board.

[Kaz]

I think you're absolutely right. Look, I think the bull case for Opendoor is obscene, just obscene. It's hard to exaggerate how big this company can be. But companies require good stewardship and operational excellence and aggressive execution. There are companies that can be run by professional managers. If you're a widget factory, professional managers are great for you. If you're a software factory, professional managers are to death. I'm no one's idea of a professional manager. So like we're going to create Alpha.

[Howard]

Are you a software factory though?

[Harry Stebbings]

But like you have a lot of.

[Howard]

Real assets on your books. You have a lot of illiquid assets on your books. This is a very real world financial mechanics business in a lot of ways. It's not a software factory.

[Kaz]

I disagree. I fundamentally disagree. Opendoor is a software company that happens to have some assets. I think there's an asset light model here that could work incredibly well. There's an asset heavy model that can work incredibly well and we'll have like literally all of them. You must judge companies based on where leverage comes from. You look at a company like, ah, that's where leverage comes from. The leverage from Opendoor will come from software. We will build excellent software products for buyers and sellers of home and owners of homes. And we will attach services to those products.

[Rory O'Driscoll]

And one level down on that because there's two things you do. You have to be able to predict the price of an asset. Well, maybe three, you've got to have a top of funnel to drive in buyers and sellers. You got to have a really big AI brain to figure out what these assets are worth. And then you got to have transactional efficiency to make all the shit happen, like the processing, the selling, the repairs, all that. And maybe those three things are the soft, what you're calling the software factory. Which do you think is the hardest part? Which do you think is the most important part?

[Kaz]

So I think the last part is very software enabled. And genuinely I'm actually 24 hours and 12 minutes into the job. Yeah, I'm generally impressed by the last part of business already. It could be significantly more software enabled, significantly more AI enabled. I'm actually generally impressed. But I think like, look, the long term leverage for this company becomes offering a fair price for a home, not trying to make all your money on buying homes at a discount. That's just like no one wants to. Selling a home for a fair price and adding value added services on top of it. Adding things that homeowners and home sellers want as a part of that transaction. And you've earned the trust because the price is fair, the house is good, it's valuable, you're not selling lemons. We will get to a point where you will buy a home from Opendoor. I'm not saying tomorrow, but you will be able to buy a home from Opendoor and if you don't like it, you'll be able to return it. We'll get to that point. We'll get to a point where you'll be able to buy a home from Opendoor and we'll stand behind it for the life of that house and you'll be able to treat it as though it's a guaranteed asset that we will take care of and take care of you as a buyer of that house, as a seller of that home. We'll be able to get to a point where we will find you a new home. You don't have one.

[Rory O'Driscoll]

Great.

[Kaz]

We'll find you a new one. We will find a way to make the liquidity work in the long run and we'll focus on both buyers and sellers. For what it's worth, this isn't uncharted territories in the public markets. Carvana has a very good model of this. We offer fair price to buyer, fair price on the seller, make margin on added services.

[Rory O'Driscoll]

First of all, make big picture comment. I think this is one of the hardest business models out there. I totally see the upside. But surely we look not at Opendoor but some of the others. This is one of the most challenging problems I can imagine. You made the Carvana analogy and it's fair. I mean as people know, Carvana was another high flyer in 2021. Selling cars doing the same thing for cars plummeted in 2022. Investors including Thrive help bought some more stocks up well north of 10x. Everyone looks really smart who held and bought and obviously if I was you, that is the mental model I'd be pushing all day, every day. One of my many nagging worries on this is it's easier to price a car than a house, right? The nuance you have to get right, prove me wrong. You can get within 7, 8, 9% pretty accurately on comps but it's the little shit that when you walk around the house, oh, they have an ex. That garden's nice. It seems to me the last 8% of price which is where you make all your margin has a lot of variety. And I could be wrong but that, that seems to me the hard part.

[Kaz]

Of I think you are wrong.

[Rory O'Driscoll]

Cool.

[Kaz]

I think you were right. I think you were right three years ago. I think three years ago this was an incredibly difficult problem that required human beings to visit homes and look around and look at the shape of the garden like that's the real thing. If you're one sided street that has a slope, the other side doesn't have a slope. Those two things are priced differently. But there's a reason why God invented AI. This is a solvable problem. Today we don't need to limit ourselves to what human beings can see. This is a real thing. Human beings are variants creating machines like we can build software systems to solve these problems. You know what the funny thing is? Shopify is notoriously a bad business. It's a high churn business selling to small businesses at a massive discount. You could buy Shopify for $1. $1.

[Harry Stebbings]

It's a SaaS product.

[Kaz]

You can buy for $1. There are no seats, there's no seat expansion. Shopify is the best deal in SaaS. When you buy a software, it's the best deal in SaaS. Shopify make we make our money. When you succeed I. E. From services at Shopify, Opendoor will be the best deal in buying and selling homes. And we will make our money by adding value to those homes in ways that other people cannot do. Because they don't understand a home, they don't understand a buy. They can't underwrite the risk, they can't provide additional services. The problem with having to make all your money in one transaction is that you by necessity have to be shady.

[Rory O'Driscoll]

Correct?

[Kaz]

Right.

[Rory O'Driscoll]

No.

[Kaz]

This is why people sell. Used cars aren't awesome people typically because they have to make all their money in that one half an hour. Whereas if you make money, you're money in the long run from a long lasting relationship with the counterparty, you have an incentive to do right by each other. And this is actually a key differentiator. What we will do, we will create a network for buyers and sellers, homeowners, home buyers and home sellers, where they will have a long term relationship with us over a series of products we will launch. Some of them will be free just because they're good, some of them will not be and we'll make money on them.

[Rory O'Driscoll]

Title mortgage, there's a whole bunch of things that happen right there that are wildly profitable on top. I mean title insurance is the world's best business because no one ever pays out a claim. How do you think about the role of the estate agent in this? Because that role is changing also and obviously it's 6%. In a world where you make an 8%. How do you think about how estate agents fit in?

[Kaz]

Look, I think there's a structural issue that we need to think through which is this. Transactions and relationships that have many intermediaries are typically not great ones. It's just not awesome transactions usually you usually want to look the person you're dealing with in the eye and deal with them. That's what real thing is. Now do I think there is a place for experts to help either side? Yes. In some cases but not in all cases. In some cases you will. I'm not dogmatic about this, but I do insist on an excellent fucking product. Like an excellent product that a buyer and seller can use and be proud of. Now if some set of those buyers and sellers want to have someone else help them, great. But we will provide an excellent service to buyers and sellers. And if in some cases we will have other people involved and that's fine.

[Jason Lemkin]

I didn't really fully get the Shopify analogy to this then, but Shopify is only 25% of its revenue from software and going down. Right? It is the cheapest, it's the one of the best deals out there. I mean maybe ChatGPT is a better deal, but they've got to earn the. You had to earn the other 75% through merchant services and others.

[Howard]

You had to earn it in three years time. Will you have more of an Asset Light model or will you more be an asset heavy model?

[Kaz]

I mean the company doesn't have an asset light model right now. So yes, by definition, yes.

[Rory O'Driscoll]

Well, no.

[Howard]

But you can choose to stay in asset heavy or you can choose to transfer Asset light.

[Kaz]

We will not choose to say and solely Asset heavy world. Look guys, I'm not publicly traded company, et cetera. I don't have a magic plan that I'm executing against right now. This is 24 hours and 19 minutes.

[Howard]

Now, but we are going seven more minutes.

[Rory O'Driscoll]

Kaz, the last 19 has been wasted. He's mentally saying to himself, but keep going.

[Kaz]

Kaz, I think what you need to do is look at the problem space and solve all of it for the user to look at the problem space and solve all of it. It's incredibly hard to build good products. Therefore it is incredibly hard to build good businesses if you're solving the tiniest problem that you happen to think is profitable. By the way, if you do that, you end up with adverse selection.

[Rory O'Driscoll]

Yes.

[Kaz]

Like the market eventually clears properly. And if you think for a very long time you're going to have 20% margin buying homes cheaper than someone else, you're just straight up dumb. The market eventually clears appropriately. What you need to do is be incredibly efficient on the first transaction and incredibly valuable on every transaction thereafter. And that's our job here and we're going to get there. It's going to take us a second. We're going to screw a bunch of things up. We're not going to be perfect, we're going to launch things that won't work, but we're going to start fucking Launching things.

[Howard]

Kat, how did the comp discussion go? You know, it's quite notable that you aren't taking a salary pretty much or like $1 or whatever it is.

[Jason Lemkin]

I would take less.

[Kaz]

I'm not allowed to. I'm not allowed to take less than $1, I would say.

[Rory O'Driscoll]

So when you hit 30 bucks, you.

[Howard]

Get a lot of money remunerated.

[Kaz]

If I could make it the following way, I would have made the following way. I think corporate executives should basically only get paid in options. I think it's a very weird world where we create incentive for corporate executives to be bad at their jobs just to get paid. I think it's just so fucking weird where like the thing you have created is be inoffensive enough not to get fired. That's very weird.

[Jason Lemkin]

That's RSU life.

[Kaz]

I own no RSUs. Zero, actually zero.

[Rory O'Driscoll]

Literally.

[Kaz]

Entirety of my performance money is based on the stock price going up. And like those different cliffs. Some of it is like a phantom option where if the spot price goes down, it's worth zero. Some of invest based on price. This is complicated because of the very odd Delaware and SEC rules, but I would have gladly taken just options. In fact, that was my preferred state. But we have tried to construct a thing that looks just options with some upstart, some vesting over time with stock price. I don't have Yahoo Finance on my laptop. I will not look at the stock price every day. What I will look at is delivering value for users and shareholders of this company over a long period of time. And that's what we're going to do. Like, I think this company is incredibly valuable. I thought when I joined Shopify that the market misunderstood the opportunity. I think the market massively misunderstands the opportunity for open door. Just like by order of magnitude.

[Harry Stebbings]

Can I ask, how important do you.

[Howard]

Feel it is that you have Keith and you have Eric coming back into the fray as well?

[Kaz]

Wouldn't have taken a job. Would not have taken the job without them. Like straight up wouldn't have done it. In fact, I said I won't do it without them. We're going to do things that look odd, but what they look isn't important. What they are is important. How things look is less important than what things are. And we need people who will be with us while we take those risks.

[Rory O'Driscoll]

I think that's super interesting and it actually the whole private versus public thing, right? And there was a super article in the New York Times recently on it, on basically why being public is a pain in the butt. And I think you're exactly right, Kat. This is a refounding of the company, and if you didn't have that air cover from those guys coming on, it's just really hard for a standard corporate board of a public company to do the kind of pain you're gonna see in the next 12 months to turn this thing around. So I would agree with you. I think that if I was advising someone as a CEO to take this on, your first question should be, where is your air cover from? Entrepreneurial people. Not the kind of people you find doing a public board for 200 grand. Who will allow you do this? Cause if they're not gonna. If you don't, invariably, you're like the poor guy at Intel. You have this big, ambitious plan. You tell everyone on the board, you have this big, ambitious plan. They all agree, and then one year in, it's like, oh, my God, it's terrifying. We're out of here. I think you're exactly right. And it's a rare combination to be able to fix the. I won't say fix. To orient the board around the task at hand.

[Kaz]

We have great board members, but I view them as colleagues and coaches. There's a board member who's coming into the office in a couple hours because we're going to go through literally every house we own, line by line, together with that board member. We're gonna sit next to me. We're gonna go through everything. Like, one of the first things I did was I grabbed a board member and I went through literally every invoice the company had paid for the last 12 months. Actually, every single one of them. I reviewed, like, every line item. Our board members are going to join us along this mission, and they're gonna work as hard as we do. I'm, like, incredibly excited.

[Howard]

Do you want your math to come back into the fray?

[Kaz]

Dude, the world can't have enough Canadians, man. Like, it's just a real thing.

[Rory O'Driscoll]

The man wins. Kaz wins. That was. That was a killer answer. It was good.

[Howard]

He's well trained. Final one for me, and then we'll let you go. When you made the decision, you have a huge amount on the table at Shopify, and you left that for this.

[Kaz]

How big is a few hundred million dollars?

[Howard]

A few hundred million dollars, Exactly. You believe that you will make more here, and what is that upside here? When you did that evaluation?

[Kaz]

I mean, look, I don't optimize my life for money. I just don't. When my wife and I got married, we would optimize our life for living a dent on the world. We will leave a dent on the world and that's what we optimize our lives for. Having said that, I'm incredibly bullish on the bet. I would not have taken it if I didn't think it was going to pay off. I'm very, very bullish on the stock. I'm very bullish on the company we will build. And this is my ask of everyone who has bought the stock and is cheering us on. We will build a generational company here and they must hold us to account for doing that. We must do both things. We must build a company that makes the world a better place and we must deliver shareholder value. And both of those things are incredibly important. And generally, I'm asking people who have bought this stock in hope that we will do the right thing to hold us to account and call us out when we don't do the right thing.

[Rory O'Driscoll]

This man has put his money where his mouth is and that's pretty damn impressive. I mean, you really have. I mean, look, you've walked away from a exciting, challenging, extraordinarily well paid, very manageable, safe gig to double down on. As I say, it's a truly challenging problem. So it will be fun to watch you figure it out.

[Kaz]

I optimize my life every week. I write down a note to myself. Was the week hard? Was it valuable? Was it fun? At the end of every week, I judge my week based on hard, valuable fun. That's a goal every week to have all three. I find that you can't have fun unless you have the first two. I had my first all hands yesterday in the company. I told the team that we would value this company's next year over hard, valuable fun. I don't know where the offices will be. We're going to figure that out this week. We'll announce them to the company on Monday and to world on Monday. Opendoor will be the most aggressive in office public tech company. If you are a builder, if you want to build a future that is better for homeowners, that tilts the world towards owners rather than renters, find us. We're going to build an exceptional team and ship exceptionally fast. My DMs are open. Send me a DM. I don't know where the offices will be. I will know on Monday, but we'll figure it out.

[Howard]

Kaz, you are a hero, man.

[Harry Stebbings]

Thank you so much for doing this on your second day.

[Howard]

You are a hero.

[Rory O'Driscoll]

Thanks, guys.

[Kaz]

Thanks guys.

[Rory O'Driscoll]

Have a great day. Good job. That was awesome.

[Howard]

Bye, dude. Have fun. It's lovely to see you guys. That was a great start.

[Harry Stebbings]

We're going to go back to normal programming, baby.

[Howard]

And I want to start with Oracle and OpenAI. Oracle touching a trillion dollars. Rory, you're always quite good at setting the scene and I actually got given some good feedback the other day, which is we need to set the scene for the stories. People love the analysis, but they like to know actually what happened. Can you just help set the Scene of Oracle, OpenAI, what happened?

[Rory O'Driscoll]

Sure. And I think it is good feedback. We often do forget, we dive right in. So step back. What happened is Oracle announced, I want to say that whatever was Q2 results, they have an off year, they have an off cycle year. So it might have been Q1. And for what it's worth, they were actually a little light on the quarter's results, but they announced a future RPO revenue performance obligation of north of $300 billion. In other words, they said we've got orders as of now that we have to deliver in the future for well north of $300 billion. And they didn't say this, but you figured out, but most of which is a big OpenAI order for around 300 billion of future cloud compute for their AI. And the stock exploded. The stock went up 36, 38% I think briefly making Larry Ellison the richest man in the world. Yay, Larry. And Oracle touched a trillion dollars. It's unparalleled for a top 10 company to jump by 38% in one quarter. So a huge jump since then. Some skeptical commentary, but that's what happened.

[Howard]

How did we analyze it then subsequently, how did you feel when you read it? Because as you said, there were skeptics. How did you feel?

[Rory O'Driscoll]

I suppose a little skeptical, but then try, I mean, positive spin if you believe the revenue 300 billion. Let's just say if you think OpenAI has 300 billion to spend, plans to spend it with Oracle and does in fact spend it over five years, that's 60 billion of revenue a year divide by five. So even at a five or six times revenue multiple, that gets you to 300 billion in delta market cap, which is exactly what happened. So if it's 100% money, good, and you can say it's some kind of recurring revenue thereafter, then it kind of roughly corresponds to the increase in value. It's just that then you say to yourself, slowly, the customer promising to give you $300 billion is doing 12 billion in revenue has raised. I can't remember, 40 billion total life to date is still losing significant money and therefore is going to have to raise, as Sam Altman has said, a couple hundred billion dollars. He said 115, but who's counting to be able to pay you that money? So you look at and you go, this is a very levered bet on everything at OpenAI working. So to some extent it's kind of like a proxy OpenAI stock. It's like I can't buy OpenAI in the public markets. So if OpenAI is successful, it will have 300 billion. If it has 300 billion, it will give it to Mr. Ellison. If you give it to Mr. Ellison, the stock will go up by Oracle. It feels plausible, but non risk adjusted. You're applying 100% certainty to two or three things, each of which have a fair amount of uncertainty associated with it. That was my kind of net takeover way.

[Jason Lemkin]

Have any of us given up caring whether any of this revenue is profitable? I think the bet that OpenAI can come up with the money is a reasonable one. They may not, right? There's some risk there, but. But so far Sam has found a way. Jesus Christ. Core weave. And everybody these days said they have insatiable demand, so that's okay. But no one cares that this adds nothing to Oracle's bottom line and may never. No one cares that Oracle is basically a fungible set of server services for folks that don't want to bother to bring it in house. I mean this is a, for the foreseeable future, a zero net margin business for them, isn't it? It's good for VCs, like we don't have to look beyond the top line. It makes our lives much easier. We don't have to worry about these silly things like inference costs and gross margins because the public markets don't care anymore.

[Rory O'Driscoll]

You are right. From the perspective, let's say five or 10 years from now, the people selling cloud computing to the people who own the models will probably not make as much money as the people who own the models. That's a pretty obvious statement, right? Even though OpenAI is losing a lot of money now, being a commodity provider of services to them exudes over the medium term being an even less bigger, more commoditized, less profitable business. I prefer to own OpenAI than Coreweave. And to the extent that this is just Coreweave 2, you're totally right, Jason. Now the fun thing is we are dealing with the man who most successfully on the planet extracts operating margin from software companies, which is Larry Ellison. And that's why he owns 41% of this damn thing, up from 27% a decade and a half ago, getting that free cash flow and recycling it back. But you're right, this does feel like getting 300 billion in revenue. And to your point, Jason, in return for which you have to spend a whole buttload upfront on CapEx, in return for a business that, however profitable it will be, and maybe it is profitable, it won't be as profitable as the 41% operating margins that they currently get from selling databases. So I agree. Even after, well, there's nothing today, isn't it?

[Jason Lemkin]

I mean literally this business is consuming cash, I'm sure.

[Rory O'Driscoll]

Well yes, and you probably have some kind of positive account in gross margins, but really it's all about the assumptions you're making on your capex depreciation. And if you know over how many years you should depreciate the latest Nvidia chip, then that would be the key question.

[Jason Lemkin]

This isn't a bunch of memers getting excited about coreweave, this is Oracle. This is a company founded in the 70s where the public markets are like, we don't care that your new GPU hosting product which has has massive top line growth. Right. We don't care at all that it's contributing nothing to the bottom line. We don't care. We don't care even an iota is what the public market said, didn't they?

[Rory O'Driscoll]

Agreed. No, you're right Jason, just to say you're exactly right, is that, I mean, I think it's equivalent but with more success than the Facebook slash meta story. You have an existing business, it's fricking awesome. It's nothing to do with AI. It kicks off 41% operating margins for Oracle, high 30s, 40s for Facebook. And the market is saying to you, if you got all that free cash flow, have at it big guy, throw it back in, see how it goes. In the case of Meta, they're not penalizing him, and in the case of Oracle, they're actually rewarding him for doubling down on unprofitable growth. So entirely rationally he's doing it. It's gotta feel fricking great when you've been cranking like that guy has for 50 plus years, whatever it makes long term for the stock, the fact that you sprint to the head and for a brief shining moment, the richest man in the world, probably that alone is worth whatever future damage you' done to your operating margins. It's great.

[Howard]

Is this not an ultimate sign though of where public market irrationality and exuberance is that Sam Altman in this announcement says that with the margins associated to this order and it jumps 38% at this scale, is that not the height of irrationality?

[Rory O'Driscoll]

You mean unlike us, sober, careful and sober minded private market VCs. Yeah. I'm shocked to discover gambling going on in the stock market, Howard. Yeah, yeah, it's pretty frothy. Look, there's been froth in the private market for AI for two or three years and probably the public market is saying I'd like to get in on the game and this is one of the few ways to play it. So I agree it's frothy. Is it more frothy than any of the things you're seeing or I'm seeing? I don't know. Who am I to judge?

[Howard]

The one thing I do think is important we mentioned the margin element. I have never before seen such lack of investor diligence on anything except top line revenue growth. Ever astonishing where it's not included in updates. Hundreds of millions of dollars wired without a discussion on margin number one. And then number two, it's just like growth is amazing until it doesn't grow anymore. And when you look at this, for OpenAI to pay this, if they 2x between now and July 26th and then 2x again between July 26th and 2027, they'll be at 48 billion and still 12 billion short per year to do this. At some point the growth does taper.

[Rory O'Driscoll]

Agree. Do I think they're going to collect $300 billion in orders from OpenAI? Absolutely not. They're all saying I don't think that turns in. I think they've got a business. I think they'll get more revenue from OpenAI. Do I think the full last $300 billion will be wired in five or six years? No, I very much doubt it.

[Howard]

Is this market not just all about shouting as loudly as possible? Do you remember Star getting we're going to have $500 billion. What happened to that $500 billion?

[Rory O'Driscoll]

Seems like there's a lot of really cynical question. Isn't this one of those where everybody just announces the same thing? So yeah, it used to be SoftBank. But wasn't Oracle part of that? And maybe now this is.

[Jason Lemkin]

But Larry was right. Larry was. It did happen. This is a big part of it.

[Rory O'Driscoll]

This is stargaze.

[Jason Lemkin]

Honestly, to me it's a reminder we've talked about this to really scrutinize Sam to see the future. Cause he goes to Trump Right. And he's got son from Softbank and Larry Ellison in that awkward photo let Musk wasn't there when he was still running things. Right. This was a couple months ago announcing the start. You think I'm looking. What's this? Uncomfortable Larry Ellison who hasn't put on this doesn't look like he's put on a suit in three or seven or eight years sitting there squirming in the White House. This was. We should have bought Oracle stock that day. Like why we didn't put the whole fund into Oracle because why did Sam make him come? We got to do this right. That was a telling moment to me, but I didn't get it at the time. This just seemed like the oddest photo op and it seemed like dissing Elon Musk, but it wasn't that at all. All right. This was the future.

[Rory O'Driscoll]

I mean, I think one of the things that's obvious from this is that everyone is getting what they want. From this press release, Oracle is becoming the richest man in the world because his stock's going up 37%. You know, Sam Altman is getting frankly, leverage in his negotiations with Microsoft by making it clear he has another capex provider willing to spend vast amounts of money. So to some extent this is happening because everyone involved wants it to. So, and I'm willing to bet they want it enough that they're not sitting there going, are we 100% sure this is going to happen? Do we just have a credible case that says this might happen and it will be good for us in the short term? To be fair, especially when you're trying to do something as ambitious as OpenAI to some extent, momentum is your friend and momentum is a necessity. And things like this just keep building on the momentum and keep building on the sense of inevitability. And you're right, Harry. It's the role of investors to be a little more cynical and scrutinize and say, do I really believe that that's going to turn into $60 billion a year of revenue? Should I really mark Oracle up by that amount? And clearly they forgot to do that.

[Howard]

I just. There may be a broader point, but I just feel like the whole venture landscape's just moved from a game of investing to trading in a way that we're all just hoping that someone pays a more irrational price than we paid and suspend disbelief. In the meantime, we've got a couple.

[Jason Lemkin]

I think we still have a couple good years until something happens, so might as well play the game.

[Rory O'Driscoll]

Are you going to be the Chuck Prince of our generation. Remember, you know, while the band keeps playing, you got to keep dancing. The CEO of Citicor in 2007. Jason, you might regret that quote.

[Howard]

I've kept dancing with Hoppin, Be Real and Clubhouse. And you know what? The party. The party stops. I'd rather stop.

[Jason Lemkin]

Yeah. No, but what happens along the way is there's exits. Yeah. So I think the big question for Venture. I think where we're going to make a lot of mistakes in Venture is not taking billion dollar exits. Over the next 24 to 36 months, we're going to triple down. We're going to have. There's going to be board members. Rory, We've got a $4 billion offer. Offer for our latest AI tagging categorization software at what, 3% gross margins? Let's not. I want 8. Or 12 would be better. You know, what's better than 12? 24. We're gonna say no to those fun returners and we're gonna wake up and they're gonna be worthless. I think that's the. That's what's gonna happen. It's because if you're in the game now, you gotta have a couple big exits and IPOs the next couple years or quit the game. You gotta have a couple.

[Rory O'Driscoll]

First of all, you are right that that will invariably happen. I mean, look, we're just at that stage in the cycle where you've got a large amount of euphoria fairly untethered. And, you know, the positive spin, which I think is true, is you don't make these kind of technological leaps and technological investments without a fair amount of accompanying euphoria. This is a means to the end of moving the needle forward on AI. We gotta try a lot of stuff. A small amount of it will work, a large amount of it will fail. And a lot of money will be lost in the end. But the good stuff will ultimately outweigh the bad stuff. This is the way it happens. But to Jason, your point in particular. I'm around long enough. I remember a bunch of those companies in 99, 2000, where you got the offer for 2 billion for some fiber optics company or for some comm equipment box. And the board said, damn it, we want eight. We're turning it down. And then you'd meet the team two years later, and the companies were at zero. And most of those folks were shell shocked. It's like winning the lottery and then losing your ticket. It was brutal. So I think being canny and shrewd about what chips you take off the table in the next couple of years. I think you're exactly right. Tracelin would be a key part of the game.

[Howard]

I also think people mistake valuation for liquidity, which is like, just because it goes up doesn't mean you can get out. And if you can get out, there's often a discount to that price round. And if you can, it's often in a strip where they'll give you 10 or 20%, but you can't get out as much as you could. Selling it all now. Now, I don't think people think about that enough.

[Rory O'Driscoll]

True. And I think one of the things we're going to discover is when all this action was happening in the public markets, you had this weird, somewhat positive phenomenon, which is everyone up with constant liquidity. You can buy in at 80 bucks a share, it goes down to 70, and you can say, I was wrong, I'm out. And someone else thinks, I think it's going to be okay at 70. And they go out and they're wrong, and it goes to 60. And you can kind of parse out the pain among various investors who come in and out of the stock. The interesting thing on the private side is you've bought in high, and the whole point of profit is there is no meaningful liquidity. And if you're wrong, you're going to own it all the way down. It's going to be a lot more fun on the upside and a lot more pain on the downside when you don't have liquidity to fulfill. Part of the role of liquidity is to allow you to alleviate risk. That's just the game we're in, and that's just the nature of being private for longer.

[Jason Lemkin]

Every single founder this year that has had a strong M and A offer, I've told them to take it. It 100% of the time. Now, I actually don't necessarily want them to take it. I don't want to be the guy saying, I want to double down and quadruple down. I don't want to be the guy that a couple years later, it didn't work out. So I'm telling them to take it. And if they come back and say, no, I. I'm confident. Here's my new heuristic. It's so simple. No, Rory, I'm confident will be worth 10 times as much. No, I'm confident we will IPO. I'm confident like, Kaz just left hundreds of millions of dollars behind behind a Shopify. Okay, right or wrong, that dude's confident. We just heard it now. It's not all about the money. Okay, but he's confident this was the right decision. But I'm telling the opposite. I'm telling every founder, take it, take it. Take any massive offer, take it. And I want them to come back and say, f, no way it's going to be bigger. I don't want to have any of those regrets and I think it's the right telling them to do that, make sure that I don't screw it up. As a gp, it's just so easy when times are good to say, oh, Oracle's going to get another 500 billion, aren't they?

[Rory O'Driscoll]

I don't love your sentence, but I actually think it's right. Your advice should at some extent be tempered by the time the Bayesian prior at a time like this, when valuations are at an all time high, should be some version of what Jason said. Now it's still possible that you're the 1 in 10 for whom, you know, an all time high is just a step on the journey. And you know, maybe you should play the game out cause you're so confident. It's going to be amazing. I mean, look, it's very noticeable that three or four times in the last year you've seen significant M and A driven by founders at the same price that VCs either had just invested or were about to invest. In other words, that's the founder saying, because the VC member is investing, thinking, oh, you're worth 2 billion, I'm going to give you money at 2 billion, I think you'll be worth 6. And then three weeks later the founder is saying, you mean I can actually get the 2 billion, I'm out of here. Right? I mean, to some extent that happened at scale AI I think there was a pending offer on Winsourf and that's founders. Jason maybe listening to you and being shrewd and saying, I could be at a local maximum here, this is a good time to take the chips off the table. And there's a little bit of information in that about how much, dare I say it, more shrewd they are about the value of the asset than the investor who is about to write a check at the same price.

[Howard]

I completely agree. I also think it goes back to incentives and how investors, to what we said last week with Jeff, have many options and we want to ride them as much as possible. And founders have one and it's their whole net worth in it and that drives a lot of decision making. I'm sure Tied to that I do want to be cognizant in terms of how we discuss the topics we have on the agenda. We mentioned Oracle and OpenAI. Microsoft and OpenAI's relationship is slightly changing, it would seem. Announcement of. Jason, why didn't you give a snippet on what this is in terms of the news between their relationship and how it works?

[Jason Lemkin]

Listen, we have more to learn. It's going to be interesting. I mean, Microsoft, I think today said they're moving not just parts of Office to Anthropic, but that it is the default choice for several of the products. And they. That Microsoft today said several months ago they told their teams to start using Claude code several months ago. So they've been breaking up at some level for a while and I guess it's fine. I guess it sounds like OpenAI is going to get some of what they want. They're going to get this revenue share reduced, they're going to get their freedom to partner with whoever they want. And I'm not quite sure what the price and blood is going to be back the other way, but. But already Microsoft's moving on. They're already moving on. They got the ip, they're gonna keep the ip, I guess that they're gonna keep whatever IP they're allowed before AGI. So they've got all the code if they wanna do anything. But then they've already moved on to Anthropic, which is good because I think ChatGPT is probably gonna end up being almost as good for coding as Anthropic. So the whole thing, the shifting sands of AI, it's a lot to process.

[Rory O'Driscoll]

Yeah, it is. And it's worth pointing out it's some kind of interim mou. It's not a final done deal. It's kind. I think it's a. Both sides saying we're making progress here, where we' is a moving on. This is consciously uncoupling here because if you look at it, the end game is some version of. Because OpenAI had this weird structure for reasons we all understand. Microsoft ended up with this weird investment that in my view gave them a fair amount of blocking rights in a lot of different ways. It gave them access to the. I can't remember, was it 49% of all the profits to a certain amount. It had Rev share, it had a lot of things. That was effectively a bit of a poison chalice for OpenAI in terms of making it a real proper standalone company. And what's clearly happening now is it was a marriage of convenience For a while, both parties are moving apart. The rational, I'm not sure is where it ends up, but the rational endgame for Microsoft is we got something along the way, but we don't just need a model anymore. Anthropic looks to be more useful for this. We still have access to their model. We like that. But we can buy that on a third party basis. Just give them money, be a customer of the model. We got some lift from AI in the short term. We have some business with them as a hosting provider for Azure. All those are good things. But in, in the end, my guess is they convert that $13 billion investment from a blocking kind of thing to a pick a number between 20 and 30, 35% ownership stake in OpenAI. And if OpenAI is worth half a billion dollars, Microsoft will have put in $12 billion and probably be worth 100 to 150 billion. It's a 10x venture return on 12 billion. In one sense it's a great return. But as you guys know, we've talked about this. It doesn't move the needle. When your market cap is $3 trillion, you don't get paid as a large market cap company for making, oddly enough, $100 billion because it's like you got a 3 billion market cap. It doesn't move the needle. When you zoom out three or four years, I think the conclusion will be, wow, that was an interesting investment. We got a kind of bit of a lift from Microsoft perspective. We made a lot of money, but doesn't move the needle. We got some buzz on AI in the short term, but we didn't really get what we wanted and we don't have what we need in terms of AI. And we probably got to keep cranking.

[Howard]

On that three years time. How do you think the relationship will look between OpenAI and Microsoft and then Amazon and Anthropic? The pairings that we've seen so far.

[Rory O'Driscoll]

I think it's clear that Microsoft will be a large shareholder. Hopefully OpenAI for them will be both a customer and a vendor because they will be selling cloud capacity to OpenAI but not on an exclusive basis. They will be buying from OpenAI access to the models, but probably not on an exclusive basis because they'll be all moving in traffic. So in other words, a perfectly normal relationship between the largest software company on the planet and you know, this entity that they helped form, found and start, but it's now grown up, it's left the house, you know, they're no longer dependent and it's just a Perfectly fine arm's length relationship with a massive equity ownership that's probably gonna make them 100 billion to $200 billion, which is a lot for anyone else. But still, the real value to Microsoft has been the lift in its perceived market cap, its actual market cap, from the perceived AI buzz in this two years where frankly, they had no nothing to put the heat back on the Microsoft Team. The real question will be when OpenAI finally pulls away and you can't rely on your complex agreement with them to get access to the AI want, have you built your own AI that matters? Have you done something? And if you have, that's great, and if not, then you missed that market. That's where that one will be. I don't have as good a sense on Entropic and Amazon. I'm not as informed on that. Maybe I'm not close to either. But my guess is much the same. Often when big companies partners with a small company, the small company gets smothered. In both these cases, the small company won. They got the money, they got the critical mass, they got the credibility. And now they've pulled away. And neither anthropic. Now OpenAI needs Microsoft or Amazon at this point. They don't need them for money because the industry will give them infinite money. They don't need them for compute, because Larry will give them infinite compute in return for money. They don't even need them for distribution. So in fact, both these companies, ironically, just like Microsoft 30 years ago, used IBM and then left them an empty husk. I would argue Entropic and OpenAI have used their large corporate relationships, gotten the value out of them. It's still a bit sticky because the agreement's weird, but fundamentally they've made it. They're independent standalone companies. Thanks for your help, guys. Here's your equity position. Call me for the ipo.

[Howard]

And Rory, thanks to your description of an empty husk with scale AI, I had them in my inbox this week asking to come on the show and tell us why they're not an empty husk. So thank you for that. That'll be coming to a 20 VC soon, which should be an interesting one.

[Jason Lemkin]

Well, you know, we all did think that for a long time when that it was a weird deal. I mean Microsoft buying 49% in Essence of OpenAI was the first of those deals, right? Those style deals, the scale windsurf. But it didn't turn out that way. They didn't leave a husk. There were some superficial similarities, but in the end we all thought in fact if we probably the first time we did the show, we probably might have still said that Microsoft basically acquired OpenAI. It was an acquisition in disguise as it's turned out not to be the case. Not remotely the case. Right. Kudos to Sam Altman for dancing his way out of one of the greatest bear hugs of all time. He was basically had to sell his company to Microsoft to get it off the ground. And now he's going to get out of it. He's going to get out of it like wow.

[Rory O'Driscoll]

No, you're exactly right. The truth is the other one, the empty house common when the founder goes with the acquirer, it's a bear hug, it's an empty hug. It's an empty husk when the founder stays independent like Sam Stunning win. I think you're exactly right, Jason. That is a. I mean it is Paul Graham, you gotta give him credit, said you could put him on an island with a bunch of cannibals and he'd be king. Well, you put him on a plane to Seattle, he came back with a bunch of money and now he's king.

[Howard]

This is what I find funny. We go back to the Oracle and the OpenAI skeptics and I'm like fuck it, I'm not betting against him.

[Rory O'Driscoll]

Yeah, no, he might find. Exactly. He might find some of that money. Do I think Oracle will book a fair amount of cloud compute from OpenAI? Absolutely. Maybe not 300 billion, but if he's willing to provide a little lower price than Microsoft, my guess is those fine people at OpenAI will take it.

[Jason Lemkin]

You know another thing when we had, because we had Kaz here, right. With his leaving 200 and something million behind. It's another thing when you have post economic people, it's difficult to fully predict the outcomes of these things. Right. So not only did Sam not leave the husk, but his ability to have no equity in OpenAI. Microsoft couldn't pay him enough to move over to De Huskify because he had no equity to husk. I mean CAS may make a billion. I mean Harry was kind. His job is to make a billion dollars from Opendoor. But even risk and time adjusted, you know, leaving 200 million behind his Shopify and another 70 something million grands and what he might still get. You could only do that if you're post economic, right? I especially hate it when like some guy that was a senior marketer at some company and spun out with a couple million bucks, tells everyone he's post economic. But we, we just Sam and Kaz are taking post economic actions. And it's very interesting in today's world where a couple billion isn't very much in market cap, in valuation, not in personal income. A couple billion dollars seed round, it's barely going to make Terry's show.

[Rory O'Driscoll]

What's next, Howie?

[Howard]

We're going to dive into kind of the application layer and two that Jason is passionate about and I'm really excited for this, actually. One is Higgs Field and the other is Ratlit. Jason, which one do you want to start with?

[Jason Lemkin]

That either one, man. There is one thread. There's like this Higsfield Gamma thread. And I just think it's somewhat interesting that both are slightly under the radar. I mean, the CEO of Higsfield was not quite complaining, but sort of shouting this week right when he did around that, hey, he's gotten in revenue and certainly in users, gotten there even faster than Lovable and Friends. Right? Doing quick video. I mean, I'm a small investor. I've been a user since it launched. I mean, I Love Higsfield and Gamut. 60 million from like 0 to 60 million this year. That's pretty good for. For Sly.

[Howard]

Just to be clear, Higsfield is a AI video creation company that raised $50 million and also announced $50 million in ARR in a faster time frame than Lovable and Replet.

[Jason Lemkin]

Yes. And maybe Gamma's close too, right? I mean, we could talk about Higgs Fields under the radar. If you're not a creator using the app Gamma, maybe folks on this pod have used it more often. Still under the radar. I guess we could talk about that. My meta point is, you know, my God, right. If you don't see some of these numbers, it's not just Cursor and Friends and Replit, which we could talk about going back to Kaz. Homes are a big market. Restaurants are a big market. Econ like Shopify. But like sometimes we don't even realize that like short video and slides are massive. I'm just massive. And that Hicks Field can do this in the shadow of Google, even though they're using Google models, that they can do it in the shadow of so much competition. It's just, it's just this is why it's so hard to do a triple, triple, double, double. It's not just lovable. There's so many lovables.

[Rory O'Driscoll]

There are.

[Jason Lemkin]

And there might be 20 or 30 lovables.

[Rory O'Driscoll]

And I think what you're seeing, I mean, stepping back, what you're seeing here is that with AI, there's a Series of things that, quote, unquote, ordinary people couldn't do before, be it coding or be it video creating, couldn't do it. And these tools are making it accessible to everyone. So you have this step function 10x, maybe 100x increase in accessibility of creativity or coding. And that's the positive momentum and then the negative momentum on all these deals, the replits, the Hicksfield, is, oh, my God. You don't control the underlying model. If you don't get enough space, you know, will you have church? There's a lot of risks on those deals, but sometimes it pays to zoom out to the big picture. The big picture is anyone with Internet access today can create video. Cute videos, can edit videos, can be creative in a way that five years ago you couldn't do unless you were a trained special effects editor. And that's huge.

[Jason Lemkin]

Maybe, maybe seven months ago, it's your eight point. But you couldn't do these things. And now you do it for pennies. You can do it for pennies. It's beyond disruptive, right?

[Rory O'Driscoll]

And you know, anytime you're dealing with shit that everyone can do, you have the potential for these exploding growth rates. And you guys are living it with Leopard and Lovable and coding. And I think Higgs is an example of that in creativity. And I think there's going to be more of them.

[Jason Lemkin]

Sometimes I would look at some of these things, like, I'd be like, gam. We use GAM all the time.

[Howard]

I love it.

[Jason Lemkin]

But I'd be like, how the hell could that get to 60 million this year? It's like, do we make. Really make enough slides? But to Rory's point, it's a way to create content you could not do before AI. So it. But it's just all. So many of these markets are bigger in the age of AI than they were pri. I know it's Captain Obvious, but Higsfield for short videos and Gamma for slides, even like Opus Clip was like the first little AI investment I did. Like, I got it, but I didn't think it could add up to so much revenue. To make these clips right, you got to get the spreadsheets right. You can't use the Tam spreadsheets from 2021.

[Howard]

I find this time a little bit like Covid, though, in, in terms of market forecasting, which is a real difficulty in understanding what is a sustainable market trend that will be meaningful and enduring versus what is an experimental market that is cool to create but ultimately whimsical and doesn't last a cycle. And I'm finding that uncertainty very challenging as an investor, to be quite honest.

[Jason Lemkin]

But the thing is like we agree, but we, but like that conversation we've been having since the beginning of AI and a lot of of thin wrapper apps died for that reason. Right. But what we are seeing, it's a valid concern for venture, but we are seeing at least is the nominal NRR is pretty high in these apps. So it may still crash and burn, don't get me wrong, but if you're using Higsfield and Gammable and Lovable and Replit and you're seeing triple digit nrr, even if it's not the NRR we used to talk about for B2B, it's hard to say no as a VC, isn't it? It's hard to say no when you see 140, 180% revenue. You can say no and just sit.

[Harry Stebbings]

At home and no, I don't know, dude.

[Howard]

When the margins are where the margins are, you have to project out and.

[Jason Lemkin]

Go, but Higgs Field is profitable. It's cash flow positive. It varies based on the application.

[Rory O'Driscoll]

It varies based on the.

[Jason Lemkin]

They're not all replit and lovable with negative margins. They're not. I guess my learning is it's like they're all over the place. What the margins are. Right. They're all over the place.

[Rory O'Driscoll]

Agreed. And you're right. I mean Harry, again. Yeah, it's hard. You've got to figure out which exploding growth company is going to be sustainable and which exploding growth company is not. But at least you're dealing with the problem of exploding growth companies. And you know.

[Harry Stebbings]

Yeah, yes.

[Howard]

But you know, I'm an investor in a business, Air Wallix, very similar businesses like Stripe. This is a unwaveringly enduring, growing strong market. Fantastic. Comparatively. These others are incredibly experimental, potentially groundbreaking and potentially whimsical. Very different.

[Jason Lemkin]

You got to be able to tolerate a loss ratio. If nothing else, you got to be able to tolerate 30 to 40% of losing your money on it.

[Rory O'Driscoll]

But they are very different. And you know, and I'm not naturally good at these creative deals. I get all your points. It's my. And I tend to be the steady compounders. But I think different deals have different attributes. And you've gotta look at these and go, some of these, you will be flashes in the pan. So the question is, what's the distinguishing characteristic of the companies that explode and then sustain? Right. And my gut, I'm kind of riffing here and we can talk about it. It's probably two things. It's probably having expansive white space that you can grow into which your customers knows more things you can do versus getting cut off shortly. And then secondly, having a founder who's maniacally focused on doubling down and adding all the rest of the stuff. And something you guys said about lovable and replit a while back stuck with me, which is you can envisage a whole bunch of ancillary products around that. So as people build their websites, all the other things it takes to make that website work, and you, you can envisage building an economic model around the combined thing. So I think it's a combination of the opportunity and the gap. I think some of these things will be flashes in the pan. Not trying to be mean, but to use the hop, like hop in. In Covid. Right. It will be a temporary phenomenon that goes away. But finding the ones where you have that explosive growth and then can parlay it into enduring is going to be pretty damn interesting.

[Jason Lemkin]

We've never seen competition like today. Never. You used to have six months, months, maybe 12 months. You'd launch something, your competitor would kind of look at it, decide if it was worth their time to build it, commit to trying it, then six months later, get it. But you had a full year, now you have like two weeks.

[Rory O'Driscoll]

Everyone complains about competition, and everyone's prepared to do anything to solve the problem, except the one thing that will solve the problem, which is step away from the table yourself, Howie. So we've got too much competition, but you're not quitting. I'm not quitting. I mean, tough. Look, it turns out, yeah, it's a very competitive time. Up and down the stack. It would be a lot easier if there was half the number of people, but the opportunities are compelling and people are going to show up and try and play.

[Jason Lemkin]

I could imagine. I don't think this is going to happen, but it's not impossible. Anthropa could lose half their revenue in the next 12 months because GTP5 codecs might be just as good. They could lose half of it. Like, literally all you do is turn it on and cursor or Lovable or Replit or a million other apps, whoever Higsfield or Gamma moves over to GTP5 codecs instead. And if GTV5 codecs is as good as cloud code, which it just launched, I could imagine it is 95% as good. You could imagine in today's crazy world. Anthropic could lose 30 or 40% of its cloud code revenue in one year. It's very imaginable. I'm not saying it's going to happen, but the switch, it could happen. Even that may not be stable. Going to Harry's point, forget about whether lovable and replaced and base 44 are stable. I'm not even sure Claude code's stable.

[Rory O'Driscoll]

To state the obvious, that would be a very different level of stability than we saw in the SaaS era where these things lasted forever. They churned 5% if you are right Jason, if it's even 30, 40% probable that something like that could happen and I don't have a developed opinion yet on it, that's obviously a very different world you live in. In terms of risk.

[Jason Lemkin]

Yeah, it could be higher risk risk.

[Howard]

The only interesting take I'll take is that I interview honestly three to four decacorn CEOs every week. And on this topic, two interesting elements completely price insensitive as to how much they spend on anthropic and claw code. In particular, they're like I would spend 10x, don't even look at the line item number one. Second, this duality of like super low switching costs and a complete awareness that actually they would very happily move tomorrow to someone else if it were a comparable service.

[Rory O'Driscoll]

Which goes to explain the urgency around capex for these companies because their belief, and so far it's been correct, is that if you're competing with Claude code, all you know is the only way to outperform is more reinforcement learning, more pre training, more whatever. Which means more capex. Hence the urge, the quote insatiable demand around capex because it's the only way to win. All the players are being rational in the game, but you can see it adding up to something pretty kind of.

[Howard]

Bringing this all together. The Higgs fields, the replets, the thing that could also kill them is actually.

[Harry Stebbings]

The fact that Wix has base 44.

[Howard]

Which is actually doing incredibly well. The fact that Adobe or Canva could do what Higgs Field does with the existing distribution. They have do it going to the distribution and going to the incumbent versus startup. How are we thinking about incumbent versus startup up and the core crux there?

[Rory O'Driscoll]

The market would say that the WIX acquisition has worked very well. Probably going to be 50 million in AOR by the end of the year. So that's a win. The market would also say just based on the thing that Adobe and let's be honest, Salesforce have tried to announce AI products and have gotten some traction but aren't able to access that explosive growth. And I think market reaction The Adobe stock price price kind of reinforces that. So it's not a kind of simple binary answer. Some folks have pulled it off and it's easier for 100 million to make a difference at Wix than it is to make a difference at Adobe or Salesforce. 23 billion in the case of Adobe and 40 something in the case of Salesforce, where it's hard for those incumbents to move the needle significantly, which is why the stock prices have been down because you're not getting the AI explosion for sure.

[Jason Lemkin]

But I think the, to me, the base 44Wix thing is interesting because we've been asking for a while, can the incumbents benefit from AI the same way the startups have, right? And we're looking and we're looking at ServiceNow kind of faking it and we're looking. We had Mark Benioff, who we all love, but we're not seeing it in the numbers yet. And we see Palantir, but Palantir is a completely different company that is AI first. So we're not seeing the. And we're seeing in our own portfolios. We're seeing a lot of our 20, 21 high flyers. Not exactly crushing it in the age of AI. There's the dial pads, the talk desk, there's the others that have. But a lot haven't. But what's interesting then you see WIX come in and they buy a little lovable replic clone that is just a cheap clone by one guy. I mean kudos to him, right? Solo founder, right? Bought for 80 million using the same underlying technology, Claude code, right? But they bolt on what WIX is good at, which is safety and identity, okay? And then they bolt on the friggin funnel, they push it out to their base and if that's nothing to 50 million in a single digit number of months, imagine it's 2, 200, 250 million. And more importantly for the numbers, to Roy's point, if it's 10% market share, that's a lot for a big company distribution to get in a couple months, 10% market share. So if Adobe could do that, if Figma could do it, right, if Figma can do it with its thing, could it be revenge of the incumbent? I don't see much evidence, but I like the, the base 44 is one example of the revenge of the incumbent, right? I don't want all of our friends to go down into irrelevance. I want, I want to see zoom back, I want to see everybody come back and be roaring in the AI age. Right. Not just the new guys.

[Howard]

I mean, speaking of, like, incumbent and innovating. As an incumbent, while we've been on this, I've been sent by a lot of people. Workday acquiring Sauna Labs for $1.1 billion.

[Rory O'Driscoll]

Yes.

[Howard]

Wow. They were at like 50 in AR. That's a pretty great outcome for everyone involved. $1.1 billion to work day. I think Sanne is great, Joel's great. But this was a second Glean. Very much so.

[Harry Stebbings]

Wow.

[Jason Lemkin]

But, you know, in these times, being number two can be a great place for M and A. Yeah, absolutely. When number one is unacquirable, you get so many offers. And I wish I'd realize that as a founder. Right. I mean, knowing Rory, like, if I. Even if. Even if Echoes Hunt had just done okay, and we gotten up to 100 million, just the folks that DocuSign turned down would have come and bought us for a billion bucks. Like, I wouldn't have had to do anything just being number two. I would have just had to open the email and sold for a billion. At a moment in time like today. It wouldn't have worked. So today is a. In the age of AI, you can't buy Glean's unsellable, unacquirable, lovables. Unacquirable repl. It's unacquirable. So being number two for Venture and the other thing, in frothy times, they'll pay up too. They'll pay two times, three times what they would have paid otherwise. So number two is great. When number one's not available, Just. Just don't raise too much. If you're number two, don't make yourself unacquirable.

[Howard]

Thinking. Is number one really unacquirable? When Scale gets bought for $14.9 billion, are we not seeing the limits pushed for what is acquirable?

[Jason Lemkin]

Yeah, but it's got to be a hyperscaler or someone. Workday. Workday can only pay so much. Harry. Workday cannot pay $26 million to buy clean. What's Workday's market cap today? It just doesn't have the capital to make all the VCs what they want.

[Rory O'Driscoll]

Agreed.

[Jason Lemkin]

For sure, the hyperscalers can pay up, but also a lot of folks won't sell at any price. And so being number two, just as founders, it's a cheat code. Like, just don't raise too much. Be acquirable. If you're number two, be kind, and you will be shocked. In frothy times, the offers you'll get, you'll be shocked the offers you get be number two.

[Howard]

Have you ever regretted selling both of you?

[Rory O'Driscoll]

Yeah, a lot. You often do.

[Howard]

A friend of mine said to me this week, harry, I've never regretted selling. And making millions of dollars is as.

[Jason Lemkin]

A founder or VC though that's different Questions as a founder versus vc.

[Howard]

He's a vc.

[Jason Lemkin]

As a founder, I mo I would say more than 51% of founders regret it. I regret it. But as a vc, like here's the hubris in this. You're going to tell a founder she or he can't sell and expect them to work twice as hard after you tell them to f off at the end of the day, unless you're a total douche. If the founder wants to sell, you sell. It's not your decision. That's the height of hubris in my experience.

[Rory O'Driscoll]

Agreed. And I don't think you even do tell him. I mean, you asked me do I regret it? It's like there have been times when I look back and I go, oh, I think if we'd held we would have compounded and been bigger. And you have objective facts that make you believe that. Which still isn't the same as saying you regret selling. In fact, in that particular one of the cases, I'm choosing my words in case my dear friend who it's relevant to us. I talked to the CEO many three or four years later and I said, oh look, our competitor is now forex what we're worth. Do you regret it? And he wisely said, no. I took money off the table, I bought a house, I got married, I've got kids, I'm wildly happy. I'm doing another deal here. You want to invest, here's the terms. My life is great as an objective matter of fact, you kind of go compounding would have been good in that case. But twasn't to be. And I don't regret it vehemently. I'm just like Adam. There's only a few where you look back and go, there was a lot more compounding in it. A lot of the time you go, yep, that was a couple. And again, I think the more salient fact is this, Jason Wright is it's the founder call. So my mo is actually very different. My perspective is not have an agenda one way or the other. The first thing I always say to founders is if the liquidity window opens as a private company, you should pause and take it seriously because most of the time it's not open. So the mere fact that it's Open, you have to pause and think. You have to change your game from your 90% heads down, work hard, and now someone's made an offer. It's now time to get real and figure out.

[Howard]

Or do you not have to apply that same mindset as an investor?

[Rory O'Driscoll]

You do, but I'm saying for the founder, it's more significant because it's all or nothing. You can get it all off the table and then you have the real how do you feel about things? As I always say to them, now would be a good time to voice any of those concerns that you've been suppressing deep in your sternum here, guys.

[Howard]

Are you having active partnership discussions about much more liquid secondary markets and a trader mindset of maybe selling in a way that you wouldn't have done years before because secondaries are available?

[Rory O'Driscoll]

They are, but the truth is I think they're available. But there's a small number of companies for whom they're easily available at a discount. And there's a much larger number of companies where you have your winners and you look at it and you go, I don't know if the market fully appreciate what's this worth yet. I think I'm probably a holder here, so I have no reluctance to sell. It's a little like the founder window opening. Everyone likes to talk about this. LPs like to ask about this. But the truth is the number of times that as an individual investor, you're in a company that's so fricking amazing that there's a free liquid secondary market where you're in early enough that you have a big enough hit to move the difference. It's low. If you have one of those per fund, you're doing great. You probably have three or four winners per fund. And only one of those is kind of that super marquee, amazing one, the people who bought in at 50 billion at Stripe aren't looking to sell at 90 billion just cause it's liquid. Conversely, the people who bought in under a billion probably aren't sure. So my point is this. Yes, you have these conversations. It's not like you spend most of the day you're out there trying to keep your $10 million AR company, help it go and get it funded and hope it doubles.

[Howard]

And that's a new world. Getting those funded is harder than ever when they're going from 10 to 20. But that's an entirely new discussion. Speaking of moments of liquidity, IPOs, we had a $3.5 billion IPO for VE. We had Gemini go out at 4.4 billion and 32% bump on the first day. And then we had figure technology raising close to $800 million in their IPO. Gosh, how exciting and nice to have IPOs again. Which do you think is most interesting to discuss out of that?

[Rory O'Driscoll]

Those.

[Jason Lemkin]

Well, can I add one thing? And Rory will know the busiest IPO Week since 2021 isn't to be ignored or taken lightly. Now it isn't the busiest year yet. It could end up. There's a. I mean it's. It's already September. Next year might be as big as 2021. But if you've ever been a founder, worked with a company that's decelerated, getting back to where you were is a big moment in time. Like you should celebrate when you got back. So last week we were back to 2021 for a week. Maybe we'll get there for a month. Right. And then you get there for a year. It's a big micro milestone to have a one week of 2021.

[Rory O'Driscoll]

They're all interesting for different things. I think figure is the most interesting just to start with that. So let's look at it again setting the scene. Looking at those three IPOs. Two of them are vaguely crypto related figure in Gemini. One of them is a different SaaS. Primarily a SaaS company selling to governments around transport has a lot of complexity. And it's not just SaaS that understates the complexity of the business. The via business. So of the two crypto companies, Gemini is the Winklevoss twins Amin of social network repute and figure is Mike Cagney who was the founder of SoFi. So the first thing you note here, there's three IPOs. Two of them are kind of second time founders depending on how you adjudicate. The Winklevoss case. The F. Scott Fitzgerald line that there are no second acts in American lives is wrong. These are two out of three are second act. Cagny's interesting because SOFI was an interesting company, very differentiated has gone on to be chamat's only successful SPAC and you know, a perfectly great successful public company. And what figure is doing is using the blockchain as a settlement mechanism for home equity loans and other kind of non conforming loans. So at heart it's a financial services company, it's a fintech play, it's lending money which is one of the core things fintechs have done for 2000 years. But its interesting twist is it's using the blockchain to process the back office more efficiently. In the end, it'll rise and fall based on credit. If you make bad loans, you lose money in the lending business. But there is an interesting twist around using the blockchain to instantly settle these loans to be able to securitize them. There's some kind of securities law issues, but interesting company, clever, good twist on blockchain. I mean, first of all, yay everyone. Finally, a use for the fricking blockchain that's standalone and independent of its kind of a trading act asset. So that's what Mike Cagney's done here and all credit to him. It's a good company to stock pop nicely. Everything about that one to me is the most interesting. You know Gemini, it popped high and then dropped down fast. It was fun. All three stocks behave very differently. So even at the trivial level of the day trading, figure performed perfectly. Gemini popped way up and then Intraday came way back down. Revenue's declining. And that one, it's another crypto exchange. I never can tell them apart. It's just not coinbase and not, you know, whatever your binance is. So I don't know why matters. Revenue is declining, but God bless those guys, they've hung out a long time. And then interesting from the stock price performance Via actually opened below its offer price and then bounced up during the course of the day, proving that it's not always free money to buy at the stock price. But yeah, so fun week for stocks, but definitely to me figure the most like. Oh, that's interesting. I'd like to learn more.

[Jason Lemkin]

The interesting question in the age of AI with via transportation. Right, right. So founded 2012. So that's 13 years classic B2B plus. It's not just SaaS but B2B plus 493 million invested. $4.2 billion valuation will fluctuate. So 12 years so that the investors in the aggregate 10x the total capital invested, that was a A plus but not S tier investment until 18 months ago. Is it good enough today? 13 years, 500 in, 4 point something billion out. That was great until recently.

[Rory O'Driscoll]

I would take it in a heartbeat.

[Jason Lemkin]

Harry's not sure. He's not sure if he likes the fact that that it has a defensible platform, big enterprise customers or does he want to put more into Lovable? He's just not sure which one he wants to do they both have pros and cons. He's. He's doing both actually.

[Howard]

I think at the end of the day I'm thrilled to see IPO markets Open. I'm thrilled to see exuberance. I'm aware that it will take 12 months for people to truly get cash back. But I am a incredibly selfish, self centered individual who wants LPs to have more money to put back into venture and that will align perfectly with my fundraising cycles. And so inshah, bring home some IPOs previous generation and fill up the LP's funding.

[Rory O'Driscoll]

Good to know. And yeah, it was a good week.

[Howard]

I was very excited for one though, which was Bending Spoons buying Vimeo.

[Harry Stebbings]

I mean, sorry, you Americans, you love.

[Howard]

To always claim the dominance over European technology. European, the Italian buying the public company for $1.38 billion.

[Rory O'Driscoll]

First of all, stepping back, Bending Spoons is a quirky name, but a wildly successful buyout shop that specializes in these old assets that have some kind of brand recognition but no obvious model. The most obvious one being Evernote, which they bought and have, you know, streamlined, raised prices on and I believe gotten it to more profitable business model. So yeah, I mean it appears to be, it's a probably a successful formula.

[Howard]

The interesting thing for me is like they tend to buy assets very cheap, centralized, just eke out the profits.

[Harry Stebbings]

Vimeo, I don't know how cheap it is.

[Howard]

At $1.4 billion like Streamyard, they bought pretty cheap. Evernote, they bought pretty cheap.

[Harry Stebbings]

And to eke out that was much easier.

[Howard]

At a 1.1.4 billion dollar entry, you're.

[Harry Stebbings]

Moving to a different scale of entry.

[Howard]

Price that you're moving into. That's a different game of roll up.

[Jason Lemkin]

I just have an emotional attachment to the brand as a creator. I've been using Vimeo since the beginning. Right. Since when it competed with YouTube. So that's a small portion of the business. But it's $420 million business that's basically flat. It's an annuity. And they're buying it for then what? 3 times revenue. Yeah, last 2.5 times times revenue. So either they have to make it more profitable or they have to apply some folks that care more in software to inject a modest amount of growth in a time where Higsfield and Gamma will do a third of their revenue in 12 months. Yeah, inject a little of that Higs Field and Gamma love. Although I don't know that they've made people use Evernote more. The Spoons brothers.

[Howard]

Right, team, are we ready for a quick fire? A Kalshe quick fire fire, fire away. This will be great. Rory, you're gonna love this. Okay, we had the main man, Kaz on the show open door today is sitting at about. I'm just gonna check for accuracy. $9 30 a share today, where is it gonna be? End of year December 31st. It's 9:30 today. Where's it gonna be?

[Jason Lemkin]

Good God.

[Rory O'Driscoll]

I'm pausing because Kaz seemed like a very nice man.

[Jason Lemkin]

I got 24.

[Rory O'Driscoll]

They got 24.

[Jason Lemkin]

That's my bet. My bet's 24.

[Howard]

He just asked AI. Rory, do you not know this?

[Jason Lemkin]

No, no, I just. Actually I just did. The way I do venture investments, I just do a line. This is the beauty to being a late seed investor. Like early seed, you got a squint. Late seed. I just, I, since first investment, just draw a line. It's pretty much accurate. The Kaz is pretty damn good. The memers like them. As near as I can tell from Twitter, I'm going 24. I don't know what the bet is exactly, but I got 24.

[Howard]

Rory.

[Rory O'Driscoll]

I mean somewhere between 9 and 24 that is. I think it keeps going up. I think it's an extraordinary hard and I think this guy is so smart and Keith's talented. They'll make noise, move momentum and I think in the near end the stock will appreciate because you can make the story feel big. I'm just going to say I think it's a brutally hard business and over the next three to five years you want to believe in that vision of being able to, to help people in the most important financial decision of their lives. I just think it's an extraordinarily hard business because there's a huge amount of arcane detail on every house and everything's a special snowflake. So I hope I'm wrong because he seems like a great guy. I just think it's a hard thing to build. Massive enterprise value in Adobe is getting.

[Howard]

Crushed by the markets, but the revenue is strong, continuing to increase. Will share price be low or higher in 12 months for Adobe?

[Rory O'Driscoll]

Adobe's been growing. It's going at 10 12%. The multiple went way up a year, year and a half ago. I think they convinced having AI'd be good for them or whatever. Some amazing post Covid story. They obviously were really high in 21. I wanna say I should 45 ish pe high price sales multiple dip post Covid in 22 and then it came back strong and all that's happened now is it's reverted back to what it should be five or six times revenue. It's a wildly profitable slow growth. They've done some things in AI enough to not feel stupid, but not enough to actually move the needle significantly. So it's kind of valued just right. It hasn't crushed, it hasn't fallen. It's just the euphoria has faded away and now it's, I want to say 5 or 6 times sales, 15 times forward PE company. I think it's still vulnerable to medium term disruption for from AI, but I don't have a. Oh my God, it's crashing from here. It's just reverted to what it's probably worth.

[Howard]

Roy. Higher or lower?

[Rory O'Driscoll]

Logically, my answer to question has to be no more than 10% higher because if it grows 10% in sales, it should be 10% higher if it's fairly valued today. But I feel it's a low confidence comment. My point is the salient one is your narrative and I've seen narrative on Twitter. Oh my God, Adobe's crashing. The real narrative is Adobe's return to art. Jason hates that.

[Jason Lemkin]

I don't think you believe that the stock price doesn't assume a certain amount of forward growth in its current stock price. I don't believe you believe that.

[Rory O'Driscoll]

Yeah, I mean I think it, it's, it's been growing.

[Jason Lemkin]

You don't like the Cal sheep. Fair enough. You don't like. I'm betting down, I'm betting s down at least 10%. Two reasons. One, Scott Belsy leaving bad sign for AI at Adobe. You can't. The guy is not 70, okay? He's still got the fire. He goes off to be more creative. Give him a couple hundred million like has. Getting Scott to leave was a big blow. And listen, maybe behind the scenes I'm exaggerating his influence, but I've worked with a lot of the folks that are still executives today. It's a big loss for Adobe, losing him in the AI and maybe he came up short of what he wanted to accomplish. Right? It's a big company, a lot of ships to move, but you're just at a loss without him. Two, this is my biggest tell of, of, of being worried about public companies today. Okay? This is my least favorite metric. Even worse than Google's margin. I mean Oracle's margins on its cloud services. AI influenced ARR. Adobe announces 5 billion of AI influenced ARR.

[Rory O'Driscoll]

Oh God.

[Jason Lemkin]

You don't have to say this. If you have AI ARR, AI influenced ARR. That to me, any public company quoting billions of AI influenced ARR does not believe they will have billions of real AI. I just think it's a. Both are a bad sign at the margin but this is a business that can't be killed, Right. It is an enduring business.

[Rory O'Driscoll]

Listening to you, Jason, you could be right. There could be a little more deflator in it. It's not going away, but it's 10% growth, it's slowing down. In retrospect, the real comment is how the hell that people think less than two years ago that it was worth 18 times revenues when it's worth six times today. Right. I mean, what was people smoking?

[Jason Lemkin]

Yeah. A lot of Adobe's history is financial engineering and the move to the cloud and they got a lot of run out of that.

[Rory O'Driscoll]

Right.

[Jason Lemkin]

You know, in the end, Scott wanted to buy Figma, didn't happen and he left.

[Rory O'Driscoll]

They did at least try. They weren't left.

[Jason Lemkin]

They tried. They tried.

[Rory O'Driscoll]

But yes, just think if they bought it, you'd be getting those little pop ups from Figma too. Telling you, you know, you've used up your license for Figma. Adobe Cloud, please pay 79.99 for the next 12 months. I find the Adobe product to be the most annoying and least understandable set of licensed products out there. Right.

[Howard]

Which is because Jason's not there.

[Rory O'Driscoll]

Rory, it's because Jason's.

[Jason Lemkin]

Well, it is, because what happens is you sit in a. If you want to know what happens, you sit in a conference room with spreadsheets, right? At 11% growth. Like Salesforce is probably getting the majority of its growth from price increases today. Like, it's hard to parse the numbers, but my rough view of Salesforce with 6 to 7% annual price increases on average growing 9, you can't trace it perfectly. Maybe Rory can, but I'm assuming the majority of Salesforce's growth is from price increases. And you're sitting at Adobe 11 and you can figure out how to get people to access accidentally prepay for three years or confuse monthly and annual. That could give you hundreds of millions of dollars of revenue. Right? And they don't care about the cash, they care about the gap recognizable revenue. So they want to lock you in for life at the highest price. And those meetings do happen and they last days, they last days on those things. It is not just one product manager going amok.

[Rory O'Driscoll]

I actually think this is an interesting discussion for the last minute here because you, you're right, Jason. It's $23 billion in revenue. I was roughly right. And if you compare the WIX thing, right. If you don't think AI fundamentally threatens your business here, you're delusional because it's what we discussed earlier. You're going from a small number of professional creators to an infinitely large number of amateur creators. You've already allowed Canva and Figma to get onto your skin and now you have a whole next generation coming up. What do you do that's aggressive enough to move the needle here? Because for women, I don't know, doing A billion or 2 billion in revenue is $100 million. Revenue acquisition is somewhat meaningful. What do you do if you're Adobe and what do you buy in AI now that you can't buy Figma in pre AI? And how do you think about the threat here? I mean, they've announced some products, but it just doesn't appear to have landed. I mean, one of the areas we've been looking at a lot is that area of next generation creative tools. And for a while there I was like, maybe Adobe will land some punches and be relevant. They were talking the right game, but they don't appear to have done so.

[Jason Lemkin]

Yeah, but Jeff Lawson made the great point, which is obvious, but I think Adobe's in this trap. You can't cannibalize your seats.

[Rory O'Driscoll]

Yes.

[Jason Lemkin]

Adobe wants to add Firefly and AI to your to your expensive suite and Microsoft's half giving up on getting people to buy AI Copilot for Office. But what we really want is not even to buy those seats. I don't have to buy a seat with Higfield or with Reeve or with Gamma. I don't have to buy a seat at all. Right. Or it's just one seat. Right? Going to Kaz's point with Shopify. I only need one seat to run my whole freaking store. Right. And so we love the seat, man, but it's tough in the age of AI because you don't want to cannibalize your seat. Jeff's right. It's a tough one for Adobe.

[Howard]

Right, guys, this has been fantastic. The joy for me is like you can see the progression of every show. Actually, I think this has been amazing. Thank you so much as always.

[Jason Lemkin]

Rock and roll.

[Harry Stebbings]

Now, I want those shows to be the best shows that you listen to every week. So I want your feedback. Let me know what we can do to make them better.

[Howard]

Better.

[Harry Stebbings]

Any guests that you'd really like us to have on? I want to Hear your thoughts. Harry20vc.com but before we leave you today, let's talk about agents. Specifically Piper, the AI SDR agent brought to you by Qualified. The agentic marketing era has arrived. And if you're a B2B marketing leader looking to scale a pipeline generation Piper the AI SDR agent.

[Jason Lemkin]

Wow.

[Harry Stebbings]

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