← The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
20VC: Sam Altman vs Elon Musk: The $100BN Battle | The Implosion of Thinking Machines | Can VC Survive Public Market Pricing Today? | ClickHouse and Replit's New Rounds: Analysed
01:18:02
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- [00:00]
A
If Figma isn't good enough, what hope is there for the rest of us in software? I look at my portfolio. What the hell am I going to say at board meetings this week?
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B
Rory it's going to be the gift that keeps on giving if you're the kind of person who slows down at a traffic accident. In other words, if you're like 90% of humanity, you're going to be slowing down every time the depots come out. It's going to be great.
- [00:18]
A
If I just stayed at Stripe and just played Minesweeper, I could be worth.
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B
10 billion Elon's in an asymmetric win win situation.
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A
And OpenAI is not advertising is not valueless to consumers when it's perfectly executed.
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C
This is 20 VC with me, Harry Stebbings, and it is my favorite show of the week. Jason Lemkin Rory o' Driscoll discussing the biggest news in tech this week. My word, we have a lot to discuss. We have can venture survive when public markets price assets the way they are today? Sam Altman versus Elon Musk. The $100 billion fight that is about to ensue. The implosion of thinking machines. Replit and Clickhouse's new multibillion dollar rounds. This and so much more. I always want your feedback. Let me know what you think of These shows harry@20vc.com but before we dive into the show today, I run the 20 VC fund and I get this question from founders all the time. Oh Harry, I can't find a good dot com. Do you have a good hookup? Well, let me tell you now, the answer is always going to be no. I don't have a guy or a gal for I do have a recommendation though. If you're building a tech startup, get a tech domain. Tech startup Tech domain. It could not be more obvious. As an investor, I appreciate founders who put thought into their branding. When I see tech in your name, it tells me right away that tech is at the core of your build. It'll say that to your customers too. A clean and sharp domain like tech pays off in the long run. You know nothing. Tech1x Tech, Aurora Tech all of these great tech companies, they all use tech as their domain. These are my two cents.
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D
If you're building a tech startup, don't overthink it.
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C
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B
You have now arrived at your destination team.
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C
I am excited to be back. I'm excited to be back.
- [04:12]
A
We've got a lot of stuff to.
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D
Go through this week, and I wanted.
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C
To start with a really optimistic view of public markets, which makes me question.
- [04:20]
D
Whether venture today as a model can still make money. Because when we look at Figma down to pre IPO levels, when we look at Datadog now 20% down, even CO attached Monday killed. We talked before about pager duty. Consistently. We're just in the dumps of public markets. How do we analyze this?
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C
And do public market multiples today make.
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D
The venture model increasingly challenging?
- [04:46]
B
No, they don't. Because the public markets, actually it's almost the exact opposite those multiples. What they say is when companies go ex growth, they get much lower multiples, right? Slow growth companies get low multiples. High growth companies get absurdly high multiples. And you could have also cited at Palantir at 70 times forward sales for a 45% grower, every venture capital is going to make a trillion dollars. So what you're really saying is the markets are just basically doing what they always do. They're sifting and they're basically saying, low growth, we're going to value them very low and perhaps too low. We can come back to that in a second. And so that's what's really going on here. So it's not a, oh, tech is doomed. What it is is, it's a sifting and a sorting. Things that look like they're going X growth are getting thrown out, getting discarded at pretty low valuations and things that are perceived as exciting and on trend are getting very high valuations. And venture is nothing if not a trend business. So I would argue for venture, it's pretty good. It just reinforces the dynamic of this business. It's the always be in the hot stuff and you'll be fine. If you're in the trailing edge stuff, you're toast.
- [05:50]
A
Goodness. Here's how I think about it. Just being more pragmatic. If Figma isn't good enough, what hope is there for the rest of us in software? I'm not saying that there aren't folks that are exploding the ones we know, the 11 labs and the replits and the lovables and. But I feel like none of the of the unicorns are better than Figma, almost none of the prior. And if figma isn't good enough, it is not a great ipo. It is. I'm not even sure it's a great public. It's a great product. Right. I'm not even sure it's a great public company and I look at my portfolio. What the hell am I going to say at board meetings this week? Rory, great job, guys, but have you seen Figma?
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B
But hang on, I'm just going to say something, you know, Great job, boys.
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A
Great job, lads.
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B
This is the problem with anchoring Figma. It's a little bit down from its ipo. It's obviously. But then all the screen, it's hugely down from when all retail price to the day after the ipo. If you look at it versus the ipo, you're right, it's still down a little, but it's not nearly as catastrophic. It's still a $12 billion market cap company. It's still growing, it's still trading at 10 times forward sales growing at 30% plus. It's a, it's an awesomely good company. That's just the value. In other words, 10 times, maybe not.
- [06:58]
A
If you invested at eight or six.
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B
Though, again, the message is really clear. When you pay up for high growth companies and the growth slows even a little, and the belief goes out of the multiple you're in for a long hard haul. And we'll come back to this, I think a few times before you can be valued on free cash flow. It's a long journey from the hope and the sizzle of a forward revenue multiple and a high growth rate to the steady anchor of 12 times free cash flow. It's a long and tedious journey and there's a long flat period for the stock.
- [07:29]
A
While that happens, I feel like, you know, one, one analysis, you know, it's bill, girly net all. There's just Windows when there's lots of liquidity and high prices and then it, then, then it's crap 80% of the rest of the time. Another version I've always thought is. And I don't want, I don't want folks to take this the wrong way, but in some ways I feel like venture and tech is a bit of a scam. And what I mean by that is that our job is to convert very high revenue multiples into cash, almost unnaturally through M and A, through, through public offerings when they haven't earned it in free cash flow. Our job is to find companies worth 20, 50, 100, 200 times revenue and magically convert that to cash. And when it does, that's how we build 5x or higher funds and that's how we make money. If we have to go to an EPS world, we're dead. I feel like we're waiting for these moments and not. And it's even worse because when multiples are way down like today, no matter what, no matter what the car today says, there is no liquidity.
- [08:24]
B
But you say that. I mean, you describe the system correctly, but you kind of imply it's called a scam. I don't think it is a scam. One level more sophisticated analysis here says what's really happening is everyone has long since internalized the following sense. In the end, the surviving tech companies at scale are astronomically good businesses. Microsoft dominates the PC era and it's going back along. It's an astronomy. So therefore you know you want to own that, and therefore you just work your way backwards that says, okay, at the point in time when I don't know which company is Microsoft, I can't wait until it's trading at 10 times EPS to buy. So I got to take a chance and as you say, buy a basket of things that might be Microsoft. And you price them long before they have eps. So you price them on forward sales, right? And the truth is four out of five of them turn out not to be Microsoft. No one even remembers what Bolin Software does. If I put a gun against Harry's head, he couldn't tell me about Corel, VisiCalc, Lotus, et cetera, et cetera. And all of those stocks traded high and then went down. But it doesn't matter a damn because in the end, as a whole, the system, the venture guys, the public markets were correct. Which is this is a big ass trend. And the winner will be worth $4 trillion. And if the losers, if you write off half a trillion in guessing to get there, you get there. That's why it's very hard to fund an old school SaaS company today because people are just saying, look, you're great, you're going two to five, you're great, you're a profitable company. And again, this is the thing, these people who rain down a little bit of VCs who kind of project a little contempt, oh, your little $100 million revenue thing doesn't matter. I can come across as a little callous and a fairer statement is this. Your $100 million revenue SaaS company is an awesome entrepreneurial achievement. You are to be hugely congratulated. It's magnificent. It's just not something that we can properly finance because we're just not going to make our public market venture return here.
- [10:14]
D
So it's if I am a founder of Linear or Revenuecat or any of this generation of companies, maybe 5 to 10 years old in that broad range, and I'm at 50 to 75 million of revenue and I'm not an AI first company particularly, and maybe AI helps a little bit, but I'm 50 to 75 million. I'm growing maybe 75 to 125%.
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B
What do I do? I think the truth is if you're going 75 to 100%, you're fine. Stop. If you're going 100% at 50, you're going to be at 100, then your growth decays to 80, you're going to be at 180, then your growth decays to 40 or 50, you're at 3, you're going to get to scale, you've got your funny face on. For listeners who can see it, how he's got on his I disagree face.
- [10:57]
A
It'S not that I'll tell you. Listen, I don't want to get lost in the weeds. I only disagree with you for two reasons, Rory. They're just structural. One is, as someone with a relatively modest amount of cap capital and a concentrated strategy, I haven't bought 20% of a startup in like seven years. And I haven't done around at a million in revenue growing quickly in the teens in a decade. Now, if I could buy 20% of these companies in the. In the high teens, pre money, like I used to do when Harry and I met, then I would be pretty zen about today. I'd be like, whatever the Lord brings. 500 million, 200 million, 3 billion. If I have to own 5% at 50 million post demo day. The math works out in the aggregate. Gary's got it all proved. No criticism, but it really ratchets the pressure when the valuation's three times higher and the ownership's 25%. I think that this is where the FIGMA thing gets stressful. You're not quite as good as figma. I'm going to end up owning 4%. You're going to be worth 4 billion if everything goes well. 5 billion. Guys, I don't know. Teach me about crypto.
- [12:00]
D
I'm so sorry. I push back again. 75 to 100% for the biggest and best funds is not enough when you have an 11 labs, or you have a lovable, or you have an air wallet.
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B
Well, let me.
- [12:10]
A
Let me answer your question specifically, though, and Rory can challenge it. I agree with you. If that is all you have, and Rory will disagree. I'm very worried about you today. The question is your job. And for some folks, you're dead in the water. For other folks, it's. It's not too late. Your job is how are you going to attach to AI trends? So if you look at revenue cat, right, the whole vibe coding mobile thing, I think they tripled the number of developers on their platform in the last four months or three to four months of the year. So their job is to do what work OS and others did, which is directly, linearly convert that to revenue. But they have the. They have the. A revenue cat has massive tailwinds, which it didn't even have at the start of last year. Okay. And there's a lot of folks like that that have. That have AI tailwinds. If you have none, you sure better figure them out right now. And this is the answer. For example, I have one of my first investments. I mean, it's been around for a decade. Okay. And it's not even a 10 million yet for a decade. Okay. I'm the only investor. They're cash flow positive. I love them. It's a very specific use case. With limited competition, they finally added a way to do deep AI analysis on their data and reports that for their niche was impossible until December blew up. They were more than double this year after a decade of of like 10% a year growth, 20% being pretty good. So it doesn't fully answer the Figma question, but this is your job right now. Like sit around your company. Those kids at YC built an agent for your space. Why the f wasn't that you? There is no excuse for you to not have an agent as good as that. As the new kids. I honestly don't think there's any excuse.
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B
And going back to your pushback, Harry, I mean I think, I think it's in the framing of your question. I know, I know. Let me tell you precisely why I think you're wrong. You said if you were the CEO of X, Y or Z and you're going at 70% then you kind of did the throwing your hands up in the air thing. I think you're wrong for them. Right? I mean what is true is this. If you're going 50, 70, if you're at 50 million going 50 or 70%, you may struggle to get venture capital. Because you're right. Everyone's focused on correctly on the things that have the embedded upside of potentially exploding to hugeness. And you're probably at a stage now where that kind of mega growth is not going to re accelerate from there. So the probability of a mid stage SaaS company exploding into something amazing is rounding error zero. So as an investor, that's not attractive. As a person who owns that asset and maybe you own 20% of it. Right? You can't just say, oh, I wish I'd done something different with my life. And now I wish as an Akai company you got to play to hand your delt. Jason's exactly right. The first thing you do is say to yourself, I may not be able to raise much more venture capital on attractive terms. Run my business accordingly. I am now. Just like I thought we were going to talk about the public SaaS stocks here like you hinted in your questions, but you took us offline. But it's the same thing. Live in the world you now find yourself, which is where capital is no longer free for your sector. If you describe that negatively, you can say it's because venture capitalists are fashion chase. So if you describe it in a logical way, you can say it's because the kind of extraordinary growth has vanished from SaaS and has now reappeared in AI land. Run your business the way you do it so you don't need capital. Then as Jason said, look at what these next generation people are doing and find a way to attach it to your business. And if you grow at 50%, then 40%, then 30% and you get to 200 million of revenue and you sell it five times, that's a billion dollars. And if you have 20% of that, you have $200 million. It makes you one of the probably to a million. I've done this math about in the top 5,000 richest people in the world. It's okay, but it's a grind. Because it's a grind. Explains exactly why venture guys aren't investing. Because grind is not in our mo.
- [15:40]
D
We'll come back to new rounds. You mentioned the grind isn't in our mo. When the grind isn't in your mo, you move on. You ever seen the Home Alone movie cover which is like Macaulay Culkin screaming the bad guys. I feel like someone needs to do that for poor Mira Marathi because I think she's the only one left in thinking machines after everyone else.
- [15:59]
C
This week we've seen the implosion of.
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D
Thinking machines with now two co founders leaving, Barrett Zoff leaving in the last week they have raised significant amounts of money at $50 billion valuation. Last how did we analyze this news and what's left of the team?
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A
I mean it happens with seed rounds.
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B
That's a great answer.
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A
It's just part of the risk.
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B
I was going to come up with a whole bunch of other things, but Jason is exactly right. You have to remember this is a seed round. And why Combinator do this thing is that the number one cause of failure at the seed stage is founder incompatibility. And this is just seed rounds with extra commas and they discover after a year they don't want to be doing this and they want to go back to the big company. Just treat it like a seed round.
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A
I'll tell you one niche thing I never understood about this company. On paper, I get it. Andreessen sequoia put in 2 billion. You're basically taking mirrors, taking OpenAI co founder a whole bunch of the team and it's just going to be anthropic again. Right? They're going to recruit some of the best and they're going to do it that you in theory you should do that. Bet in 15 minutes, if you have the capital. Right. It's just take, take the best bunch of the best guys and go do a modern. It worked at Anthropic. Good God. It worked at Anthropic. The part I never got. Here's the weird part, and maybe this has nothing to do with the tensions. I mean, her background is not technical and this is the part I never got a degree in arts from Colby College and some an engineering product manager at Tesla. I'm not saying she's not. Doesn't have 50 IQ points on me. I think she does. But I don't know how you run a lab if you're not Ilya in the early days of OpenAI or Greg at least. I don't know how you get. Get the respect of the team if you're not on their level as a researcher. And it's a challenge for a lot of other B2B companies. How do you recruit this S tier AI talent if your team isn't at that level, who the hell would want to go work there? Comp aside, right. The best. Why do folks leave OpenAI, like after a year and leave 5 or 10 million? They're just so smart. They just want to work on smart problems. This one I felt was unstable. People loved her, I think. But I'm super skeptical of technical companies where the CEO isn't one of the greatest technical visionaries in the industry. I'm just. I'll never do that investment again. I'll never do an investment again where. Where it's not like data bricks are better. As CEO, I just won't do it.
- [18:10]
D
What happens in this situation?
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B
There will be some version of the following clause that says if more than X team members leave, then you have the ability to call for redemption and just basically wind the company down and say you spent 20% of the money. If you can't get an M and A outcome where you get a 1x, then you can wind the company up. You give them 2 billion, they spend 200 million, you take another 200 million to bribe everyone to go along with it and you get 1.6 billion back. And you say to yourself, that was a risk that didn't work. I only lost 20 cents on the dollar. I can recycle money into the next OpenAI round, everything's fine. That would be a far better outcome than we're going to commence the long and bloody march trying to fix this thing, trying to hire new people. Because Jason's right. I mean, it's such an insight. Jason It's a seed deal that went wrong. What do you do when the core premise you invested in turns out not to be true? When you spend 10% of the total money, if you're smart and you don't have another compelling idea, you give the money back, you incur the respect, everyone says, okay, I got it, you moved on. You called bullshit. From the investor perspective, I wonder, they're sitting there going, it would be totally fine to take a 20% haircut and be done.
- [19:18]
D
Do you think they'll do that?
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A
It probably felt safer when they made the investment that, worst case, Meta wanted to buy them. Worst case, we exit for 5 or 6 or 10 billion to acquire the team. We don't quite make as much as you might think on paper because of how the demos deal is structured with employees in retention, but worst case, we make some return on this deal. So it's not. That was probably a thing. It's not as crazy as we might think from the outside because with the quality of the team, high chance we get our 2 billion back seems lower odds today.
- [19:45]
B
Yeah, the way I described it, if I was on the board, I'd say this. We're not going to get our 2x from the M&A outcome, but if we get our 0.8x to a rounding error, it doesn't matter. Especially if you can quickly recycle the capital because this happens so quickly. That's all in the current fund cycle. Just so listeners know, if you're in the investment period for a venture fund, you wire a billion dollars into investment A. Instead of waiting 10 years and getting 0.8 back, if you get 0.8 back in 12 months, you can reinvest that 0.8 and very quickly just move on. It's almost like it didn't happen.
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A
So much better.
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B
So much better.
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A
Forget about irr. You can put that money to work. You can put that money right out the door, literally.
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B
I mean, ask yourself.
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A
The loss is a bummer, but if you're trying to get 10x outcomes, you almost don't care. Just give me the money back and let me invest it tomorrow.
- [20:29]
B
Because watch this. If you got that, if you. If you put out a bill, if you got the 0.8 back six months ago and you put it in the last round at antropic, that 0.8 is now a 1.6. So on your initial billion, you're actually ahead 60% despite having lost 20. This is why at heart venture is a capital allocation business. You are trying to stuff your money into the place where it will grow the fastest once they start going down Venture guys, it's brutal, but the rational thing to do is reallocate to success and away from failure.
- [20:56]
A
I think we underestimate the challenges and the wars for AI talent and we talk about it being compensation based and.
- [21:03]
B
Brands, but it's mission based.
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A
Yeah, yeah. Well, it's even more. It's like the best researchers in AI, the best, the ones you need to win. They only want to work what they want to work on.
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B
Yes.
- [21:13]
A
And they will leave a lot of money behind. That's why we've all moved to no vesting anymore at OpenAI because we want the folks who like you know what? I just don't love my job at Thinking Machines. Come to Open AI, you will lose nothing. The smartest folks in AI, in, in Applied Math and others, they only want to work on the intellectual challenges they, they want to work on. And if you can't deliver that and the right boss, there's so much portability that they will just leave. And that is an environment Almost impossible for 99% of software companies to create. And maybe Thinking Machines does. I don't know, maybe it doesn't have that environment anymore. Maybe it just can't provide that environment any longer.
- [21:48]
D
We've spoken about the breakup of teams. We touched on OpenAI a couple of times there with Mira. I have to jump to the ultimate breakup of breakups being Sam versus Elon going to trial. How do we see this playing out? Who wins? What do they actually win? Consequentially?
- [22:02]
C
What does this look like?
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B
Look, it's going to be the gift that keeps on giving. If you're the kind of person who slows down in a traffic accident. In other words, if you're like 90% of humanity, you're going to be slowing down every time the depots come out. It's going to be great. So first start with it. So now I'm going to start with an utterly different idealistic comment as we get into this whole mess, and we will for a few minutes. It's worth pointing out when I reread a lot of the stuff and they did all start by making a charitable donation for something they passionately believed in where they weren't trying to make money. Elon chipped in $30 million plus Sam Altman shipped in 10. Reid Hoffman chipped in. They genuinely believed, actually, and we'll come back to that statement because some might say it's a lie. But it appears that everyone genuinely believed at the start that they were doing something for the good of the world, they were doing something for charity and they were trying to understand what AI could do and head off existential dangers at the past. So as is so often the case in life, I think everyone's intent was pure when they forked over real money to try and do something. So I want to start with that. Thank you everyone for trying really hard to save humanity. And then the old rule applies, no good deed goes unpunished. So the whole thing is now a mess because just to give the kind of the zoom out comments here, it was a not for profit. At some point it became obvious to the management team around 2017 that the costs to build what OpenAI was to become was such that you couldn't keep going as a nonprofit. You have to become a for profit entity. During the period when that started to happen, Elon had his demands on how he wanted that to happen. Sam and Greg Bachman had their perspective on how they wanted it to happen. They ended up as it were breaking up. Elon resigned from the organization. Fast forward past the drama of 22. In late 25, the conversion to a for profit took place finally and it was approved by California and Delaware. And now OpenAI is a for profit corporation with a largest individual shareholder is the foundation. And the argument Sam and Greg would make is, hey, you invested money in a charity and that charity now owns 30% plus of 1 of the most profitable, one of the largest companies on the planet. So you kind of got what you paid for. That's the argument they're making. And therefore you're entitled to nothing. You made a $30 million donation, you created a 300, well, probably 150 billion foundation. Congratulations, you've helped humanity. You got what you paid for. And Elon's comment, which is going to be tricky to prove, but it's going to be messy, is all along you guys were planning to cheat me and planning to make it a for profit company. Because his ask is not just hey, I want my 30 million back. That's chump change. In the back of his couch, he's saying, hey, you guys planned this all along. And therefore my damages claim is not just giving my 30 million back. And it's not stop the conversion to a for profit because that's already happened now that can't be stopped. It's like you guys took my 30 million under false pretenses. Therefore I'm owed roughly what 30 million would own out of that company now, which is $100 billion of value. He's basically saying, if we're going to go for profit here, guys, and you guys were lying to me all along then I want my share of that now. So you all going to have to take dilution such that I get my 100 million. The debt damages claim is 70 to $130 billion, which would come in the form of extra shares of OpenAI to Elon and everyone else would have to take the dilution. That's the ask. That's what's going on here. In the end, it's an economic argument on the basis of fraudulent intent from day one.
- [25:27]
D
Is Elon doing this to slow them down? Is he doing this for the. I don't think he's doing this for the 70 billionaires.
- [25:33]
B
In the great words. Yeah, I think he's doing it because he can and it's fun. Billionaire's going to billionaire and near trillionaires are going to near trillionaire. I mean, it's a win win. He feels shafted. And you're right, it's good for Grok if it slows it down. And he might win 100 billion. And there's not a ton of downside other than a bunch of legal fees because they got no claim on you. It's a asymmetric win win situation for him, provided you have a couple hundred million dollars of legal fees. It's going to consume here, right, because we are litigating over $100 billion. And then the other thing that happens is, and he's lived through this on the Twitter. Litigation, deposition and discovery is a sucky process because you write down stuff in your email, in your diary, and then it suddenly comes out and it's always embarrassing. The truth is, if I spewed out your last 10 years of emails, I'd find some embarrassing stuff. It happened to Elon in the Twitter litigation. I mean, some of those texts just look juvenile. You just, oh, wow, you're the richest man in the world. You sound like an idiot. That sucks. In this case, they were able. I mean, if you look at already what they've got on the record, they've got poor Greg Brockman, who kept the diary to 2017, writes in his diary as one does, what does it take for me to get to a billion dollars? And now that's come out and now they're doing some version of you were cheating me all along. You wanted to do a for profit. I mean, can you imagine Harry having to get your diary from eight years ago? And then you had Ilya who had to do a 10 hour depot. And this comes back to the whole Merritt thing, right? He had to do a 10 hour depot on the 2022 CEO was 23 CEO drama, which is not really relevant to this because the quote unquote alleged fraud happened in 2017 or 18. But again, it's just a fun chance to get all the mess out there. So they depoed Ilya for 10 hours and we finally got to hear what he thought about the great fiasco. And it's kind of embarrassing for everyone. Everyone looks like an idiot in 2023. The board looks stupid. Ilya looks a bit naive because he relied on Mira. She looks a little naive because she was. It just looks like amateur hour everywhere. So if you're Ela and you're like, I can torture these folks and look stupid. If there's any kind of credible case, and remember, a judge was asked whatchama called OpenAI did go for summary dismissal, which is what you do. You say, hey, there's no case to answer here. Just dismiss the charges and the case. I should say they're not charges. And the judge said, no, there is a case to answer here. I'm not saying it's right, I'm not saying it's wrong, but there's a credible discussion here. So now they got to go to a trial, and I don't know how that impacts fundraising, but for the next 12 years, there's the potential of every financing of OpenAI now has. You might have to take 10, 15, 20% dilution if they lose a jury trial. Now, for what it's worth, I think the intent of the other founders, Sam and Greg Altman, wasn't day one, to quote, I think Elon's case is built on a slender conspiracy thread, but it'll sound compelling to a jury when you also have all this dirt about, you.
- [28:26]
D
Know, Rory what happens, and Jason what happens.
- [28:29]
B
It drags on a long time and it gets in the way.
- [28:31]
D
And who wins?
- [28:33]
A
Elon wins no matter what.
- [28:34]
B
Yes, that's the right answer.
- [28:36]
A
This is a jury trial. A jury trial is unpredictable and there are bad facts on both sides. Like this is the Social Network, the movie, the Social Network. I know they're making another sequel at Meta. This should be the next Social Network.
- [28:47]
B
This is the sequel. You're so right.
- [28:48]
A
There are bad facts on both sides. And if Elon was not the richest man in the world, he would settle for 30 billion or 40 or 5, whatever that Winkleville got, he would do the same deal, give me 5%. They would settle on the eve of trial for 5% to Elon, they. They would say, we're just doing it to move beyond. They'd give him 5% or 4%. And if about money, he'd move on. Just like the Winklevi got their 4 or 5% of meta Facebook. That's what would happen if it was about money. The fun thing about the sequel to the Social Network is they ain't going to settle for four or five for that. Not. He's going to go to trial and he's going to win. And Elon has bad facts, but this man has already been bad facted the last couple of years in public. His worst fact, forget about that. It's in Oakland. Oakland is very liberal. Elon's worst fact was that Trump hated him for about six months. He fixed that issue. Now he's back in the inner circle. Get a couple MAGA folks. Republicans on the jury. We don't know. Sam Altman fired by OpenAI board for reasons not fully disclosed. Greg Brockman. And you know what I think really happened with Greg that I think maybe people miss? This is my theory. The guy really partially regretted leaving Stripe as the CTO and the fourth employee he leaves. Sam recruits him from Stripe at a when it's worth 3 billion and says, don't worry, we'll. We'll make it up for you at our nonprofit. Come do this thing. We're going to change the world to Greg. And it's very exciting. And Greg really doesn't want to work on the Stripe API anymore. He's already gotten payments to work. It's kind of boring. And he leaves. It just. He leaves. In 2015, Rory, when the world seemed very flat and simple, right? And he left and he turns around and he's like, my God, I left billions behind. How would you feel as a human being that didn't make the money Sam had already made? Sam's already become. He wasn't a billionaire then, but he's on the path, right? He's raised hundreds of millions at his own venture fund to invest in YC startups. He personally owns 2% of Stripe. How would 99% of humans feel when you're like, if I just stayed at Stripe and just played Minesweeper, I could be worth 10 billion?
- [30:42]
B
It's.
- [30:43]
A
And I think that haunted him, and I think that's where these journal entries come from. It's not him being douchey and saying, man, I want to. It's him haunted by Sam getting him to leave stripe at 3 billion. Haunted by it we've all. I've been haunted by some mistakes I've made, too. I think he's haunted by it. And. And I think that creates. Going to create a whole bunch of bad facts the deeper we deal that Greg was haunted by leaving the money at stripe.
- [31:05]
B
First of all, I'd be haunted too. I'm not going to speculate he would.
- [31:10]
A
Be haunted if he left a couple billion.
- [31:12]
B
Yeah, yeah. No, I mean, one of the things that's also sucky about this when you're in litigation is suddenly everyone, including Rory o', Driscoll, who I think has never put eyes on you, has a fucking opinion about you. That's the really sucky thing. And the great.
- [31:24]
A
I think.
- [31:24]
B
I'm not sure I agree with you on Elon in terms of the jury. I want to come back to that in a second. But I do agree on one thing, is he is post pain when it comes to public shame and obloquy. There's nothing left to do for him, man. Right. So basically everyone else is going to have to get down in the muck. And he is already so far on the mark that on various different parts of the last three years, 40% of the country have hated him and it's been a different 40% each time. There's nothing left for him to do. Which actually gets to the. How do you think you asked. How do you think it ends? I think, Jason, you're right. If it was normal people, they'd settle. If it goes to jury. I think 2 comments I will make from a facts perspective. I think in the end, Elon has to prove his case. And it's a high bar to prove. You got to prove that all. It's a very hard. You got to prove. Right. When they were raising the money, charitably, they were all along intending to swipe it and build a for profit. And I think that's very hard to do because Altman's money went in as a for profit, a not for profit too. So I think it's fundamentally, I think Elon's wrong on the core assertion. I don't think this was a cunning device to cheat everyone because if they wanted to do that, they could have just done what Anthropic did, which is the totally sensible interim stage of a public benefit corporation, and saved all. All this fricking drama. So I think stripping aside all the bad facts, I think the core assertion Elon is making, which is they misled me into giving them 30 million for this thing, which was never going to Be a charity, and therefore I get my money back. I think that's wrong. But to your point, you still got to prove it to a jury. Now, the other comment is, remember, he has to prevail. So as long as there's one person on the jury who hates him more than he hates Sam, he ain't gonna win. It's going to be hard. First of all, it's gonna be a very unattractive cast of characters, an Oakland courtroom. You get Sam to come in and say, hey, talk about how you said this is gonna make everyone unemployed. Then you get Elon to come in. They're gonna hate the whole being on the stand thing, which everyone's gonna have to go on, right? I think the jury will get. If they get into that room, they're gonna go, wow, I don't like any of these people. Right? But the problem is this. For Elon to win, he has to get them to all vote for him. And a kind of hung jury is fine for the prevail. Unless Elon prevails, he doesn't get it. So I think way down the line, two, three years from now, at the end of a long and bloody trial, the probability is he doesn't win the case. But, Jason, you're right. He's already won the case. If what he wants to do is get kind of psychic revenge, this is going to be the best. This is like Peter Thiel's spend on Gawker. Sometimes a billionaire just wants to spend a couple hundred million bucks in this case to grind the other guy and make him sorry.
- [34:00]
A
I think he wants every bad fact about Sam to come out. Every bad fact in this trial. We haven't even heard why the board fired him, Right?
- [34:08]
B
If someone sequestered, depoed my diary for the last 10 years, and if you keep notes on days when you're feeling like shit, you know, you're like, that's not great. That's the problem with litigation. That's the problem with convoluted structures. You end up in litigation. That's why keeping it simple was step one. And once you didn't keep it simple, trying to keep Evan in the tent. When you don't do that, you end up being sued by the richest person on the planet who's angry and mad at you. It's a tough place to be if you're Sam.
- [34:35]
D
Do you not go, hey, I'd rather have the dilution not go through three years of distractions and actually get him off my case. Bring the enemy inside. I don't have a stock.
- [34:47]
B
Don't settle at 5, settle at 100. Yeah, I didn't have stock.
- [34:52]
D
Anyway.
- [34:53]
B
This is true, sort of.
- [34:54]
A
I think that was, that was dishonest.
- [34:57]
B
But you're right, actually, you're right in the big question. It's like if this is getting in the way of the next financing and it being seen as a credible risk, then would you be better off? Even if it's extortion to cough up, which again is why, again, Elon's in an asymmetric win win situation and OpenAI is not. The only way it doesn't matter is if every, and I don't know, if every investor looks at this and says, I'm not worried about the risk, in the end Elon will lose, so therefore we can ignore it.
- [35:24]
A
Well, isn't that what they said? They said our exposure is capped at elon's donation of 30 some odd million. That was the public announcement, right? Or pseudo public leaked.
- [35:32]
B
Agreed.
- [35:33]
A
Right.
- [35:33]
B
And that's why his aggressive claim is, on the facts, very contestable. I mean, it's a real reach. The claim is a reach to say it's not just my 30 million back. Basically what Elon is saying is it was a for profit all along. You guys just didn't tell me. And if it's a for profit all along and I put in if I was the 30 million seed in what was a for profit company, then I want what a 30 million seed would get. It's a stretchy claim. You're right. Jason and OpenAI are going to say there's simply no way from a point of law perspective we're going to concede that and even if we lose a jury trial, we'll go in on appeal and they're just going to say they're going to litigate it the whole way down. But you're right, that's fine. And this actually ties, funnily enough to the ads come and everything else. What I don't. The key question that I don't know is how will the investors look at it? If you're writing a check right now, do you think if I'm paying 600 billion pre or 800 billion pre, do I need to say it could be a trillion because it could be 20% dilution? I don't know.
- [36:30]
A
Or do you say you said last week there was no existential risk to open AI? I said there might be some structural economic risk.
- [36:36]
B
You said it could be, but this isn't existential. To Harry's point, in the end, you can fold and give the man what he wants.
- [36:41]
A
If you can't, if it's hard, I don't think this will make it any harder for them to raise capital because greed trumps fear. But. But if it did, it could create some risk, right? If it made it harder to raise.
- [36:50]
C
Capital, I think you have to fold.
- [36:52]
D
Because the winner in this case. I know, I know it's ridiculous to say, but the winner in this case and the guy laughing with popcorn is Dario.
- [37:00]
C
Yes, going great, but you can't fold.
- [37:03]
A
I don't think he'll let them fold. I could be wrong, but there's no chance that there wasn't some lawyer discussion talking about what would it take to resolve this right in a quiet room off the. You know, there's just no way that OpenAI is a fiduciary obligation to find out what it would take to settle it. Right. Arguably, they have to. So Elon has.
- [37:22]
B
No.
- [37:22]
A
Didn't want to take it. He just, he wants his day in court.
- [37:25]
C
That's why you have to settle if.
- [37:26]
D
You'Re Sam, because the world.
- [37:27]
A
You can't settle. He doesn't want to settle.
- [37:30]
B
I mean, to be fair, you don't have to have. I mean, because as I think about as an investor, what would you say? You'd say here, let's just say this is around at 700 million pre, there is a probability of an additional 15% dilution, but it's not 100%. Maybe it's only 10%. So really, risk adjusted, you are kind of a. You add a 1.5. So you don't assume you're assigning a probability to a capped large and uncertain event.
- [37:57]
D
Right.
- [37:57]
B
Which is there is some chance that I take 15 or 20% extra dilution, but it's not 100%. So it doesn't drag the financing down to zero. It merely means there's an asterisk risk on it. And to be fair, Anyone who's financed OpenAI today, if you look, the funny thing about OpenAI is it has. Even though this looks very risky, OpenAI from a structured perspective, it's less risky now than it's ever been. If you look at all the rest, the first money went in, it was, hey, it's for profit and not for profit. And then you had that disclosure, hey, we're never going to make money, so what can you do? And then in the last year, they've been able to convert to a for profit company. So a huge step took place last October, November of 2025, when OpenAI the real danger would have been if they hadn't been able to convert to the for profit company, because at that point, the whole thing was at risk. When they got that done, they took a big step. Function decrement, down in risk. So even though this feels very risky, it is less risky than the risk under which they were able to raise $200 billion, plus or minus. So it'll be fine. It's just a risk. It's going to be a monstrous pain and it's going to be popcorn time for everyone else.
- [39:07]
D
I think you're being way too nice at a time for OpenAI where you have Gemini killing you on consumer, anthropic, killing you on enterprise, but you're just.
- [39:18]
B
Lumping everything in together because you have to. Yeah, but I mean, look, the litigation.
- [39:24]
C
I can't isolate things.
- [39:27]
B
But actually, funny enough, you have to in the sense of whenever you have that kind of litigation. I've been through, companies occasionally have it. What you have to do is to say the really dangerous thing about litigation is if it kind of subsumes the whole company. Because the thing about litigation, it gets your blood up and you start trying to win and you just get emotionally invested in it. If they're smart, they'll have a great GC who says, other than depositions, none of you talk about this ever again. We will deal with it. And our $100 million will have lawyers. Right. Because you can't let that get in the way. So let's assume you do that now. You're still running a wildly successful business with a whole bunch of competition. And you're right. You've got to deal with Gemini. You've got to do entropy. You got to get ads out the door. You got to start having a convergence plan on profitability, which is, I think, why the ads are coming out. Yeah, you've still got lots to do. With the exception of the litigation from the world's richest man, nothing's changed from two weeks ago.
- [40:15]
D
Is ads coming at just the wrong time? As Gemini is killing you on consumer and producing better and better models and Google are really feeling tailwinds to come out with something that does deprecate the product, even in a small way. Is it coming at just the wrong time?
- [40:29]
B
But I think you do. I mean, I think it actually speaks to something. Why do you introduce ads? There's three big ad. The two biggest ad businesses was Google and Facebook. And both of them agonized for about a year before introducing ads Google in 2002, 2001, 2002 ish and Facebook in or 5 or 6 and then everyone goes to the following logic. There's no other way to monetize. There's simply no other way to monetize. The cost to serve a free ChatGPT customer is higher than either Facebook or Google and the conversion rate to paid because Facebook and Google. So what are you going to do for business model? Facebook and Google didn't have a paid tier. So one argument could have been a certain percentage of the free people will just convert to paid and that that will be enough to make the business work. But the truth is consumer conversion tends to run well under 5. Yeah, 10% probably 5% or less. You just don't get enough conversions to serve the free tier. You've got no choice once you recognize you got no choice in the end. Facebook hated ads. Google hated ads. You can hate ads till you're blue in the face but America wants free shit. And the only way consumers get free stuff is if you want ads. So there's no choice. So I think it's kind of a, it's inevitable. So rip the bandage off. Especially if capital is going to get market expensive. You just got to go do it.
- [41:49]
A
I, I think the ads will be great. Yeah, I genuinely think they'll be, they'll add value to chat GBT because I, I don't have the numbers on it. I know for myself I do my vendor discovery using LLMs. I do my vendor discovery on Claude and a little bit on Google. That's when I want to find a new tool or a new product. That's where I start. I start with LLMs especially if I'm the free product. If I get my, my rich response of which which o product to use in founderscape and at the end there's a little ad from work OS and I choose to click on work OS instead of the one I chose. And that was a great option too. That's a win win.
- [42:26]
B
Agreed.
- [42:27]
A
And I think actually think they're going to I don't so one I think it's a win win for free people too. I suspect in the beginning unlike the we wanted to blow our minds out with Google because it was 11,000 pages of blue links before the one natural thing. And then like it's just, it's so polluted with ads we can't even figure out what's an ad if open if the ratio is say 10 to 1 like a lengthy analysis of what's best for you and a little ad in a different color. I think it's a win win for everybody. It makes the product more profitable, better margins and we get some value. Advertising is not valueless to consumers. When it's perfectly executed, it's not valueless.
- [43:01]
B
I think that's a great point, Jason. I really do. And there was a period of time, Jason, to your point, when the Google Ads were awesome. You know, early on when there was only a few paid links, you remember on the side I was like okay, that was exactly right. That was margin additive. Now obviously they've swamped it and you can barely find out what's going on and all these things tend to that wonderful word and shidification at scale. But you're right, this could be the period where one or two ads at the bottom of that are additive in terms of information, especially when you auction. I mean the beauty about the auction process for the ad placement is that because they run this kind of, because Google has run Facebook, runs these very efficient auctions, you actually end up selling the ad to the person who values that real estate the most, which usually is someone who's got something very precise to sell you to. Your example, Jason, you're exactly right. If you write this long query on some kind of oauth, at least the ad you're going to see is someone who says it's worth spending 20 bucks to get in front of Jason and say dude, you should buy my oauth instead of that one. There's net information added here which won't be true when they have 40 of them, but that's 10 years from now.
- [44:09]
A
Plus I think we're underestimating how much better LLMs are for discovery of what to buy. I mean I find Google unusable for discovery, unusable today. It is all random. I can't. It's great to see vendors. I can't figure out which product to use or buy. Google's useless. Amazon is frankly more valuable but it only works for the goods Amazon is selling. It's still exhausting, right? And LLMs are gonna are a gift if you're used properly for discovery. I think we tried to do looks like Instagram's full of ads, TikTok's full of ads. But it's pretty mediocre for discovery. It's just well targeted. This is brilliant I think and bring it on, bring it on.
- [44:49]
D
Do you think it will be an unbelievable, massively significant needle mover in terms of revenue Very quickly, I think, listen.
- [44:57]
A
First of all there's a lot of products we've Talked about like OpenAI's web browser we've never discussed again we may never discuss even cloud cowork again. I don't know things they try stuff. Okay. I think we are way under discussing the power of discovery and LLMs. I think this is the way we will buy everything in the future as as we are embedded in lm. So I don't know why I would use anything else other than the best of chat, GPT or cloud or Gemini to find a product to buy. Why would I use anything else but my so powerful and so the ads.
- [45:24]
D
Will be great and you think in a quarter this will be a billion dollar plus revenue business.
- [45:29]
A
I'm not. I haven't run the math. You have to give me a moment to run the math. But it's why, why can't a billion dollars go to it if there' it only has to be like 1% of ad spend going to TikTok and Instagram to move over there. Like marketers will just have to try it. Like the first billion may not be impressive because you got to try it. You got to try it.
- [45:49]
B
Agreed. And a couple of comments on that. There's just a ton in this. So first of all, yeah, it's hard not to imagine it's a billion dollars very quickly. And Jason's right. Remember it's only 5% of that. They're doing around 20 billion in revenue. It's only. Did I really it's only 5%. It won't be a needle mover. I mean what are the differences between this? When Google and Facebook added ads, each of them at the appropriate time for them 2002 ish and 2005 ish. They had significant but manageable cost structures, no other revenue source. And very quickly they became profitable. Profitable than capex. Even a billion dollars is a drop in the bucket compared to the spend here. So it better do a billion dollars pretty damn quick because if you don't do a billion dollars pretty damn quick, it's not going to do $20 billion reasonably quickly. My gut is it is because they're just going to find a way to make it work. And I think Jason's right. It is prime real estate and it's worth pointing out on that. Jason's comment is that we've all been in this. Everyone kind of went through that. Google is doomed a year ago and then Google executed company on a bunch of things and now we've all gone to oh Google's amazing. And Cotu was so stupid for leaving Google out of their amazing AI companies. And I think they are amazing in terms of their AI. But Jason's comment is really significant. He doesn't go to Google anymore for search and that's the mother load. So the for discovery.
- [47:06]
A
For what to buy.
- [47:07]
B
For discovery, you exactly search real estate. Right. So even though Google's doing amazing, it is worth pointing out that their cash cow, which kicks off 240 billion a year of revenue, which is the ads business, isn't the best product on the market anymore. And some of those dollars will go to OpenAI because it's better real estate. It's not all one dimensionally good for Google today, just like it wasn't all one dimensionally bad for Google 12 months ago. Right. They've done an amazing job of getting relevant in all the spaces and winning some of the product wars, but they still face the core problem, which is search is not the best place for discovery anymore. Like Jason said.
- [47:43]
A
Just for fun, I asked Gemini so that we're not biased in here for OpenAI to do 25 billion in search revenue, which is really Rory's point. Like to open the floodgates at a $50 CPM, which I think is possible because it's about discovery. They just need 0.22 ads per prompt. They don't need 11 million blue links where you can't find it. 0.22 ads paid per prompt to do 25 billion at their scale. Does that sound implausible?
- [48:08]
B
Every 1 in 5 ChatGPT interactions has to be a discovery ad monetized. No, it does not sound impossible at A$50cpm.
- [48:15]
A
So it has to work. This can't be garbage ads. I think it's very plausible and going to. We may be upside surprised. This may turn into Facebook or Google back in the day. Within a year our jaws might drop.
- [48:27]
D
This clip will be used I think in three years time when they are at $100 billion in revenue and you'll look back and go, wow, we underestimated this.
- [48:35]
B
No, I push back and say I don't underestimate it. I actually think that this is the money intent with the exception. Facebook isn't about intent because it's about consumer knowledge. But Google was about intent. Amazon ads, which has exploded from. We don't talk about it because it's buried in the bigger business, but all their gross margin now comes from ads. The retail business is just an excuse to sell ads. That makes all the margin on the retail side to be clear, not the cloud side. And that's exploded. I can't remember the numbers and I should have it tens of billions of dollars. It's sub 100 but tens of billions of dollars because they have intent. And you're right, Jason. At least one time. I mean I'm just looking at my search, not my chart history. At least one time in five I bought a tv. I hate buying a tv. I just did chatgpt. Five or six queries. What's the best tv? Why is it the best tv? How should I paint it on the wall? How big should it be? Here's my room size. I got a name. I remember the name. I went into Best Buy and I said do you have this thing? And they said yes. And I bought it. If they'd given me a click I'd have probably said can you deliver it? And I'd have paid the extra money. It's prime real estate because it is the best way to interact for complex purchases. It's not because it's inventing anything. It's just synthesizing the shitty Internet into the actual answer. Now sometimes the answer is wrong, which is a little bit terrifying. But most it was right on the tv. I think this is a great business for them and I think you're right. They're going to go at it. Jason's excited by the way. Jason, I got to give you a little push here. It is why the deals that you hate. Harry and I kind of like this market. He's got to play in it with Peak. I don't because lost in one of the deals were profound all my sadness. But answer engine optimization is going to be a vitally important business. All those companies are going to matter.
- [50:15]
A
I agree with you that someone is going to build a massive business connecting these ads to the lms. I'm not convinced it's from the snake oil that I have seen in the geo products that I've used today. I believe there's snake oil. They're telling you, they're telling you to do very basic things that, that, that maybe work where I tell you what we should do. Let's all this is and this is risky. Let's all put a bunch of money into Applovin and the trade desk right now. That's what we should do. I don't know whether they will listen. I'm not a total ad tech. I don't know if they will be fully open to open AI but if they are, if they are open for ads, if you can run your ads across these platforms, especially the trade desk, maybe you make a lot of money.
- [50:53]
B
I got it.
- [50:54]
A
You talk about this Trade Desk beaten down.
- [50:56]
B
I don't know if I buy that, just to be clear, because I think.
- [50:59]
D
You'Re saying, you're saying they have access to open AI so they're able to do effective routine across open air if they're allowed to.
- [51:06]
A
I need to think about it for the next week, but that's a bet you might be able to like who. If you step back and maybe I'm wrong, maybe Rory's right. Who can. If the, if the OpenAI platform ends up being somewhat open for ads. Okay, and it does 25 billion or 100 billion. Who could we bet on today? That ideally is public because we're all traders where we make money on it because they're beaten down by the start of the show by, by the Sass. The Sass 2026.
- [51:31]
B
The bet just vanished and Adobe did something smart because so zooming out, maybe we do Adobe. Hang on. There's two ways to make money when you're selling software to people doing ads. And it's the same as Google. There is helping them show up in the free part, which is about optimizing how you appear, which is what the AEO guys do. And then there's helping buy the paid part, which is what App Loving and Trade Desk do. And I'm going to say something. I don't think you'll need app loving to help buy ads on ChatGPT. Just as you don't need app loving for Google or Facebook, you need app loving and all that for everything else. Mainly I think maybe not Apple, but Trade desk in particular. ChatGPT. OpenAI will make it very easy to buy ads on OpenAI because everyone knows exactly how that's done. You have this auction process and you auction against Jason's intent. And if Jason is online talking about OAuth, you run an auction process, a real time auction process. And whoever wants OAuth the most is going to advertise against you. So I think for the paid ads, all the value that's going to be captured is going to be captured by OpenAI and there's not going to be be a optimization engine and then you have the free content. In other words, how do you make sure that the LLMs say nice things about you? And I think that is an interesting business. And as I say, I think in the us, the profounds, the airops, the evertunes, all those guys are super interesting. Harry's got Peak in Europe. But to your point on the trade, we missed the great trade because Adobe took it up. Semrush which is the king of search engine optimization for Google, got acquired recently by Adobe. And I think that acquisition only makes sense if their plan is as quickly as is humanly possible to introduce an answer engine optimization product. Because they bought that thing for four times.
- [53:14]
A
That's why they bought it. That's why they bought it and that's why it's not clear. That's why they bought it.
- [53:18]
B
And I will admit when I was looking at this, why is that a.
- [53:21]
D
Better decision than genuinely buying a peak with a much smaller, more concentrated team that's much more focused and better for a new AI world that you could buy it?
- [53:31]
A
Why would Adobe buy Semrush over peak? I can tell you why.
- [53:34]
D
Yeah, why?
- [53:36]
A
Well, I've worked. It's a long time ago, but I worked there because listen, when you have a conservative company like Adobe getting, getting 15 or 20 million, whatever SEMrush they had, they said of Geo revenue at a 4x revenue overall is the kind of accretive deal that makes people comfortable. They could buy a peak for 50 million or 40 million or 80 million. But I don't know if that returns your fund, Terry. They're not going to spend that kind. Like Adobe's done very few deals where they're spending billions of dollars on something with a token amount of revenue for technology in the future. It's just not the DNA. Right. Other folks might do it. It's just not going to be Adobe.
- [54:11]
D
Saying, Sam Russia not best position to win.
- [54:13]
B
They're not. Best position is an interesting word. I agree with Jason. This is an odd in that you have two guests on your show, both of whom have sold something to Adobe. Jason, as a CEO because I was on the board of Omniture back in the day, which was the first cloud company that Adobe ever bought, they were all about on desktop graphic tools and they didn't even have a marketing cloud. And they effectively bought Omniture as that. And I think when people were like why are they doing it? I thought it was very zoom out level. When you want to make a big move as a big company, if you buy something small, you'll just smother it, you'll stomp on it. You want to buy something with enough critical mass and heft that it can go do its thing and not get swallowed by the machine. If I was Adobe buying Semrush, provided Semrush had some story around what they're doing in AEO is more likely to be successful than buying Harry's little startup company and hoping that somehow it gets rolled out in the system. Because Jason knows so much better than me. If you don't have the customers already and the distribution, it'll just get lost in the big company.
- [55:15]
A
Yeah, it's great. They just walk it around to their CMOs, Adobe does and say, we have this. We bought Semrush. It's now been rebranded. Adobe Marketing, Geo SCM Cloud. We know this is one of your top issues. They drop by. We have a solution. It's $20,000 a month and it just works. And it delivers a report every day that is then forwarded to their team. That is insanely valuable for 99% of the world versus buying some crazy Lemkin guy startup that could blow up on you. Like there's just, it's just not, it's so much risk for a non founder led company. Toby could buy a company like that. You need somebody like Toby or maybe even, I mean a Sacha or something like that. That can take some crazy bets. But most, most companies don't want to take that bet.
- [55:54]
D
Jason, I'm waiting for the day when Rory goes. You know, I remember being on the board of the East India company.
- [56:00]
A
Well, there's a lot of learnings. We need to study it more.
- [56:03]
B
It isn't even that long ago.
- [56:04]
C
It's not the pen space, but it's pretty good.
- [56:07]
D
This East India company, okay, this East.
- [56:09]
B
India company, they had a great fifty hundred year round dude, they did, they.
- [56:13]
D
They did, they, they really built a monopoly.
- [56:15]
C
All right, there's a couple of big.
- [56:17]
D
Rounds that went down that I do want to hear your thoughts on. There's Clickhouse at 15 billion, there's Ratlit raising at 9 billion and there's Cerebras raising at 22 billion. Which one do we want to focus on?
- [56:29]
A
I wish I was a total Clickhouse expert. But I tell you what is kind of interesting about it. It's an extreme example of how do folks take advantage of AI tailwind. Clickhouse is basically an in house open source product built at Yandex, which is now Nibius built in Russia. Just like everyone has an open source product, right, that has gotten scale LinkedIn and others. And it's a very clever way to mine massive amounts of data and make conclusions from it. And they built their own for their own. I mean Yandex was, you know, whatever the Yahoo or Google of Russia, they built their own and it sort of works. And then timing's perfect. They spin this thing out in 2021, right? They take an open source product they turn it into essentially a proprietary cloud product and then boom, AI blows up and folks are already using it. Tesla already figures out this works because they're early in AI. Everyone's already figured out this is best of breed. But they nail the conversion from free open source to closed sourced hosting and then fast forward to anthropic and everybody needs it. But this is not a product that was born at the start of this year. I'm not a total expert, but man, just go find your Clickhouse. I mean it's easier said than done. But this is not a brand new product. You know, Replit's 10 years old too. These are old products that found their AI tailwinds and blew up. I think it was only doing 50 million a year ago, right? Clickhouse or something like that. Or less.
- [57:48]
C
Jason, when you're doing Clickhouse at 15.
- [57:51]
D
It does feel pretty expensive when you compare it to a snowflake or even a databricks. What are you underwriting it to?
- [57:57]
A
I don't know, but I guess databricks is your comp, right? Which is, I guess is a large assumption that it's even better because everyone, everyone in AI is going to use Clickhouse. You're assuming one way or another you're going to get like 100%, almost 100% market share and some will be directly competitive with the databricks or even Elastic or the. I think the CEO was. And others. Others will be quite complimentary. It's not. But you're just assuming, I think that that is. I don't know. I didn't see the deal at 15 billion. Maybe, maybe Rory did. I think you're just assuming everyone uses it, which maybe is a rational bet. Once in a while these products come into market where just every single person uses the product and open source, it's actually common. It's just hard as heck to monetize it the way Clickhouse does. That's the clever is that. And I'm not even an open source expert, but it's brutal. If everyone just goes around and hosts it yourself and builds their own version and forked it. Right? They nailed this. They nailed it.
- [58:47]
B
Agreed. Whenever you pay up for these high growth companies, I can use three different words to say the same thing. You're effectively saying in math terms, you're saying the most recent growth rate is going to continue for a long time. Duh. Right. Because you're paying an absurd revenue multiple. But it's not an absurd revenue multiple if the growth rate continues for two or three years. So you're basically underwriting growth persistence. So next level down from that, what does that mean? What you're basically saying is this is a category, they're the winner and it's a big enough category to keep going for two or three more years at least at this growth rate and then decelerate slowly.
- [59:18]
A
Yeah, 2 to 3 years at 3 to 4x growth at 350 it pencils out right.
- [59:22]
B
And again we have examples of this absolutely happening. If you look at the anthropics of this world, then we have examples in SAS of people where you want to write a growth rate and then suddenly that growth rate deteriorates and you're high and dry. It's just that simple. There's no way to magic this. What I always say, to actually say to our investors, and I probably said this on the show before, is that first of all you have technical and founder risk, then you have business go to market execution risk, which is typically where we invest. And then at the end you have valuation risk and valuation risk expands to fill the gap. Once the other risks are taken out of the deal, you're left with valuation risk, which is all about growth persistence and market size. And the good thing for Clickhouse is it is a category because step one, what you don't want to do is find you the third best random database. But if you look at one level deeper, what they do olap, which is. And this category has existed in prior generations too, right back to the East India Company Harry in every database. Like way back in the 2000s when Oracle is the relational database king, then there's kind of some of these obscure AI type databases even back then that would be equivalent say a databricks today, which is obviously a bigger category. But then you have these analytical processing databases like Teradata and think about that. It's not about writing transactions to a database, it's all about you have a million and now maybe a billion or 10 billion data elements there and you want to quickly scan down a column and add them all up. How many clicks, how many people traversed your website, Large amounts of typically read only data. And if you use a standard Snowflake database, it's fairly inefficient because that's written to be able to write transactions where you write in a transaction like here's my typically a debit or a credit. So Snowflake's optimized for that. And Collimore databases like Clickhouse are optimized for analytics processing. It's a different category of database and you Know data warehouses back in the 90s and 2000s, the same thing. You have your production database where you run your system, your banking system, your erp, your pick, you know, whatever it is. And then you have this analytical place where you put off all the transactions. Because some analyst is going to wake up and say, I have a really obscure question. How many people bought this product in this district two days after they did this online on the website? I need to know how many people did that because I want to do attribution, some weird corner case like that. And in AI, the number of those queries has gone to infinity. Because if you have that information in AI, you can use it to predict things. Jason's exactly right. You have this optimized special tool for very clear use case that's kind of different enough from Snowflake and from Databricks that you have the separate category. It's become important because AI eats that shit up. So you have this explosive growth. So then the only question is, can the OLAP market support a 30, $40 billion outcome? You squint and you look at Snowflake at AD for transactional database. You look at Databricks110, maybe it can. I mean, typically, if you look back in the prior generation, the data warehouse category was smaller, significantly smaller than the relational database, than the transaction processing part of the marketplace. Because, concrete example, you're running your airline reservation system, that's a transaction processing system that can't go down for a single minute because you lose billions of dollars. The analysis at the back of that, American Airlines wants to run an analysis of how many premium customers flew last week on thing that could be a little less performant and therefore not as big a market. So these markets have existed before. It's typically not a multiple of the Snowflake type marketplace, but a. What's the word for below 1? A fraction of it, but a pretty appreciable fraction. So if Databricks and Snowflake are worth 100 to 200, maybe you get a $30 to $40 billion outcome here and that's the bet. Sorry, long winded answer. But it's a category. They're the leader. Demand has gone up because of AI. You squint one way and you say two or three more years of growth, you feel like a hero. If it turns out to be a smaller market than you think, then you're high and dry. Welcome to late stage investing.
- [63:13]
D
Would you rather be in Databricks at 130 or Clickhouse at 15?
- [63:17]
B
Basically, what you're saying is, is the OLAP category more or less than 10% of the core? Well, databricks isn't really relational. It's much more about AI enabled data manipulation. When you look at it like that, you say it's not crazy that the subcategory is more than 10%. It might be 20 or 30. So yeah, if they were both public, you could have a fun kind of macro trade of short one go long the other. But that's not the way the world is Now.
- [63:43]
D
Now, final one, let's do a quick fire and just cram a couple in one.
- [63:47]
B
Oh, God.
- [63:48]
D
Oh, it'll be fine, Rory. Don't worry. So Sequoia are going big into anthropic. They're also in OpenAI. Are we seeing the end of competitive investing? No one gives a fuck about competitive investing anymore in 2026.
- [64:02]
A
Well, didn't we talk about this last week when I said Andreessen should target 50% market share, not 10? To Rory's insight, I said they can get past the competitive issues. McCoy has passed it. Different partners, different funds.
- [64:13]
B
I don't buy any of that. But I think the truth is when you're piling in at 350 billion pre, you're not on the board. You don't have meaningful information rights. It doesn't matter. Again, going back to the first principles, this is really Fidelity Mid Cap Growth. Well, actually it's large cap growth now, but just in the private markets, which again, I repeat, is absurd that we're in this place. But whatever, given that Fidelity Growth is always going to buy. If they believe in a category, they can totally buy two or three different things with no conflict because they're not not in the room when decisions are happening. And I think these late stage investments, if you're not in the room, it doesn't matter because you don't have meaningful information rights. You're not getting the board deck. You're not there for the strategic stuff. You couldn't do the series A of OpenAI and do the Series A of Anthropic. That would be stupid. I would assume one of the CEOs would stop you. But getting at 350 billion pre, where your billion dollars, it's just worth saying this. Where your billion dollars gets you 0.3% of the company, which is about what you'd hire a director for at Series B. No information rights, no nothing. It doesn't matter. You know nothing. You get one email a quarter from each of the two companies, you know where they are. And as I say you are just public market investor in private assets.
- [65:21]
D
Jason, I'm intrigued for your thoughts on this one.
- [65:23]
C
Rat plat.
- [65:24]
D
Nine billion bucks.
- [65:26]
B
Lovable.
- [65:26]
D
Six and a half. As a last vantage point, I think they're neck and neck in terms of revenue, really.
- [65:31]
A
I mean, so let's imagine they're at 300 million this year and when they did the round before, they're at 100 or 100 something something. You can justify the step up based on that. You could also challenge it using Rory's math. What I think people might not get. This product's like 50 times better than at the 2 billion dollar, 2 and a half billion dollar round. It's not a little bit better. Like when I, when, when we started doing the show, I was trying to use the V1 of Replit. I could not finish an application. It almost blew up on social media, you might remember, right?
- [65:56]
B
We do, Jason.
- [65:56]
A
It was unfinishable and it just wasn't there. And one of the founders of a competitor called me up and said none of us are there in the industry. None of us are there. Over the holidays, for fun, I built an incredibly complicated game. I've never built a game in my life. I built a startup simulator that simulates everything from going through YC to IPOing to controlling all the global power and GPUs and tokens in the world. People love this game. And what's interesting isn't that I built it, it's that it works. Nothing worked at 2 billion, 2 and a half billion or whatever the round was, nothing worked. And the joke was all over the Internet. Everyone's got a project they 80% finished and lovable replit, everybody did. They couldn't finish it. And it was a joke because they thought they 80% finished it, but there was no chance to go from 800. Literally. I built this thing over the holidays and I probably put 100 hours into it because it was over the holidays. Right. This was not a one shot deal, but it's magic. And so if the revenue growth justifies it and the product is literally more than an order of magnitude better, I would argue. I know this is the, the math that we're going to look back of and make fun of ourselves. But I would argue this is a much less risky investment today, whatever it is, within reason than it was at two and a half billion where I didn't even think this was a stable product. Like I thought it was cool. But it didn't work. And by the end of this year, man, it's going to be even better. Right. So we're just getting so much benefits of these improvements. Like we're at everyone that's like, oh, you know, if you watch the Ben Affleck, Matt Damon one on Joe Rogan, pretty fun. And Ben's like, well, nothing's really improving anymore in LLMs and maybe it isn't in Hollywood, although I doubt it. We've just started with agents and it's just so much better. So I think repl. It's 100 times. I know the math, venture math doesn't work this way, but if it's 100 or 1,000 times better product, it's probably worth two to three times more. If the revenue is growing at outlier.
- [67:37]
D
Rates, well, I mean they'll be at 250 million ARR now and then if you assume, given their growth rates, they'll realistically be at 700 to 900 by the end of the year.
- [67:48]
A
Sounds like a better deal than a lot of other portfolio companies. If it hits the number. If it hits the number, it sounds like a pretty good deal, right?
- [67:56]
B
Yes. Implicit is a huge amount of belief in growth persistence. But yes, agreed. I too replit it over the holidays, inspired by your example, honestly, and it was fun. And what I did find though is I used to use it when I was doing my Python lessons. They're very much driven now to a much higher level. It's all agent based. It's basically, you don't even need to see the code, Mr. Designer. It's all about. You're interacting with the chat. I'm actually trying to get down to the developer level and understand the code base. And it's like, it's almost hard to find and it almost resists. The interesting thing about it is you have to embrace a world of you don't need to know the code, Mr. Rory. And once you do that, just describe what you want. It's a whole new skill. Is my. It's almost like. It's not almost different than cosmic. It's not programming at the programming level, it's describing at the describing level. And once you embrace that, you get stuff done. But it's. It's really hard to go back to first principles and say, how does it work?
- [68:46]
A
Yeah, you can view, but you're right, you can view the code and some folks use it that way, but it's basically abstracted away. It's hidden. Right, great.
- [68:52]
B
And you can find it, but it resists.
- [68:54]
A
The more you do it, the better you'll get at understanding how the agent thinks and works. Right?
- [69:01]
B
And this may be like a dude when spreadsheets were invented saying I like to add the numbers myself to know they're right and maybe I just need to let go and say the spreadsheet's right and I and just stop worrying, don't be an idiot. But yes, it was super interesting and extraordinarily powerful once you use it. The final just comment because you had it in there. Sequoia doing anthropic and Sequoia doing 11 labs. I just was reflecting on this. Obviously, given the changes they had, clearly the mission of the new management in charge is we're going to execute in AI.
- [69:28]
A
New management of Sequoia, you mean?
- [69:29]
B
Yeah, I mean they had a transition. I think part of the reason was.
- [69:32]
A
Oh yeah, add Excel too. Just all in, just do all the winners.
- [69:35]
B
My point is this. If I was a late stage company looking to raise capital right now with a very compelling AI story, it's clear there's an open to buy there too. We've talked about it before, but I.
- [69:45]
D
Think the thing that people haven't discussed enough is the promiscuity of traditional early stage firms across rounds.
- [69:50]
B
But I think yeah, in general you have these multi stage firms that you make a multistage bet and the whole point of the late stage is to clean up on your early stage misses. And they're doing that. I mean I give them credit ever's executing the mission that they said they'd do everything, staying private longer, get into good deals. It's best to get them in at the A. But if you have access to infinite capital, getting in at the F is okay too. In the case of databricks, DL stuff the money in the good companies, I mean it obviously as a trend, it will only stop when it reaches success because that's the nature of economic behavior. But people are going to do this until it doesn't work.
- [70:23]
A
I mean Harry, you had Alex Rample from Andreessen the other day on the pod, right? And he made the point, listen, this is how you win at Andreessen. You do want to. I mean it's, it's, it's captain obvious, but it's still helpful. You either own a lot early or you invest whatever you can get into. If it's, if it's a guaranteed winner, it's like it's that simple is the playbook. And so if today, if in today's world you have LPs, especially if they're in SPVs or annex funds or something, if they'll give you billions and billions for access to these things. You could argue whether you want to do that or whether you, you don't like it, but it's, it's almost free money.
- [70:56]
D
And Rory, this is where you're gonna hate me for this and just going off on a tangent, but fuck it, at the end of the conversation you do. This is where like the game has moved to like pre seed and pre ipo, where it's like, you know what the dummies game I think right now is playing the super competitive series AB's Inventure where we're paying up super early for little signs of product market fit in intensely competitive markets 100x ARR. I'd way rather have 15, 20% of a pitch deck and two people or be piling into air Wallace as I.
- [71:26]
C
Did at 5 billion and have a.
- [71:28]
D
Little bit of something that's really fucking working.
- [71:31]
B
But I disagree. I hear what you're saying.
- [71:33]
D
I mean, risk adjusted. Why do you think that AB, where you're getting 10, 12%, because you're not even getting 15 now in these competitive rounds.
- [71:42]
B
Firstly, anecdotally, you might be right. But in the end, over the long term, markets have to tend to rational equilibrium, which means as you take less risk, you get less return. There can't be bad stages. I've heard this for 30 oh, X stage is really bad. Y stage is really good. It doesn't make sense, right? In the medium term, you have to assume that as you go down the risk curve, which is what stage is going down the risk, you slightly go down the return curve. There are interim anomalies at various points in time. You're exactly right. It's like, oh, you're anecdotally, oh my God, Series B's are really hard now, blah, blah, blah. But you're building a firm over an extended period of time. You got to be cognizant of where the market is at any point in time. But saying it's very hard to say. I'm doing series A's and B's. I'm getting 10 to 20% ownership. Oh, I'm going to wake up this morning and that whole sector is quote bad. What does that mean? It's just a weird comment.
- [72:33]
D
It means risk adjusted, my dollars are better suited elsewhere.
- [72:36]
B
And if you believe that disequilibrium is going to persist longer than you know.
- [72:39]
D
I'm not saying that, but I'm saying play the game on the field. And right now the field is showing you to Alex Rampal. And Jason's point own a lot of.
- [72:47]
B
Stuff if you say play the game on the field. But what happens if you thought you were playing soccer and suddenly you start playing golf? I mean it just gets a little weird at some point in time. It is a little weird to say I'm now going to do ultra late. I mean so yes, there's got to be some tacking and adjusting. But for example, if a late stage firm said, let's just say if someone was doing, take the other extreme, someone's just doing ultra late, they're putting money in 10 companies at north to 50 billion pre because there are 10 companies north of 50 billion pre and that's their thing. They're basically saying it's pre IPO last round and that's what we underwrite. And then they came to you as an LP and said right now those pre IPO deals are priced wrongly. I'm going to do seed. You'd say to yourself, it's too far from what you're doing. You can't get there from here. They might come to you and say, hey, these late stage privates are not priced right. I'm actually going to do cheap publics. It kind of makes sense. It's adjacent so you can duck around the box but you can't do violent switches, not with most of your money. Do you really think that?
- [73:46]
C
I'm sorry.
- [73:47]
D
I think Thrive have proven that to be wildly wrong.
- [73:49]
B
Well, I disagree on the two. I think Thrive have proven it to be wildly wrong. I think Thrive have executed that really well about I think excellently. They probably 60, 70% of their dollars at high late stage but at the same time excellent early stage. Yes, they've pulled that off. You're exactly right. Give them credit for that. I think some people for example in the AI have done really well by stuffing a bunch of money into a all the way up and that's been a brilliant decision. Look, I do think where you are is the new space that didn't exist before was this late and ultra late. And people have found a way to profitably fill that. And if you found a way to profitably fill that by hiring the right growth folks, that's been a good opportunity too because the zoom out comment is this. The public markets seeded another three to five years of growth to the private markets which meant market expansion for venture and market contraction for small cap publics. Not the best decision in the world. But that's why everyone's allocation to private's gone up and that's why LPs to Jason's point are giving money to these big mega firms to say, I can't get me that anthropic in the public markets. Go get me some. As I say, I'm not sure why the world has decided to give even more money on a 2 and 20 basis when it could be giving on a 50bps basis. But that's the world we live in.
- [74:55]
D
Because Mark and Bannon need it. Okay, why would you?
- [74:57]
B
Everyone has needs. Just simple, humble billionaires.
- [75:00]
D
All right, team. I love that Rock and roll.
- [75:03]
A
Rock and roll.
- [75:04]
B
Okay.
- [75:06]
C
But before we leave you today, I run the 20 VC fund and I get this question from founders all the time. Oh Harry, I can't find a good dot com. Do you have a good hookup? Well, let me tell you now, the answer is always going to be no. I don't have a guy or a gal for that. I do have a recommendation though. If you're building a tech startup, get a tech domain. Tech startup, tech domain. It could not be more. As an investor, I appreciate founders who put thought into their branding. When I see tech in your name, it tells me right away that tech.
- [75:39]
B
Is at the core of your build.
- [75:41]
C
It'll say that to your customers too. A clean and sharp domain like tech pays off in the long run. You know nothing. Tech1X Tech, Aurora Tech. All of these great tech companies, they all use tech as their domain. These are my two cents.
- [75:56]
D
If you're building a tech startup up, don't overthink it.
- [75:59]
C
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