Token Budgeting Panic Hits Corporate America | Cognition Raises $1BN at $26BN Valuation

SPEAKER_03

I think there's a tangible feeling of grab it now. Yeah. I'm not interested if it can't be a billion dollar position anymore. Losing money is like sex. You can talk about it all you like, but until you feel it, you don't know what it's like.

SPEAKER_02

Starting off, we have Anthropic raising $65 billion and then filing to go public in the same week. We have Cognition raising a billion dollars at a $26 billion valuation. We have public markets coming back to life. Is the SaaSpocalypse over? Best earnings week in two years. And then finally, Uber and Microsoft now pessimistic on the productivity gains from AI. Is there a question mark coming? And what does that do to token maxing and token spending? [SPEAKER_03] We are done with the, "ooh, I don't want to do the public markets. Thank private is cool."

SPEAKER_03

All these businesses have gone from CapEx-like cash flow machines to CapEx-heavy cash consumptive machines. [SPEAKER_01] I would quit as a developer if you told me I could not use the model of my choice. [SPEAKER_01] I would quit. [SPEAKER_01] I really do think by the end of the year, we're going to choose tokens over humans.

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Ready to go? [SPEAKER_02] Boys, it is so good to be back. [SPEAKER_02] And this is my favorite time of the week. [SPEAKER_02] I want to start with, we were just talking beforehand about how in the 58th week of this week in Anthropic, we say anything different and provide different commentary.

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The question that I'm going to start on, Jason, is one that you just highlighted brilliantly, I think, which is Anthropic files to go public. Is Anthropic filing to go public and going public good for the ecosystem or not? [SPEAKER_01] Listen, we don't need to talk about how the ARR increased 28% since the last show. [SPEAKER_01] It's pretty good. [SPEAKER_01] It's the fastest growing enterprise software startup of all time, of all universe throughout past Alpha Centauri. [SPEAKER_01] But now it's also going to be probably the fastest, certainly the fastest to IPO to anything near its scale, right?

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[SPEAKER_01] This door of SpaceX is going to IPO in five years, five years to a trillion.

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Cursor acquired for 60 billion in four years, assuming the deal closes. Why would you bother with most of the companies in our portfolio? Why would you bother to even meet the founders? Why would you do anything as a VC? Other than spend the next 24 months hunting these. And as an employee, here's the really tough question. Why would you work for any of these companies? We have the CEO of Ironclad is now the head of legal at Anthropic, right? Or OpenAI. Sorry, I got it backwards. Jason Boeing, he leaves, maybe he's still chairman of Ironclad.

SPEAKER_01

But why would you do anything when you can build a trillion, when there is, there is not impossible to build a trillion dollar startup in five years. Why would you rationally do anything else? Why would you even try to have a $400 million exit, $2 billion exit? Isn't that just a waste of our time? I know Rory will pick at this. Don't get me wrong. But I think it will seep into our society. I think we will all start to feel this way when the bar, not just for valuations, but for time is reset. I'm going to quit and spend a year at whatever.

SPEAKER_01

It's always made sense to join the hottest startups, but I think this is going to make it an order of magnitude, at least emotionally feel like people should just quit tomorrow and work for the hottest startups because it's orders of two to three orders of magnitude larger outcomes. [SPEAKER_03] Yeah. [SPEAKER_03] You are. [SPEAKER_03] I am going to pick on it because in one sense, what you're saying is true. [SPEAKER_03] Look, we're in the business of investing in the best startups. [SPEAKER_03] The best startup is now what a trillion dollars and you didn't invest in it, right? [SPEAKER_03] What do you do with that information?

SPEAKER_01

[SPEAKER_03] It is the best startup in the last decade. [SPEAKER_03] You can fool yourself into thinking there's going to be another one just like it next year. [SPEAKER_03] That's one option, right? [SPEAKER_03] I think it's stupid because it is by definition a one in ten. [SPEAKER_03] Don't make your business plan on finding another trillion dollar five-year outcome in the next five years. [SPEAKER_03] I think that's just foolish for reasons we can talk about if anyone wants to argue it, right? [SPEAKER_03] The second thing you can do is say, I'm psychologically so damaged by missing this that I need to go home and I can't play, which is credible.

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[SPEAKER_03] There's going to be a lot of people who do that. [SPEAKER_03] Or the third is you can grow up and be a fucking adult and say, I wish I'd done that deal.

SPEAKER_03

I'd give my left arm to have done that deal, but I didn't. Now I got to go on and do perfectly good deals that would have great outcomes because that's what normal balanced people without psychosis that aren't damaged do, right? In almost every human endeavor like this, there's one person who gets the big prize and as humans, you have to adapt and say, even if you didn't get the big prize, it sucks and I mourn it, but you didn't give up and live your life. Only one person gets to be president. Not everyone gets out of politics. Only one person gets to be the richest person in the world. Not everyone else can still play in business.

SPEAKER_03

And in fact, I would argue one of the reasons business is more psychologically healthy than, for example, politics. I remember a dear friend of mine many years ago explaining, he was interested in board careers. Problem is this. In politics, the 700th most successful politician in Britain isn't even a backbench MP. The 700th most successful politician in the US isn't even a congressman or woman, right? The 700th most successful business person is probably worth plus or minus a billion dollars. It's an okay consolation prize. So the point is, but genuine, because I do actually, what you're saying resonates.

SPEAKER_03

Look, I'll admit, there are nights when I lie awake and say, what was I doing in early February, March of 2023 when the Series C at Anthropic went down? I bidded to some of the early stuff. I'd seen the thing. In business, in politics, the 700th most successful politician in Britain isn't even a backbench MP. The 700th most successful politician in the US isn't even a congressman or woman, right? The 700th most successful business person is probably worth plus or minus a billion dollars. It's an okay consolation prize. So the point is, but genuine, because I do actually, what you're saying resonates.

SPEAKER_03

Look, I'll admit, there are nights when I lie awake and say, what was I doing in early February, March of 2023 when the Series C at Anthropic went down? I bidded to some of the early stuff. I'd seen the thing. I can tell you what I'm doing every day on the calendar because sadly I've looked, right? And I'll tell you what I wasn't doing: meeting with Anthropic. So you can mourn that information, but you can only mourn for so long and then you get on with the rest of your life, right? So I do think, I hear you. [SPEAKER_01] And I also think, say something else, it will be fucking great when it goes public because then we can just move on.

SPEAKER_03

It goes from being the singularity to a magnificent outcome forever. Money flows back to the system. It sucks if you want to buy a house in San Francisco, but it's great. The mystery goes out of it. It's the 10th or 12th or maybe 7th or 8th, depending on how it prices, largest public market cap company. And we can all just get on with our lives. [SPEAKER_01] So, yeah, I'm good with that. [SPEAKER_01] I think you're right. [SPEAKER_01] You can't necessarily kill yourself for not being in the Series B of Anthropic. I should point out the B was the Sam Bankman-Fried round. Actually, you get to kill—that's a poison chalice on every dimension.

SPEAKER_03

The Series C where Spark brilliantly led the round and Menlo did it. That's the round where you as a VC kind of go.

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[SPEAKER_03] That was the round you missed.

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[SPEAKER_01] My version of it, thinking as a seed investor is, and I don't mean this facetiously. [SPEAKER_01] I'm not exaggerating. [SPEAKER_01] And this is different than the employee issues and the ecosystem issues. [SPEAKER_01] I'm not interested if it can't be a billion dollar position anymore. [SPEAKER_01] That's how it changed my mind. [SPEAKER_01] I'm just not interested.

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I literally had this review with my fund management company today. They're asking me why I was doing things. I'm like, listen, I will make small investments with friends for sure. I will do things to be parts of journeys, but I'm going to pass on anything where I can't have at this point in my career.

SPEAKER_03

[SPEAKER_01] I'm not saying I would have done this in my first check to Pipedrive, which had a billion dollar exit. [SPEAKER_01] I just don't want—it's not worth the 20 years that hopefully it'll be five years, but I need a billion dollar position to get excited today. [SPEAKER_01] I need a billion dollar position. [SPEAKER_01] So if it's going to be worth a trillion, I can do a pretty low ownership, right? [SPEAKER_01] But you've got to be worth north of 10 billion for it to even make sense to me, given dilution. [SPEAKER_02] Before you chime in, I actually totally agree with you, Jason.

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[SPEAKER_02] I've also interviewed a thousand of the best GPs over the last decade. [SPEAKER_02] They've all said that their biggest winners, they underestimated the market size and the outcome and the opportunity. [SPEAKER_02] And so you're assuming that you're able to know Twilio is a $25 billion company, which you probably wouldn't have said it was at the time. [SPEAKER_02] That is a billion dollar position to you as a seed or Series A investor. [SPEAKER_02] How do you think about accurately identifying given we continuously accept we can't anticipate outcome size? Listen, I think it's a good question. I've made many, many, many mistakes.

SPEAKER_01

But I do think the inverse is if you see tangible reasons it can't create a billion dollar position. For example, the founders are very, very good, but not great. For example, the CTO is pretty good, but not jaw-dropping CTO. He's not going to launch 17 simultaneous products. If you see that fine, the TAM is small, but there just isn't a sense of how to grow it. There isn't that drive. If there are complaints, I just haven't seen a lot of great outcomes from complainers, from B-minus CTOs, from small TAMs. It's okay to start with the smallest TAM, but I want to see that at least you're thinking, even if it's insane, about the large TAM.

SPEAKER_01

So to me, it's more just drawing a black marker through things where I might've taken a little bit of risk before. I'm just out because it's not that I can say for sure how big it will be, but these are blockers to a billion dollar position, not a billion dollar outcome, a billion dollar position. I think you can have a billion dollar outcome if things are lucky and you can have the pretty good CTO, the mid-sized TAM, as long as you get some tailwinds and a few things break your way. I still think you can be lucky enough to have a billion dollar outcome, but not a position. [SPEAKER_02] Rory, is that not the same for you?

SPEAKER_02

Your fund is a billion. It's just asking for a fund returner. [SPEAKER_03] My fund is actually 900 million, not a billion, just to be precise. [SPEAKER_03] Obviously you'd love to make a billion dollars, but you also, look, I think that you have to ask yourself how many of those, as a base case, realistically exist. [SPEAKER_03] As is often the case with Jason, I actually agree with him on what I call the just start, the kind of things he's talking about in a founder. [SPEAKER_03] You do want the drive things, but I will say yes, I think ambitious driven founders, upside, no complaining. [SPEAKER_03] So in practical terms, I agree with him. [SPEAKER_03] Rory.

SPEAKER_02

[SPEAKER_03] You want, obviously you'd love to make a billion dollars, but you also, look, I think that I think you have to ask yourself how many of those, as a base case, how many of those realistically exist. [SPEAKER_03] As is often the case with Jason, I actually agree with him on what I call the just start, the kind of things he's talking about in a founder.

SPEAKER_01

[SPEAKER_03] You do want the drive things, but I will, so yes, I think ambitious driven founders, upside, no complaining. [SPEAKER_03] So in practical terms, I agree with him. [SPEAKER_03] I don't think if I looked at the same deals he was looking at with excitement, I'd say, I think that these are going to be a billion dollar fund individual position, implicitly a $10 billion total fund outcome, because I'm just too aware of the base rates. [SPEAKER_03] I mean, when we looked at it, five, six years ago, it was my mental model, which isn't the case anymore in enterprise software.

SPEAKER_01

[SPEAKER_03] It was roughly you probably had 10 to 20 billions plus outcomes a year, best case. [SPEAKER_03] You probably had two to three $10 billion plus outcomes a year, best case. [SPEAKER_03] And then every decade, you had one to three, a hundred to, now I'll have to say a trillion dollar outcomes. [SPEAKER_03] Now you scale that up probably by 10, 20%, but really there's not going to be more in a normal year. [SPEAKER_03] There's not going to be more than four or five, $10 billion plus outcomes a year. [SPEAKER_03] So I just don't know if that's credible or reasonable.

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[SPEAKER_03] I think in that one to $5 billion range, if you own 10%, you're very happy you did it. [SPEAKER_03] You made $500 million. [SPEAKER_03] You're very happy. [SPEAKER_03] It's half of a fund and you're very glad, right? [SPEAKER_03] Especially if you put 20 or 30 million bucks in and it's a strong capital returner. [SPEAKER_03] Right? [SPEAKER_03] I think if you go later and you're, as we've discussed, as you go later, it's much more about concentrated positions.

SPEAKER_01

[SPEAKER_03] But I don't think you can make 20 to 30 investments in a series A fund or a seed fund and credibly really believe that each of them will be a billion dollar outcome to you personally or a $10 billion outcome totally. [SPEAKER_03] You can fit. [SPEAKER_03] I mean, so therefore, hang on, let me finish. [SPEAKER_03] Therefore, I think I tend to mentally have this following model. [SPEAKER_03] I want to underwrite to a realistic base case return, but I do agree, never do a deal with just capped return.

SPEAKER_01

[SPEAKER_03] If you can't articulate, the way we say it is you want to have your base case, but you want to articulate a credible upside story that can have that magic outcome. [SPEAKER_03] And that's how, as I say, I end up in the same place with Jason, even though we don't agree on the math, you do want to have uncapped upside, but I don't think you go in saying I'll only do it if. [SPEAKER_02] I think the big statement you said there is will be rather than can be.

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[SPEAKER_02] I'm so much more willing now to go up the risk curve on doing things that I would never normally have done, because if they do work, they're going to be so mega versus the will be that as I V one SAS companies, whereas I can see it much more realistically, but it's not that needle moving to have it succeed. [SPEAKER_02] Do you know what I mean?

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[SPEAKER_03] Everyone's always grave at the tail end of a 14 year equity boom. [SPEAKER_03] Right. [SPEAKER_03] Again, my biggest disadvantage as an investor, right, was I was investing in 2001 and I watched the NASDAQ go down by 90% and most of our investments go bankrupt and less than 40% of them survive.

SPEAKER_03

So yes, everyone's always, I want more risk because the upside is there when the risk hasn't come home and the upside is still there. So yes, I probably I do think you at least have to be cognizant of the fact, you know, it's the old cliche I've said it before on the show. So I'll apologize for repeating myself. But, you know, losing money is like sex. You can talk about it all you want, but until you feel it, you don't know what it's like. [SPEAKER_01] It's not that I'm not challenging your math. [SPEAKER_01] It's more that I think for founders. [SPEAKER_01] Yeah.

SPEAKER_03

[SPEAKER_01] It's for a lot of founders in me after this IPO, after this Anthropic IPO, it may get even harder to get meetings. [SPEAKER_01] That's my point. [SPEAKER_01] I want their meetings. [SPEAKER_01] Listen, I'm not so great. [SPEAKER_01] I'm not no Mark Andreessen with all the E's and S's, but there's meetings I won't take now that I would have taken in 2024 or 2023. [SPEAKER_01] I just won't take them. [SPEAKER_01] And it's not because they're not great human beings or building real companies. [SPEAKER_01] I'm just not seeing that the bar has gone up so much. [SPEAKER_01] I just won't take the meeting. [SPEAKER_01] And I'm not sure all founders get this.

SPEAKER_03

I do think that is real. You know, and I do get this question from founders, you know, and they're implicitly saying, where should I be in the grandiosity versus boring stakes? If I'm too grandiose, I might lose them. But if I'm too boring, I might also lose them because I'm not aspirational enough. And I do agree. What you are saying is correct is the base rate for aspirational has gone up. In other words, there's a level below which you're perceived as quote unquote boring probably has increased significantly because people have seen what quantifiably amazing looks like. 10x growth for three years. You're right.

SPEAKER_03

There's no doubt it has an anchoring effect and will do for some time. So again, I think you're probably right on, you know, on the how you think about deals. And you just go, that can never. [SPEAKER_01] I'm not sure the Anthropic IPO is all net positive. [SPEAKER_01] I think it will make things harder. [SPEAKER_01] It's not just housing. [SPEAKER_01] That's already happening, right? [SPEAKER_01] I think it will make everything harder when there is a general sense of not being good enough, right? [SPEAKER_01] That is reinforced across the ecosystem. I understand what you're saying. But I think we all have plenty of insecurity already based on the private.

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I actually think to some extent, again, I'm not going to continue the prior analogy, though it is tempting. And you just go, that can never. [SPEAKER_01] I'm not sure the Anthropic IPO is all net positive. [SPEAKER_01] I think it will make things harder. [SPEAKER_01] It's not just housing. [SPEAKER_01] That's already happening, right? [SPEAKER_01] I think it will make everything harder when there is a general sense of not being good enough, right?

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[SPEAKER_01] That is reinforced across the ecosystem. [SPEAKER_03] I understand what you're saying. [SPEAKER_03] But I think we all have plenty of insecurity already based on the private. [SPEAKER_03] I actually think to some extent, again, I'm not going to continue the prior analogy, though it is tempting. [SPEAKER_03] But we are a PG program. [SPEAKER_03] Not R-rated.

SPEAKER_03

So not X-rated. So I do think that the mystery, when the financials are revealed are stripped naked, some of the mystery tends to go out of the deal. So I'm actually just looking for, I mean, it was at SpaceX. We can talk about what's going on in the wider market. It was just great to see the numbers deal with the facts and go, got it. That's what I thought it was. I can differ on how they're valuing it. But that all makes sense now. There wasn't any magic pixie dust. It was gutted. It was an amazing technical launch business, a wildly exciting Starlink business.

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[SPEAKER_03] And oh, wow. [SPEAKER_03] It'll be the same thing with Anthropic. [SPEAKER_03] Oh, those are the numbers. [SPEAKER_03] Good to see. [SPEAKER_03] That makes sense. [SPEAKER_03] And you'll just get the mystery out. [SPEAKER_02] Anthropic goes out before OpenAI now? [SPEAKER_03] Well, it's not clear. [SPEAKER_03] But I mean, I'm going to talk. [SPEAKER_03] But consuming, I mean, Anthropic said they filed in, they made an announcement in the last day or two. [SPEAKER_03] So June 1st. [SPEAKER_03] I think OpenAI had made a statement that they were filing about May 22nd. [SPEAKER_03] And I meant to go back and look at the statement.

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[SPEAKER_03] And Jason is better at me at looking things in real time. [SPEAKER_03] Did they say they were filing or had filed?

SPEAKER_03

Right? I think it might have been filed. In which case, they're roughly on the same track. Right? And I think I was saying to you, Harry, before the meeting started, the most noticeable thing here is that, and I've quoted the famous quote from, I think, in the show, in Reminiscence of a Stock Operator, that book from the 20s I often cite. What you're seeing now is everyone gradually jumping forward their cash raise in the public markets. Instead, we are done with the, ooh, I don't want to do the public markets. Staying private is cool. We are done with that. Right? Right? You know, Elon had 20 years of private. Now it's go, go, go. 1.7 drop. Now OpenAI is dropping.

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[SPEAKER_03] And if you look at their statements over the last 12 months, it was, we may go public next year or two. [SPEAKER_03] We may go public in 27. [SPEAKER_03] Oh, we're going public now. [SPEAKER_03] Right? [SPEAKER_03] Everyone's coming in, right? [SPEAKER_03] To grab the capital. [SPEAKER_03] And the other thing, just to try it right today, as there was a ton of announcement days, Google announced an $80 billion capital equity raise.

SPEAKER_03

Right? So the most profitable company on the planet, with the exception of NVIDIA, said, hmm, I'm going to need more capital. Better go get it. Right? Right? So I think what you're seeing here is, even though Anthropic just pulled off a wildly oversubscribed private raise, I think smart people on those boards are all recognizing the scale of the capital required means we should all jostle to the front of the queue. It's a little, you know, one of those airline flights in countries where they just don't queue. You know, when they open the door and it's just a mad rush to get on the plane. Right? It feels like that here. It's, you know, Google, SpaceX was going first.

SPEAKER_03

Google just got ahead of it. Google just grabbed the first $80 billion. That's, you know, some of it's done now. Not all of it. $40 billion if it's over time. SpaceX has just formalized its price at $1.75 trillion for early June. And, you know, Anthropic and OpenAI both said we're probably going to do roughly the same in October. So you're probably looking at across those three, four names, including Google, $300 to $400 billion of equity issuance, all of which is really AI related given the SpaceX S1. So grabbing big piles of cash while they can. [SPEAKER_02] Google haven't done a raise like this in a significant amount of time.

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[SPEAKER_02] I'm forgetting the exact year number. [SPEAKER_02] Is this merely them being forced to in the capex race that we are in amongst the competitive set that they are in now in the AI race? [SPEAKER_02] Forced to.

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[SPEAKER_03] I mean, in theory, they could have borrowed more.

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There are lots of things. I think they're smart. I think stocks high. I think equity is cheap. I think it's there's not a ton of downside to taking a little bit of dilution at an all time premium. Getting the world's best investor. Well, you could argue Berkshire without Warren is really. But you're getting a reputable investor on your cap table and you're getting another $80 billion, which maybe you can lever up with that. I mean, so, you know, they so I think it's stepping up. What is really indicative of is. All these businesses have gone from capex light cash flow machines to capex heavy cash consumptive machines. Right.

SPEAKER_03

Generally, that's never good for stock prices over the medium term. Just across history, things that have high cash flow spinning out are really good investments and things that eat money tend to be bad investments. And Google is right. Right. Yeah. On a trailing edge basis. It looks amazing.

SPEAKER_03

So they've stepped up. What is really indicative of is all these businesses have gone from capex light cash flow machines to capex heavy cash consumptive machines. Right. Generally, that's never good for stock prices over the medium term. Just across history, things that have high cash flow spinning out are really good investments and things that eat money tend to be bad investments. And Google is right. Right. Yeah. On a trailing edge basis, it looks amazing. I think it's smart to issue money to raise equity.

SPEAKER_03

[SPEAKER_01] Listen, I don't claim to be. I've only been in the conversations a few times. I don't claim to be expert. Of course, it's smart. The dilution as viewed from a venture perspective or start perspective is unknowable. It's unknowable. It's tight. It's unseeable. But if they really thought that payback was so quickly, wouldn't you issue debt and have no dilution? Because 80 billion is still 80 billion of dilution. Right. To be neutral, they're going to ultimately have to repurchase 80 billion of cash to get those shares back. Right. So wouldn't you do debt if you thought you could get it back in any reasonable amount of time?

SPEAKER_03

Well, first of all, it may be that they don't want to spend 80 billion. They might want to spend 200 billion and they might leverage the same. They might say 80 billion of debt, another 80 billion of equity, which will say, and you'll take on 120 billion of debt without engendering our credit rating. [SPEAKER_02] So first of all, they could do both. Right. It's one comment.

SPEAKER_03

Right. Yeah. And then it's not clear the payback. I mean, again, to give. It is not clear. I mean, we can talk at some point about, is the payback there in the end at all? But even when it is, the payback on these AI data centers is normally two to three years. Now, Elon has massively outperformed that with his storage deal with Anthropic, where he's getting all his money back if the deal lasts a year and a bit. But normally the payback is not. It's not nothing in three or four years is a fair amount of time. So I hear, look, this is, I mean, Google is the second most profitable company on the planet. They could borrow all they wanted to within reason. I mean, they have some debt, I think about 70 billion of debt. So they could have borrowed all they want. I just think it's smart to have a strong balance sheet. If you find that you might want to spend, you know, 300 billion a year for the next four years before it comes back.

SPEAKER_03

[SPEAKER_01] Well, certainly it insulates you from any colds or flus you get in the debt market on any given week or month. At least you don't have to worry about the vagaries of the debt markets, which do have micro panics.

SPEAKER_03

[SPEAKER_02] I think we deserve a milestone slash award for the shortest time given to an Anthropic section in a trio show, which is impressive for us. I want to move to, I'm jumping around, so forgive me for it, but we've talked a lot about public companies and often it's been a tough conversation with SaaS not being appreciated by public companies. We saw Snowflake, we saw MongoDB, we saw Salesforce, best earnings in a significant amount of time. All of them did very well. And we saw stock surges across the board. Is this the end of the SaaSpocalypse? How did you guys analyze this?

SPEAKER_03

There's the company specific stuff where I think the kind of JSON rules apply, which is either you reaccelerate or you attach to AI spend. And the guys who exploded did vote. And the guys like Zscaler who had a messy story went down, right? So individual deals. If you look overall at, you know, this, that's what, yes, the what's happened here is you've had, it's interesting. It's been a massive round trip, right? I look at just, you know, WorldCloud, which is the ETF that is the SaaS industry, the cloud industry versus, you know, the QQQ or SPY. What you basically have is 30% down a month ago. And then we talked about this. And remember we talked about, you will give me shit. We have to buy some stock. So I bought WorldCloud, right? I couldn't figure out which ones. I had enough time to think. So I bought WorldCloud and it's up 25, 30%, right? But we're just back flat on the year. That's the fun fact, right? I mean, the summit is, and by the way, I would also caveat literally that was true as of yesterday night for the last, I think just over a month, SaaS had outperformed semis. Fun fact. But for the year, semis have murdered SaaS to the upside because SaaS has just gotten back to flat, right? And now interestingly, even today, you've seen a significant bounce down, right? To me, as I say, I'll defer to Jason on the individual ones. But overall, what it says is the narrative got overdone. And then people looked up and said, these things aren't going to zero. And if they're not going to zero, they have cash flow value. So they probably are worth more than that. It doesn't mean that they have long-term momentum. I'm not looking at WorldCloud and saying, I made 30% this month. I'm going to make another 30% next year. And probably, thank you very much. That was great, right? And then on the individual, I'd defer to you. Get your thoughts on some of the individual companies.

SPEAKER_03

[SPEAKER_01] Well, look, yeah, for sure. I mean, the media, I mean, if you just viewed in the last 30 days, it's great, right? So they probably are worth more than that. It doesn't mean that they have long-term momentum. I'm not looking at WorldCloud and saying, I made 30% this month. I'm going to make another 30% next year. And probably, thank you very much. That was great, right? And then on the individual, I'd chase it over to you. Get your thoughts on some of the individual companies. [SPEAKER_01] Well, look, yeah, for sure. [SPEAKER_01] The media, if you just viewed in the last 30 days, it's great, right?

SPEAKER_03

[SPEAKER_01] Depending on what basket you use, I have a slightly more optimistic basket. [SPEAKER_01] But my basket of cloud stocks, software stocks is up 5% this year after today when we record this, another great day, right? [SPEAKER_01] In this run. [SPEAKER_01] But NASDAQ's up 21%. [SPEAKER_01] And I think semis are in the triple digits or close. [SPEAKER_01] So great that the overcorrection is over. [SPEAKER_01] But the fundamental concerns are all there, right? [SPEAKER_01] I think our only learning is that there was a, I never understood the total panic of the SaaSpocalypse. [SPEAKER_01] It couldn't all be vibe coding, right?

SPEAKER_03

[SPEAKER_01] Notwithstanding Harry's show where they all want to vibe code, they're all serious. [SPEAKER_01] It didn't make sense, but the meta issues of seat contractions, of the fact that AI software spend, according to Gartner, will be up 60% this year. [SPEAKER_01] So that means it's got to be cut somewhere else, right? [SPEAKER_01] Those issues haven't changed. [SPEAKER_01] And I would say we're no longer, what's great is we're not in free fall because free fall leads to panic everything, panic buying, panic everything. [SPEAKER_01] But even with the reacceleration, Atlassian still at 4x ARR, HubSpot 3.8x, Salesforce 4x.

SPEAKER_03

[SPEAKER_01] So I know Rory really disagrees with me here, but I just don't think investing really works without 10x or higher outcomes. [SPEAKER_01] And I know they're public and I know they're mature, but I think the panic part of the SaaSpocalypse is over. [SPEAKER_01] We overcorrected as we always do. [SPEAKER_01] And we may be overindexing on semiconductor stocks today that will be seasonal as well. [SPEAKER_01] But the issues haven't gone away. [SPEAKER_01] It's just we overpanicked on the timing of them. Right. Actually, we are in agreement, on the, yeah.

SPEAKER_03

Because I think we're saying the same thing, that this was a rare occasion where literally an entire sector was discounted to the point where it made no sense.

SPEAKER_02

[SPEAKER_03] A month ago, I was able to identify a bunch of stocks where I could say, they're so cheap that it's silly, right? [SPEAKER_03] In SaaSland. [SPEAKER_03] Now you actually have to say which of these stocks, given that we've repriced, which of these stocks has a genuine reacceleration or AI catch story. [SPEAKER_03] That's a harder message. [SPEAKER_03] I think some of the ones who killed it do.

SPEAKER_03

But overall, it's still pretty tough. So I think we're in sync, Jason. [SPEAKER_01] Yeah. [SPEAKER_01] I think the interesting thing is there is, there was a modest reacceleration of multiples for almost everybody, right? [SPEAKER_01] Even the hardest hit Mondays and Atlassians, they all, their multiples all bounced off the hard deck and just went back to crappy from worthless. [SPEAKER_01] But the real, the only real learning of this, of the year to date, is that it's been long enough now that the public companies, let's just call them mature, the mature public companies that are benefiting from AI are seeing the boost. [SPEAKER_01] So yes, semiconductors are up.

SPEAKER_03

[SPEAKER_01] But when Jeff Lawson was on the show, he said, I haven't run Twilio in a while, but I'm pretty sure we're going to benefit from AI because agents and AI just need to use more of our voice and other agents. [SPEAKER_01] And it took a quarter or two. [SPEAKER_01] But he's right. [SPEAKER_01] Stock's up 57 percent this year. [SPEAKER_01] It's gone from, I think, four or five percent growth to 20. [SPEAKER_01] Okta, which was your dad's enterprise system, up 57 percent this year, 56 percent, right? [SPEAKER_01] Datadog, which everyone uses, right? [SPEAKER_01] Every AI leader uses, up 100 percent this year.

SPEAKER_03

[SPEAKER_01] So it's our mistake and the captain obvious learning is, hey, we gave it six months and every software leader that has agentic products and agents need more of it is up. [SPEAKER_01] And no matter what they say at X, the ones that only humans use is down, even if they bounced off the hard deck, right? [SPEAKER_01] There's just not an appetite for more human per seat licenses. [SPEAKER_01] And even Salesforce, which reaccelerated growth, it was all through hard work. [SPEAKER_01] It was through AgentForce. [SPEAKER_01] It was through organic, inorganic purchases. [SPEAKER_01] It was through everything.

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[SPEAKER_01] And Mark and the team came on the call and they said they split the business up into two verticals for the first time. [SPEAKER_01] I think it's every what they're called. [SPEAKER_01] A gentler AgentForce and the others.

SPEAKER_01

And they said the software business will be perpetually in single digit growth. That's as good as it's going to get here. But we're double digits in the rest. And that's growing 12 or 13 percent. So we bifurcated. We saw what made sense, which is AI fueled agentic focused products. But the classic human per seat software really is dying. [SPEAKER_01] It's not dead. [SPEAKER_01] But no one wants to buy this. In fact, they're cutting it because they got to come up with money for all these tokens. Everyone wants these tokens, Rory and Harry. We just don't need another human seat for folks that don't do any work on our project management software.

SPEAKER_01

That has to be the math, right? You can't grow 60 percent AI software without cutting some material amount of the rest. So we are seeing it. But we should have known this. We should have all, forget about the way I made my bets, just who fell the least. That was at the Nader, right? I bet on who fell the least. Tokens.

SPEAKER_03

[SPEAKER_01] Everyone wants these damn tokens, Rory and Harry. [SPEAKER_01] We just don't need another human seat for folks that don't do any work on our project management software. [SPEAKER_01] That has to be the math, right? [SPEAKER_01] You can't grow 60 percent AI software without cutting some material amount of the rest.

SPEAKER_02

[SPEAKER_01] So we are seeing it. [SPEAKER_01] But we should have known this. [SPEAKER_01] We should have all made the bet differently, just who fell the least.

SPEAKER_03

[SPEAKER_01] That was at the Nader, right? [SPEAKER_01] I bet on who fell the least. [SPEAKER_01] We should have all made the bet, the Jeff Lawson bet, which is, OK, who's going to honestly benefit from agents and agentic? [SPEAKER_01] And it's not that complicated, right? [SPEAKER_01] Of course, it's going to be Twilio, Datadog. [SPEAKER_01] I never would have thought Okta. [SPEAKER_01] But if I'd been a little smarter with Claude, we would have figured it out because it is an obvious one. [SPEAKER_01] If everyone doing auth that's a private company is blowing up, they should blow up too, right?

SPEAKER_03

I think the real challenge is more a question of what does critical mass look like to go public? To Jason's point, what does liquidity look like? I mean, you guys often talk about Repli. There's an example of a company that was pre-AI that brilliantly attached to the trend and just got a ton of lift, right? There's stuff you can do to get lift. It's Jason's. There's only one test. Are you growing quicker? If you're growing quicker, you've gotten lift. If you've gotten lift, you're fine. You can imagine lots of parts of the new LLM first AI harness software stack.

SPEAKER_01

[SPEAKER_03] Isn't it Superbase is the Postgres database. [SPEAKER_03] It's just brilliantly co-attached to everything. [SPEAKER_03] It's grown quickly too. [SPEAKER_03] So there will be incidents of that, but it requires deft product management and making sure you're attached to the future.

SPEAKER_02

[SPEAKER_03] If not, then you're not going away quickly, but you just have a question of how do you create value and how do you realize value, which will segue to a few other discussions. Totally. Yeah. Can I ask about explosive growth and then software creation. Cognition raised a billion dollars at a $26 billion valuation. Devon, their core product hit $492 million in ARR. Incredible growth with some mega customers, some of the largest enterprises in the world. Jason, I thought your statement here was a good one. Was cursor at $3 billion ARR cheap then if that was priced at $60? And how do you reflect on the growth, this cognition round?

SPEAKER_03

[SPEAKER_02] I'd love your thoughts. [SPEAKER_01] I wish I was more of an expert on cognition today. [SPEAKER_01] When we started this pod, I did say that probably the two absolute highest IQ CTOs in my portfolio were using Devon in the early days. [SPEAKER_01] When things were still pretty crappy before for anything. [SPEAKER_01] And the idea, I think, is still super compelling. [SPEAKER_01] Super compelling. [SPEAKER_01] And now we have some metrics. [SPEAKER_01] The idea, at least, is, hey, it's great that your engineers are 10 or 100 or 1.001x more productive. [SPEAKER_01] What's far more interesting is if you can have an autonomous AI engineer.

SPEAKER_03

[SPEAKER_01] That's much more interesting. [SPEAKER_01] And I remember probably the smartest CTO in my portfolio just in the early days ran Devon and Slack. [SPEAKER_01] And he would just tell Devon to go do these things and come back and make the commit on their own. [SPEAKER_01] And I'm sure it was pretty mediocre a year ago or so just because of the nature of the underlying models. [SPEAKER_01] But the vision to me is actually more compelling than all this cloud code stuff. [SPEAKER_01] It's much more compelling to just tell the agent what to build or not tell the agent how these autonomous engineers that do it. [SPEAKER_01] Right.

SPEAKER_03

[SPEAKER_01] So on the other hand, there's just maybe it's not that impressive because there's so much money in the space. [SPEAKER_01] Maybe if it works reasonably well. [SPEAKER_01] Right. [SPEAKER_01] And it's just a way to repackage the models for one workflow that's more interesting. [SPEAKER_01] Maybe it's not as impressive as it looks. [SPEAKER_01] But the vision, I think, is the most interesting vision in the space. [SPEAKER_01] Why do we want to empower mediocre sales reps? [SPEAKER_01] No, we want to we want to automate them with AI. [SPEAKER_01] Same with mediocre engineers. [SPEAKER_01] Let's get rid of them, man. [SPEAKER_01] Let's have the best ones.

SPEAKER_03

[SPEAKER_01] But all the rest, let's have Devon. [SPEAKER_01] Devon doesn't argue. [SPEAKER_01] Devon doesn't only want to work on interesting problems like most of your best engineers. [SPEAKER_01] It's not interesting. [SPEAKER_01] I'm not going to join. [SPEAKER_01] I was talking to someone that turned down an offer from Anthropic. [SPEAKER_01] Just said it wasn't interesting enough, but they wanted to work on. [SPEAKER_01] He just didn't want to work on little edges of basic application. [SPEAKER_01] It was boring. [SPEAKER_01] Right. [SPEAKER_01] So let's have Devon do it, man.

SPEAKER_01

So I hope it's the biggest winner of all. [SPEAKER_03] This is very much a market where leads change hands at a furious pace. [SPEAKER_03] So every one of the companies that's worth a trillion bucks and Google probably has them. [SPEAKER_03] Every one of the companies with a trillion bucks is going to want to eat your lunch. [SPEAKER_03] So it's a high risk, huge market return and good luck to them. [SPEAKER_03] I love it. [SPEAKER_03] It's what it should be. [SPEAKER_02] I was speaking to one of the best CTOs this morning. [SPEAKER_02] And he said, we've just the analogy is we've just given a company credit card to every employee and said there's no limits.

SPEAKER_01

[SPEAKER_02] Spend away. [SPEAKER_02] And that's the token spend budgeting today. [SPEAKER_02] And my question to you is if there is rigor and budget instilled, are we dramatically overestimating market size? [SPEAKER_03] I don't think we're overestimating market size. [SPEAKER_03] But let's put it on. [SPEAKER_03] It's funny. [SPEAKER_03] We talked about this last week. [SPEAKER_03] And I was going to tweet this because literally on Tuesday when we record, I was thinking, it may seem heretical to say that maybe this stuff isn't got an ROI. [SPEAKER_03] By the time the thing came out on Thursday, there'd be an explosion of these, oh my God, ROI articles.

SPEAKER_01

[SPEAKER_03] So it was right on the cusp of the zeitgeist where people finally woke up. [SPEAKER_02] And my question to you is if there is rigor and budget instilled, are we dramatically overestimating market size?

SPEAKER_01

[SPEAKER_03] I don't think we're overestimating market size. But let's put it on. It's funny. We talked about this last week. And I was going to tweet this because literally on Tuesday when we record, I was thinking, it may seem heretical to say that maybe this stuff isn't got an ROI. By the time the thing came out on Thursday, there'd be an explosion of these, oh my God, ROI articles. So it was right on the cusp of the zeitgeist where people finally woke up. And I was thinking about it last night. It all makes sense. Sometime in November, December, Claude produced the magical version of the model of Claude code that just works. In early 2026, they changed the pricing model so you have to pay as you go. And it's literally everyone cranked in Q1. And I can almost imagine in every CFO's office in the land, someone was doing accrual accounting. And about by mid-May, they suddenly realized, oh my God, we used to estimate our bill based on this. And suddenly we're 10x wrong in our accrual. And literally the penny dropped simultaneously across the entire corporate US. Right. Oh, we told these guys to crank in Q1. And we, they cranked. Right. And it looks like we spent our entire budget. Right. And literally it was universal. Right. And it's happened. So it all makes sense. This is about the time I've discovered it. Now, to your point, I was raising the issue when people weren't. But now I'm going to take the positive side. Provided the code that's generated is good. Right. And useful. Right. I can imagine a scenario where people put a pause on. And I just saw, I think Uber announced today, they're just going to give everyone 1,500 bucks a month, which is about the right amount on what we're seeing in terms of averages. I won't say the right amount. That's a normative statement. It's about a little above what we saw the average spend was. So they're basically going to cap everyone. Right. And try and get control of the spend that way. Right. And the thing you have in your favor over the medium term is the frontier models aren't getting cheaper. I want to be clear on that. They're getting actually slightly more expensive. But the model that is frontier today will in a year be 5 to 10x cheaper because it won't be the frontier model anymore. So if you're getting value from this egregious spend today, you might slow down for the next 12 months. But as long as you stay on that pricing curve, what will then be not a frontier model, but an older model will be available at a cheaper price and you will be able to continue to get value from it. That's a long way of saying it. I don't think you wake up and go, oh my God, we're not going to spend any money on this. I think the pace of adoption might slow markedly as people realize quite how much they spent.

SPEAKER_01

You know, I had two of my fastest growing portfolio companies saying they already blew through their budget this year. So it's not just the big guys. Right. Two of my fastest growing companies. None of my slowest growing companies have said that. Not a single one of my slowest growing portfolio companies have said, guys, we've heard through all the tokens. I don't know if it's causation or correlation, but it was interesting that two of them said that. I think that at a practical level, of course, there has to be cost containment. Right. We're not all startups that just raised 50 million with six people where it doesn't matter. Right. There has to be cost containment. And folks are massively wasting tokens. They're massively wasting them. So it has to come that people have to be more thoughtful with what they build. The vast majority of tokens that are used in coding are in QA anyway. It's not in production. We may have to be more thoughtful about how we do that or not. But I think it's OK if we don't shoot from the hip as often. I think it's OK if we slow down the number of features that we build. I don't think it's the end of the world. Right. Having said all that, more and more folks are using multiple models at the same time. Right. For example, not to talk about Replit too much. Replit does it automatically now. Replit, if you have a complex feature, Replit builds it in Claude Sonnet, not OpenAI. It builds it in Sonnet to save money. And then it has Codex come in and check the work. It has both of them. And you don't even know this if you don't check it because it's mostly for non-technical users. One interesting learning, if you want to learn about cost sensitivity, actually study Replit and Levelable because they're under huge pressures right now from their customers, massive pressures. So if you want to see the future, we can look at what the Uber guy said in one of my portfolios. But it's much more interesting to watch how, to me, how Replit and Levelable are evolving their platforms radically because a couple extra dollars there leads to churn at the bottom of their customer base. So they're radically focused on cost containment. And yet they still run, I don't know about Levelable, Replit still runs two models. Not for everything you do, but for anything complicated. The architect agent now is Codex that it brings in to check Sonnet. And it works really well. It's incredibly powerful to check your work in Sonnet and probably Opus with Codex. It's incredibly useful. It's every single time it finds issues. Every single time it finds issues. It's so powerful. So that's going the other way, right?

SPEAKER_01

of their customer base. So they're radically focused on cost containment. And yet they still run, I don't know about Levelable, Replit still runs two models. Not for everything you do, but for anything complicated. The architect agent now is Codex that it brings in to Chexonnet. And it works really well. It's incredibly powerful to check your work in Sonnet and probably Opus with Codex. It's incredibly useful. It's every single time it finds issues.

SPEAKER_03

[SPEAKER_01] Every single time it finds issues. [SPEAKER_01] It's so powerful. [SPEAKER_01] So that's going the other way, right? [SPEAKER_01] Is that as we go more and more multi-agent and we ask them to do more, of course, we're going to want to. [SPEAKER_01] So we have to have budgets, but the tension is only going to grow. [SPEAKER_01] And I don't think we've yet, to Rory's point, you just asked my opinion, right? [SPEAKER_01] I think in the course of this show, what we've learned, and it has changed since the beginning of the show, is it really doesn't matter. [SPEAKER_01] And this could change in 90 days.

SPEAKER_03

[SPEAKER_01] But so far, it really doesn't matter if older platforms are cheaper and overall models are cheaper because we don't want them. [SPEAKER_01] There are use cases where we want them. [SPEAKER_01] There are, but overall, as an ecosystem, we are all in on the best. [SPEAKER_01] We are all in on Opus. [SPEAKER_01] That's what we want.

SPEAKER_01

So we're not benefiting as much from the deflationary benefits of AI and we're paying into the inflationary side. [SPEAKER_03] But we're, again, I don't want to sound negative because I'm actually a net positive. [SPEAKER_03] So I want to come back to that. [SPEAKER_03] But first of all, I think the zoom out comment is this. [SPEAKER_03] At some enormously high level point is this is validatingly good news for the model providers. [SPEAKER_03] What's happened is somewhere around 3%, 5% of tech spend, everyone noticed, oh my God, we're spending this. [SPEAKER_03] And no one said, we're going to cut back to zero, right?

SPEAKER_01

[SPEAKER_03] What this means is you've just established a category that probably has a market size of half a trillion to a trillion dollars. [SPEAKER_03] And everyone is now going through the corporate process of saying, how do I find that money? [SPEAKER_03] Where do I find it elsewhere? [SPEAKER_03] How do I manage it? [SPEAKER_03] How do I cap it? [SPEAKER_03] But what they're not saying is stop it, right? [SPEAKER_03] So you've built a category that's huge. [SPEAKER_03] So if I'm on topic, it's obvious to us because we're in the valley, but the doomers who say it's all just going to go away because it's silly.

SPEAKER_01

[SPEAKER_03] No, corporate America has said, we're spending this kind of money. [SPEAKER_03] We don't like it. [SPEAKER_03] We're spending too much. [SPEAKER_03] But we're going to have to have a plan to spend it. [SPEAKER_03] It's enormously validating, right? [SPEAKER_03] I think that I don't know if it would be interesting to see, Jason, as part of managing that spend, will it still be true that we all want the most expensive model for everything? [SPEAKER_03] I know I see some of my app companies to find a way to use multiple models, use open source for the cheaper stuff. For their application, but for their development.

SPEAKER_01

[SPEAKER_03] I was going to say, is it a question that there are things where you want one, but not two foundation models, but are other things that you offload, right? [SPEAKER_03] Because I don't think, look, again, going back to what I said, the cost of our frontier models keep going down, but the cost of frontier models keep going up. [SPEAKER_03] And while I just made a positive statement, I don't think corporate America is saying, yay, the cost of the frontier model is going to keep going up and we're good with that. [SPEAKER_03] So I think we've now been found by finance.

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[SPEAKER_03] They're looking to the CEO and saying, dude, on January 1st, he said, use all you like, it's going to be amazing. [SPEAKER_03] And now it's May 15th and we got a problem. [SPEAKER_03] Let's figure it out. [SPEAKER_03] I don't think they're going to say, keep using the frontier models for everything, you know, where not on a price per token basis, but on a price per pass, on a price per run basis, it's been going up. [SPEAKER_02] I think we're now going to have to discover costing and marginal costing. [SPEAKER_02] Jason, do you not think that open source will have a meaningful impact specifically on development budgets?

SPEAKER_01

[SPEAKER_02] You clearly identified differences. Maybe. I just think we're confusing these narratives of two things. And I wish I had the exact number, but we're confusing the models used by applications, right? Versus models used for software development. And for applications, anyone, every, I mean, this is open router blowing up. This is everything. Everyone's optimizing. Even if you're not optimizing, you're optimizing, right? Because if I had some, you know, everything high end you do in Opus is a buck. Okay. It could be more. It could be dollars. And at the low end, it's 50 cents. You can't do 50 cents for a chat for every single chat or a dollar.

SPEAKER_01

So this could change. And there are certainly workflows where you need massive amounts of inference and thought. But I think we're confused into developers are under pressure. These poor guys, as Harry has in the show, they got to work 996, these poor guys. They're not going to use a crappy model on Saturday. I would quit. I can't. No, literally, I would quit as a developer if you told me I could not use the model of my choice. I would quit. It's not worth my time. You're literally telling me I've got to use. So I just, I'm not saying it won't happen in some use cases, but I would quit.

SPEAKER_01

So I think what the more interesting thing to me from all of us, here's the thing that's interesting to me to tie it all together. Then maybe we can go on. I think now that we're hitting budget discussions, just discussions, right? And now that CIOs are more involved and now it's, I think it's not just Uber, even though I think the Uber story was a little blown up and a little apocryphal, but it's going to happen everywhere over the course of this year, right? You're literally telling me I've got to use. So I just, I'm not saying it won't happen in some use cases, but I would quit.

SPEAKER_01

So I think what the more interesting thing to me from all of us, here's the thing that's interesting to me to tie it all together.

SPEAKER_03

[SPEAKER_01] Then maybe we can go on. [SPEAKER_01] I think now that we're hitting budget discussions, just discussions, right? [SPEAKER_01] And now that CIOs are more involved and now it's, I think it's not just Uber, even though I think the Uber story was a little blown up and a little apocryphal, but it's going to happen everywhere over the course of this year, right? [SPEAKER_01] The budget has to come from somewhere. [SPEAKER_01] I really do think by the end of the year, we're going to choose tokens over humans for engineering and product. [SPEAKER_01] We're at the margin.

SPEAKER_03

[SPEAKER_01] You're going to go in and you're going to say, because this is certainly the way it worked for me in the old days when I was at a big tech company. [SPEAKER_01] Your budget this year is 50 million. [SPEAKER_01] Instead of your budget being 400 heads, guys, or 200 heads, your budget this year is 100 million or 200 million or 400 million for EPD, engineering product development. [SPEAKER_01] And when I worked at Adobe, that was all humans. [SPEAKER_01] We ignored all the other costs because they didn't matter. [SPEAKER_01] EPD, your budget was just headcount, right? [SPEAKER_01] Everyone costs the same $300,000 a year.

SPEAKER_03

[SPEAKER_01] It didn't matter if they were an office manager or your top, just to keep it simple, okay? [SPEAKER_01] Now we're going to have much more sophisticated budget discussions going into 2027, which is your budget is this much. [SPEAKER_01] You decide where you want to spend it, leaders. [SPEAKER_01] And I'm going to be sitting around. [SPEAKER_01] I'm going to say, do I want to have another 20 mediocre engineers on my team? [SPEAKER_01] Or do I want to give my best guys unlimited tokens?

SPEAKER_03

[SPEAKER_01] And that may fuel the real, whether they're AI layoffs or just AI backfills, it may fuel another wave of this, which is very distinct from the click up, whatever excuse for getting fit, right? [SPEAKER_01] This may be a rational choice at the end of the year. [SPEAKER_01] There is only so much money and I'll take tokens.

SPEAKER_02

[SPEAKER_01] I'll take tokens over a B. [SPEAKER_01] I would take tokens. [SPEAKER_01] We've already made that choice at Sastra. [SPEAKER_01] We get rid of all our Bs. [SPEAKER_01] We'd much rather have tokens. [SPEAKER_03] So therefore, the next question is you have to come to some kind of opinion, what the percentage mix is. [SPEAKER_03] People are going to be pushed into some kind of hard choices. [SPEAKER_03] And then it will force a belief. [SPEAKER_03] Do you really believe that these lift, they give you a 20% lift? [SPEAKER_03] In which case, assuming no net change in demand, you have a 25% lift. [SPEAKER_03] You spend $80 on people and $20 on tokens.

SPEAKER_01

[SPEAKER_03] Do you feel it gives you a 100% lift and 50-50? [SPEAKER_03] It will force quantification once you have a dollar budget and a set of deliverables, which I think is the next shoe to drop. It will. But even more than that, at more competitive companies, the best people won't tolerate not getting what they want. So you're going to look. I think what will happen going into 2027 is in engineering, QA departments will get destroyed because you'll be saying, I got six QA engineers. I got 10. And they're great. But I'd rather go to two with tokens.

SPEAKER_01

And whatever's left in my customer success department that I didn't put into FDs, I'm just going to get rid of them for tokens to manage customer onboarding, customer support. I'm going to get rid of all the marginal roles, the ones at the bottom of that list. I'm going to sacrifice for tokens. It's so easy. It's really simple. The ones on the bubble that weren't already cut in the first wave will be cut for tokens. [SPEAKER_03] It would be interesting to see if you're right or whether you'd have to have, I mean, are you going to wave testing? [SPEAKER_03] Are you going to wave code with, you have to think about—

SPEAKER_01

You will shrink it to whatever the minimum you can do and have the models do the rest. You will just inherently make that choice rather than someone that's just okay, right? You're just going to make the— And I will tell you, we had this FDCCO CS summit at our Sastra annual event. It was a couple hundred leaders. Almost everyone was talking about how they're getting rid of Gainsight and all the rest and all their teams. That was the topic this year. We're getting rid of all the people and all the software because it's more efficient to just handle this at the agentic level. This was everyone, old and new. [SPEAKER_03] I'm sorry, that's in customer support.

SPEAKER_01

[SPEAKER_03] That's customer success. Yeah. I'm just saying these are all roles on different lines that will just get cut at the end of the year. Whatever's left in these departments, I'm not going to cut my best engineers. I'm not going to cut my actually smaller sales team than it used to be, right? I'm not going to cut my best folks, but I'd rather have tokens. I'd rather have tokens do the inbound call. I'd rather have tokens handle the 3K deals. I'd rather have tokens do QA or CS, right? [SPEAKER_03] Jason, with all due respect, I think I liked what you said earlier, which is a nice way of saying I disagree with this, right?

SPEAKER_01

[SPEAKER_03] At the app level, for customer support, I think the cost of tokens is so low relative to the total cost. [SPEAKER_03] It's in the noise.

SPEAKER_03

I don't think token intensity for something like customer support will be a significant factor. You won't look back and say that's a huge amount of tokens. I'm just trying to understand the end-to-end product and development lifecycle across initial engineering, code review, test, all that, right? What do you think the split will be between dollars paid to engineers in total and dollars paid to tokens? Just in that area, leaving out things like that. [SPEAKER_01] I don't know for sure.

SPEAKER_02

[SPEAKER_01] I'm just saying, listen, let me go back in time. [SPEAKER_01] Let's imagine I was back at Adobe. [SPEAKER_01] I had 400 people in my little BU, okay? [SPEAKER_03] significant factor. [SPEAKER_03] You won't look back and say that's a huge amount of tokens. [SPEAKER_03] I'm just trying to understand the end-to-end product and development lifecycle across initial engineering, code review, test, all that, right? [SPEAKER_03] What do you think the split will be between dollars paid to engineers in total and dollars paid to tokens?

SPEAKER_03

Just in that area, leaving out things like that. [SPEAKER_01] I don't know for sure. [SPEAKER_01] I'm just saying, listen, let me go back in time. [SPEAKER_01] Let's imagine I was back at Adobe. [SPEAKER_01] I had 400 people in my little BU, okay? [SPEAKER_01] And at the end of the year, it was a fixed budget. [SPEAKER_01] And we got around the room and we decided we wanted to go into next year with 300 people and the equivalent of 100 humans of tokens, okay? [SPEAKER_01] Another 100 of tokens. [SPEAKER_01] I wanted it, right? [SPEAKER_01] This is what I would do today if I was fixed. [SPEAKER_01] Okay, so now I'd go, now I'm going to get rid of 100 people.

SPEAKER_03

[SPEAKER_01] So I'm immediately, whoever's left in support that isn't great, gone, okay? [SPEAKER_01] I would get rid of my entire CS team except my head of CS. [SPEAKER_01] I would get rid of this whole, most of the, all of my functional QA team and I would just leave the smartest guys. [SPEAKER_01] I would just get rid of all of those people because I need the tokens, man. [SPEAKER_01] Again, I'm just going to be fact-based, right? I think it will happen at the end of the year because people will make that choice.

SPEAKER_03

What you're saying, but listen to the math to that, 400, what you're basically saying is every, the remaining 300 people, you took 100 heads and replaced them with tokens, which implies roughly a 33%. Every engineer who's getting 200 grand or 300 grand has roughly 100 grand in tokens. That's what the math would be. Right? Sure. But salespeople will have sales applications that aren't cheap. [SPEAKER_01] Yeah, yeah, yeah. [SPEAKER_01] Everyone will have agents. [SPEAKER_01] Everyone will have agents. That's why I don't want, I mean, I would, but you keep refusing to.

SPEAKER_03

I'd like to just keep it to engineering because I think that the math will be different in sales and customers work because I think there'll be more app with less token intensity, but maybe third-party apps. I think engineering is where it's more interesting. I can't remember what it was at Uber or someone announced today. They're going to keep it to, as I say, 1,500 per engineer per month, which is 12, which is 18,000 a year. Call it roughly 10%, right? And that's probably a first-pass slide. That says on a $200,000 engineer, they're getting 10% token budget, right?

SPEAKER_03

You're implying on a $200,000 engineer, you're getting 33% token budget, which would be, what's that, 66,000, right? [SPEAKER_01] Yeah, and I don't think Uber is one of the greatest software shops out there. [SPEAKER_01] I think there's two products. It might leave Uber set. My point is this. This is the question that's going to get litigated this year. And the amazing thing is you can get to the entropic and open AI trajectory on even 10%, right? This is why I think it's— [SPEAKER_01] Yeah, I think we're having two different discussions. [SPEAKER_01] You're absolutely right.

SPEAKER_03

[SPEAKER_01] I don't think it will necessarily, even just 10% is enough to fuel their growth, right? [SPEAKER_01] Yeah, I think it may be higher than 10%. [SPEAKER_01] It may be higher. And if it's 33%, then two things are true. A, buy at any price in the IPO, just any price. And then B, it's going to be pretty tough because you're going to see one in three, one in four engine and per your construct. It wasn't just across the entire engineering product development stack get replaced, plus or minus any growth that comes from that. So yeah, I mean, I'm not convinced it is as high as that, just to be clear.

SPEAKER_03

I always, just from my conversations, but I also admit I'm not an expert and I don't know what absolute state-of-the-art token efficiency in engineering looks like. But I do know one thing. This is the number that I most want to understand over the next, and it's the first question I usually ask on my VPs of engineering. How are you thinking about it? What's working? What's not? Because this is the number that will determine is $1 trillion a fully priced company that could slow down a little bit for a year while digest? Or is it, oh my God, no one's even going to pause for breath. We're just going to keep rolling this shit out.

SPEAKER_01

[SPEAKER_03] It's going to eat one third of engineering salaries, and that's going to get you to $4 trillion by two years from now. I just think that this idea of capping tokens like this Uber thing, I just think it's a transitory thing. It's not a utility. It's not just electricity or our density for desks in our office. I think that's a great thing to do now. For 2027, 2028, you should give department leaders a choice, and they're going to choose tokens in good companies. They're going to choose tokens over the B players. [SPEAKER_03] Agreed. [SPEAKER_03] And I think what's going to happen, you're going to give them a choice.

SPEAKER_01

[SPEAKER_03] But then practically, I mean, the thing that is so insidiously clever about the AI products that CFOs are going to be tearing their hair out is it's a product that allows you as an individual worker to be and look widely more efficient and have it take away a whole bunch of your grunt work, and the cost isn't borne by you. [SPEAKER_03] Which would you prefer, crank for the next two hours on a PowerPoint to get it just right, or type it into Claude and say, make me a PowerPoint that does this, this, and this? [SPEAKER_03] Right? [SPEAKER_03] Yeah. [SPEAKER_03] And especially if there's no trade-off cost.

SPEAKER_01

[SPEAKER_03] No one's going to want the restrictions, but every CFO is going to want the restrictions, and the dynamic around that is going to be huge. [SPEAKER_03] I mean, I think Benedict Evans does the example of, does it end up like cell phone minutes where you give people big buckets? [SPEAKER_03] of your grant work, and the cost isn't borne by you. [SPEAKER_03] Which would you prefer, crank for the next two hours on a PowerPoint to get it just right, or type it into Claude and say, make me a PowerPoint that does this, this, and this? [SPEAKER_03] Right? [SPEAKER_03] Yeah. [SPEAKER_03] And especially if there's no trade-off cost.

SPEAKER_01

[SPEAKER_03] No one's going to want the restrictions, but every CFO is going to want the restrictions, and the dynamic around that is going to be huge. [SPEAKER_03] I think Benedict Evans does the example of, does it end up like cell phone minutes where you give people big buckets? [SPEAKER_03] I don't know, because the problem here is you can only talk for so long on the cell phone. [SPEAKER_03] I think the analogy doesn't work, because here, as you say, as an engineer, you can spin up agent after agent, right? [SPEAKER_03] But I don't think you can have, at the level of the VP of engineering, you can have a budget and a trade-off.

SPEAKER_01

[SPEAKER_03] At the level of the individual engineer, you're going to have to figure out how to empower your best engineers without letting them bankrupt the company, and it's going to involve something, and it's going to be a moving dialogue, right? [SPEAKER_03] If I were building a harness, I don't like to call the cognitions the curses of this, or the harness company, but having something that was great for the engineers, but gave some kind of peace of mind on the budget side would be interesting. [SPEAKER_03] I imagine there'll be some movement to that.

SPEAKER_01

Look, all I can say on this, if I go back, if I put my back self back in time when I was a VP at Adobe, if you came in to me and I said, I could have a choice, I'd keep 400 people, or I could go to 300, and my EPD team would commit to tripling our productivity this year. It was binary. You take it all day every day. Not only that, I can instantly think of the people I'd get rid of. But pre-AI would have kept them because I needed someone to pick up the phone, Harry. I needed someone to go to meta and keep the customer. But right now, if my team made this commit to quadrupling output, I could instantly think of 20 to 40 people just goodbye. Goodbye.

SPEAKER_01

It wouldn't even take me an hour. It would take me about 10 minutes to get rid of. Because if I had to make the choice, I know which way. Gone. [SPEAKER_03] I feel the need to say that I have this feeling about you that you always instantly know the people you want to get rid of. [SPEAKER_03] And it chills me a little. [SPEAKER_03] Which of us is going when it comes? Well, in reality, I've never let anyone go, almost ever, because you always needed people. I've always been lean. I was profitable with 6 million in revenue in a B2B company. I remember. I ran lean, right? [SPEAKER_03] I was impressed with that. And I enjoy it.

SPEAKER_01

But at the Adobe scale, I would know how to get rid of 50 or 60 of them. It would take five minutes, right? And a lot of them I inherited. But still. And let me ask a question then. [SPEAKER_03] But you're the VP of Engineering. [SPEAKER_03] Let's just play that out. [SPEAKER_03] Let's make it real. [SPEAKER_03] You're the VP of Engineering. [SPEAKER_03] You had 400 people in your engineering department. [SPEAKER_03] And you said, I'll tell you what, guys, I'm going to drop down to 300. [SPEAKER_03] I'm going to take 100 salaries, turn them into tokens. [SPEAKER_03] And I promise to deliver, not even 3x, but one and a half tons of what I've delivered before.

SPEAKER_01

[SPEAKER_03] Right? [SPEAKER_03] Do you know VPs of Engineering who will say hand on heart today, they know they can do that end to end, not just lines of code, not just pull requests, but shipped product with the features the restaurant want with that level of cut? Just curious. Yeah. [SPEAKER_03] Okay. [SPEAKER_03] 40 people, right?

SPEAKER_03

The interesting thing is, can Uber take one third? Can Microsoft take one third of their engineering and do that? This is, you're right, we'll see. It will be fun. There will be engineers, VPs of Engineering on both sides of that trade who lose their job. [SPEAKER_01] It's just the emails are going to go out the end of the year. [SPEAKER_01] I'm sorry, you've been laid off for tokens. [SPEAKER_01] This is the next, you think of, this is the next, all the stuff we've talked about the last X months, it's not even very interesting. [SPEAKER_01] It's theater, it's theater to get a fish in. [SPEAKER_01] It's theater to free up racks.

SPEAKER_03

[SPEAKER_01] At December 31st, people are going to get these cruel emails. [SPEAKER_01] It's not you, but we needed the tokens. [SPEAKER_01] It's not you, but we need the tokens. I agree with that. And the question will be for those VP of engineering, are you getting the value from those tokens? [SPEAKER_01] We all know in our portfolio, there are plenty of old school folks who still don't think this stuff works. [SPEAKER_01] They don't think it's worth it. [SPEAKER_01] There's plenty of folks. [SPEAKER_01] It's not all age because there's young curmudgeons and there's old curmudgeons.

SPEAKER_03

[SPEAKER_01] And some of the earliest adopters are the most experienced engineers because they're kids in a candy store. [SPEAKER_01] They love it the most. [SPEAKER_01] Right. [SPEAKER_01] But there are resistors to this day. [SPEAKER_01] And these are the products like Marketo that haven't added a feature in 11 years. [SPEAKER_01] Good luck to them. [SPEAKER_02] I just released a show with Brandon from McCall and he said they now spend more on tokens than they do engineering salaries.

SPEAKER_01

How many people in engineering does he have?

SPEAKER_03

[SPEAKER_02] That's a very good question. [SPEAKER_02] 30, 40. [SPEAKER_02] I think, more like 80, but yeah. [SPEAKER_01] Yeah. [SPEAKER_01] But that's the concede in those stories, right? [SPEAKER_01] Hooray. [SPEAKER_01] How many engineers do you have? [SPEAKER_01] 1200 for no 80. [SPEAKER_01] Okay. [SPEAKER_01] Well then you know what? But give them credit. BFT. But give, no, I'm sorry. She's now on the fact, give them credit.

SPEAKER_02

[SPEAKER_01] How many people in engineering does he have? That's a very good question. 30, 40. I think more like 80, but yeah.

SPEAKER_01

Yeah. But that's the concede in those stories, right? Hooray. How many engineers do you have? 1200 for no 80. Okay. Well then you know what? [SPEAKER_03] But give them credit. [SPEAKER_03] BFT. [SPEAKER_03] But give, no, I'm sorry. [SPEAKER_03] She's now on the fact, give them credit. [SPEAKER_03] That's the future that you're envisaging, right? [SPEAKER_03] I'm just not trying to be skeptical. [SPEAKER_03] I'm just trying to understand where does it come in? [SPEAKER_03] There's no doubt, but if the new company is starting with a clean slate really can do 50% plus tokens, 50% people, and they are successful and they are able to ship, then that is the future.

SPEAKER_01

[SPEAKER_03] And everyone else is just a question of how long it takes till you get to that future. [SPEAKER_03] And if that is the case, we are underestimating the size of these markets even now. [SPEAKER_03] Reminder, the EDA software market, which is the most automated market today in terms of tools relative to engineering spend is roughly 13%. [SPEAKER_03] So for every engineer you hire, you allocate 13% for EDA. [SPEAKER_03] I'm saying 10%, you're possibly saying could be a hundred percent in other words for every engineer, dollar for dollar token. [SPEAKER_03] That number is the most important number.

SPEAKER_01

[SPEAKER_03] It's the implicit number in every one of these models is my point. [SPEAKER_03] And I freely admit, it's the old Einstein quote. [SPEAKER_03] If I had an hour to solve a problem, I'd spend the first 50 minutes thinking about the question. [SPEAKER_03] I've thought about the question. [SPEAKER_03] This is the question. [SPEAKER_03] I don't know the answer yet, but this is the question on TAM. [SPEAKER_02] It goes back to what we said about Benioff, but spending 3.8% of developer salaries with the 300 million that he spends on Anthropic and whether that 3.8 goes to 20, because that's very different TAM ultimately for the model providers.

SPEAKER_01

No, it's just there's another as we think into 2027, 2028, there's another trend the other way though, which is a big deal. And this is why I think organizations will re-bloat up to a point because as we're able to launch far more products more early, far more quickly, it's not just features, it's products. No matter how good your agents are, you need humans to manage the products. We still, I wish we didn't need PMs and all that, but we do. And so I've got one company crossing a hundred million that literally was going to end this year with three times more products than it did last year.

SPEAKER_01

And the EPD team is going to grow larger than I'd like, because this just needs, they're not related. You just need humans to talk to the, even if you need fewer humans per product, which is even if you need half the humans for product, if we have 10 times more products, help me with the math, Rory. It's hard to get super lean. And so even, and so our startups that we're excited about, I think ultimately they will achieve the same historic level of bloat, maybe half the size, but they will get as bloated as they can because they will have much larger, broader product lines.

SPEAKER_01

Everyone will be a rippling with 22 products the first year, and you got to have 22 PMs to make that work. [SPEAKER_03] Agreed. [SPEAKER_03] And just to spell it out, I think this again gets to the number. [SPEAKER_03] I talked to a VP of engineering over the weekend who said exactly that. [SPEAKER_03] He said, look, we're speeding up. [SPEAKER_03] We're using the tools. [SPEAKER_03] But the problem then quickly shifts. [SPEAKER_03] The problem isn't our ability to ship stuff in engineering. [SPEAKER_03] The problem is the ability of the organization to turn that stuff into money, which means productization, product marketing, sales enablement, blah, blah, blah.

SPEAKER_01

[SPEAKER_03] I totally agree. [SPEAKER_03] I think there's an interesting academic paper that was cited, I think just today on the impact of AI on GDP productivity. [SPEAKER_03] And you have the two schools of thought that it'll be amazing. [SPEAKER_03] It will go at 10% R where I stand. [SPEAKER_03] And the statistic, the average over the last 200 years has been 2%. [SPEAKER_03] It'll stay at 2%. [SPEAKER_03] And then they say, why is it going to stay at 2% if this is so amazing? [SPEAKER_03] And it's exactly what you said, Jason. [SPEAKER_03] They said, even when one part of the org speeds up, it doesn't matter if you can make a zillion pieces of software.

SPEAKER_01

[SPEAKER_03] If you can't package it, price it, sell it, train it. [SPEAKER_03] So it makes this reference to weak links. [SPEAKER_03] The weakest link in the chain is what determines the speed of the convoy, the wagon trainer, in this case, the company. [SPEAKER_03] So again, it gets back to the, it may well be not the amazing productivity lift you think. [SPEAKER_03] And therefore, maybe the budget won't be because you have to spend more on people than you would have guessed. [SPEAKER_03] Right. [SPEAKER_03] So this is a real factor here.

SPEAKER_01

[SPEAKER_02] If we're okay to move on, I do want to move on to the next segment or function to be heavily impacted, one would say, which is legal. [SPEAKER_02] We've spoken at length about Harvey and Magora. [SPEAKER_02] There are two elements specifically that I want to touch on here.

SPEAKER_03

[SPEAKER_02] Number one is Kirkland spending $500 million on building their own Harvey and Magora, feeling they have proprietary data, proprietary workflows, and they should build their own. [SPEAKER_02] $100 million over five years. [SPEAKER_02] This is a big commitment from one of the world's largest law firms and a big slight on two of the biggest players that are told, we don't need you. [SPEAKER_02] The other point I'm going to make is Jason from Iron Cloud last night announcing that he is joining OpenAI and the impending or coming threat from OpenAI and Anthropic in legal, which we will see in the next two to eight weeks.

SPEAKER_03

[SPEAKER_01] For what it's worth, I don't think this is as interesting as it looks for what it's worth. [SPEAKER_01] Okay. [SPEAKER_02] $100 million over five years. [SPEAKER_02] This is a big commitment from one of the world's largest law firms and a big slight on two of the biggest players that are told, we don't need you. [SPEAKER_02] The other point I'm going to make is Jason from Iron Cloud last night announcing that he is joining OpenAI and the impending or coming threat from OpenAI and Anthropic in legal, which we will see in the next two to eight weeks.

SPEAKER_03

[SPEAKER_01] For what it's worth, I don't think this. A lot of these things on X, I don't think the Kirkland story is as interesting as it looks for what it's worth.

SPEAKER_01

Okay. So you've got, yeah, it's a law firm, but it's a law firm that does $11 billion in revenue, growing 20%. It is committing a hundred million a year of IT that's probably coming out of their Windows NT box or some other crappy budget that they don't need. And this doesn't mean that they won't put 20 million into third-party software as well. It doesn't mean they won't dump it if it doesn't work, but they basically, and it doesn't even mean, I don't know, they could be a Harvey or Magora or whatever customer too. I just think it's, this is a reallocation of less than 1% of revenue into AI to maybe build some proprietary stuff. They should do this.

SPEAKER_01

These are, working a law firm, I think is one of the most soul crushing businesses there is, but it's very profitable if you do it right. Segments of it are high margin and a hundred million is nothing to win the deal, right? How much would that be to Andreessen to win a deal? It'd be nothing. It'd be setting up a media company to win a deal, a 24 seven media company. It's nothing. It's nothing. So it sounds like if Kirkland Ellis was doing 200 million in revenue or something, it would be a big deal, but they won't even notice it, right? They won't even notice it.

SPEAKER_01

It'll come out of the bleeding edge of their Lexis Thompson budget for some old terminals that get dust in the corner or something.

SPEAKER_03

[SPEAKER_01] I don't think it's a threat. [SPEAKER_01] And if it is, it'll make them better. [SPEAKER_01] If Kirkland can build a competitive product, then the single source vendor should, then that will force them to be even better and say, listen, this is anything in AI.

SPEAKER_01

You can do a lot on your own. So the vendors have to do more. That's just a good thing. It's not 2023. It's great for everybody that we're under AI pressure. It's great for everybody. Everyone should spool up and try and build their own CRM and see if it's worth it. More power to you. If you want to get rid of Salesforce or HubSpot, go for it. They should do this. It'll keep everybody on their toes.

SPEAKER_03

I think one is Kirkland and Ellison have already won because they said it first. So they got all the publicity and their clients are aware of it.

SPEAKER_01

[SPEAKER_03] They look great. [SPEAKER_03] They look AI forward. [SPEAKER_03] They didn't even do something. [SPEAKER_03] They said they might in the future spend 1% of revenue a year for five years. [SPEAKER_03] Right? [SPEAKER_03] So good move. [SPEAKER_03] If that's all they do, they win. [SPEAKER_03] Right? [SPEAKER_03] And generally, if folks in there, if you're in a transaction business, Kirkland and Ellison definitely come on the hard-headed, mean side of things.

SPEAKER_03

And this is continuing on a lifelong trend. Right? So tough, canny call to announce it. Is it realistic? And that second comment is maybe Jason's right. Have a go. Knock yourself out. You can do a lot in AI. I think it is hard, in any partnership structure to build that kind of technology. It's traditionally not been possible. So we'll see. But I think the other thing is, and again, I don't know, was it Harvey Lagoer themselves or people talking about him, the whole, forget even the models for a second. As you think about companies trying to become full stack law firms.

SPEAKER_01

[SPEAKER_03] Right? [SPEAKER_03] And I'm not saying Harvey Lagoer wants to do that. [SPEAKER_03] And though you saw some third-party Twitter comments to that end, it would be crazy to think about that because nothing could piss your clients off more. [SPEAKER_03] I mean, if I was Harvey Lagoer, I'd be, no, we will never do this because you simply, what you cannot be is an AI provider to a vertical industry, a vertical knowledge industry with even the slightest intent or intent that you intend to compete against them directly by going for their, by being a full stack provider yourself. [SPEAKER_03] Right?

SPEAKER_01

[SPEAKER_03] So to some extent, this might be K&E being a defensive and thinking, if I am giving, and it boils down to the question is, this is a stepping back. [SPEAKER_03] This is always the rule on when does a big company buy from a third-party provider versus build something themselves? [SPEAKER_03] You buy from a third-party provider where it's a horizontal product where there's no unique differentiation. [SPEAKER_03] You're not giving up your secret sauce. [SPEAKER_03] You're not going to be able to monetize it differently by virtue of having that product.

SPEAKER_01

[SPEAKER_03] So law firms buy their case management software, their document storage software, their deposition software, even Reuters and Westlaw. [SPEAKER_03] Everyone has the same stuff. [SPEAKER_03] It doesn't matter. [SPEAKER_03] That's not how they compete. [SPEAKER_03] Right? [SPEAKER_03] And fast forward five years. [SPEAKER_03] If AI is just that where it's, yeah, it's a great lookup tool.

SPEAKER_03

It's modern Westlaw, modern case management, modern drafting, and it's all virtually the same. Then they should continue to buy it from an outsource provider and then compete as they do on the basis of the relentlessness of their senior counsel and the willingness to flog their associates to an inch of their lives to work, right? Which is how law firms compete. If on the other hand, this AI can become some level of encapsulation of your secret sauce, which is a little bit of the magic that people are saying, then I can see why people pause before they give that away. Because no matter how much, if you really think it's giving away your secret Same.

SPEAKER_03

Then they should continue to buy it from an outsource provider and then compete as they do on the basis of the rootlessness, relentlessness of their senior counsel and the willingness to flog their associates almost to an inch of their lives to work, right? Which is how law firms compete. If on the other hand, this AI can become some level of encapsulation of your secret sauce, which is a little bit of the magic that people are saying, then I can see why people pause before they give that away.

SPEAKER_01

[SPEAKER_03] Because no matter how much, if you really think it's giving away your secret K&E sauce or your Cooley sauce or your Gunderson sauce, do you really want to let Harvey train on that? [SPEAKER_03] Even if they say they're not training on that, this is the, are you giving away the crown jewels argument? [SPEAKER_03] My gut is I don't think you are, but I can totally see why the managing committee at $11 billion firm said, hold on here, guys, if we pay Harvey 10 million for their software, but in return for that, they know the K&E way, maybe not.

SPEAKER_03

So I should have some dynamic there, especially if they're also saying, and maybe there'll be a law firm soon. So I think it's really fun and interesting to watch this. And then we didn't even talk about, then on top of that, if you thought Harvey and Ligora were fast and loose with your IP, Mr. K&E, wait till you see what Claude does with your IP, Mr. K&E. Which is why I don't think big ass law firms are going to be willing. If you're not willing to outsource it to Harvey or Ligora, who at least are focused solely on your thing, I don't see, no matter, I don't see for large law saying, I'm totally fine with doing this on Claude. Long-winded answers.

SPEAKER_03

There's such a lot of dynamics here, but everyone is looking at everyone else's lunch and saying, I want that too. And this is what typically happens when a new technology comes on. I do remember, I'm doing it now, I'm doing my old, I remember thing. I remember in the mid-nineties, the story was Microsoft would be a bank. Microsoft would take over Intuit and then they'd take over your money. They would be, yes, they were going to be a fintech provider. This is what happens when lines blur.

SPEAKER_01

[SPEAKER_03] And then over time, it becomes obvious what goes where. [SPEAKER_02] And I think the same thing will happen here.

SPEAKER_03

Fast forward five years to be clear. I think there will be AI focused service providers to law firms. They'll buy the product and the drama will be out of the deal. [SPEAKER_02] Could be wrong. [SPEAKER_02] How meaningful an entrant do you think the AI services legal entrance will be? My gut again.

SPEAKER_01

[SPEAKER_03] And this is, by the way, none of this was on the agenda, folks. [SPEAKER_03] None of us had time to prepare, but thanks, Harry. [SPEAKER_03] I think the answer is this. [SPEAKER_03] I think it can be market expansionary in the sense of if I couldn't access a lawyer today, for I'm at the individual level, I think this is really great. [SPEAKER_03] I'm getting sued or I got screwed by some big company.

SPEAKER_03

I can't afford to get a lawyer. Now I can get an AI lawyer. I love it. Cheap divorce, cheap wills, explain the facts. Explain the circumstances. I think there's a ton of additional demand for legal services that can't be met by ordinary people that will be met by AI. And that's freaking great. Same thing for small business. I think, I'm a 10 person contractor. I get a document. I can get decent legal advice for a hundred bucks. I can't go to a lawyer for less than two grand. I don't think the full stack law firms will replace K&E, right? An AI law firm.

SPEAKER_03

Because what you're getting from K&E, even the nicer ones, the Wilsons, the Cooleys, the Gunnarsons, the guys out in the West Coast. You're not just getting the knowledge. You're getting the whole experience, which I don't think you can encapsulate. I don't think full stack goes all the way. I think it takes, I think you still need the human. Let me tell you this. When you're doing a $20 billion transaction, at some level, you want a human to think as a CEO and the CFO to hold your hand and tell you, these are the last 10 of these I did, and they're going to work.

SPEAKER_01

[SPEAKER_03] And this is why this is legal. [SPEAKER_02] So, I don't, I think K&E would be just fine. [SPEAKER_02] Thank God K&E can still sponsor the podcast. [SPEAKER_02] It'd be a bit awkward if you said they were fucked. [SPEAKER_03] You did just say they were like the mean guys. [SPEAKER_03] Let's say something. You'll always pay the premium for that, for that high level judgment on mission critical things, which is why these jobs are terrible, right?

SPEAKER_01

This is why they're critical because you just want, if you're a young associate, you just want a 40 hour a week job, but everything you work on is damn mission critical to the client, the $60 billion cursor acquisition, the SpaceX IPO, the whatever, the bankruptcy, the stress.

SPEAKER_03

[SPEAKER_01] And so, that's why these lawyers can charge up to $10,000 an hour now because the commodity services we do in Claude. [SPEAKER_01] But $10,000 is nothing on a massive, 10, 20, $100 billion transaction. [SPEAKER_01] It's nothing. [SPEAKER_01] You need the guy. [SPEAKER_01] I want Rory on this deal. [SPEAKER_01] I mean, that's who you want, right? [SPEAKER_01] You want Rory. I totally agree with your comment. And it reminded me way before Gen AI, when we looked at some of the AI startups in the mid 2010s, 2018, 2019, national language startups. And we were evaluating a really interesting one.

SPEAKER_03

And we had this young graduate from Stanford who was an associate at Big Law. We just said, hey, I'll pay you a bunch of money over the weekend to crank and use this for five different things. And she came back. She was really smart. [SPEAKER_01] That's who you want, right? [SPEAKER_01] You want Rory. I totally agree with your comment. And it reminded me way before Gen AI, when we looked at some of the AI startups in the mid 2010s, 2018, 2019, national language startups. And we were evaluating a really interesting one. And we had this young graduate from Stanford who was an associate at Big Law.

SPEAKER_03

We just said, hey, I'll pay you a bunch of money over the weekend to crank and use this for five different things. And she came back. She was really smart. She came back and said, look, I said, this is 98% accurate. This is really impressive. She said, I wouldn't touch you with a 10-foot pole. My boss will sack me if I'm not 100% accurate.

SPEAKER_01

[SPEAKER_03] I have no interest. [SPEAKER_03] It was exactly what you said, Jason. [SPEAKER_03] I'm getting paid to get something right that's a $100, $500 million transaction. [SPEAKER_03] I have no interest in this. [SPEAKER_03] So at the high end, I totally agree. [SPEAKER_03] I think you're going to have that human in the loop. [SPEAKER_03] And besides, I was going to say something else. [SPEAKER_03] Given K&E's reputation, I doubt the Entropic Safety Committee will allow them build a model quite as mean as your average K&E bankruptcy attorney. [SPEAKER_03] I literally think it will fail the safety test, right? [SPEAKER_03] The ethics and the face.

SPEAKER_01

[SPEAKER_03] Just too mean. [SPEAKER_03] We can't wait that mean. [SPEAKER_02] And there we go. [SPEAKER_02] That's the partnership gone. [SPEAKER_02] And the K&E now no longer partnering with 20VC. [SPEAKER_03] They'll forgive you.

SPEAKER_03

As far as they were concerned, they're going to put that in their advertising material. That's the product they're selling. [SPEAKER_02] Dude, they announced earlier this year they paid every partner an $11 million bonus. And they didn't do that by being patsies when it came.

SPEAKER_01

[SPEAKER_03] Famously aggressive in bankruptcy to the point where they actually had to step back on some stuff. [SPEAKER_02] Also, we all like to talk about 996 and work ethic. [SPEAKER_02] These guys work in a way we don't see. No. [SPEAKER_02] I mean, maybe you do it corgi.

SPEAKER_03

[SPEAKER_01] It's terrible.

SPEAKER_01

It's the worst job there is relative to the balance to get. I don't know whether it's a two by two or three by three. The worst job it is for the most money. [SPEAKER_03] Which is at least better than the worst job it is for the least money. Yeah. There's plenty of those. This is the worst job there is for the most money.

SPEAKER_03

It's bottom left. Sorry, it's top left. High money, low happiness. You're right. It's top left of the two by two. It's top left. It's okay. It's okay. Winning.

SPEAKER_01

[SPEAKER_02] Guys, I want to open up. [SPEAKER_02] Are there any that you think are really important that we hit on? [SPEAKER_02] Personally, I think Apollo and PE software returns being disastrous is quite a statement.

SPEAKER_03

[SPEAKER_02] But I don't want to guide all. [SPEAKER_02] If there's one. [SPEAKER_02] You can do whatever you want, Harry. [SPEAKER_01] Jason? [SPEAKER_01] I do think. [SPEAKER_01] Listen, it may be out of all of our collective skill sets. [SPEAKER_01] But it is in my interest area.

SPEAKER_01

I do think Robinhood letting AI agents invest for you. If it really goes to the nth level, I do think it's pretty interesting. I think everybody should be. It's good that they are exploring the limits of what agents can do because everybody should be doing this. What can your agents do, right? [SPEAKER_02] And just so I understand, do we not just see the commoditization then of trading? [SPEAKER_02] Because if everyone wants to make 10%, all the agents are going to trade in the same way. [SPEAKER_02] How do we think about—

SPEAKER_03

[SPEAKER_01] No, I think there's a version of this, and I'm being optimistic. [SPEAKER_01] I think Rory will be with me on this.

SPEAKER_01

He might. There's a version of this where it's like, wealth front, but what we really want, which is you talk with your agent, you say, this is exactly what I want. I want this rust profile of this amount of time. I'm this old. I have these expenses coming up. I want to buy a house in three years. Okay. I'm willing to lose up to 18% of what I have, but more than that is stressful. I make this much for my job. There may be ways that an agent, wealth management is the worst, the lowest quality of any professional I've ever worked with are humans and wealth management.

SPEAKER_02

[SPEAKER_01] They're terrible.

SPEAKER_01

They all put you in the same crappy models and come up with the same 11 proprietary products they want you to sell.

SPEAKER_02

[SPEAKER_01] And I think, Rob, this agent has the potential to leverage the best of AI to really do this dream of giving you the right, because no one understands finance well enough to answer these questions. [SPEAKER_01] I don't. [SPEAKER_01] I need a product.

SPEAKER_01

I have a certain amount of cash. It's in my bank. I have a certain amount of public stocks. Done pretty well this year. I have Kerry coming. I have Holmes. What the hell?

SPEAKER_03

[SPEAKER_01] No matter who I talk to, I'm guessing what to do with this crap, right? [SPEAKER_01] I want an answer from AI. [SPEAKER_01] And I asked Claude, but I would love Robin. [SPEAKER_01] I'm probably not the right fit for Robin. [SPEAKER_01] I would love the right answer for every single individual. [SPEAKER_01] So many folks will not get ripped off if we can get nailed this for everybody. [SPEAKER_01] Fidelity doesn't do it. [SPEAKER_01] Vanguard doesn't do it. [SPEAKER_01] None of them do this. You know, look, I think we actually made an investment in a company range that does this for the low end of the high network. Yeah, we talked about that. Yeah, yeah.

SPEAKER_03

I like it. We talked about that. [SPEAKER_01] So, and I remember you giving me shit for it, but I think— [SPEAKER_01] I would love the right answer for every single individual. [SPEAKER_01] So many folks will not get ripped off if we can get nailed this for everybody. [SPEAKER_01] Fidelity doesn't do it. [SPEAKER_01] Vanguard doesn't do it. [SPEAKER_01] None of them do this. Look, I think we actually made an investment in a company range that does this for the low end of the high net worth. Yeah, we talked about that. Yeah, yeah. I like it.

SPEAKER_02

[SPEAKER_03] We talked about that. [SPEAKER_01] So, and I remember you giving me shit for it, but I think— [SPEAKER_01] No, Harry did.

SPEAKER_01

I said I liked it. [SPEAKER_03] The interesting challenge about this business, I would argue, is why the Robinhood thing is interesting. [SPEAKER_03] Because I do disagree with one part of the thing you said, right? [SPEAKER_03] You made a comment. [SPEAKER_03] No one knows how to give that financial advice. [SPEAKER_03] The truth is this. [SPEAKER_03] It's pretty widely understood what the correct financial advice is and what the correct portfolio allocation is.

SPEAKER_01

[SPEAKER_03] A lot of this is actually just getting the information from the client, understanding the specific circumstances, and actually dealing with, as what Manz will tell you, a good portion of it is getting information from the client and then helping the client to stay on the straight and narrow and literally not let them do crazy stuff. [SPEAKER_03] I actually think knowing what to do in financial management at a macro level is pretty well understood. [SPEAKER_03] Risk allocation relative to net worth, relative to goals, right? [SPEAKER_03] Which is different than actually managing money and picking individual stocks.

SPEAKER_01

[SPEAKER_03] And I would utterly separate those two. [SPEAKER_03] The big picture asset allocation, financial planning decisions can be automated, should be automated, and are knowable, right? [SPEAKER_03] And I think LLMs have a really meaningful role there, right? [SPEAKER_03] And I think for sensible people who think in terms of asset allocation, it will be great. [SPEAKER_03] That's why we made that investment. [SPEAKER_03] I'm sure Robinhood could do a similar version of the same thing. [SPEAKER_03] The thing LLMs have been somewhat unproven as of yet is the ability to actually trade stocks, be a pod manager in a hedge fund world and outperform humans.

SPEAKER_01

[SPEAKER_03] The record on that isn't there yet. [SPEAKER_03] So, and to me, that's a less interesting problem, even though it's where all the drama is associated, right?

SPEAKER_03

I don't think Citadel, I think Citadel are going to use LLMs, but I don't think they're going to replace people with LLMs yet, right? The fun thing is, I just didn't think of the Robinhood demographic as the people focused on long-term planning for retirement. So it'd be interesting to see how that meshes with the trading as entertainment part of the Robinhood product. And maybe as those folks grow up, they grow up with them. I watched my son trade his Robinhood account. I don't think he's focused on where he'll be at 65. [SPEAKER_01] For sure. [SPEAKER_01] Let me just say one thing that I really like about that.

SPEAKER_03

One thing is he can focus on where he'll be with close of market, for fuck's sake. [SPEAKER_01] This is what I like about it, though. [SPEAKER_01] And this is where Andrew Bilecki, CEO of Klaviyo, he came to Sastor AI annual this year, and he talked about what they're doing in AI. [SPEAKER_01] And the first one is how they're building software and their harnesses. [SPEAKER_01] But the second thing you said, it went over my head because I didn't know it was on the agenda. [SPEAKER_01] But he's like, we have these AI agents, we have them for marketing and support and all the things they do at 1.4 billion in revenue.

SPEAKER_03

[SPEAKER_01] But the most important agents we have is so that every single person using Klaviyo now is a true expert. [SPEAKER_01] It's a true expert in marketing, okay? [SPEAKER_01] Which was impossible for AI. [SPEAKER_01] So the idea that I can go into any account, whether it's Robinhood or Morgan Stanley, and be an expert, and whatever, I can't tell you, and I actually think that the Google, the YouTube agent is really good. [SPEAKER_01] It tells you everything about how your YouTube video performs better than any human could, right? [SPEAKER_01] Try it if you haven't used it. [SPEAKER_01] It's amazing, right?

SPEAKER_03

[SPEAKER_01] And it has access to data you can't see and isn't expressed, right? [SPEAKER_01] And so all applications should make you an expert in their domain and their product, an expert. [SPEAKER_01] And literally, I have so much, I have money in different places. [SPEAKER_01] Every quarter, Morgan Stanley tells me I need more private equity exposure. [SPEAKER_01] That's their insight. [SPEAKER_02] Does that align, though, to what Robinhood is doing, which is basically allowing you to not be an expert? [SPEAKER_02] It's allowing you to say what you want, and it does the expert work for you. [SPEAKER_01] I think they're related, right?

SPEAKER_02

[SPEAKER_01] Whether it educates me or whether because I'm not educatable, it executes for me. [SPEAKER_01] I just think it's a line of autonomy in agents, which is a big discussion. [SPEAKER_01] How much is it education versus autonomy? [SPEAKER_01] But I think the aspiration so that your product makes all of your 10,000 customers, million users, 100 million users, truly experts in your domain, I think this is something as executives and founders we should aspire to. [SPEAKER_01] That you log in, and the first day, I'm an expert in sales, marketing, CS, engineering, product, whatever. [SPEAKER_01] That day, I should be an expert.

SPEAKER_02

[SPEAKER_03] To be clear, though, an expert advising Jason would be someone who looks at the totality of his holdings and says, Jason, you do not need more private equity. [SPEAKER_03] You got a ton of risk here. [SPEAKER_03] You need whatever. [SPEAKER_03] And to me, that is expertise that's available and should be available to everyone. [SPEAKER_03] That's the kind of idea that these things should be doing. [SPEAKER_03] And again, I'm saying it again for completeness.

SPEAKER_01

[SPEAKER_03] If you then tell the agent, I want you to outperform the S&P by 200 basis points, by trading stocks aggressively, figure it out. [SPEAKER_03] That agent cannot do that because that task cannot be accomplished by that agent. [SPEAKER_03] I just want to be clear. [SPEAKER_03] So what it can do, again, financial planning can be done much better with AI and with agents. [SPEAKER_03] I think actual trading, the record on being able to perform, is not there yet. [SPEAKER_03] Look, to state the obvious, I've talked to some folks who've been trying to do it, is that [SPEAKER_03] That's the kind of idea that these things should be doing.

SPEAKER_01

[SPEAKER_03] And again, I'm saying it again for completeness. [SPEAKER_03] If you then tell the agent, I want you to outperform the S&P by 200 basis points by trading stocks aggressively, figure it out. [SPEAKER_03] That agent cannot do that because that task cannot be accomplished by that agent. [SPEAKER_03] I just want to be clear. [SPEAKER_03] So what it can do, again, financial planning can be done much better with AI and with agents. [SPEAKER_03] I think actual trading, the record on being able to perform, is not there yet.

SPEAKER_01

[SPEAKER_03] Look, to state the obvious, I've talked to some folks who've been trying to do it, and given the power of LLMs, given its potential, given the way people like Jane Street use this stuff, if there was an edge, they'd be doing it. [SPEAKER_03] So some on the millisecond trading stuff, yes. [SPEAKER_03] But is AI going to give you a meaningful opinion on should you hold Microsoft or Apple for the next five years? [SPEAKER_03] It might make you more informed than if you didn't ask it, which is why, to your point, Jason, you'd love to have everyone as they're going to trade. [SPEAKER_03] If that information is served up to you, that's great.

SPEAKER_01

[SPEAKER_03] It's not clear yet, based on actual trading performance, whether or not that answer will be better than the random number generator that's the last one. [SPEAKER_02] But move on. [SPEAKER_02] Because if it was, someone would fund one of those companies and wouldn't tell anyone. [SPEAKER_03] Yeah, I don't think you can create alpha that didn't magically exist for every Robinhood customer, for sure, right? Maybe I'm indexing on something that's less important than it is to Robinhood. But this idea that you could, listen, maybe we're all just going to trade GameStop and SpaceX up to $5 trillion.

SPEAKER_01

But at least the agent can make me crystal clear understand what I'm doing. OK, here's the risk. Here's why it doesn't work. Here's the historical dispersion of similar things over the last one year, five years, 10 years. If you want to do it, that's great. But let me tell you about a few things you haven't thought about, Jason, right? That would be epic. That would be epic. I agree. And it would help things. We can do it today. I might have to get rid of 100 employees on my team to get the tokens there, but we can do it. [SPEAKER_02] Final one before a rage bait, but real. [SPEAKER_02] There's two for me, and so we can choose which one you think is more.

SPEAKER_01

[SPEAKER_02] I do think Apollo says PE software returns will be disastrous. [SPEAKER_02] It's very impactful given the percentages of the portfolios of some of the largest allocators in the world. [SPEAKER_02] And then tied to that, Harvard saying that now 41% of their book is now privates.

SPEAKER_03

[SPEAKER_02] It's a very high number. And taking the niche in turn. Apollo, as always, talking their non-book. But they're probably correct. I mean, if private credit, which is the senior lender to a whole bunch of PE-based deals is struggling because they're half the consideration and they were at 5x EBITDA leverage, they're worried, then the PE guys who are from 5 to 10. And in other words, the equity is below the debt in the stack. If the debt's in trouble, the equity is dead. Because these are all the SaaS companies that we've been talking about for a lot. And we all agreed that they're not dying, that they bounced 30% in the last month.

SPEAKER_03

But as Jason points out, they're still trading 3, 4, 5, 6x. And if you bought the thing at 10x three years ago, and now it's grown a little bit, but you've had to pay some debt. And now you're at 6x. It's just very hard to get out from under that. I want to shape out. Maybe it won't be a total train wreck, but maybe they'll have to own them for 10 years, do a whole bunch of bolt-on acquisitions to grind out a miserable 1.2, 1.3x. Yeah, it's hard. Because you can overpay. In companies growing at 100%, you can overpay and get saved.

SPEAKER_03

In companies that are growing at 20% and then suddenly slow down to 8% or 9% growth rate, if you've overpaid, it's kind of like overpaying for a real estate transaction. There's nothing you can do. There's no accelerant. There's no magic that's going to happen. You just own a mature SaaS company. I mean, step back. If you bought Salesforce at 14x revenue in 2021, congratulations, you own Salesforce. You paid for it half with equity, half with debt. So now you have seven times on the debt and seven times on the equity. You now own Salesforce. The public market thinks it's worth roughly five or six times revenue.

SPEAKER_03

You've got some growth, to be fair, but your equity is challenged. That's all he's saying. The math is pretty harsh. [SPEAKER_01] I mean, the LPs are going to be so excited to get their Anthropic distributions that they have to give you a pass on all these. [SPEAKER_01] To Rory's point, the point of Apollo is, look at the debt struggling. [SPEAKER_01] The equity has got to be worse. [SPEAKER_01] You're just not seeing it. [SPEAKER_01] That has to be true. [SPEAKER_01] But we got to move on and not care anymore. [SPEAKER_01] We just got to move on and fight the next battle. [SPEAKER_01] And I do think these distributions will...

SPEAKER_03

[SPEAKER_01] I think the distributions will facilitate us somewhat ignoring maybe some bad funds. [SPEAKER_01] Just move on. [SPEAKER_01] It's life, right? I think if you're the LPN, you have a diversified portfolio. You have to move on. But if you're one of these PE shops, the whole way it should work, and it should work, is you don't get to just, quote, move on. You have to, as part of your management fee, spend the next five or seven years. Because there's a big difference between giving up and getting a 0.5x now and grinding it out and getting a 1.2. [SPEAKER_01] You got to find an exit somehow that gets you to this. [SPEAKER_01] You got to make it happen.

SPEAKER_03

[SPEAKER_01] You got to somehow do it, right? And that's why I always say to LPs, I think capital commitment really matters. You have to move on. But if you're one of these PE shops, the whole way it should work, and it should work, is you don't get to just, quote, move on. You have to, as part of your management fee, spend the next five or seven years. Because there's a big difference between giving up and getting a 0.5x now and grinding it out and getting a 1.2. [SPEAKER_01] You got to find an exit somehow that gets you to this. [SPEAKER_01] You got to make it happen. [SPEAKER_01] You got to somehow do it, right?

SPEAKER_03

And that's why I always say to LPs, I think capital commitment really matters. Because if you guys don't have skin in the game, and especially if they want to raise again, they're like, oh, not me, right? Whereas if they've put in, as Peter Thiel put in, a very different fund, a very positive fund, but hundreds of millions of dollars, then they're going to sit and make it happen. So it will be interesting to see how the PE firms deal with that. Because even the venture firms, if we all have one difficult fund, how do you respond to that? Will it be a function of, are you playing a multi-period game? Does the next thing look good?

SPEAKER_03

And what are your economic incentives on that fund? Do you have capital at risk? [SPEAKER_02] You mentioned distributions from Anthropic. [SPEAKER_02] I think one thing that will be interesting is just how several firms deal with massive distributions in terms of team retention. [SPEAKER_02] Menlo will make $10 billion in carry. [SPEAKER_02] Spot will too, plus. [SPEAKER_02] Founders Fund will make more than that from SpaceX. [SPEAKER_02] When you have such huge amounts of cash coming to a team, humans are humans. [SPEAKER_02] They go off and do their own things. [SPEAKER_02] It does change structures of firms. [SPEAKER_01] It's okay. [SPEAKER_01] But so what?

SPEAKER_03

[SPEAKER_01] I mean, I guess it's interesting, right? [SPEAKER_01] Of the last generation, you've got OpenView that after their DataDog and other money called it quits, right? [SPEAKER_01] They just didn't want to do the AI thing. [SPEAKER_01] They're all sent to millionaires, right? [SPEAKER_01] Especially the guy that founded it, right? [SPEAKER_01] You even have our friends at Emergence. [SPEAKER_01] Most of them called it a day after becoming almost billionaires, right? [SPEAKER_01] Not all of them, but everyone but Gordon retired or did their own thing. [SPEAKER_01] So I don't think every VC firm has to last into the 23rd century.

SPEAKER_03

[SPEAKER_01] I think it's okay if some of them, these glorified institutions. [SPEAKER_01] I think it's and if some folks at Menlo want to quit, more power to them. [SPEAKER_01] What does it matter?

SPEAKER_02

[SPEAKER_01] I think some of these folks really are in it for the love of the game, right?

SPEAKER_03

[SPEAKER_01] I mean, what's Peter Thiel's point otherwise, right? [SPEAKER_01] I mean, he's too rich, right? [SPEAKER_01] And if you're not, then retire.

SPEAKER_02

[SPEAKER_01] If you don't love the game, retire when you make eight figures. [SPEAKER_01] Just leave when you have eight figures.

SPEAKER_03

[SPEAKER_01] That's the simple math, isn't it? When people make money, the thing it does, it allows them to be what they want to be. And some people are like, I want to go back to work next day and do another deal. And some people are like, I want to teach high school, right? And go team. And it's wonderful. Everyone has that chance to do that, right? And look, I think that so it just reveals preference. And I think, yes, a few firms are going to make an awful lot of money and more power to them. That's the way the system's meant to work. Some people will make a lot of money and say, I'm done. But yeah, there's a lot of people who keep going, right? And enjoy it.

SPEAKER_03

So I don't think it will be as, quote unquote, impactful in the way you said it. I also like what Jason said. You're right. If everyone decides they don't want to do it, then don't do it. [SPEAKER_02] Rory, if I gave you a $10 billion carry pool, would you come in tomorrow? Absolutely. I like the job. Because the real truth is, the terrifying fact, less so at my age, but especially at a younger age, there's nothing more terrifying than getting that kind of sum and then not having anything to do with your life. I always tell people to be very careful of large amounts of money and large amounts of free time tends to be pretty destructive, especially 30s, 40s, and 50s.

SPEAKER_03

It's hard to fill your day with. And there's so many things to do wrong. So yeah, I'd like to keep working. But again, someone else might decide, no, they really want to save the whales or save the planet or wonderful governor of California. You know, all these things are possible, right? I mean, one of the government can't if I'm failing, just spend a lot of money trying. I mean, you know, political consultants, thank you. It's a trickle down theory in action. [SPEAKER_01] I just think going back, it doesn't even matter. [SPEAKER_01] But when OpenView, I think just the Kirkland Hills thing, people got the OpenView story wrong, too.

SPEAKER_03

[SPEAKER_01] This was a rational look that the guys, we have made more money than we will ever spend in our lives. [SPEAKER_01] And going forward in venture, we're not excited about what this takes. [SPEAKER_01] And so they live in their best life, right?

SPEAKER_02

[SPEAKER_01] I mean, that is a rational decision for most human beings. [SPEAKER_01] They returned a lot of their fund, right? [SPEAKER_01] This was not struggling for 10 years to raise $100 million fund three.

SPEAKER_03

[SPEAKER_01] This is, guys, we all made nine figures. [SPEAKER_01] Maybe one made 10.

SPEAKER_01

And it's time to, it's enough already of this venture stuff. I'm not for these unappreciative kids. Wow, tough crowd. Or wherever it came from. It was clearly an intentional choice. Not for the next generation, right? Who kind of got kicked to the curb. But for the founding managing partners, it was a very intentional choice. The real problem, if you have very large distribution at a venture fund, is that for most people, even if you want to keep going, you might be worried that the next distribution just can't be as large. Is it worth it? When I went into venture, it pissed the folks off I worked with. I'm not for these unappreciative kids. Wow, tough crowd.

SPEAKER_01

Or wherever it came from.

SPEAKER_03

[SPEAKER_01] It was clearly an intentional choice. [SPEAKER_01] Not for the next generation, right? [SPEAKER_01] Who got kicked to the curb. [SPEAKER_01] But for the founding managing partners, it was a very intentional choice. [SPEAKER_01] The real problem, if you have very large distribution at a venture fund, is that for most people, even if you want to keep going, you might be worried that the next distribution just can't be as large. [SPEAKER_01] Is it worth it? [SPEAKER_01] When I went into venture, it pissed the folks off I worked with. [SPEAKER_01] And I said, I'm only willing to do this if I can make 10 times as much as I made as a founder.

SPEAKER_03

[SPEAKER_01] And I said, I don't care about money. [SPEAKER_01] I really don't care about money, right? [SPEAKER_01] I already made enough. [SPEAKER_01] I have my houses and cars and whatever. [SPEAKER_01] But I don't see why I want to do this for the next 20 years if I can't make – if I'm going to make 0.4 of what I made as a founder. [SPEAKER_01] It's got – this is just my simple math. [SPEAKER_01] It's got to be 10x to be worth it intellectually. [SPEAKER_01] And I don't even care about money.

SPEAKER_03

[SPEAKER_01] And so if I made a couple billion in carry, which I haven't done yet, and I'm looking at my next fund and I'm thinking, God, for 20 years I might make 20 million from that, I would quit. [SPEAKER_01] More power to the young kids. [SPEAKER_01] I would give them the keys, the code to the office, and I would tell them to keep all the fees and have fun. [SPEAKER_01] But I ain't going to do it for a fraction of what I made on the big win, right? But just as a reminder, I can give you the quickest way to make five times more than you made, right? Which is BDLP as well. [SPEAKER_02] I thought it was non-tropic SPV, but okay.

SPEAKER_03

My point is, you can just invest more of your capital. So there is a solution to your problem, Jason. That's what Peter Thiel did, right?

SPEAKER_02

[SPEAKER_03] He's a third of the founders fund, right? [SPEAKER_03] As always, when Peter Thiel does something, you should assume it's the entirely rational, cold-blooded, correct solution, right? [SPEAKER_03] If I have so much money that the marginal utility of the next deal is so low if I'm only getting one quarter, maybe one half of the carry, then the only way to solve that is I get one half of the carry and 50% of the LP.

SPEAKER_03

And now it's suddenly much more interesting. [SPEAKER_02] Yeah. [SPEAKER_02] So if you like the business, you can put more money into it.

SPEAKER_02

[SPEAKER_03] And if you don't like the business, you can go buy a football team or whatever it is you do or play or whatever the other things people do.

SPEAKER_03

[SPEAKER_02] Okay. [SPEAKER_02] Final one. [SPEAKER_02] Rage bait, but real.

SPEAKER_02

You can kill me for this one, guys. But we went and did a show with Nico from Corky. They work seven days a week.

SPEAKER_01

[SPEAKER_02] They have a 24-hour cafe.

SPEAKER_02

And it is a very intense work culture, unlike any I have seen before, to be fair.

SPEAKER_01

[SPEAKER_02] The company scales to $2.5 billion valuation and very quickly has been very successful. [SPEAKER_02] I'm not going to pick on Corky. [SPEAKER_02] I don't want to. [SPEAKER_02] But I'm just asking, in your best performing companies, are you seeing a different level of intensity and work ethic than you've seen in prior cycles?

SPEAKER_03

[SPEAKER_02] Or is this just rage bait?

SPEAKER_01

Can I simplify it, my learnings? I wrote this on Twitter. So my very first startup job, I told the startup, my very first startup job, I never worked at a startup before.

SPEAKER_03

[SPEAKER_01] And I roll in on Saturday to the office at 9 a.m. [SPEAKER_01] And it's me and the co-founder. [SPEAKER_01] And I'm thinking, well, I've never worked in tech before. [SPEAKER_01] But in all of my services jobs, I work six and a half days a week. [SPEAKER_01] I work nine. [SPEAKER_01] I didn't. [SPEAKER_01] We just didn't call it 996. [SPEAKER_01] I just had to work six and a half days a week before I worked at a startup. [SPEAKER_01] And he's like, it's so great to have you here.

SPEAKER_02

[SPEAKER_01] I haven't seen anybody in the office on a Saturday morning in a long time. [SPEAKER_01] So he was there. [SPEAKER_01] Right. [SPEAKER_01] Founder was there. [SPEAKER_01] As a founder, I worked seven days a week. [SPEAKER_01] Right.

SPEAKER_01

I think the only thing with 996, I think we're getting confused. There was a while in late 2020, 2021 when no one really worked. But in general, it's just how deep does it go in the organization? How deep does working Saturday and Sunday go? And I just think while many folks think it's toxic, if you're trying to build. I remember what the Cognition guy said. What's the CEO's name? The Cognition guy. Scott. Yeah.

SPEAKER_02

[SPEAKER_01] When they acquired Windsurf, he said, we're letting a lot of the folks go. [SPEAKER_01] And it's because we work seven days a week. [SPEAKER_01] And he didn't say it douchey.

SPEAKER_01

He didn't say anything. I thought that was very thoughtful. But if they're worth 26 billion or wherever we started the show. And so they're all going to make 40, 50 million dollars. I think for the first 50, the first 100, it may be OK today to have certain expectations. But you better deliver them back at Corgi in Cognition. You better not. The $150 million exit don't justify that. Right. So there has to be a quid pro quo. But I do think it's just a question of how deep in the organization and for how long. So I don't think it's as toxic or frankly as new as the world makes it out to be. I don't think it's as new.

SPEAKER_01

I think there's a performative element, even with the Corgi guy making it sound so new. I mean, just do it, man. Just hire those people. Right. Pay up. Give them four times the equity. Make them all. Have 20 co-founders. You know, they're not really co-founders, but give them the equity. And tell them this is what we want. And if you don't want it, go work somewhere else. It's cool. There's a lot of companies.

SPEAKER_01

I think there's a performative element, even with the Corgi guy making it sound so new. Just do it, man. Just hire those people. Right. Pay up. Give them four times the equity. Make them all. Have 20 co-founders. You know, they're not really co-founders, but give them the equity. And tell them this is what we want. And if you don't like it, go work somewhere else. It's cool. There's a lot of companies.

SPEAKER_01

[SPEAKER_03] Totally agree that it's not new. The truth is this. There are different jobs pay differently, have different levels of responsibility, risk, and intensity. Right. And you can pick where in that thing you want to be. I'm not making a judgment on you, right? Different folks are moved by different things through our conversation, right? And you're right. Startups consistently have an intensity significantly higher than most companies. I was reading the Apple in China book and then the 50-year history of Apple. This is not new. It was brutal there. They talk about heart attacks. They talk about the pressure, right? Unfortunately, sometimes to do really hard things, you need small numbers of people to concentrate 24-7 and pool their resources, pool their minds, and just will it through. It's not sustainable for 50 years of your life, right? It's just not a way to live, right?

SPEAKER_01

But I do agree with Jason. I think it's always been. We're joking about big law. Everyone at K&E and all these places, they build 2,100, 2,200 hours a year. That's exactly that math. So some people choose to make that trade in return for the success of it. So I agree. Don't be so performative about it. Don't be toxic about it. Just be realistic about your expectations. Most founders will do that. And most founders don't even regard it as a punishment. Most founders regard it as the thing they most want to do. And I love work, right? They're like, no, I don't want to go to the ballgame. I just want to work, right? And that's why you know it's their passion, right? And the first 50 people that are doing it all in will do it that way. When you get to 2,000 people and you have a large organization and you got to hire folks with lives and additional interests, you're probably not going to have that same level of intensity across the board. But I'm with you. It's nothing new. It's normal in its unnormalness. In other words, in every generation, there are places like that. It's a small percentage of the total workforce, because most folks are doing different jobs at different intensities. But go do it. But you're right. I like what you said, Jason. You better deliver. There's nothing more sucky. I had my own startup. It didn't work out. I look back and I worked seven by 24 for three years and made no money. That sucked, right? And that's, as a reminder, that's the modal experience in the correct sense of statistics. That's the most single, most likely outcome.

SPEAKER_01

If you're implicitly promising eight figures to these early employees, then sorry, you have to think. It's not even the 996. It's you have to think about this every minute. No one that's wildly successful, no matter what they say, they're thinking about their company every minute. They have distractions. Maybe they own a sports team or two. But you've got to be thinking about this every spare. It's all your energy has to go into it. And so you can expect that of more people, but you better give them a figure. You better give them a shot at eight figures, right? You better give them a shot at eight figures.

SPEAKER_01

[SPEAKER_03] I do think the things you have to watch is that you don't over devolve into weirdness and bad thinking and just losing judgment. I find when you're working really intensely and you're stressed and you're caught up in something, the good news is you put in an extra 10 hours of effort. The bad news is you lost your judgment in doing it. And especially if part of your job is a judgment job, you need to step back and go out, touch grass, take a walk, and just make sure that you're not, instead of rage baiting, rage working. You're just performatively working and not achieving. I think that is something. It sounds weird. I'm not hippy dippy, but making sure your psychology of health and judgment is good.

SPEAKER_01

No, for sure. Listen, it's a marathon, not a sprint. Unfortunately, we've replaced you with tokens, but it is a marathon and not a sprint. Both are true. Unfortunately, there's good news. There's bad news. We agree culturally. It's a marathon, not a sprint, but we need the token budget for the folks on the office 996. We just need your tokens.

SPEAKER_01

[SPEAKER_03] By the way, to your point, it is bizarre. And we've grown to accept that. We're all here in the Valley with a plan to automate white collar work such that there's going to be mass unemployment, according to these folks who are totally wrong, in my opinion, in three years. And all the work was done for us by agents. As yet, you talk to every single person in this Valley and they're like, I've never worked as hard. I'm working 24 seven. The contradiction at the heart of it is hilarious. [SPEAKER_02] And also my number one problem is hiring and recruiting the best talent.

SPEAKER_01

[SPEAKER_03] Yeah. You can't get people and I have to work 24 seven. But by the way, we're going to automate all work and it's all going to be fine. Maybe it's hard to predict. [SPEAKER_03] These folks who are totally wrong, in my opinion, in three years. [SPEAKER_03] And all the work was done for us by agents. [SPEAKER_03] As yet, you talk to every single person in this Valley and they're like, I've never worked as hard.

SPEAKER_03

I'm working 24 seven. The contradiction at the heart of it is hilarious. [SPEAKER_02] And also my number one problem is hiring and recruiting the best talent. Yeah. You can't get people and I have to work 24 seven. But by the way, we're going to automate all work and it's all going to be fine.

SPEAKER_01

[SPEAKER_03] Maybe it's hard to predict. It's just hard to predict. [SPEAKER_03] I think it's pretty easy to predict.

SPEAKER_03

It won't happen. Yeah, it won't happen. I think it's it. Yeah. Things will be great, but it's all delusional. Little things will be the same as the last 200 years. I repeat myself. [SPEAKER_01] Two percent real GDP. We'll see. Listen, we can go on forever. [SPEAKER_01] I think you can't predict because I just don't know being objective what happens with the B's. [SPEAKER_01] The A's everyone can't hire enough and they're worth more. [SPEAKER_01] I just we absorb so many B's in tech and then we got full of them. [SPEAKER_01] And I just I know you think there's going to be plentiful jobs for them. [SPEAKER_01] I'm not convinced. [SPEAKER_01] I don't know.

SPEAKER_03

I remember many years ago I had a CFO of one of my companies and she was fun. She was hard nosed and she had quirks, right? But then she pointed to another ex-member of the staff who had gone on to something else. And she said, I look at him, she said, and he's got a job. And as long as there's people willing to hire idiots like him, I'll be OK. It all stuck with me. And I look at the world. I hear they might. The truth is this. People will get jobs. They might not get the high staff. It sucks, but people repurpose from maybe you won't get another job that pays 400 grand and allows you to work from home three days a week. I think you will get a job. [SPEAKER_01] Right?

SPEAKER_03

[SPEAKER_01] So I am not in the bees will be dealing. The bees might just have to recognize that there was a moment in time when they got wildly overpaid. Goodbye. And maybe, you know, be happy doing other things. [SPEAKER_00] I'm benignly happy. I watched my son trade his Robinhood account. I don't think he's focused on where he'll be at 65.

SPEAKER_01

For sure. Let me just say one thing that I really like about that.

SPEAKER_03

One thing is he can focus on where he'll be with close of market, for fuck's sake.

SPEAKER_01

This is what I like about it, though. And this is where, and Andrew Bilecki, CEO of Klaviyo, he came to Sastor AI annual this year, and he talked about what they're doing in AI. And the first one is how they're building software and their harnesses. But the second thing you said, it went over my head because I didn't know it was on the agenda. But he's like, basically, like we have these AI agents, we have them for marketing and support and all the things they do at 1.4 billion in revenue. But the most important agents we have is so that every single person using Klaviyo now is a true expert. It's a true expert in marketing, okay? Which was impossible for AI.

SPEAKER_01

So the idea that I can go into any account, whether it's Robinhood or Morgan Stanley, and be an expert, and whatever, I can't tell you, and I actually think that the Google, the YouTube agent is really good. It tells you everything about how your YouTube video performs better than any human could be, right? Try it if you haven't used it. It's amazing, right? And it has access to data you can't see and isn't expressed, right? And so all applications should make you an expert in their domain and their product, an expert. And literally, I mean, I have so much, I have money in different places. Every quarter, Morgan Stanley tells me I need more private equity exposure.

SPEAKER_01

That's their insight.

SPEAKER_02

Does that align, though, to what Robinhood is doing, which is basically allowing you to not be an expert? It's allowing you to say what you want, and it does the expert work for you.

SPEAKER_01

I think they're related, right? Whether it educates me or whether because I'm not educatable, it executes for me. I just think it's a line of autonomy in agents, which is a big discussion. How much is it education versus autonomy? But I think the aspiration so that your product makes all of your 10,000 customers, million users, 100 million users, truly experts in your domain, I think this is something as executives and founders we should aspire to. That you log in, and the first day, I'm a fucking expert in sales, marketing, CS, engineering, product, whatever. That day, I should be an expert.

SPEAKER_03

To be clear, though, an expert advising Jason would be someone who looks at the totality of his holdings and says, Jason, you do not need more private equity. You got a ton of risk here. You need whatever. And to me, that is expertise that's available and should be available to everyone. That's the kind of idea that these things should be doing. And again, I'm saying it again for completeness. If you then tell the agent, I want you to outperform the S&P by 200 basis points, by trading stocks aggressively, figure it out. That agent cannot do that because that task cannot be accomplished by that agent. I just want to be clear.

SPEAKER_03

So what it can do, again, financial planning can be done much better with AI and with agents. I think actual trading, the record on being able to perform, is not there yet. Look, to state the obvious, I've talked to some folks who've been trying to do it, is that given the power of LLMs, given its potential, given the way people like Jane Street use this stuff, if there was an edge, they'd be doing it. So some on the millisecond trading stuff, yes. But is AI going to give you a meaningful opinion on should you hold Microsoft or Apple for the next five years? It might make you more informed than if you didn't ask it, which is why, to your point,

SPEAKER_03

Jason, you'd love to have everyone as they're going to trade. If that information is served up to you, that's great. It's not clear yet, based on actual trading performance, whether or not that answer will be better than the random number generator that's the last one.

SPEAKER_02

But move on. Because if it was, someone would fund one of those companies and wouldn't tell anyone.

SPEAKER_03

Yeah, I don't think you can create alpha that didn't magically exist for every Robinhood

SPEAKER_01

customer, for sure, right? Maybe I'm indexing on something that's less important than it is to Robinhood. But this idea that you could, like, listen, maybe we're all just going to trade GameStop and SpaceX up to $5 trillion. But at least the agent can make me crystal clear understand what I'm doing. OK, here's the risk. Here's why it doesn't work. Here's the historical dispersion of similar things over the last one year, five years, 10 years. If you want to do it, that's great. But let me tell you about a few things you haven't thought about, Jason, right? That would be epic. That would be epic. I agree. And it would help things. We can do it today.

SPEAKER_01

I might have to get rid of 100 employees on my team to get the tokens there, but we can do it.

SPEAKER_02

Final one before a rage bait, but real. There's two for me, and so we can choose which one you think is more. I do think Apollo says PE software returns will be disastrous. It's very impactful given the percentages of the portfolios of some of the largest allocators in the world. And then tied to that, Harvard saying that now 41% of their book is now privates. It's a very high number.

SPEAKER_03

And taking the niche in turn. Apollo, as always, talking their non-book. But they're probably correct. I mean, if private credit, which is the senior lender to a whole bunch of PE-based deals is struggling because they're half the consideration and they were at 5x EBITDA leverage, they're worried, then the PE guys who are from 5 to 10. And in other words, the equity is below the debt in the stack. If the debt's in trouble, the equity is dead. Because these are all the SaaS companies that we've been talking about for a lot. And we all agreed that they're not dying, that they bounced 30% in the last month. But as Jason points out, they're still trading 3, 4, 5, 6x.

SPEAKER_03

And if you bought the thing at 10x three years ago, and now it's grown a little bit, but you've had to pay some debt. And now you're at 6x. It's just very hard to get out from under that. I want to shape out. Maybe it won't be a total train wreck, but maybe they'll have to own them for 10 years, do a whole bunch of bolt-on acquisitions to grind out a miserable 1.2, 1.3x. Yeah, it's hard. Because you can overpay. In companies growing at 100%, you can overpay and get saved. In companies that are growing at 20% and then suddenly slow down to 8% or 9% growth rate, if you've overpaid, it's kind of like overpaying for a real estate transaction. There's nothing you can do.

SPEAKER_03

There's no accelerant. There's no magic that's going to happen. You just own a mature SaaS company. I mean, step back. If you bought Salesforce at 14x revenue in 2021, congratulations, you own Salesforce. You paid for it half with equity, half with debt. So now you have seven times on the debt and seven times on the equity. You now own Salesforce. The public market thinks it's worth roughly five or six times revenue. You've got some growth, to be fair, but your equity is challenged. That's all he's saying. The math is pretty harsh.

SPEAKER_01

I mean, the LPs are going to be so excited to get their anthropic distributions that they have to give you a pass on all these. To Rory's point, the point of Apollo is, look at the debt struggling. The equity has got to be worse. You're just not seeing it. That has to be true. But we got to move on and not care anymore. We just got to move on and fight the next battle. And I do think these distributions will... I think the distributions will facilitate us somewhat ignoring maybe some bad funds. Just move on. It's life, right?

SPEAKER_03

I think if you're the LPN, you have a diversified portfolio. You have to move on. But if you're one of these PE shops, the whole way it should work, and it should work, is you don't get to just, quote, move on. You have to, as part of your management fee, spend the next five or seven years. Because there's a big difference between giving up and getting a 0.5x now and grinding it out and getting a 1.2.

SPEAKER_01

You got to find an exit somehow that gets you to this. You got to make it happen. You got to somehow do it, right?

SPEAKER_03

And that's why I always say to LPs, I think capital commitment really matters. Because if you guys don't have skin in the game, and especially if they want to raise again, they're like, oh, not me, right? Whereas if they've put in, as Peter Thiel put in, a very different fund, a very positive fund, but hundreds of millions of dollars, then they're going to sit and make it happen. So it will be interesting to see how the PE firms deal with that. Because even the venture firms, if we all have one difficult fund, how do you respond to that? Will it be a function of, are you playing a multi-period game? Does the next thing look good?

SPEAKER_03

And what are your economic incentives on that fund? Do you have capital at risk?

SPEAKER_02

You mentioned distributions from Anthropoc. I think one thing that will be interesting is just how several firms deal with just massive distributions in terms of team retention. Manlo will make $10 billion in carry. Spot will too, plus. Founders Fund will make more than that from SpaceX. When you have such huge amounts of cash coming to a team, humans are humans. They go off and do their own things. It does change structures of firms.

SPEAKER_01

It's okay. But so what? I mean, I guess it's interesting, right? I mean, of the last generation, you've got open view that after their data dog and other money called it quits, right? They just didn't want to do the AI thing. They're all sent to millionaires, right? Especially the guy that founded it, right? You even have our friends at Emergence. Most of them called it a day after becoming almost billionaires, right? Not all of them, but everyone but Gordon retired or did their own thing. So I don't think every VC firm has to last into the 23rd century. I think it's okay if some of them, these glorified institutions.

SPEAKER_01

I think it's and if some folks at Menlo want to quit, more power to them. What does it matter? I think some of these folks really are in it for the love of the game, right? I mean, what's Peter Thiel's point otherwise, right? I mean, he's too rich, right? And if you're not, then retire. If you don't love the game, retire when you make eight figures. Just leave when you have eight figures. That's the simple math, isn't it?

SPEAKER_03

When people make money, the thing it does, it allows them to be what they want to be. And some people are like, I want to go back to work next day and do another deal. And some people are like, I want to teach high school, right? And go team. And it's wonderful. Everyone has that chance to do that, right? And look, and I think that so it just reveals preference. And I think, yes, a few firms are going to make an awful lot of money and more power to them. That's the way the system's meant to work. Some people will make a lot of money and say, I'm done. But yeah, there's a lot of people who keep going, right? And enjoy it.

SPEAKER_03

So I don't think it will be as, quote unquote, impactful in the way you said it. I also like what Jason said. You're right. If everyone decides they don't want to do it, then don't do it.

SPEAKER_02

Rory, if I gave you a $10 billion carry pool, would you come in tomorrow?

SPEAKER_03

Absolutely. I like the job. Because the real truth is, the terrifying fact, less so at my age, but especially at a younger age, there's nothing more terrifying than getting that kind of sum and then not having anything to do with your life. I always tell people to be very careful of large amounts of money and large amounts of free time tends to be pretty destructive, especially 30s, 40s, and 50s. It's hard to fill your day with. And there's so many things to do wrong. So yeah, I'd like to keep working. But again, someone else might decide, no, they really want to save the whales or save the planet or wonderful governor of California.

SPEAKER_03

You know, I mean, all these things are possible, right? I mean, one of the government can't if I'm failing, just spend a lot of money trying. I mean, you know, political consultants, thank you. It's a trickle down theory in action.

SPEAKER_01

I just think going back, it doesn't even matter. But when OpenView, I think just like the Kirkland Hills thing, people got the OpenView story wrong, too. This was a rational look that the guys, we have made more money than we will ever spend in our lives. And going forward in venture, we're not excited about what this takes. And so they live in their best life, right? I mean, that is a rational decision for most human beings. They returned a lot of their fund, right? This was not struggling for 10 years to raise $100 million fund three. This is, guys, we all made nine figures. Maybe one made 10. And it's time to, it's enough already of this venture stuff.

SPEAKER_01

Like, I'm not for these unappreciative kids. Wow, tough crowd. Or wherever it came from. It was clearly an intentional choice. Not for the next generation, right? Who kind of got kicked to the curb. But for the founding managing partners, it was a very intentional choice. The real problem, if you have very large distribution at a venture fund, is that for most people, even if you want to keep going, you might be worried that the next distribution just can't be as large. Is it worth it? Like, when I went into venture, it kind of pissed the folks off I worked with. And I said, I'm only willing to do this if I can make 10 times as much as I made as a founder.

SPEAKER_01

And I said, I don't care about money. I really don't care about money, right? I already made enough. I have my houses and cars and whatever. But I don't see why I want to do this for the next 20 years if I can't make – if I'm going to make 0.4 of what I made as a founder. It's got – this is just my simple math. It's got to be 10x to be worth it intellectually. And I don't even care about money. And so if I made a couple billion in carry, which I haven't done yet, and I'm looking at my next fund and I'm like, God, for 20 years I might make 20 million from that, I would quit. More power to the young kids.

SPEAKER_01

I would give them the keys, the code to the office, and I would tell them to keep all the fees and have fun. But I ain't going to do it for a fraction of what I made on the big win, right?

SPEAKER_03

But just as a reminder, I can give you the quickest way to make five times more than you made, right? Which is BDLP as well.

SPEAKER_02

I thought it was non-tropic SPV, but okay.

SPEAKER_03

My point is, yeah, you can just invest more of your capital. So there is a solution to your problem, Jason. Well, that's what Peter Thiel did, right? He's a third of the founders fund, right? As always, when Peter Thiel does something, you should assume it's the entirely rational, cold-blooded, correct solution, right? Is if I have so much money that the marginal utility of the next deal is so low if I'm only getting one quarter, maybe one half of the carry, then the only way to solve that is I get one half of the carry and 50% of the LP. And now it's suddenly much more interesting.

SPEAKER_02

Yeah. So if you like the business, you can put more money into it.

SPEAKER_03

And if you don't like the business, you can go buy a football team or whatever it is you do or playing or whatever the other things people do.

SPEAKER_02

Okay. Final one. Rage bait, but real. You can kill me for this one, guys. But we went and did a show with Nico from Corky. They work seven days a week. They have a 24-hour cafe. And it is a very intense work culture, unlike any I have seen before, to be fair. The company scales to $2.5 billion valuation and very quickly has been very successful. I'm not going to pick on Corky. I don't want to. But I'm just asking, in your best performing companies, are you seeing a different level of intensity and work ethic than you've seen in prior cycles? Or is this just kind of rage bait?

SPEAKER_01

Can I simplify it, my learnings? I wrote this on Twitter. So my very first startup job, I told the startup, my very first startup job, I never worked at a startup before. And I roll in on Saturday to the office at 9 a.m. And it's me and the co-founder. And I'm like, well, I've never worked in tech before. But in all of my services jobs, I work six and a half days a week. I work nine. I didn't. We just didn't call it 996. I just had to work six and a half days a week before I worked at a startup. And he's like, it's so great to have you here. I haven't seen anybody in the office on a Saturday morning in a long time. So he was there. Right. Founder was there.

SPEAKER_01

As a founder, I worked seven days a week. Right. I think the only thing with 996, I think we're getting confused. There was a while in late 2020, 2021 when no one really worked. But in generally, it's just how deep does it go in the organization? How deep does working Saturday and Sunday go? And I just think while many folks think it's toxic, if you're trying to build. I remember what the cognition guy said. What's the CEO's name? The cognition guy. Scott. Yeah. When they acquired Windsurf, he said, we're letting a lot of the folks go. And it's because we work seven days a week. And that he didn't say it douchey. He didn't say anything. I thought that was very thoughtful.

SPEAKER_01

But if they're worth 26 billion or wherever we started the show. And so they're all going to make 40, 50 million dollars. I think for the first 50, the first 100, it may be OK today to have certain expectations. But you better deliver them back at Corgi in cognition. Like you better not. The $150 million exit don't justify that. Right. So there has to be a quid pro quo. But I do think it's just a question of how deep in the organization and for how long. So I don't think it's as toxic or frankly as new as the world makes it out to be. I don't think it's as new. I think there's a performative element, even with the Corgi guy making it sound so new. I mean, just do it, man.

SPEAKER_01

Just hire those people. Right. Pay up. Give them four times the equity. Make them all. Have 20 co-founders. You know, they're not really co-founders, but give them the equity. And tell them this is what we want. And if you don't like it, go work somewhere else. It's cool. There's a lot of companies.

SPEAKER_03

Totally agree that it's not new. I mean, look, the truth is this. There are different jobs pay differently, have different levels of responsibility, risk, and intensity. Right. And you can pick where in that thing you want to be. I'm not making a judgment on you, right? Different folks are moved by different things through our conversation, right? And you're right. Startups consistently have an intensity significantly higher than most companies. I was reading the Apple in China book and then the 50-year history of Apple. You know, this is not new. It was brutal there. I mean, they talk about heart attacks. They talk about the pressure, right?

SPEAKER_03

Unfortunately, sometimes to do really hard things, you need small numbers of people to concentrate 24-7 and pool their resources, pool their minds, and just will it through. It's not sustainable for 50 years of your life, right? It's just not a way to live, right? But so I do agree with Jason. I think it's always been. I mean, we're joking about big law. I mean, everyone at K&E and all these pieces, they build 2,100, 2,200 hours a year. That's exactly that math. So, you know, some people choose to make that trade in return for the success of it. So I agree. Don't be so performative about it. Don't be toxic about it. Just and be realistic about your expectations.

SPEAKER_03

Most founders will do that. And most founders don't even regard it as a punishment. Most founders regard it as the thing they most want to do. And I love work, right? They're like, no, I don't want to go to the ballgame. I just want to work, right? And that's why you know it's their passion, right? And the first 50 people that are doing it all in will do it that way. When you get to 2,000 people and you have a large organization and you got to hire folks with lies and additional interests, you're probably not going to have that same level of intensity across the board. But I'm with you. You know, it's like it's nothing new. It's normal in its unnormalness.

SPEAKER_03

In other words, in every generation, there are places like that. It's a small percentage of the total workforce, you know, because most folks are doing different jobs at different intensities. But yeah, go do it. But you're right. I like what you said, Jason. You better deliver. There's nothing more sucky. I mean, I had my own startup. It didn't work out. I look back and I worked, you know, seven by 24 for three years and made no money. That sucked, right? And that's, as a reminder, that's the modal experience in the correct sense of statistics. That's the most single, most likely outcome.

SPEAKER_01

If you're implicitly promising eight figures to these early employees, then sorry, you have to think. It's not even the 996. It's you have to think about this every minute. No one that's wildly successful, no matter what they say, they're thinking about their company every minute. They have distractions. Maybe they own a sports team or two. But you've got to be thinking about this every spare. It's all your energy has to go into it. And so you can expect that of more people, but you better give them a figure. You better give them a shot at eight figures, right? You better give them a shot at eight figures.

SPEAKER_03

I do think the things you have to watch is that you don't over devolve into weirdness and bad thinking and just losing a judgment. I find when you're working really intensely and you're stressed and you're kind of caught up in something, the good news is you put in an extra 10 hours of effort. The bad news is you lost your judgment in doing it. And especially if part of your job is a judgment job, you need to step back and go out, touch grass, take a walk, and just make sure that you're not, instead of rage baiting, rage working. You're just performatively working and not achieving. I think that is something, you know, it sounds weird.

SPEAKER_03

I'm not hippy dippy, but making sure your psychologic of health and judgment is good.

SPEAKER_01

No, for sure. Listen, it's a marathon, not a sprint. Unfortunately, we've replaced you with tokens, but it is a marathon and not a sprint. Both are true. Unfortunately, there's good news. There's bad news. We agree culturally. It's a marathon, not a sprint, but we need the token budget for the folks on the office 996. We just need your tokens.

SPEAKER_03

By the way, to your point, it is bizarre. And we've grown to accept that, you know, we're all here in the Valley with a plan to automate white collar work such that there's going to be mass unemployment, according to these folks who are totally wrong, in my opinion, in three years. And all the work was done for us by agents. As yet, you talk to every single person in this Valley and they're like, I've never worked as hard. I'm working 24 seven. The contradiction at the heart of it is all it's hilarious.

SPEAKER_02

And also my number one problem is hiring and recruiting the best talent.

SPEAKER_03

Yeah. You can't get people and I have to work 24 seven. But by the way, we're going to automate all work and it's all going to be fine. Maybe it's hard to predict.

SPEAKER_01

It's just hard to predict.

SPEAKER_03

I think it's pretty easy to predict. It won't happen. Yeah, it won't happen. I think it's it. Yeah. Things will be great, but it's all delusional. Little things will be the same as the last 200 years. I repeat myself.

SPEAKER_01

Two percent real GDP.

SPEAKER_03

We'll see. Listen, we can go on forever.

SPEAKER_01

I think you can't predict because I just don't know being objective what happens with the B's. The A's everyone can't hire enough and they're worth more. I just we absorb so many B's in tech and then we and then we got we got full of them. And I just I know you think there's going to be plentiful jobs for them. I'm not convinced. I don't know.

SPEAKER_03

I remember many years ago I had a CFO of one of my companies and she was fun. She was hard nosed and she had a quirks, right? But then she point to another ex-member of the staff had gone on to something else. And she said, I look at him, she said, and he's got a job. And as long as there's people willing to hire idiots like him, I'll be OK. It all stuck with me. And I look at the world. I hear they might. I mean, the truth is this. People will get jobs. They mightn't get the high staff. I mean, it sucks, but the people repurpose from maybe you won't get another job that pays 400 grand and allows you to work from home three years a week. I think you will get a job.

SPEAKER_01

Right? So I am not in the, you know, the bees will be dealing.

SPEAKER_03

The bees might just have to recognize that there was a moment in time when they got wildly overpaid. Bye for go on. And maybe, you know, be happy doing other things.

SPEAKER_00

I'm benignly happy.