Stripe's $8B OpenRouter Bet | Anthropic's First Profit & The Math Behind Reaching $600B in Revenue?

Transcript

SpaceX closes the $60 billion all-stock takeover of Cursor. Your gross margin problem is my revenue opportunity for my Colossus cluster. Pessimists sound smart, optimists die rich. Open Ruda, $7 billion acquisition by the Irish Paulson Brothers. It'll be like the scale acquisition. It'll be the start of something that gets bigger. I don't even think this product will exist in five years. Anthropic turns its first profit on $11.5 billion of Q2 revenue. You can't add expenses below the line fast enough to stop yourself making money. The only thing that matters will be the growth rate and the 27 and 28 projected revenue. Someone who was hired with a million-dollar package in 23 ended up making 51 million four years later. On the consumer application side, Higgsfield raised at a $5.5 billion price. And then you have Lovable raising at a $13.3 billion price. Guys, we've talked about these companies a lot. How do we think about them? Ready to go? Guys, we are back. We have some mega news this week. SpaceX closes the $60 billion all-stock takeover of Cursor, minting 1,000x returns for the likes of Ali Parto via Neo. So, OpenAI's startup fund is a mega winner, who invested $6 to $8 million very early, which, Rory, I thought of you when you said before about Elon Musk giving Sam billions of dollars through gritted teeth. And many others, Thrive and Andreessen, most importantly, netting huge returns. What do we have to say on this one? It's the closing of an already announced deal. Thoughts? I just had three things. One is, it's just super. We've been doing this show about 70-something weeks or so. So much has changed. In the middle of it, or maybe a third of the way in, it almost seemed like Cursor was dead. No one's portfolio companies were using it. I don't even remember if Claude Code existed when we started this show or not, right? It might not have. It sounds so crazy. I'm not sure it had launched, right? So Cursor was super easy. Rockets to half a million in revenue, half a billion in revenue. Claude Code comes out, and it seems like everybody's moved. Cursor's dead, right? Cursor goes multi-model really early. It changes everything. And rockets to a $60 billion outcome. I mean, forget that it started as an email client, right? That fun little thing from Hacker News. I mean, God, I can't imagine what a roller coaster it was on behind the scenes. This was not actually 100% linear progress to $60 billion. Pretty crazy, I think, the rate of change. And the one thing I just kept thinking is, and it's tough, it's how important it is to be beyond agile. Because I think so many teams would have given up on that journey, right? Oh my God, fucking Claude Code came out? I got to build my old LLM. I got to do this. And it's just so hard to keep up with the rate of change. And there's probably been three different Cursors since we started, other than the email client. That was my main thought. The second one is how it ended up not even being that expensive by the time the deal closed. And you say that because it's going to be at $6 billion end of year, and then you're paying 10x? Or you mean it because you're paying 10x forward revenues? And it went from something earlier in the show, it looked like it would be gross-margin negative, right? When we started the show, it'd be like, well, Cursor is a joke because they're selling a dollar worth of tokens for 80 cents or 50 cents to the world. Of course it works, right? This was the classic thing that VCs would mock when we started this show. And it was true, right? Turn around everything from open weights and everything. It's a pretty darn good business model, selling at 10x forward revenue. I mean, Elon was a shrewd buyer. I'm intrigued why Zuck didn't buy it. He's building the model capabilities with Alex and co. He's missing the enterprise capabilities. This would have solved that in a similar way that it solved it for Elon. Interesting tangent. And yes, if the logic is, hey, you've got a whole bunch of compute but not an obvious business on top, the two people for whom that's true are Meta and SpaceX. And you're right, SpaceX did it and Meta did not, right? So that's, yeah, at a high level, it's a fair point. But one of the things we pointed out in the agenda is SpaceX could move a little more. They didn't do one of these weird acqui-hire things. They just bought it like a regular old corporation. They didn't have any antitrust. I mean, they actually filed for antitrust. They got quick clearance. They didn't have any compelling issues with that. I don't know if the seller would have had the same confidence that Meta would have gotten through, right? Just given their DOJ. They just probably are going to have the DOJ more kind of crawling through what they do. So that would be one argument. It may also be, to be very direct, no one else had the stomach for the bet in the way Elon does. And I mean, yes, Meta is relevant here in terms of fitting the characteristics of lots of compute, no compute business on top. But Elon has the biggest advantage, which is the stock is trading high. They're doing, what, 20? I mean, it's $8 billion last quarter in revenues. Call it 30 billion growing. Round up to 50. What the hell, right? It's still 40 times revenues, right? Picking up a big asset, as Jason says, at 15 times current revenues, maybe less than 10 times year-end revenues, dirt cheap for him, right? And net accretive day one in a way that probably wouldn't be as true for Meta. I haven't thought about it all that much because, frankly, until you mentioned it, I haven't thought of that. But one of the things for me is, if you zoom out, I'm just reflecting back on Jason's comment on the gross-margin negativity, right? That's true. That story was true when it happened, and it's still true today. There are challenging margin issues, right? And when you reflect on the journey, the negatives that you can cite along the way tend to be true. They're correct. Those were real. And it's a question of the positives. When you look at an investment, the positives in terms of market trajectory just outweighed the negatives. I mean, it's easy to sound very financially smart and say, oh, in the end, everything has to generate free cash flow. This doesn't have gross margin, so, quote, in the end, it's worthless. But it's wrong because, along the way, when you have a market that's exploding like coding, that's a huge market. Remember, this is the biggest market for AI. Like 70%, 80% of Anthropic's trillion-dollar market cap is predicated on this, right? If you have the number two player in that space and you're growing hyper-fast, then even though, yeah, you've got gross-margin challenges, especially in a kind of optimistic, forward-looking market, the buyer is going to look past that and say, there's only one or two ways to play in this space at a meaningful level. And it was just a perfect fit, right? In a very, frankly, different capital market, it could have been a very different story. Oh my God, there's no capital. Oh my God, the gross margins. Oh, no free cash flow. Oh, maybe you have to slow down and do a very different trajectory as Cursor. But in this market, they were able to go balls out, for lack of a better word, have those tough gross-margin stories, and then find a buyer who not only was willing to look through it, but actually had every incentive, every ability, to solve it. Because it's like, your gross margin problem is my revenue opportunity for my Colossus cluster. So it just shows, yeah, the negative issues didn't go away. They just got swamped by the optimistic take. And that's why it's the old cliche we talk about: pessimists sound smart, optimists die rich, right? Those guys had, Jason said it, there were probably some very tough days, but they had the guts to keep moving forward. And because the market's huge and because, frankly, the environment is risk-on, they've had an amazing result. Good luck to them. And on the Meta thing, it's just a detail. I guess it's a parallel-universe question, but I mean, Zuck would have had to pay 80 billion, 70 billion in like a week to do the deal, right? That'd have to be very core because don't forget, what happened was, Cursor was about to close round 2 billion at 50 billion, right? From Andreessen and friends. And Elon did what you have to do in that situation. What does it take? They just got swamped by the optimistic take. And that's why it's the old cliche we talk about: pessimists sound smart, optimists die rich, right? Those guys had, Jason said it, there were probably some very tough days, but they had the guts to keep moving forward. And because the market's huge and because, frankly, the environment is risk-on, they've had an amazing result. Good luck to them. And on the Meta thing, it's just a detail. I guess it's a parallel universe question, but Zuck would have had to pay 80 billion, 70 billion in a week to do the deal, right? That'd have to be very core because don't forget, what happened was, Cursor was about to close around 2 billion at 50 billion, right? From Andreessen and friends. And Elon did what you have to do in that situation. What does it take? So he bid 10 billion more, right? You've got a deal at 50. Zuck did Instagram and WhatsApp in an hour on the back of a napkin and paid high, right? But I think Elon did even better. What's it going to take? They were already working together with Cursor, right? They're already working together. We're going to do the round at 50. Would it, how about 51? No. How about 50, 60? How about 60? Okay. And, well, the deal might not happen. Well, what if we pay you 10 billion if it doesn't happen? Well, okay. I've removed all the objections from the deal, and I'll let you run the company the way you want, right? I think it was three points and they shook hands and did the deal. Zuck can do the same thing. He's done it at least twice, but you got to want it bad to do it, right? At 80 billion. And he would have had to move even faster. Rory's, of course, right. Elon had the ultimate stock and currency to do this deal, right? And the ultimate match. But to do any of these deals, I think you got to be Elon or Zuck because you got to just strike this deal in a week at 60 billion. It's only a handful of people can do this, right? I don't even know, only a handful. Agreed. And I was reading a Smith, who's kind of a Dem left-of-center but moderate centrist blogger, who's not an Elon fan. Just wrote a great piece about a year ago that says, "Only a fool denies that Elon Musk is wildly effective." He is, regardless of your opinion on the merits of the party, one of possibly the most effective people on the planet at getting shit done when it comes to industrialization, physical AI, and AI, right? And from a standing start a year ago, he built the cluster and then he bought the product to sit on top of it. And he took SpaceX from literally a year ago being a really amazing rocket and satellite connectivity story to being, as the Rest of One says, at least in terms of the quote, future prospects, 89% an AI story. You saw his tweet. You mentioned it a year ago. I've underestimated AI. I have some version of underestimated AI. And it's not the right time to go. He went from a standing start to owning more compute than pretty much anyone else and owning a product, the most important product to fill that compute, in less than a year, just over a year. That's just wildly effective management. It's world-class in getting shit done. The other small factor, just thinking about it, we can move on, but imagine you are Michael at Cursor, right, and things are going pretty well. You've got a term sheet from, you're what, 24? You're a paper deca-billionaire. And Andreessen wants to, and Nvidia and Thrive want to put in money at 50, right? You're not that cash-motivated. You could take out a billion, right, or 500 million, right? Things are going okay. These are very rare deals. But even though working with Elon in a year might turn out to be terrible, right, I would much rather initially work for Elon than for Zuck personally. I would do it. I would be like, Elon is the guy I want if I had to work for somebody, to be Elon. He is better than me. This guy is fucking rockets, electric, he does everything. And Zuck's firing everybody and going crazy because he doesn't have an LLM. Not that he isn't one of the greatest entrepreneurs, but I wouldn't want to work for Zuck, but I would want to work for Elon. And that actually matters. It may be a mistake in M&A as a target, as a CEO, because when we've been founders on the other side, we've made mistakes here, right? I tell founders to ignore it, ignore the brand, ignore what you think the job is today, because you have no idea in 24 months what the hell you're going to be doing. But it is incredibly emotionally important to founders to land in something they want to land in, right? And I would not want to land at Meta today. If I was Alex at scale and I got 24 billion and I had a tough business, maybe. But this one, man, I'll take Elon over that one. Do you think Amazon or Meta go, yeah, we'll take Cognition instead? Is there a knock-on effect for the second player in market, which I think arguably now would be Cognition? There's actually a quality of absolute imperative to do something. You know who has to, and I think SpaceX had to because they had all this compute and it looked like they had to fill it. Now, subsequently, they've also been able to rent that compute to Anthropic and Google. I don't think it's nearly as existential, for different reasons, to the two you named. And I'll name one for whom it is. For Amazon, they're in the AWS business. They got lots of contracts with Anthropic. They basically have the compute for cloud code, so they're basically getting the inference-side revenue for that. They don't own the model, but it's important, but not imperative. They've never done a 60 billion dollar deal. They're starting now? Meta, that to me is more, again, unlikely. And the reason they didn't do it earlier is their core businesses and ads business, it's freaking amazing. This is literally, I have a wonderful ads business, it kicks off north of 100 billion. I've chosen to do this new AI thing. We can pretend it's strategic, but it's really, I'm just freaking really interested in it. I don't know if you have to do another 60 billion deal on top of that one. So not as imperative. I think, just to put it out there, I'm going to name the company for whom this market matters is Microsoft. Because you remember, he's now long since gone and owns a basketball team, but Steve Ballmer would jump around the stage, square, sweating, screaming, "developers, developers, developers," right? And the fact that they've lost that connection with developers, that GitHub is now a trailing-edge product, is, to me, over the medium term, a pretty significant loss. Operationally, the numbers are fine. It's a well-run company. But if you wanted to name people who should want to own a leading state-of-the-art coding product in this brave new world, clearly the number one person is Microsoft. Now, the antitrust issues would be a longer discussion, but I don't think, in other words, I don't think owning the developer is existential for AWS. I definitely don't think it's existential for Meta. It's 100% existential over the medium term for Microsoft. There was a fantastic tweet that said Satya should buy it and then make Scott or your CEO of Microsoft. I thought that would be a rather ridiculous thing to replace himself, but I actually thought Scott would be a rather brilliant CEO of Microsoft. My experience with big company M&A is that the idea that, Harry, what did you say, that you feel like someone else feels like they have to do a deal, what was the term you used, sorry, you feel like folks have to jump in to respond to Cursor, that everyone else, yeah, yeah, my experience is that doesn't happen. It doesn't actually get everyone else to say, hey, I've got to go buy Cognition. My experience is that usually the other thing happens. I wanted to buy Cursor, I lost Cursor, or I didn't even know I lost Cursor because Elon swooped in. Now it pushes it up my existing priority list. That's how number two and number three get bought, not because there's a panic for land grab, but because I didn't get what I wanted, right? That's when you got to be really thoughtful as number two because that's when you get bought as number two and number three. When number one just gets taken off the table, it's not so much a land rush. It's just, I thought a lot of times acquirers are like, I thought I had more time. Maybe Satya's like, I thought I had more time with Cursor. Andreessen would do it at 50. I could do it at 100 billion next year. I wanted to wait and see. And they thought I had more time, and they didn't. So then they go buy number two. A couple times I've said on the other side, I don't know that it creates such a strategic arms race that know I lost Cursor because Elon swooped in. Now it pushes it up my existing priority list. That's how number two and number three get bought, not because there's a panic for land grab, but because I didn't get what I wanted, right? That's when you got to be really thoughtful as number two, because that's when you get bought as number two and number three, when number one just gets taken off the table. It's not so much a land rush. I thought a lot of times acquirers are like, I thought I had more time. Maybe such as, I thought I had more time with Cursor. Andreessen would do it at 50, I could do it at 100 billion next year. I wanted to wait and see, and they thought I had more time, and they didn't. So then they go buy number two. A couple times I've said on the other side, I don't know that it creates such a strategic arms race that everyone just gets picked off instantly. That might be a VC partial myth. There's another mega acquisition that happened this week. It's not quite the 10 billion dollars that was reported, but OpenRouter, 7 billion acquisition by the Irish Collison brothers, bro, your brethren. Yeah, I mean, what an incredible journey. Alex Atallah, CEO, who I just had on the show, he founded OpenSea before. It's obviously the leading LLM routing company. It raised a Series B. It was at 1.3 billion dollar valuation just four months ago, so it's 5x that for CapitalG. It's a 12x for Menlo and Andreessen. How do we think about this? It's widely reported now, it's confirmed. You can see intuitively how Stripe get there from here, right? When you look at their existing business, they get paid a small percentage of the money flow to manage complexities in collecting cash via cards, and also by ACH now, and here they're going to get a small amount of the money flow to manage the complexities of picking models and running, as an enterprise using a single API, to run tens and maybe hundreds of different models. I can see at the conceptual level it totally makes sense, and a lot of their lift recently has come from, even on their payments business, just their customer base being so AI-forward that every time you spend money with OpenAI or Anthropic on a credit card, they get some of that money. I can totally see how they get there. Again, it's some version of the same thing as the Cursor comment. You can do the old intellectual, oh, what are the barriers to entry for this business? Over the medium term there'll be lots of people, and there's a ton of weenie router companies out there, and everyone's building one. But it turns out in an early land grab, when people are moving, remember the meta market here is going 10x year on year if you take Anthropic's growth rate as the big picture comment here, right? If you move early and you build a useful part of the infrastructure, you will probably find an acquisition at a price that doesn't make any sense on a DCF-to-you basis, but makes huge sense to the acquirer, because OpenRouter, just like Elon will turn Cursor into money, cash flow, far quicker than Cursor could have turned Cursor into cash flow. I'm willing to bet Stripe will turn OpenRouter into money probably quicker than OpenRouter could do on a standalone basis. This is what happens in a crazy market, is that if things slow down, a lot of these, the acquirer would run the buy versus build and say, there's no hurry, we've got five years. When things are moving as fast as they are now, you're going to see, in my view, until such time as you see the correction and the acquirer currency diminishes, you're going to see a whole bunch of people like Anthropic say, screw it, I want to be in world models, I'm just going to buy the card. I don't have time. Screw it, I want to be in Stripe. It's good. I'm huge in payments. I want to be in the AI inference flow. Quickest thing I can do is spend seven billion dollars, some of it stock, get these guys, and be rolling in a week. This is what you see. You saw it at early internet stage. You saw back in times even before that that would make you cry, Harry, if I even mention it, right? When things are moving really quickly in a build-out, you just see these kind of amazing acquisitions where the value to the acquirer dictates a very healthy price, and it's one of the reasons why venture works. You go right out there in the risk continuum, but if you time it right, you can get these kind of returns, and well done A16Z, well done Menlo, well done CapitalG. It's a reminder. One thing I have a couple thoughts, if you want to get into, but it's a reminder how weird revenue is in M&A, because if you're bought by PE, revenue and top and bottom line are incredibly important down to the significant digit, down to cell G38, okay? If Workday goes private, exactly what its DCF will look like in 2032 is so important. The weirdest thing about M&A with big companies is revenue is so important to argue over multiples and the price. It's so important to price, but it's irrelevant because it's all about what Stripe can make out of OpenRouter, right? It's such a weird thing that your revenue going into big M&A actually doesn't matter at all, even though it's probably the biggest input to price. But then it's like Stripe literally, what's OpenRouter doing, 70 million, 80 million today? Stripe does not care, but for that money, right? So you often see acquirers will abandon even the existing revenue to do the revenue. It's such a weird paradigm. I would just, two things. Rory's right, Stripe actually appears to be very good at acquisitions. It's how it accelerated into crypto and otherwise. They're good at it. The flip side, you could say, is maybe they should be better at building these themselves, right? That's the grouchy version. Why didn't you build it? But if you're good at M&A and this is five percent of your market cap plus cash, right, and you want it tomorrow, it makes sense if you're good. You have to be good at M&A though, right? And then you do it. The counterpoint is I love OpenRouter. I talked about it on the show six months ago. I'm a customer. I'm a user. It's brilliant. It was one of these pieces of software like ElevenLabs which is just instantly easier to deploy. It's just elegant. It was just a beautiful piece of software, but it's pretty niche. In what sense, Jason? Just a genuine curiosity. Okay, so let's break. OpenRouter, as I understand it, and I think it's right, is really strong in sort of developer-type tools where you want a simple way to pick a model, okay? Because you can pick any model. You don't need to get on Fireworks. You don't need to set up anything. And it's really, really, really strong with chatbots where they don't have to be perfect. When you're talking with my digital Harry or digital Rory, you don't need perfect outputs, right? You could route between models based on availability, and those are their two niches. Now let's talk about workflows with a lot of reasoning for B2B when it has to be accurate. You're going to downspec to one or two models because you can't have model drift. You can't be routing from Kimi to Qwen to 4.6 to Fable, and all of a sudden your B2B workflow that has to be perfect drifts from all of them. It drifts even just going from one Opus model to another. You see drift. You have to QA it, requalify it, fix it, test it. So for high-reasoning models, people do that frontier-esque outputs, right? People don't rotate through 11 models, and I don't think OpenRouter is the right product for that. And that's fine. They get that too. But I think Stripe is, hey, listen, any transaction on planet Earth, we can take two point something percent of, right, there. But it's not going to be true for OpenRouter. It's a niche. It's a wonderful niche product. But in the world of routing, which everybody does, Databricks does, Replit does it, Lovable does it, Vercel does it, it's a niche product with two really good niches. But this is the risk to Stripe, is that they end up owning a niche, a successful niche product, and that's not their DNA. Their DNA is not niche, right? It's just not. First of all, I do think that's fair because we internally agonize about this space, and that was exactly what we're angsty about, and you're right. Your framing is exactly correct. The positive trend, let's spell out the positive trend, is as long as you have the frontier models trying to extract 100 billion in revenue from you this year and you're an enterprise, you're going to want a plan B, right, at least to keep the thing honest. So you are going to want some kind of routing. But it's what you said that resonated with me, Jason, a little bit, which is remember when cloud was starting, people were like, oh, I want to be multi-cloud. It's really hard to be multi-cloud. Maybe I want to be multi-model, but maybe I only want two or three models, and therefore I don't need this kind of routing. their dna is not niche, right? it's just not the first of all i do think that's fair because we internally agonize about this space and that was exactly what we're angsty about, and you're right. your framing is exactly correct. the positive trend, let's spell out the positive trend, is as long as you have the frontier models trying to extract 100 billion in revenue from you this year and you're an enterprise, you're going to want a plan b, right? at least to keep the thing honest. so you are going to want some kind of running, but it's what you said that resonated with me, jason, a little bit, which is remember when cloud was starting? people said, oh, i want to be multi-cloud. it's really hard to be multi-cloud here. maybe i want to be multi-model, but maybe i only want two or three models and therefore i don't need this kind of routing functionality. that is the risk. if your enterprise customer decides i need to flip between three models but not 10, then your value here goes down, right? i would imagine the positive spin is your value here goes up to the enterprise if you can build on top of just picking a whole bunch of normalization of all those options and try and commodify the model. so that's the kind of tension point. the more you can do that and the more you can service the people who don't care all that much, the better your business. but you're right, if jp morgan says i want more than just on tropic, but i'm not going to qualify 10 models, i'm just going to work with poolside as my plan b and then offload the rest to something else, then you're right, then you have niche and you don't get that revenue. yeah, for example, this week rippling posted their view as a b2b player of what models they use, right? and they had it all and they said across rippling we looked at two things that were best for us: opus 4.8, it's an n-1 model but it's well trained with their harness, and then there's price performance and speed, and then i think they picked whatever gpt 5.5 medium or something, and they said the rest isn't worth it for rippling today. now that could change in 60, 90 days. so they down spec to two at a time and then they have to manage the outputs from these, and you may tune one set of workflows here, right, that are long reason in another. and even if you're rippling scale, you managing 12 models is too much. if you're a dev tool and let people pick, so be it, right? that's great for open router, right? or if you want to build into your own product a fallback, open router is a 10 out of 10 for this. let's say something's down, right? open router automatically falls back. but i think it's a niche product, but it could be a massive niche. yeah, i mean i'm remembering the conversations now because you are right. the great thing about the core stripe product is all payments are equal and all v and visa is the rails for everything. that might be the case. duly noted. keep going. yeah, yeah, rippling said glm 5.2. i'm going to check out that post because one of the big questions will be how much pricing pressure enterprises can put on the closed foundation model companies, and how do they put that pressure on? because i think it impacts a lot. sorry harry, go on. in five years' time, will this be considered a successful acquisition or not? bats on prediction. i think it'll be like the scale acquisition. it will be the start of something that gets bigger. whether this brand exists or whether even this product exists in five years, i don't even think this product will exist in five years. but i think there's a high chance, more than 51 chance, it builds into a 20 or 30 revenue stream for stripe, and that's enough. but does open router as part of stripe exist in five years? i'll bet you dollars to donuts. five years is so much time and it's such a niche product. this product itself, if it does exist, it'll be deep in a drop-down menu on the top of stripe, like 11 layers down, because it'll be subsumed into their whole token management platform, right, their tmp. i don't know. i think jason's answer resonates with me, is if it works it'll be seen as a time expansion play. what's fun about stripe right now is they're doing that acquisition, which is very much a hey, we don't play in this space, let's put a stake in the new ground, and at the same time they're talking about a paypal acquisition, which is very much we own this space already. let's buy these guys, fold them into what we already have, and just make a shit ton of money consolidating, right? and actually i think that's a clever strategy. i mean i think they're actually playing a very clever hand. they're doing some things that there's probably a one in three chance that they have a massive ai routing business in five years, but if they do that's a big second leg. well, at the same time, if they get the paypal deal done, that's the kind of deal you have a high, to jason's point, about if you're good at mna and good at consolidation, you probably have a high degree of visibility that you keep those revenues, that you remove the entire gna, you get more of a two-sided network because you have consumer wallets, which stripe doesn't have, and you've done core consolidation acquisitions, and you're doing it all private. again, back to the comment, doing what looked like public company-size mna and pulling it off while private. i know they got the investors to take stripe stock in the open router deal. i think some portion of it was stock. and the paypal deal is more complex and probably requires more thought, but again being able to do what is, i think, a 40, 50 billion-dollar deal and a seven billion-dollar deal issuing paper while private is pretty impressive. stripes corp dev team need a bonus at christmas time. they are busy this year. they are busy this year. but isn't everybody? we mentioned margin pressure on foundation models. anthropic turns its first profit on 11 and a half billion dollars of q2 revenue. the business is getting better for dario. this is also in a week where gavin baker said about dario saying he believes that they will be the final private company. did you see this? we did. and again, let's separate the hyperbole and the future from the facts in the present, right? it's not surprising they're making money, right? if you just go back to last year, they did four and a half billion last year and i think their gross margins went from negative blah the year before to positive 30 or something like that, right? on track, i think, end of the year, roughly 40, right? when you have decent gross margins, like 40, and you go from four and a half billion in a year to 10 billion in a quarter, right, and you 40, that means you have four billion of gross margin, right? you can't add expenses below the line fast enough to stop yourself making money, right? so it's inevitable. i mean, yeah, they 12x growth, right, which means they probably 14x gross margin if it continued to increase even slightly, and the trajectory has been increasing. you're not going to 14x head count or below-the-line training costs in six months, so yes, i'm totally not surprised that they are operating in composite. we had run numbers at the start of the year and it kind of came to that conclusion. i mean the interesting thing will be as they continue to grow, as they buy that expensive compute from elon, if you remember that has a big price increase two quarters, two months in. i doubt they will forecast for their ipo a base case of continuing profitability. i could be wrong, right? but this profit didn't surprise me. and i mean it's amazing performance, it's amazing revenue. i mean revenue with any kind of decent gross margin cures almost all ills. the other question is, as we gear up for an ipo, which could be very imminent, how what numbers does anthropic get away with, right? so, for example, you've got off-balance-sheet liabilities, you've got massive commits, you've got probably stock-based compensation like we've never seen in the history of mankind, right? so if you get asterisks and daggers on your numbers, they will be jaw-dropping, right? if they have to fully account for that, and some of that's non-gap, these off-balance sheets, if they have to fully account, if they're going to be hammered like a poor wix or someone for sbc, everyone's going to write up the horrific downside, right? but i think everyone's going to look through all the nerdy negative things you could see in the numbers. they're just going to ignore it, right? but i do think it's important that it get ignored. i think it's important for anthropic it get ignored. i think none of that will matter, to use a technical term, right? the only thing that matters will be the growth rate and the 27 and 28 projected revenue because it's a little weird analogy, but it's a little like, provided the revenue comes, everything else will be fine because you play they have to if they have to fully account for that, and some of that's non-GAAP, right, these off-balance sheets. If they have to fully account, if they're going to be hammered like Poor Wicks or someone for SBC, and everyone's going to write up the horrific downside, right, I think everyone's going to look through all the nerdy negative things you could see in the numbers. They're just going to ignore it, right. But I do think it's important that it get ignored. I think it's important for Anthropic it get ignored. I think none of that will matter, to use a technical term, right. The only thing that matters will be the growth rate and the 27 and 28 projected revenue because it's a little weird analogy, but it's a little, provided that we'll step back, provided the revenue comes, everything else will be fine because you play it. If the revenue comes, then you'll need the off-balance sheet stuff and you'll have the revenue to buy it. In other words, all these off-balance sheet stuff are basically, I promise to buy a whole shit ton of a whole load of compute from you in two years' time because if my revenue grows 10x for two more years, I'm going to need all that compute. Well, if the revenue grows, you need the compute. You're happy to have it. In fact, you're insisting you get it, right. If the revenue slows down, then you don't need the compute. It all gets hard, right. So almost everything is going to boil down to what number do you want to write for the next two or three years, right. And then, as you said, the stock-based comp, no one's going to care because the reason you worry about stock-based comp is because, in a steady state like Workday, we can talk about that in a second, if you're giving someone 500 grand every year to show up and be a middle manager, right, they're probably mentally putting those RSUs into their comp, and they think to themselves, I paid 400 in cash and 500 in RSUs, and if you stop giving them the RSUs, they're going to want cash. So it really is a cash number. So in a mature business, it's totally correct to worry about SPC, but the SPC numbers here are going to be huge because all these people got grants, and then it turned out to be worth way more than they ever thought, right. And yeah, the classic example: someone who was hired with a million-dollar package in 23 ended up making 51 million four years later, right. That doesn't mean you'd have to pay the next guy 51 million. It means he would have signed up if that person had gotten the million they signed up for. That's all the real economic stock-based comp. The other 50 million is just dumb luck. You got lucky. It's not a run rate. So I actually think it is okay in a hypergrowth company to look past a good slug of the SPC and normalize it out, and conversely, it's not okay in a mature company. That SPC, stock-based comp, Workday or Salesforce, that's real money that people are spending. So, and it's a little bit unfair because you're giving the hypergrowth company a free pass, but they get a free pass. You get a free pass, and it's the same thing we said about Cursor. You get a free pass on margin. You get a free pass on off-balance sheet. You get a free pass on SPC, provided revenue go up. Once revenue stop go up, all bets off. Once revenue goes up, all bets are off. All stops going up, yeah, yeah. What would it take in usage for Anthropic to hit the 200 billion dollar in ARL plan for 2028 and then 600 billion in the next year? The simple version is how many knowledge workers are in the world, all right? How many folks can take a subscription? Being generous, is it a billion human beings, right? So if Anthropic has a hundred percent market share at 200 bucks, that's a 200 billion. If Anthropic has 300 market share, that's 600 billion. I don't know, Rory's thought more. The 600 billion seems complicated, but our demand for AI has only just begun. You can see 200 billion, which is the number, right? Once you start getting just the 600 billion number gets really hard because no one ever looks at the big number, and I've just been doing some work on this, right. No one ever steps back and looks at the big numbers total. I mean, you said a billion knowledge workers in the world, absolute bollocks, right? There are 80, I mean, hard-nosed comment here, US is typically 50% of the world's software budget because we're 50% of the world's high-end knowledge workers. We're 25% of the world's GDP, so at a minimum, if spend tracks GDP, it's only 4x the US, but every software company is typically 2x US. Why? Because the rest of the world can't afford the same software we do because they're poorer and they have more people at lower wages and less software. That's why we have crappy internet when we go to Europe, right? So the truth is, the hard-nosed comment is this: you probably take the US knowledge worker spend and double it. There are 83 million knowledge workers in the US, right, and then roughly 86 physical labor workers. So that's what you start with, and you start cutting it down, and I literally was doing the math this weekend thinking about it. You start cutting it down real quickly, right. The truth is, knowledge workers includes everyone in healthcare. I don't think we're going to replace the nurses. It includes the teachers, right. The sweet spot, the earth sweet spot of the whole damn thing, is there are, yeah, there's about 1.8 million people doing coding in the US, including then QA and all the other. There's around 5 million people that do software-related shit, systems admin stuff, all the rest of that, and they get paid in total, grossing up, about 600 billion a year, right. 200 billion means you're replacing a third of them. That's a lot, right. And remember, we said the single most important ratio, and I asked you about what you thought it was, Jason, is what's the ratio of software in a steady state? What's the ratio of salary dollars to AI dollars, right? Because that's what you know. If it's 50% of salary dollars, you can easily get to 200 billion. 600 billion is hard in coding. Well, you can't get there if it's 10. Then it's hard to get 200 billion across the whole thing. So it really boils down to, in the steady state, how much revenue, how much of the, how much software, because if software is the tip of the spear in terms of max adoption, what do you think? For every hundred thousand dollars you spend on an engineer, or two hundred thousand dollars you spend on an engineer, are you going to be spending a hundred K on software, 50K on AI, 50K on AI, or 200K in AI? That's the number. Yeah, we're testing it. We are. No, you're right because the ramp the last 60 days are every single scale-up is capping their AI budget for real. It's not just Ubers of the world. Everyone's capping it because it's grown truly exponentially, right. Everyone's capping it. It's six million a year, eight million a year, right. I think it'll land at a hundred grand per engineer equivalent. I think that's what we'll, I think we'll give each of our best engineers a hundred thousand dollars of tokens, and in return we'll cut the size of our dev teams 30, 40 effectively. It won't exactly work out that way, but close enough is how it's going to work out. So there's a hundred grand here for running inference 24/7 with 10 agents in parallel. For what it's worth, I actually agree with that. That's what was my mental model too, and that points to a total, and it's assumed it's not just dev engine. Let's give the sys admins, the QA guy, let's do the same thing for everybody. Same thing for everybody. You get 200 grand of wages fully loaded, including all the benefits, and 100 grand AI, but we cut 30% of you. That turns out to be terrifyingly about a 200 billion plus or minus market in the US, and no ever, well, yeah, I mean, that's, and sorry, that's Anthropic's estimate for next year. My point is this: if you count all the heads and apply the Jason math, you get 200 billion in the US, which probably means you struggle to get 350 billion worldwide. That's the town, and then you've got to go beyond software, and there is obviously revenue beyond software, but it's nowhere near as fertile, and the percentage isn't going to be anywhere near as high. But it's funny, that's exactly the number I come out with because you see the ramp data that says the top 1% of their sample, which in turn obviously is a biased sample of tech-forward people, are spending 7K, and then the median is spending 100. It's amazing the dispersion, and 7K times 12 is only 84K. So the top 1% of the most curated group you can imagine in terms of tech spend is spending, that's 1% for all employees, so that's the pointy edge of the most optimistic spend, is 50 cents of salary dollar. I think we're going to get to 100,000. In the investments I've made that are the best ones, the ones growing faster but that are pre that's the town, and then you've got to go beyond software, and there is obviously revenue beyond software, but it's nowhere near as fertile, and the percentage isn't going to be anywhere near as high. But it's funny, that's exactly the number I come out with, because you see the Ramp data that says the top 1% of their sample, which in turn obviously is a biased sample of tech-forward people, are spending 7K, and then the median is spending 100. It's amazing, the dispersion. And 7K times 12 is only 84K, so the top 1% of the most curated group you can imagine in terms of tech spend is spending, that's 1% for all employees. So I did that. That's the pointy edge of the most optimistic spend, is 50 cents of salary dollar. I think we're going to get to 100,000 in the investments I've made that are the best ones, the ones growing faster, but that are pre-2022, 23, especially ones that are pre-2022, 23, so they have a frame of reference, right? They literally are shipping two to three times faster only recently, only recently. That was last year, right? People would say that, but it was all performative, token maxing, right? I had two board meetings in the last week where they finished the roadmap for the year. They're into 2027. Okay, these are my fastest-growing, two fastest-growing, but not brand-new companies. They finished the roadmap. They're well into the 2027 roadmap. So you're going to spend 100 grand on your team to do that, but it's adding up to so many millions, it's overwhelming. So I do really think this 100,000 makes a lot of sense. You could justify more or less. People will ratchet it, but I think it'll be the new normal, and you'll cap your team, and it'll all be that's just what the CFOs do, right? 100 grand of inference, and you get to hire this many engineers. But the idea that they're pulling their 2027 roadmaps, and it's not just performative, it's not just PRs, you want to invest in that up until the maximum where it works, right? But the absolute numbers are just getting really big. I gotta say, man, if you're not that way, you're losing today. If you're not deep into your 2027 roadmap by August of 2026 in the agentic world, your team is not good enough to survive today. This is your last chance to make changes. You should be deep into your 20—I'm not saying, listen, if you're OpenRouter, you didn't even have a 27 roadmap. It didn't even mean it because you're just remaking it day by day. But if you're running the classic playbooks of these, I can get this much done each quarter, this much done each month, and you're not into 2027, you're going to lose to the competition. You got to be honest. How deep into 27 are you? Not deep enough. Yeah, Jason always gives me these terrifying sound bites that I go back and think about, because we did this survey. We tend to be fact-based people. We did the survey of all our companies, and we saw, similar to the Ramp dispersion, some companies all in, some companies adopting, but still dramatically less spend per head. I can't remember the average, but it was dramatically less. And what I didn't do, and actually now that I think about it I should do, and I will do, is go back and see if you can touch a strong correlation, which you believe you should be able to, between output and spend. Can you justify the spend? Then you're right. Then you should be saying to the laggards, you're just going to fall behind if it goes out at two to two and a half trillion. Would you be a buyer? And first of all, I want to be clear, I don't think the software market is definitionally the end of the TAM. I think the average knowledge worker won't have 50% of salary in thing, but they'll have a meaningful percentage. So the TAM is significantly bigger than just developers because you have lawyers. But I think lawyers won't—look, the K&E guy who's pulling two million a year as a partner isn't going to be doing 200K's worth of tokens, right? He's definitely not going to be doing a million dollars' worth of tokens. A lawyer would die before they gave a million dollars of tokens instead of a million dollars of take-home pay, right? So the market is bigger than software, but there's nowhere else that's such a sweet spot as software. So I don't want to be limited to 200, but, and I'm going to answer your question, I think the really challenging thing—I'm going to jump around it a little—is I definitely want to be first out rather than second out in terms of going public, especially if you have some kind of near-profitability story or bouncing around profitability. So I think it's a far more attractive strategic position to be going out as Entropic in the fall with a we've been profitable, okay, we're unprofitable again, but we're the winner in the enterprise, than going out next year where maybe the growth rates have started to slow, both for Entropic and the public markets. And if you're OpenAI trying to access the markets, then I definitely think they're in a strategically more challenging situation. I think they've just capitulated to it. My guess is, like you, of course you want to be first, to your point, right? I think OpenAI has had to get their house together, more executive turmoil, apparently a great last 30 days, right? But first half of the year, slower than its previously junior competitor, right? They've had to do so much to say, listen, we're going to go public second, and then we're going to have a comp out there, and the comp is what it is, and we may not trade with the hype that SpaceX and Anthropic did, and the world will not end. We will trade at a very precise number. We will know what we're going to go out at, and the world will not end if we trade at 1.3 trillion. I just think they've given up on worrying about that because ultimately Rory's right. It's much better to be first, but in the long run it doesn't matter, right? You just go. If you don't need the capital, it just is what it is. That's the sentence. I'm going to push a little. That is the sentence. There are no two companies on the planet that need more capital than these guys. In a world where you do need the capital, being second sucks, because I agree, in general you are correct, right? It doesn't matter. Two companies go public plus or minus a year, and a decade later no one cares, right? We've definitely seen that over the years. The thing that's challenging in this particular case is both companies still have enormous many-hundred-million-billion-dollar capital needs. In that situation, I would much prefer to be first. I do. I think you're right, but what you're asking is around fear there. But the thing is, let's say whatever, pick your number. Let's say Anthropic is public at 2 trillion. It really doesn't matter, right? OpenAI is going to be able to sell stock at a discount to its implicit valuation before it goes public. There's still enough capital. Let's say they're both worth 2 trillion, right, implicitly, and OpenAI is going to be able to sell stock next year at 1.8. People will do it. Especially if you have no stock as CEO in your own company, it's okay to sell at a small discount. Yes, I agree. And look, I'm not catastrophizing here. There wasn't any. But I think the interesting thing is, if you're the smaller market cap company and you have the bigger capital need, which right now OpenAI does because they have a more ambitious capital-need target, now would you prefer to be the guy trading at one and a half trillion who only needs to raise a hundred billion, or the guy trading at a trillion who needs to raise 300 trillion? At some point these things become troubling, and yeah, price clears all markets. This is the best new technology market we've seen in decades, perhaps, and if you are the founder in that market, and even now the number two, you're going to attract capital. But you just don't know the terms under which it happens, and going back to my comment, I think you will regret not being able to access the capital markets this year. Who knows? No, it's not that I—of course I agree, and I don't want to spend too much. My only point is the media and social media make a big deal out of this, right? Who goes public first and who does better. I just think Sam and the OpenAI team have said this is our fate. They could go public tomorrow, right? There are enough people to buy these shares to go public. They've decided that while this isn't perfect, this is the best on the board, and we're going to live with the doubt. It's not the end of the world. You can't solve every problem tonight. They got to solve bigger problems than the cards are the way they are, right? Jason, you said about management team churn, that the churn, for those that don't know, most recently was Denise Dresser, who was a CRO, who left, and Dali Rajic has replaced her. For those that don't know Dali, he's one of the most respected CROs. He was a freaking master at Wiz, and I think the best CRO or sales leader in the out of this, who goes public first and who does better? i just think sam and the openai team have said this is our fate. we've talked. they could go public tomorrow, right? there are enough people to buy these shares to go public. they've decided that while this isn't perfect, this is the best on the board, and we're going to live with the doubt. it's not the end of the world. you can't solve every problem tonight. they've got to solve bigger problems than the cards are the way they are. right, jason, you said about management team churn that the churn, for those that don't know, most recently was denise dresser, who was a cro, who left, and dali rajic has replaced her. for those that don't know dali, he's one of the most respected cro's. he was a freaking master at whiz and, i think, the best cro or sales leader in the business. chad peats says he's the best of the best, so i'm feeling a little bit more confident for their codex and enterprise division. yes, yeah, it's just a lot of change. listen, all i don't know anything inside. i just think greg brockman took over and brought in the whiz guy, just had enough of the salesforce crap, right or wrong. actually, if you look across all of ai, a ton of salesforce executives have been recruited to come in and help because, and you can make fun of it, i used to make fun of how, back in the day, salesforce hired oracle executives because they took shots at oracle, but you need folks who know how to scale. there's not only so what is salesforce at, 45 billion run rate, 50 billion arr? i mean, anthropic's past that now. openai is past that, so you don't want to hire kids. you want to hire someone that has some idea how to play, so salesforce is about it, right? that is, but if you step back for a minute, i'd rather have someone from whiz that is close to technology, that is in a hyper-competitive space, rather than asking how many seats of slack you want. it's just a very different go-to-market motion. it's very different. jason, you said if you have not already hit your end-of-term or end-of-year goal in terms of product, and you're not well into 2027, you're behind. i'm making assumptions. i don't imagine workday is quite at the cutting edge, like two of your companies at 2027 already hitting those goals, and silver lake circles a 43 billion dollar take-private bid for workday, one of the biggest saas buyouts ever. we've got two of the best saas minds in the business here. guys, what should we take from this? saas isn't dead. one of the biggest firms, one of the biggest buyouts, the stock popped 18 percent afterwards. wow. i think what you can take from this is that the saas isn't dead thing is just too simplistic. i think what you can take it as is a very financially oriented, wildly savvy buyer is willing to bet money that they can buy this at a constrained price, lever it, and generate a return because the revenues are sticky enough to allow them to pay down the debt over five years and, with reasonable multiple stability, sell it on and make 20 percent ir or plus or minus. i mean, i ran the numbers. that's the best. in other words, it's not dead, but what it is not is wildly exciting. this is the mature phase of an industry, when it's not about wild growth. it's not even about untempered growth. it's literally about someone saying this thing is growing at 13 year on year. we can buy this thing for, what's it, roughly five times revenues, 16 times trailing ebitda. we'll probably leverage it two or three times and 4,000 ebitda, but it's going to be a big equity check, and then you run the lbo model and you say you keep it at 35 operating margins for five years, you use all that cash. it's roughly 10, i think it's 10 billion a year in revenue, so it's like 3 billion a year of cash. you pay down the debt and the interest and, provided you buy right, you can make 20 and almost a 2x over four or five years. it's what you recognize. i look at that deal and i go i'm torn because, first of all, i think silver lake are wily smart. it's very interesting when you run the sensitivities. if you pay 20 too much, it dips down into the mid-teens, and it's almost the exact opposite of venture. in venture deals, if you're in the right thing, it almost doesn't matter what you paid. you see cursor for details, see open router for details. this is the exact opposite. this is fine, precise financial engineering. if you're wrong by 20, 30 on price, your irr dips from 20, which is totally acceptable at scale, to low teens, in which case you wish you hadn't done the deal. can i ask you a question? precise financial engineering for a four- to six-year hold period. six years ago, chatgpt didn't exist. are you able to do fine, precise financial engineering in a world where we move so fast? i don't think system of record is. i think it's a moat, but i don't think it's a ticket to growth. this is, i think, super important, and it's something that everyone on x gets wrong. it's great to have a system of record, which workday has. it means churn, even with ai and llm's help, it's very hard to turn, or you just don't want to turn, but it sure as hell doesn't mean i want to spend more money with that vendor. that's their challenge. but it sure as hell means the five years are far more predictable than 95 percent than poor monday, which we love, or others. we have no idea where monday or even hubspot will be in five years at the smb level. we know pretty much where workday is going to be in 10 years, right? and so i think this growth versus retention is misunderstood. there is a little bit of upside in this deal, which may, i don't know if it's part of silver lake's calculation. the ceo came back, the founder, one of the co-founders, came back, and neil came back. he came back. he hired his successor when times were easy, just before ai. he brought in a great knobs-and-dials co-ceo and, like our friend daniel at uipath and others, realized if i go to workday, came back. so i don't think silver lake is planning on neil radically changing it, but i think if he does, there's real upside to that. maybe instead of their 20 irr, it could be a game changer if he creates the agentic version of workday. they at least have the founder back in the saddle doing it, and that would make me feel a lot better if i were silver lake, that i have upside. but it wouldn't be in the damn base case. jason, you framed the base case exactly correctly. it's like 5.3 times 12. in other words, what this says is financial minds will pay five times revenues for system of record growing at 13 percent. anything that's not a system of record, anything that's not growing as fast, price accordingly, right down from there, because you're right. there's no way you'd apply the same kind of leverage to, for example, a to-do or a task management or project management software or a website-building software, right? in other words, what this gives you is maybe, i'm trying to, what this gives you is a sense of what the baseline is for best-in-class lbo takeouts, right? if airtable, if the airtable bending spoons, gives you an idea of what it is, if you don't have that kind of system of record, you get 2.7. if you're vaguely profitable and in a space where, as jason says, you can't predict five years, you get 2.7. and what workday says is if you've got 30 operating margins, modest growth, but you're a system of record where you really can believe in the next five years, then if you're lucky, you get 5.3 times revenues. that's the bid-ask spread right now. that's the aha. and contrast that with the game for open router where they're going to get, i think, a trailing revenue plus or minus 100. you're going to get 70 times trailing revenues. which game would you prefer to play? workday has something that makes it a better deal for pe, i think, than anybody else on the target list, which is that it is a somewhat closed system of record. now, salesforce is out there working their frigging tails off because they are a muchly open platform. you can build your own agents on top of salesforce tomorrow, and a lot of the hot gtm startups are built on top of salesforce. they're not necessarily only on salesforce, but it's open. try building on workday. it ain't so easy, right? it is like linkedin, right? it is intentionally barely open. so there are negatives to that, right? but it also means you're going to capture more budget overall in your ecosystem than you would for others. so it has more of a buffer against agentic damage to your growth than an open ecosystem has, right? open has negatives today. and so i would want system of record, churn impossible, and closed af. than anybody else on the target list, which is that it is a somewhat closed system of record. Now, Salesforce is out there working their frigging tails off because they are a much more open platform. You can build your own agents on top of Salesforce tomorrow. And a lot of the hot GTM startups are built on top of Salesforce. They're not necessarily only on Salesforce, but it's open. Try building on Workday. It ain't so easy, right? It is like LinkedIn, right? It is intentionally barely open. So there are negatives to that, right? But it also means you're going to capture more budget overall in your ecosystem than you would for others. So it has more of a buffer against agentic damage to your growth than an open ecosystem has, right? Open has negatives today. And so I would want system of record, churn impossible, and closed AF. Agreed. I want the most closed system that can't churn because the reason systems of record aren't that great is because you need your system of record, but if you're remotely open and you can produce a better agent yourself or a third party, a lot of the value will extract to the agent, even if the system of record is retained. Right. But Workday is so closed. They've got a leg up, right? So how open is Salesforce? They are a toll keeper, right? Like Shopify, but they're pretty open. Shopify and Salesforce are pretty open. You and I, the three of us can ship, we can use OAuth to ship a Salesforce app tomorrow. Just to prove that, Jason, really quickly, I'm sorry, Harry, really quickly, look, there's a bunch of companies, even in pre-LLM world, like Gong, Outreach, Salesforce, that are all effectively built on top of the Salesforce platform, right? You can't name the equivalent with any ease in Workday. There's a few, but it's much harder. Some of the planning tools, but pretty much most, and it makes sense. Within the financial accounting system, everything gets sucked into the gravitational pull that is the GL and the accounting system, right? So I agree. That's a good point, Jason. Whatever dollars are in that ecosystem, if they're careful and shrewd, Workday will get most of them. On the other hand, if they get too greedy and they don't invest enough, then the customers start thinking, oh my God, this is just not advancing. Over five years, maybe I do need more of this agentic workflow on top. Maybe the smaller customers start evaluating that suite, start evaluating the next generation. Even at the very small end, you've got the Ripplings, you've got the Campfires, you've got the people like that. You can't be such a greedy bastard in your ecosystem that you would send people to start trying to move out, right? But Silver Lake are smart, and Neil's smart. You could have this be a profitable, self-contained universe. But remember, the most exciting version of that is you pay down all the debt in five years, and you double your money. You're probably putting in plus or minus a $20 to $30 billion equity check because you're not going to get infinite debt. Maybe $20 billion, you might get $18, $15 billion of debt, which means you need a $25 to $30 billion equity check. So you're going to turn $30 billion into $60 billion, which on a multiple basis is not amazing, but it means you've generated $30 billion of gains, and 20% of that in carry. So someone's about to make $6 billion if they can pay down this debt and just work, knuckle down for the next six years. Go team. Yeah. And Neil gets to rebuild his company outside of the public company eye, which is slightly overrated because he has to hit the underlying numbers, but it's much better. It's still much better. It's still much better. Instead of large numbers of stupid comments, he will get one very focused comment from one of the world's smartest investors. It's probably a trade up, right? Just one last thing on this. I don't mean to go in the weeds, Harry, but since you asked, versus Salesforce, it's just interesting. So we run Salesforce entirely headless. Yeah. Okay. So we have our own agent, 10K, our own AI VP of revenue. It runs Salesforce under the hood. Pro is it makes Salesforce much more powerful than it ever was. I didn't log into Salesforce for seven years. Now I log in every day because I have an agent. Con, it can connect anything. The agent, it literally can connect to any other agent, including competitors, including other data sources, data lakes, data, everything. The agent doesn't care. So it's really a weird world as a system of record or core systems. Do you want to be extensible and open, right? Salesforce says you can be headless, risks and opportunities, right? Because the risk is you make it much easier to abstract you away or to compete with you, even while you may retain a few seats, right? You may retain the logo. Retention may be high, but it makes you have to run faster. Workday doesn't have to run that fast. Everyone can't run it headless and integrate any single thing or pull out all your employee data and push it into my own ATS or my own system or own financials. I think it's a shrewd deal because it's the best moat out there with the system of record. And I go back to my comment. If it is a shrewd deal, it also by definition means it's the high watermark of what deals are going to look like. Plan accordingly, people. You get 2.7 from the Ben Spoon, and you get 5.7 from the Silver Lake guys, and you pays your money. It takes your choice. Lemkin, you have a buyout firm. Which other asset would you buy next? I'd want to know who gave Jason money for buyout. I would give Jason money for venture, but I don't see him as the spreadsheet guy. I just think more and more about the fact that systems of record are going to retain their customers. But I think we just underestimate that's just not enough to grow. You got to, it's grow or die today, right? It's grow or die. This whole show, everything, grow or die. Who cares about that stock-based comp or anything at Anthropic? My God, it's OpenRouter, 192x revenue. And so just because your customers are prisoners does not mean in today's world they will spend one more dollar with you. In fact, the CIOs want to cut what they spend when they're hostage, right? They're like, okay, I want to spend 90%, 80% of last year. What can we cut from our bill from the vendors we're stuck with? I got to think, but yeah, Rory's right. I'm not the best at the spreadsheet. I'm actually going to cancel my comment and disagree with myself. Actually, I think you'd be great because I'll tell you what you would bring to the table that I think a lot of these PE buyers miss. It's this idea of mission clarity around growth. If you don't have growth of some sort, you're in a desperate race against the debt. And the best you can get is a mid-teens IRR. If you work, then you buy cheap. And remember, that's when you buy at 5.7 times revenues. Some of these PE deals were done four or five years ago at 10 or 12 times revenues for not as good a quality asset as Workday today, right? I think you would actually, I think the PE firms should hire you as their operating partner, where for every new person, every new deal they do, you explain the facts of life. It's really clear here, people. The only thing that matters, you can't just stick it to your customers. If you don't give them value, you're going to get shafted in the end. Josh Birkley, for me, the death spiral here is the exact guy who's got no idea about AI and has a load of logos and has a load of middle management. And I think Jason would be the freaking best. Jason Wongensky, totally. I agree. I changed my mind. I agree. Because you're done if you don't. Josh Birkley, by the way, you can click the link below to donate to Silver Lake Lampkin Ventures for the buyout firm. Josh Birkley, I don't want to spend money on the positive side. If you look at it like a more SMB version, I'm not saying how widespread it is, but if you look on social media, a lot of folks are like, okay, I'm lifting off Airtable now. And they're like, Bending Spoons is going to raise my prices 3x, right? Let me start doing it now, right? And so it's just an extreme version of what you have to be careful with everywhere. I mean, Bending Spoons may lose 20% of Airtable's customers who finally spend a best. Jason Wongensky, Totally. I agree. I changed my mind. I agree. Because you're done if you don't. Josh Birkley, by the way, you can click the link below to donate to Silver Lake Lampkin Ventures for the buyout firm. Josh Birkley, I don't want to spend money on the positive side. If you look at it like a more S&B version, I'm not saying how widespread it is, but if you look on social media, a lot of folks are like, okay, I'm lifting off Airtable now. And they're like, Bending Smooth is going to raise my prices 3x, right? Let me start doing it now, right? And so it's just an extreme version of what you have to be careful with everywhere. Bending Smooth may lose 20% of Airtable's customers who finally spend a week lifting off of Airtable. But when they triple prices, it's a good deal for Bending Spoons, right? But it's going to happen a lot faster than Workday. Josh Birkley, Agreed. Josh Birkley, Growth at all costs on the consumer application side. Two big fundraisers from Higgs field, who raised at a $5.5 billion price from DST, and they hit $700 million in ARR. And then you have Lovable, who raised a new round from Menlo. They're around the $600-700 million ARR range too, raising at a $13.3 billion price. Big price divergence for very similar revenue numbers, which I find interesting. Guys, we've talked about these companies a lot. How do we think about them? Josh Birkley, Ph.D.: Well, on the Lovable thing, the thing I was thinking, it's so crazy since when we started the show, right? And Lovable and Replit were both raised at like $2 billion and were really terrible products when we started the show. Now they're great products. They're truly generationally great. I do think today, I know engineers and developers will mock me for saying this, but I do think that they deserve arguably a somewhat similar place to be in the Cursor conversation in terms of stickiness, strength, capabilities. They were not when we started this show. So is the Lovable, okay. Did Menlo pay up a little bit as an existing investor, right? Who was already in it? Maybe, but is that multiple that far off the Cursor multiple that we just saw? It's not radically off, is it? Yeah. A lot of it for the end of the year, it's probably a little pricier, but whatever. But it's not as out of whack as it might've seemed with Cursor as a comp, right? These are becoming, these platforms are becoming, one thing is they're becoming very rich. They're very good now, right? Cursor, they're very good. They can do so much more than they could six months ago. There's so much more complexity. Cursor launched origin, right? Which bought Graphite or whatever. It's going to become a GitHub entire workflow replacement in a couple months. I, I'm closer to Replit, but Lovable, but they both just launched automatic deep pen penetration as part of their products, right? So you can go really deep on security. So these aren't just little hacks a year ago. And it also makes the startups harder to beat them out, right? As these become these Cursor and Lovables, Replit has become true platforms. They're really great. They're great software today. So, when the Cursor deal was announced, our jaws dropped. Now it's a comp, it's just a comp. And I don't think this is such a bad comp for Lovable to Cursor. Maybe, maybe that sounds wacky, but that was the one, when I thought, Higgs field's cheap. Although when the deal was done, it was at 500. So it's funny, in today's world, by the time the deal announced, it's at $700 million. So it's still cheap, but that's what happens if you don't announce a deal the hour the term sheet is inked, right? And look, and you guys know what both of them have done really well, is parlay that kind of massive bottom-end demand for AI, in Lovable's case for website building and coding, in Higgs field's case for video. Start with a PLG motion and then add mid-market and enterprise products on top. It's a well-trodden path. It was well-trodden in the SaaS days. We did a bunch of that. It all works. You build your top of funnel and then over time, you just add the enterprise features, but they've both done it really well. And you're right. Lovable have punched their way into being a big picture coding alternative. There's different ways of going at it. You got the Cognition style, you got the Cursor style, you got the Lovable kind of Replit style. They're not direct comparables, but in the big picture comment of the thing AI does best is write code. Lovable is a tool that uses that to write a lot of code. So it's got a lot of lift. And yeah, so I think they both built good enterprise business on top of good consumer. It's not as, I mean, Higgs field, and I know you guys are in them, so you know much better than me. I think there is clearly a market for enterprise video. It's a good market. It's not as perhaps deep as the coding market, but great to see them do it. Yeah. I think the one meta learning for me, we can move on, is I do think it took me a little while to see this. I do think these products today, not forever, maybe only for six months, right, or who knows? I do think they now are defensible and have moats. I think they are so rich. For example, Higgs field, I was one of the first 10 customers. I think, what could you do? Make a four-second video using Kimmy or Quinn, who cares? It was a great way to do it because I didn't even know how to use a Chinese model. Okay. But that wasn't particularly defensible. Now you can make a full-length motion picture. Okay. And you can do it another way. It's just so hard. And now that on love it, repable, which we, even though I'm a user for you, you could have made fun of these products when Harry invested, when we started the show. Now they really can build, almost build production-grade, highly secure apps with everything across. It's just some, like, I know we're building so quickly, and you better be into your 28, 29 roadmap or you're failing, but they are starting to get these layers of moats. And the folks that work at these companies are so smart, right? Higgs field is like the smartest mathematicians in Kazakhstan, Lovable and Replit have become talent magnets. I mean, I know the team at Replit better. You walk in, these are the smartest people that Amjad could recruit for years. And so these layers are not impenetrable, but they start to get thick and crusty, this crust around them, right? And staying with that, because I think you had that moat coming, I think you're exact, because there was a whole bunch of, oh, what's the moat? I think the truth is in any new software market, out of the gate moats are light, but the companies that execute and get traction, you accrete moat over time. Just to give two historical examples, the Netscape browser early on wasn't that hard, but as you parlay that into other things, ultimately you only got acquired for 10 billion, which at the time felt like a failure, oddly enough. But the initial thing was relatively simple, it got complex. The classic example is magnet, the MS-DOS product was mind-blowingly simple, but over time you just accrete more and more value. And the same thing's going to happen here. Yeah. Will there be some guys who stumble along the way? Of course they will, right? But you're right, Jason, if two years ago, it is probable that someone could have built a Lovable competitor with the features that Ed had relatively quickly. As they add more and more features, that just gets harder and harder, right? Yeah. And I don't know that that was obvious six months ago that this would happen. I don't think, I don't even know it was obvious to these companies other things that ultimately you only got acquired for 10 billion, which at the time felt like a failure, oddly enough. But the initial thing was relatively simple; it got complex. The MS-DOS product, and the classic example is magnet, the MS-DOS product was mind-blowingly simple, but over time you just accrete more and more value. And the same thing's going to happen here. Yeah. Will there be some guys who stumble along the way? Of course they will, right? But you're right, Jason. If two years ago, it is probable that someone could have built a lovable competitor with the features that Ed had relatively quickly. As they add more and more features, that just gets harder and harder, right? Yeah. And I don't know that that was obvious six months ago, that this would happen. I don't think it was obvious to these companies we're talking about that it was obvious, right? I think, going back to my point, it just shows: just push on forward, add more stuff for your customers, revenues grow, good things happen. Don't ever think of people. If you're faster than everybody else. Yeah, absolutely. You just have to be faster and better, that's all. Just faster and better, then it will accrete, right? I think that's all. Yeah. Well, faster and better is a more tangible thing than thinking some kind of... Yeah, there are businesses that are much more moat-central, right? Massively high IP, some obviously the model companies to some extent, and definitely things like the bioinformatics companies there. But there are also businesses that will become wonderful businesses where the moat is, as you say, Jason, faster and better. And you just got to know which game you're playing. Speaking of high-IP businesses, literally three weeks ago, Etched raised at 10 billion. Today, they've announced they've raised 700 million at 21 billion from Jane Street, Kleiner, Sequoia, Andreessen. Okay. Four weeks after, double the price. It was a good month, Harry. Yeah. It was a good month. It was a good month. You only need one great month to raise today, whether you're pre-seed or north of 30. You used to need three to four good months to raise. Now you just raise on the one. Listen, I don't know the details of the deal. Jane Street's a customer, wants to be a customer too or something, right? Those, it's not that they're suspect. It's just, you never quite know how it's all tied together, right? So that was the only asterisk I had in the deal, but I don't know the details. Right. Boys, what story have I missed that we should discuss? Well, there's one that I kind of... I don't know if you missed while you were vacating there, Harry, but the Department of Justice is picking on Paul Andreessen because of these overlapping boards. Right. I put it in. It's in my schedule. Thank you for mentioning the vacation. And what's the story behind the story? There must be a reason. And I did the story because, yeah, I often think one of the jobs we try and do here is let everyone in, people who listen know what's interesting this year, week, right? And I will admit this time yesterday, I knew exactly, Jack. I was like, huh, what gives? I looked at this and I'm like, why is... Let me say something cynical and then retract it. Why is the Trump administration picking on Andreessen Horwitz? One would have thought that there is honor among thieves and gratitude. The definition of an honest politician is when he gets bought, he stays bought. I would have thought— Yeah, Elon got his deal done in weeks. Yeah, I would have thought he got it. But therefore, I went to... So I did the research, and it turns out that this initiative, no surprise, was actually kicked off in the prior administration, which frankly was much more willing to quote-unquote get involved in business and kind of try and tell them what to do. But what's happening here is, zoom out, there's something called the Clayton Act, which I think is the early 1900s, an antitrust act, Section 8, that basically says individuals can sit on two boards of companies that are competing, right? And there's all sorts of definitions of how you define compete, there's a de minimis threshold, and that's on the statute books. And it turns out under the Biden administration, the DOJ, I think it's the FTC within the DOJ, but don't quote me, had actually made some actions on that. There was a couple of general business folks who were on overlapping boards. And interestingly, Toma Brava, they had a couple of companies where, in one case, I think they'd spun off a separate company from an existing company, so they had a lot of overlapping boards. The DOJ got on them, and eventually they said, we just take the board members off, right? It was Wi-Fi. So this is a thing, right? This is apparent, and it's a low-consequence thing because what invariably happens is, if the department just comes around, you just pick the less interesting board and you come off it, right? And what sounds like what happened here is, even though, as I say, you'd have thought the administration change would have killed this, apparently as part... Remember when Fivetran and DBT were merging, right? The DOJ had to look at that because there was antitrust issues, and that got through and it was passed. But as part of that, the light went on and someone in the Department of Justice had to say, hmm, do we have a Section 8 Clayton Act violation here? Because Andreessen's on the board of Databricks and they're also on the board of, I think it's Fivetran, right? And now they're competitors. So now this has been percolating, and now they're investigating, right? This is one of those things where I know why the law originally exists. It's all back to JP Morgan and overlapping boards and the antitrust and whatever. You look at this and you go, really? Is this the biggest fish you have to fry? But my guess is it peters out into some version of the venture firm just saying, we'll take off the board member on Fivetran, whatever, right? Now, it's interesting. There are ways you could contest it. If you gave a shit and wanted to litigate, there's all sorts of things because it actually said... The legislation says individuals can't be on two boards, but it's not as clear on can two separate individuals be on two separate boards. There's a whole bunch of reasons why you could decide, if you had the stomach for it, to litigate and see would the Department of Justice back off. But the truth is no one's going to bother. I shouldn't say no one's going to bother. It feels to me like if this thing rumbles on and the Department of Justice doesn't back off, or they don't decide the competition issue with de minimis at some point, if it got really serious is my point, no one's going to get into trouble for this. If it gets really serious, they'll go, okay, we'll take a board member off. It's kind of silly. Yeah. It's probably a non-story in the end, thinking through it more, right? Pain-in-the-ass story. There is a remedy here. You resign, right? It's not damage. If you're the compliance officer in Andreessen, you're wasting a lot of your time on this. But you're right. A non-story is a... Yeah. The only weird niche thing is... But you might ask the founders if they're okay with it of each company, right? Maybe that's not even a permissible out under the Clayton Act. It's not actually. The funny thing is, to your point, you're exactly right. And this is a very interesting example, Jessica. This is an example of... You and I both know that that's the acid test, because we would be worried about, is founder A pissed about founder B because they're... Are we shading... Are we damaging the other company by disinformation? But the classic antitrust thing is all about consumer damage. And what they're hypothesizing, absurdly, is that the Databricks guy and the Fivetran guy get together and they say, why don't we raise the price of tools, of AI tools, and we'll stick it to all our consumers like JP Morgan and B of A and whatever, right? And that's so far from what's happening that you can't... And this is the problem. You pass a law for one reason, like to prevent US Steel from raising prices in 1909. And here we are in 2025, 2026. And do we really think that Databricks and Fivetran are interesting example, Jessica. This is an example of you and I both know that that's the acid test, because we would be worried about, is founder A pissed about founder B because they're... Are we shading... Are we damaging the other company by disinformation? But the classic antitrust thing is all about consumer damage. And what they're hypothesizing, absurdly, is that the Databricks guy and the Fivetran guy get together and they say, why don't we raise the price of tools, of AI tools, and we'll stick it to all our consumers like JP Morgan and B of A and whatever, right? And that's so far from what's happening that you can't... And this is the problem. You pass a law for one reason, to prevent US Steel from raising prices in 1909. And here we are in 2025, 2026. And do we really think that Databricks and Fivetran are our DBT, are colluding about the price of data tools? You're right. The logical test would be, founder A, are you cool with this for founder B? And if they're cool, we're cool. But it turns out that's not the way we write laws. Yeah. If Martin Cassato had to step off the board of Fivetran after exiting Cursor at 60 billion, it's probably okay, given their position in Databricks. It's all right. That guy just got us a $60 billion exit. We're sitting on 200 billion at Databricks, Fivetran. Good luck. We'll switch to an observer seat. Yeah. Anytime you want. I'm going to move to observer status. It's okay. Technically, just to be that... That doesn't work either. You got it. It doesn't work either. They actually thought of that. They're literally like, Mr. JP Morgan can't bring his big banker nose in 1909 into any of the meetings. Yeah, no, that's what we're trying to solve. That'll be it. Just send me in. Just CC me on the updates. Yeah. Genuine comment here. It's why, and this is a serious comment. It's why when we talk about all these regulatory regimes for other things, you have to remind yourself, these regimes go on forever, right? And if we pass some law about AI regulation now, you've got to be really careful. The unintended consequences, months, years, and decades later, once the regulatory law is passed, it doesn't leave. It's as professor O'Driscoll. Sorry, piss off. You know what? One last thing, in all seriousness, at Andreessen's scale and everyone has to take the series 62 and you're broke. There's probably 40 or 50 legal things going on in the background at any time, right? It's probably not even four. It's probably like 40. And this is so... They don't even talk about this one, right? It's mentioned it. Let me know if I got to do anything. I got to go to that pasta lunch with Michael for the closing lunch. The $12. $12. $12. Yeah. Let me know if there's an issue because there's like 50 other lawsuits. Everyone's coming out there in Andreessen, right? Yeah. It's the old no conflict, no interest comment. Exactly. They have lots of interests, so they have lots of conflicts. It'll be fine. you know significantly bigger than just um developers because you have lawyers but i think lawyers won't look the k and e guy who's pulling two million a year as a partner isn't going to be doing 200k's worth of tokens right he's definitely not going to be doing a million dollars worth of tokens a lawyer would die before they gave a million dollars of tokens instead of a million dollars of take-home pay right so the market is bigger than software but there's nowhere else that's such a sweet spot of software so i don't want to be limited to 200 but and i'm going to answer your question i think the really challenging thing i'm going to jump around it a little is i definitely want to be first out rather than second out in terms of going public especially if you have a some kind of near profitability story or bouncing around profitability so i think it's a far more attractive strategic position to be going out as entropic in the fall um with a we've been profitable okay we're unprofitable again but we're the winner in the enterprise then going out next year where maybe the growth rates have started to slow both for entropic and the public markets and if you open ai trying to access the markets then i definitely think they're in a strategically more challenging situation i think they've just capitulated to it i my guess is like you of course you want to be first to your point right i think open ai has had to get their house together more executive turmoil apparently a great last 30 days right but but first half of the year slower than it's than its previously junior competitor right they've had to do so much to say listen we're going to go public second and then we're going to have a comp out there and the comp is what it is and we may not trade with the hype that spacex and anthropic did and the world will not end like we will trade at a very precise number we will know what we're going to go out at it and the world will not end if we trade at 1.3 trillion i i just think that they've uh they've given up on worrying about that um because ultimately rory's right it's much better to be first but in the long run it doesn't matter right you just go if you don't need the capital it just is what it is that's the sentence this is my i'm gonna push a little that is the sentence there are no two companies on the planet that need more capital than these guys in a world where you do need the capital being second sucks because i agree in general you are correct right it doesn't matter you know two companies go public plus or minus a year and a decade later no one cares right we've definitely seen that over the years the thing that's challenging in this particular case is both companies still have you know enormous many hundred million billion dollar capital needs in that situation i would much prefer to be for i do i think you're right but what do you ask it's around fear there but the thing is let's say whatever pick your number let's say anthropica is public at 2 trillion it really doesn't matter right open ii is going to be able to sell stock at a discount to its implicit valuation before it goes public there's there's some there's still enough capital let's say they're both worth 2 trillion right implicitly and open ai is going to be able to sell stock next year at 1.8 people will do it and i and i i especially if you have no stock as ceo in your own company it's okay to sell at a small discount yes i agree and look i'm not catastrophizing here there wasn't any but i think the interesting thing is if you're the smaller market cap company and you have the bigger capital need which right now open ai does because they have a more ambitious capital need target now would you prefer to be the guy trading at one and a half trillion who only needs to raise a hundred billion or the guy trading at a trillion who needs to raise 300 trillion at some point these things become troubling and yeah price clears all markets this is the best new technology market we've seen in deck ever perhaps and if you are the founder in that market and even now the number two you're going to be a track capital but you just don't know the terms under which it happens and i and going back to my comment i think you will regret not being able to access the capital markets this year who knows no it's not that i of course i agree and i don't want to spend too much my only point is the media and social media make a big deal out of this right who goes public first and who does better i just think sam and the opening i team have said this is this is our fate like we've we've we've talked we they could go public tomorrow right there's no there is enough people to buy these shares to go public they've decided that while this isn't perfect right this is this is the best uh uh on the on the board and we're gonna live with the doubt like it's not the end of the world like you can't solve every problem tonight they got to solve bigger problems right then then the the cards are the way they are right jason you said about management team churn that the churn for those that don't know most recently was denise dresser who was a cro who left and dali rajic has replaced her for those that don't know dali he's one of the most respected cro's he was a freaking master at whiz and i think the best cro or sales leader in the business who's chad peats says he's the best of the best so i'm feeling a little bit more confident for their codex and enterprise division yes yeah it's just a lot of change listen all i don't know anything inside i just think greg brockman took over right and brought in brought in brought in the whiz guy just had enough of the salesforce crap right or wrong right um actually if you look across all of ai a ton of salesforce executives have been recruited right to come in and help because and you can make fun of it like i used to make fun of how back in the day salesforce hired oracle executives because they took shots at oracle but you need folks to know how to scale there's not only so what is salesforce at 45 billion run right 50 billion earn right i mean the anthropics pass that now right open is past that so you don't want to hire kids you want to hire someone that has some idea how to play so salesforce is about it right uh that is but but but um but if you step back for a minute i'd rather have someone from whiz that is close to technology right that is in a hyper competitive space rather than asking how many seats of slack you want it's just a very different go-to-market motion right it's very different jason you said if you have not already hit your end of term or end of year goal in terms of product and you're not well into 2027 you're behind i'm making assumptions i don't imagine workday is quite at the cutting edge like two of your companies at 2027 already hitting those goals and silver lake circles a 43 billion dollar take private bid for workday one of the biggest sas buyouts ever we've got two of the best sas minds in the business here guys what should we take from this it sas isn't dead one of the biggest firms one of the biggest buyouts the stock popped 18 percent afterwards wow i think what you can take from this is that it because the sas isn't dead thing is just too simplistic i think what you can take it as a very financially oriented wildly savvy buyer is willing to bet money that they can buy this at a constrained price lever it and generate a return because the revenues are sticky enough to allow them to pay down the debt over five years and with you know reasonable multiple stability sell it on and make 20 percent ir or plus or minus i mean i ran the numbers that's the best in other words so so it's not quote dead but what it is not is wildly exciting when it says it's sat this is the mature phase of an industry right when it's not about wild growth it's not even about untempered growth it's literally about someone saying this thing is growing at 13 year on year we can pro you know we can buy this thing for what's it roughly five times revenues 16 times trailing ebitda we'll probably leverage it you know two or three times and four thousand ebitda but it's gonna be a big equity check and then you run the lbo model and you say you know you keep at a 35 operating margins for five years you use all that cash it's roughly 10 i think it's 10 billion a year in revenue so it's like 3 billion a year of cash you pay down the debt and the interest and you know provided you buy right you can make 20 and almost a 2x over four or five years it's what you recognize is i look at that deal and i go i'm torn because i first of all i think silver like a wily smart it's very interesting when you run the sensitivities if you pay like 20 too much it dips down into the mid-teens and it's almost the exact opposite of venture in venture deals if you're in the right thing it almost doesn't matter what you paid you see cursor for details see open router for details right this is the exact opposite this is fine precise financial engineering if you're wrong by 20 30 on price you know your irr dips from 20 which is totally acceptable at scale to low teens in which case you wish you hadn't done the deal can i ask you a question precise financial engineering for a four to six year hold period six years ago chat gbt didn't exist are you able to do fine precise financial engineering in a world where we move so fast i don't think system of record is i think it's a moat but i don't think it's a ticket to growth this is i think super important and it's something that everyone on x gets wrong it's great to have a system of record which workday has it means churn even with ai and lm's help it's very hard to turn or you just don't want to turn but it sure as hell doesn't mean i want to spend more money with that vendor that's their challenge but it sure as hell means the five years are far more predictable than 95 percent than poor monday which we love or others i we have no idea where monday or even hubspot will be in five years at the smb level we know pretty much where workday is going to be 10 years right um and so i think this growth versus retention is misunderstood there is a little bit of upside in this deal which may i don't know if it's part of silver lake's calculation the ceo came back the founder one of the co-founders came back and neil came back he came back he hired his successor when times were easy just before ai he brought in a great knobs and dials co-ceo and uh you know like our friends at daniel at uipath and others and realized if i go to work today came back so i don't think silver lake is planning on on neil like radically changing it but i think if he does like there's real upside to that maybe instead of their 20 ira could be a game changer if he creates the agentic version of workday they at least have the founder back in the saddle doing it and that would make me feel a lot better if i were silver like that i have upside you'd but it wouldn't be in the damn base case jason you framed the base case exactly correctly it's like it's 5.3 times 12 in other words what this says is financial minds will pay five times revenues for system of record growing at 13 percent anything that's not a system of record anything that's not going as fast price accordingly right down from me because you're right there's no way you'd apply the same kind of leverage to for example a to-do or a task management or project management software or a website building software right in other words what this gives you is maybe i'm trying to what this gives you is a sense of what the baseline is for best-in-class lbo takeouts right if you know if air table give if the air table bending spoons give you an idea of what it is if you just you know if you don't have that kind of system of record you get 2.7 if you do have if you're not if you're vaguely profitable and in a space whereas jason says you can't predict five years you get 2.7 and what workday says is if you've got 30 operating margins modest growth, but you're a system of record where you really can believe in the next five years, then if you're lucky, you get 5.3 times revenues. That's the bid-ask spread right now. That's the aha. And contrast that with the game for Open Router where they're going to get, I think a trailing revenue plus or minus 100. You're going to get 70 times trailing revenues. Which game would you prefer to play? Workday has something that makes it a better deal for P that I think than anybody else on the target list, which is that it is a somewhat closed system of record. Now, Salesforce is out there working their frigging tails off because they are a muchly open platform. You can build your own agents on top of Salesforce tomorrow. And a lot of the hot GTM startups are built on top of Salesforce. They're not necessarily only on Salesforce, but it's open. Try building on Workday. It ain't so easy, right? It is like LinkedIn, right? It is intentionally barely open. So there are negatives to that, right? But it also means you're going to capture it is you're going to capture more budget overall in your ecosystem than you would for others. So I, it has more of a buffer against agentic damage to your growth than an open ecosystem has, right? Open has negatives today. And so I would want system of record, churn impossible and closed AF. Agreed. I want the most closed system that can't churn because the reason system of records aren't that great is because if they're, you need your system record, but if you're remotely open and, and you can produce a better agent yourself or a third party, a lot of the value will extract to the agent, even if the system of record is retained. Right. But Workday is so closed. They've got a leg up, right? So how open is Salesforce? They are a toll keeper, right? Like a Shopify, but they're pretty open. Shopify and Salesforce are pretty open. You and I, the three of us can ship, we can, we can use OAuth to ship a Salesforce app tomorrow. Just to prove that Jason really quickly, I'm sorry, Harry really quickly is that look, there's a bunch of companies, even in pre LLM world like Gong, Outreach, Salesforce, that are all effectively built on top of the Salesforce platform, right? You can't name the equivalent with any E's in Workday. There's a few, but it's much harder. Some of the planning tools, but pretty much most, and it makes sense within the financial accounting system, everything gets sucked into the gravitational pull that is the GL and the accounting system, right? So I agree. That's a good point, Jason. Whatever dollars are in that ecosystem, if they're careful and shrewd, Workday will get most of them. On the other hand, if they get too greedy and they don't invest enough, then the customers start thinking, oh my God, this is just not advancing. Over five years, maybe I do need more of this agentic workflow on top. Maybe the smaller customers start evaluating that suite, start evaluating the next generation, even at the very small end, you've got the realists, you've got the campfires, you've got the people like that. You can't be such a greedy bastard in your ecosystem that you would send people to start trying to move out, right? But Silverlake are smart, and Neil's smart. You could have this be a profitable self-contained universe. But remember, the most exciting version of that is you pay down all the debt in five years, and you double your money. You're probably putting in plus or minus a $20 to $30 billion equity check because you're not going to get infinite debt. You know, maybe $20 billion, you might get $18, $15 billion of debt, which means you need a $25 to $30 billion equity check. So you're going to turn $30 billion into $60 billion, which on a multiple basis is not amazing, but it means you've generated $30 billion of gains and 20% of that in carry. So someone's about to make $6 billion if they can pay down this debt and just work knuckle down for the next six years. Go team. Yeah. And Neil gets to rebuild his company outside of the public company eye, which is slightly overrated because he has to hit the underlying numbers, but it's much better. It's still much better. It's still much better. Instead of large numbers of stupid comments, he will get one very focused comment from one of the world's smartest investors. It's probably a trade up. You know, right? Just one last thing on this. I don't mean to go in the weeds, Harry, but since you asked, versus Salesforce, it's just interesting. So we run Salesforce entirely headless. Yeah. Okay. So we have our own agent, 10K, our own AI VP of revenue. It runs Salesforce under the hood. Pro is it makes Salesforce much more powerful than it ever was. Like I didn't log into Salesforce for seven years. Now I log in every day because I have an agent. Con, it can connect anything. The agent, it literally can connect to any other agent, including competitors, including other data sources, data lakes, data, everything. The agent doesn't care. So it's really a weird world as a system of record or core systems. Do you want to be extensible and open, right? Sales sources said you can be headless, risks and opportunities, right? Because risks and you make it much easier to abstract you away or to compete with you, even while you may retain a few seats, right? You may retain the logo retention may be high, but it makes you have to run faster. Workday doesn't have to run that fast. Everyone can't run it headless and integrate any single thing or pull out all your employee data and push it into my own ATS or my own system or own financials. I think it's a shrewd deal because it's the best, it's the best mode out there with the system of record. And I go back to my comment. If it is a shrewd deal, it also by definition means it's the high watermark of what deals are going to look like. Plan accordingly, people. You get 2.7 from the Ben Spoon and you get 5.7 from the Silver Lake guys and you pays your money. It takes your choice. Lemkin, you have a buyout firm. Which other asset would you buy next? I'd want to know who gave Jason money for buyout. I would give Jason money for venture, but I don't see him as the spreadsheet guy. I just think more and more about the fact that systems of record are going to retain their customers. But I think we just underestimate that's just not enough to grow. You got to, it's grow or die today, right? It's grow or die. This whole show, everything grow or die. Who cares about that stock based comp or anything at Anthropic? My God, it's open router, 192X revenue. And so just because your customers are prisoners does not mean in today's world, they will spend one more dollar with you. In fact, the CIOs want to cut what they spend when they're hostage, right? They're like, okay, I want to spend 90%, 80% of last year. What can we cut from our bill from the vendors we're stuck with? It's a, I got to think, but yeah, Rory's right. I'm not the best at the spreadsheet. You know, I'm actually going to, I'm going to cancel my comment and disagree with myself. Actually, I think you'd be great because I'll tell you what you would bring to the table that I think a lot of these PE buyers missed. It's this idea of mission clarity around growth. If you don't have growth of some sort, you're in a desperate race against the debt. And the best you can get is a mid-teens IRR. If you work, then you buy cheap. And remember, that's when you buy at 5.7 times revenues. Some of these PE deals were done four or five years ago at 10 or 12 times revenues for not as good a quality asset as workday today, right? I think you would actually, I think the PE firms should hire you as their operating partner, where for every new person, every new deal they do, you explain the facts of life. It's really clear here, people. The only thing that matters, you can't just stick it to your customers. If you don't give them value, you're going to get shafted in the end. Josh Birkley, for me, the death spiral here is the exact guy who's got no idea about AI and has a load of logos and has a load of middle management. And I think Jason would be the freaking best. Jason Wongensky, Totally. I agree. I changed my mind. I agree. Because you're done if you don't. Josh Birkley, by the way, you can click the link below to donate to Silver Lake Lampkin Ventures for the buyout firm. Josh Birkley, I don't want to spend money on the positive side. If you look at it like a more S&B version, I'm not saying how widespread it is, but if you look on social media, a lot of folks are like, okay, I'm lifting off Airtable now. And they're like, Bending Smooth is going to raise my prices 3x, right? Let me start doing it now, right? And so it's just an extreme version of what you have to be careful with everywhere. I mean, Bending Smooth may lose 20% of Airtable's customers who finally spend a week lifting off of Airtable. But when they triple prices, it's a good deal for Bending Spoons, right? But it's going to happen a lot faster than Workday. Josh Birkley, Agreed. Josh Birkley, Growth at all costs on the consumer application side. Two big fundraisers from Higgs field, who raised at a $5.5 billion price from DST, and they hit $700 million in ARR. And then you have Lovable, who raised a new round from Menlo. They're around the $600-700 million ARR range too, raising at a $13.3 billion price. Big price divergence for very similar revenue numbers, which I find interesting. Guys, we've talked about these companies a lot. How do we think about them? Josh Birkley, Ph.D.: Well, you know, on the Lovable thing, the thing I was thinking, I mean, it's so crazy since when we started the show, right? And Lovable and Replit were both raised in like $2 billion and were really terrible products when we started the show. Now they're great products. They're truly generationally great. I do think today, I know engineers and developers will mock me for saying this, but I do think that they deserve arguably a somewhat similar to be in the cursor conversation in terms of stickiness, strength, capabilities. They were not when we started this show. So is the Lovable, okay. Did Menlo pay up a little bit as an existing investor, right? Who was already in it for maybe, but is that multiple that far off the cursor multiple that we just saw? It's not radically off, is it? Yeah. A lot of it for the end of the year, it's probably a little pricier, but whatever. But it's not as out of whack as it might've seen with cursor as a comp, right? These are becoming, these platforms are becoming, one thing is they're becoming very rich. They're very good now, right? Cursors, they're very good. They can do so much more than they could six months ago. There's so much more complexity. I mean, cursor launched origin, right? Which would bought graphite or whatever. It's going to become a GitHub entire workflow replacement in a couple months. Right. You know, I, I, I, I'm closer to repli, but rep lovable, but they both just launched automatic deep pen penetration as part of their products. Right. So you can go really deep on security. So these aren't just little, like little hacks a year ago. And it also makes the startups harder to, harder to, to beat them out. Right. As these become these cursor and lovables, repli has become true platforms. They're really great. They're great software today. So I, you know, when, when the cursor deal was announced, our jaws dropped. Now it's a comp, it's just a comp. And I don't think this is such a bad comp for lovable, um, to cursor. I mean, maybe, maybe that sounds wacky, but that, that was the one, when I thought, um, you know, Higgs field's cheap. Although when the deal was done, it was at 500. So it's funny in today's world, by the time the deal announced it's at 700 million. So it's still cheap, but like, uh, that's, that's what happens if you don't announce a deal, the hour, the term sheet is inked. Right. And look, and you guys know what both of them have done really well is parlay that kind of massive bottom end demand for AI in lovable's case for website building and coding in Higgs field's case for video, you know, start with a PLG motion and then, you know, add kind of mid market and enterprise products on top. It's, it's a well-trodden path. It was well-trodden in, in kind of the SAS days. We did a bunch of that. It all works. You know, you, you, you, you build your top of funnel and then over time, you just add the enterprise features, but they've both done it really well. And you're right. Lovable have punched their way into being a, you know, big picture coding alternative. You know, there's different ways of going at it. You got the cognition style, you got the cursor style, you got the level kind of repli style. They're not direct comparables, but in the big picture comment of the thing AI does best is write code. Lovable is a tool that uses that to write a lot of code. So it's got a lot of lift. And yeah, so I think they both built good enterprise business on top of your good consumers. It's not as, I mean, Higgs field, and I know you guys are in them, so you know much better than me. I think there is clearly a market for enterprise video. It's a good market. It's, it's not as perhaps deep as the coding market, but, you know, great to see them do it. Yeah. I think the one, the one meta learning for me, we can move on is I do think took me a little while to see this. I do think these products today, um, not forever, maybe only for six months, right. Or who knows? I do think they now are defensible and have moats. I think they are so rich. I mean, for example, Higgs field, I was one of the first 10 customers. I think, what could you do? Make a four second video using Kimmy or Quinn, who cares? I, you could, it was a great way to do it because I didn't even know how to use a Chinese model. Okay. But that wasn't particularly defensible. Now you can make a full length motion picture. Okay. And you can do it another way. It's just so hard. And now that on love it, repable, which we, even though I'm a user for you, you could have made fun of these products when Harry invested, when we started the show. Now they really can build, almost build production grade, highly secure apps with everything across. Like it's just some, like, I know we're building so quickly and you better be into your 28, 29 roadmap or you're failing, but they are starting to get these layers of moats. And the folks that work at these companies are so smart, right? Higgs field is like the smartest mathematicians in, in, in, in Kazakhstan, lovable and replet have become talent magnets. I mean, I know the team at replet better. You walk in, I mean, these are the smartest people that Amjad could recruit for years. And so these layers are not impenetrable, but they start to get thick and crusty, this crust around them, right? And staying with that, because I think you had that moat coming, I think you're exact, because there was a whole bunch of, oh, what's the moat? I think the truth is in any new software market out of the gate moats are light, but the companies that execute and get traction, you accrete moat over time. I mean, just to give two historical examples. I mean, you know, the Netscape browser wasn't that early on, it wasn't that hard, but as yet you parlay that into other things that ultimately you only got acquired for 10 billion, which at the time felt like a failure, oddly enough. But the initial thing was relatively simple, it got complex. I mean, the MS-DOS product, and the classic example is magnet, the MS-DOS product was, you know, mind-blowingly simple, but over time you just accrete more and more value. And the same thing's going to happen here. Yeah. I mean, will there be some guys who stumble along the way? Of course they will, right? But you're right, Jason, if two years ago, it is probable that someone could have built a lovable competitor with the features that Ed had relatively quickly. As they add more and more features, that just gets harder and harder, right? Yeah. And I don't know that that was obvious six months ago that this would happen. I don't think, I don't even know it was obvious to these companies we're talking about that it was obvious, right? I think it, going back to my, it just shows, just push on for, I mean, just push on forward, add more stuff for your customers, revenues grow, good things happen. It's just, you know, don't ever think of people. If you're faster than everybody else. Yeah, absolutely. You just have to be faster and better, that's all. Just faster and better, then it will accrete, right? I think that's all. Yeah. Well, faster and better is a more tangible thing than thinking some kind of, I mean, yeah, there are businesses that are much more moat central, right? You know, massively high IP, you know, some obviously the model companies to some extent, and definitely things like the bioinformatics companies there. But there are also businesses that will become wonderful businesses where the moat is, as you say, Jason, faster and better. And you just got to know which game you're playing. Speaking of high IP businesses, literally like three weeks ago, Etched raised at 10 billion. Today, they've announced they've raised 700 million at 21 billion from Jane Street, Kleiner, Sequoia, Andreessen. Okay. Four weeks after, double the price. It was a good month, Harry. Yeah. It was a good month. It was a good month. You got, you only need one great month to raise today. Whether you're pre-seed or, or, or north of 30, you were, you used to need three to four good months to raise. Now, now you just raise on the one. Listen, I don't know the details of the deal. I mean, Jane Street's a customer, wants to be a customer too or something, right? So like those, it's not that they're suspect. It's just, you never quite know how it's all tied together. Right? So that was the only asterisk I had in the deal, but I don't, I don't know the details. Right. Boys, what story have I missed that we should discuss? Well, there's one that I kind of, I don't know if you missed what you were vacating there, Harry, but the Department of Justice is picking on Paul Andreessen because of these overlapping boards. Right. I put it in. It's in my schedule. Thank you for mentioning the vacation. And you know, what's, why is it, what's the story behind the story? There must be a reason. And I did the story because yeah, I often think one of the jobs we try and do here is let everyone in, people who listen know what's interesting this year, week, right? And I will admit this time yesterday, I knew exactly, Jack, I was like, huh, what gives? I looked at this and I'm like, why is, let me say something cynical and then retract it. Why is the Trump administration picking on Andreessen Horwitz? One would have thought that there is honor among thieves and gratitude. You know, the definition of an honest politician is when he gets bought, he stays bought. I would have thought- Yeah, Elon got his deal done in weeks. Yeah, I would have thought he got it. But therefore, so I went to, so I did the research and it turns out that this initiative, no surprise, was actually kicked off in the prior administration, which frankly was much more willing to quote unquote, get involved in business and kind of try and tell them what to do. But what's happening here is zoom out. There's something called the Clayton Act, which I think is the early 1900s, an antitrust act, section eight that basically says individuals can sit on two boards of companies that are competing, right? And there's all sorts of definitions of how you define compete, there's a de minimis threshold, and that's on the statute books. And it turns out under the Biden administration, the DOJ, I think it's the FTC within the DOJ, but don't quote me, had actually made some actions on that. There was a couple of general business folks who were in overlapping boards. And interestingly, Toma Brava, they had a couple of companies where, in one case, I think they'd spun off a separate company from an existing company, so they had a lot of overlapping boards. The DOJ got on them and eventually they said, we just take the board members off, right? It was Wi-Fi. So this is a thing, right? This is a parent, and it's a low consequence thing because what invariably happens is if the department just comes around, you just pick the less interesting board and you come off it, right? And what sounds like what happened here is, even though, as I say, you'd have thought the administration change would have killed this, apparently as part... Remember when Fivetran and DBT were merging, right? Board of the... The DOJ had to look at that because there was antitrust issues and that got true and it was passed. But as part of that, the light went on and someone in the Department of Justice had to say, hmm, do we have a Section 8 Clayton Act violation here? Because Andreessen's on the board of Databricks and they're also on the board of, I think it's Fivetran, right? And now they're competitors. So now this has been percolating and now they're investigating, right? I mean, this is one of those things where I know why the law originally exists. It's all back to JP Morgan and overlapping boards and the antitrust and whatever. You look at this and you go, really? Is this the biggest fish you have to fry? But my guess is it peters out into some version of the venture firm just saying, we'll take off the board member on Fivetrans, whatever, right? Now, it's interesting. There are ways you could contest it. If you gave a shit and wanted to litigate, there's all sorts of things because it actually said... The legislation says individuals can't be on two boards, but it's not as clear on can two separate individuals be on two separate boards. There's a whole bunch of reasons why you could decide if you had the stomach for it to litigate and see would the Department of Justice back off. But the truth is no one's going to bother. I shouldn't say no one's going to bother. It feels to me like if this thing rumbles on and the Department of Justice doesn't back off or they don't decide the competition issue with the minimus at some point, if it got really serious is my point. No one's going to get into trouble for this. If it gets really serious, they'll go, okay, we'll take a board member off. It's kind of silly. Yeah. It's probably a non-story in the end thinking through it more, right? Paying the ass story. There is a remedy here. You resign, right? It's not damage. If you're the compliance officer in Andreessen, you're wasting a lot of your time on this. But you're right. A non-story is a... Yeah. The only weird niche thing is... But you might ask the founders if they're okay with it of each company, right? Maybe that's not even a permissible out under the Clayton Act. It's not actually. The funny thing is to your point, you're exactly right. And this is a very interesting example, Jessica. This is an example of you and I both know that that's the acid test, because we would be worried about, is founder A pissed about founder B because they're... Are we shading... Are we damaging the other company by disinformation? But the classic antitrust thing is all about consumer damage. And what they're hypothesizing absurdly is that the Databricks guy and the Fivetran guy get together and they say, why don't we raise the price of tools, of AI tools, and we'll stick it to all our consumers like JP Morgan and B of A and whatever, right? And that's so far from what's happening that you can't... And this is the problem. You pass a law for one reason, like to prevent US Steel from raising prices in 1909. And here we are in 2025, 2026. And do we really think that Databricks and Fivetran are our DBT, are colluding about the price of data tools? You're right. The logical test would be, founder A, are you cool with this for founder B? And if they're cool, we're cool. But it turns out that's not the way we write laws. Yeah. I mean, if Martin Cassato had to step off the board of Fivetran after exiting Cursor at 60 billion, it's probably okay, given their position in Databricks. Like it's all right. That guy just got us a $60 billion exit. We're sitting on 200 billion at Databricks, Fivetran. Good luck. We'll switch to an observer seat. Yeah. Anytime you want. I'm going to move to observer status. Like it's okay. Technically just to be that... That doesn't work either. You got it. It doesn't work either. They actually thought of that. They're literally like, Mr. JP Morgan can't bring his big banker nose in 1909 into any of the meetings. Yeah, no, that's what we're trying to solve. That'll be it. Just send me in. Just CC me on the updates. Yeah. Genuine comment here. It's why, and this is a serious comment. It's why when we talk about all these regulatory regimes for other things, you have to remind yourself, these regimes go on forever, right? And if we pass some law about AI regulation now, you've got to be really careful. The unintended consequences, you know, months, years, and decades later, once the regulatory law is passed, it doesn't leave. It's as professor O'Driscoll. Sorry, piss off. You know what? One last thing in all seriousness, at Andreessen's scale and everyone has to take the series 62 and you're broke. Like there's probably 40 or 50 legal things going on in the background at any time, right? It's probably not even four. It's probably like 40. And this is so... They don't even talk about this one, right? It's mentioned it. Let me know if I got to do anything. I got to go to that pasta lunch with Michael for the closing lunch. The $12. $12. $12. Yeah. Let me know if there's an issue because there's like 50 other lawsuits. Everyone's coming out there in Andreessen, right? Yeah. It's the old no conflict, no interest comment. Exactly. They have lots of interests, so they have lots of conflicts. It'll be fine.