SPEAKER_01
One thing we know about Elon for the last 30 years is when he hears the word more risks, he says, yes, please, I'll have two. I think the IPO nominally will be a dud. I don't think it will trade up dramatically. So what do we have on the cards? SpaceX begins their $75 billion IPO roadshow at a whopping $1.77 trillion valuation. Next, is the future of AI always on as Sam Altman thinks? OpenAI ships Dreaming V3. Next, Apple rebuilds Siri on Google. Thank God, Siri being what it is, is a disgrace as it turns on on my device. And then finally, we have Ramp raising their latest round at $44 billion. There's always money when people aren't afraid. When things get scary, it's not that money runs out. It's that money gets scared. I'm contentious of startups that need to be fat. I'm, what's your excuse? In any business, there's only two things that happen. People are either making stuff or selling stuff. If AOL becomes the next hot thing. These guys are geniuses. Anyone who hasn't churned from AOL now won't churn until they die. Ready to go?
SPEAKER_01
[SPEAKER_02] Okay, we are back. And what a week it is. We have the largest IPO roadshow in history. We have to start with SpaceX. We're speaking, and this is important to say, Rory's going to have a fit because we're speaking on Tuesday. And obviously, SpaceX is going out on Thursday. And so there is going to be some time discrepancy there. And so what we say will be able to be scrutinized in intense detail by the time you're probably listening.
SPEAKER_02
[SPEAKER_01] True. To start with the interesting point, one of the things is there's usually two questions you're asking at this point. What's it going to price at and what are you going to trade at? And the funny thing is, unlike 99% of IPOs, the first question's already been answered. Elon has decided that instead of doing price discovery, where the bankers build a book and then they pick the price and they announce the price right at the end, the night before the IPO pricing typically takes place the night before the trade opens. So then everybody gets to buy who participates in the IPO at that price, and then it opens next day at whatever price, up or down from that. In this case, Elon has decided in advance of getting anyone's input that the number should be, I think, 135 bucks a share, which values the company at 1.8 trillion. In other words, he's short-circuited the price discovery process. And instead, we're not doing price discovery. I'm telling you the answer. And the only question is, how much of it do you want to buy at that price?
SPEAKER_02
[SPEAKER_01] So one thing we can't get wrong is that, Harry. Is that a wise move? He's leaving a lot of room for markets to move in between that. That's why you normally leave it, as close as you can, because you don't want an Iran-Israel, a Broadcom moving markets, and then putting you in a precarious position. It feels unwise, but Elon is a master. So I'm not going to...
SPEAKER_02
[SPEAKER_01] Yeah, I mean, calling someone unwise is about two days away from becoming a trillionaire is a big call, Harry. But I think what it is, it's no surprise given, it's ballsy. You've got way more error creeping in. You could be wrong to the high, you could be wrong to the low, you could leave money on the table. Maybe on the other hand, you're struggling to get the orders in and it feels very high and it opens down. It's more risk. But the one thing we know about Elon for the last 30 years is when he hears the word more risks, he says, yes, please, I'll have two. And this must appeal to him. It's, I'm telling you the answer in advance and I'm taking the risk. And that's how he became a trillionaire.
SPEAKER_02
[SPEAKER_00] Is it wise? Well, obviously, it's a huge amount of capital, Rory. But if it's really only 2x subscribed or over... I'm not even sure over-subscribed is the right word if it's only 2x, right? Plus Elon picking the price, that suggests to me it, you know, we'll see. That suggests to me this one won't pop. There's just not a... You know, I do believe the day traders will drive it up ultimately, but it doesn't feel like there's an excessive demand at 2x. In most IPOs, it would be almost insufficient to close the IPO.
SPEAKER_01
I agree. But there's two separate things in that, Jason. You're right. I mean, one is the decision to pick a fixed price logically reduces the probability of a pop with no other information because the whole point of the banker process is to pick the price the night before that allows the pop next day. And you simply aren't doing that because you don't have the information. You're right. But then the second thing you added is some information that's come out, which is, to date, the book is two times covered. And your comment is that feels low compared to normal IPOs.
SPEAKER_01
[SPEAKER_00] I mean, traditionally, you want 8 to 10x to get the deal that you want, but you're not raising the vast amounts of capital Elon's raising either.
SPEAKER_01
Yeah. No, it's hard to get 10x oversubscribed on 75 billion. So yeah, what you're saying is... I mean, to be really direct, what you're saying is you're pricing something on a fixed price that's not taking into account demand, where you're looking for a very large amount of money such that you only have a small amount of coverage. You're right. You look at those circumstances and you say, there's a non-trivial chance that it pops to the downside. Is it 30%? I don't know. But if you think about it, normally bankers bend over backwards to try and have the thing pop, right? So they're trying to get a 10, 15% pop. And near 90% plus of the time it pops, but still 10% of the time it breaks IPO. They get it wrong, right? Even trying to fix the game, they get it wrong. In this case, they're not even trying to fix the game, right? And time will tell on Thursday night, are they too high or too low? But there is obviously by definition, some probably higher than 10% chance that on the day people go, everyone who put in for it, put in for it. And it's not impossible to trade something. It's just, if you use mechanism A that's designed to create a pop and it works 90% of the time, and now you use a mechanism that's designed to, that doesn't have the information to allow you to make a pop because you've done a fixed price, then by definition, the probability of it going wrong goes up. That's all.
SPEAKER_00
[SPEAKER_01] they're not even trying to fix the game, right? And time will tell on Thursday night, are they too high or too low? But there is obviously by definition, some probably higher than 10% chance that on the day people go, everyone who put in for it, put in for it. And it's not impossible to trade something. It's just, if you use mechanism A that's designed to create a pop and it works 90% of the time, and now you use a mechanism that's designed to be in, that doesn't have the information to allow you to make a pop because you've done a fixed price, then by definition, the probability of it going wrong goes up. That's all.
SPEAKER_01
[SPEAKER_00] I think what will happen, if that's accurate and 30% to retail, I think the IPO nominally will be a dud. I don't think it will trade up dramatically, but I do think every time there's great news, more satellites in space for SpaceX, more things, it will begin an inexorable rise up. People will be excited, especially if the upside is tied to potentially significant revenue, right, as the last announcements have been with Anthropic and Google. I just don't think it's going to pop that first week. I think there's just not enough buyers out there in this universe, or at least in this galaxy, at this price at 2X. We'll see. I haven't read anything that says those 2X are all 100% binding. I guess if they're all binding every single order, then I guess it would lead to a pop, but typically it's not, right?
SPEAKER_02
[SPEAKER_01] It is. When you submit an order, you submit an order. [SPEAKER_00] Oh, you're right. Typically, yeah, maybe they'll all get filled. Yeah, they'll all get filled. I have it backwards. Maybe all the orders will get filled.
SPEAKER_02
[SPEAKER_01] I'm going to step back. I hate that we got into the technicalities of the IPO, because zoom out a million miles here. This is amazing. This is an amazing technical company. It's the iconic company of its generation. It's going to go public this week. It's a huge moment. What do you say to Elon? Congratulations. What do you say, everyone involved? Congratulations. I mean, it's a wildly impressive company. I'm skeptical of the valuation, but step back. I've watched some of the launches on YouTube, and I'm like, the whole thing's so impressive. And at the risk of sounding partisan American, this really is an only in America moment, right? Where you could, who else is going to find the capital to take that kind of risk to go for it, right? And frankly, also to have a big enough capital market to fund it, a big enough addressable market to sell to it. It's a great outcome. It's an amazing company. It's a real asset to America.
SPEAKER_02
End of day one prediction and end of day 90 prediction.
SPEAKER_02
[SPEAKER_01] So you really are determined not to let him have his great moment. You just want to see the horse race. You won't talk policies. All you want to talk is the horse race here, Harry, because that's what sells. But to answer, I don't think it's a noble end of day one. I think all three scenarios are equally likely. One third, it goes down just because there's a weird pricing mechanism so they don't have demand. One third, it's flat because whatever. And then one third, to your point, retail enthusiasm, it goes up. There's no information here. Now, I will make a call though. I think over the next 12 months, I doubt it will retain this price. I will make that step. I disagree with Jason. I think fundamental value here reasserts itself. There's two reasons I say that. One is, I always go back to the base rate. The base rate on IPOs in general is you do see quite a lot dip. The base rate on IPO is more than 10x forward sales, even more dip. The base rate on IPO is at 70 times forward sales. There hasn't been any, but you've got to believe there's a dip. So I think valuation reasserts itself over the medium term. And the probability of it being higher than the IPO price 12 months in, in my gut, is lower, significantly lower. So I would say, I haven't a clue day one. It's a tactical thing based on the mechanisms. And I think over the medium term, this amazing company might, shock horror, only be worth one, surely, instead of 1.7. And it's still a huge win.
SPEAKER_01
[SPEAKER_00] That's what I think. Maybe just two thoughts. One is, listen, there are many great IPOs like Facebook and Google that IPO with a whimper, right? It would not surprise me if this IPO is with a whimper at the end of the day. It doesn't matter for SpaceX. We will have multiple layers of generational wealth created. Elon will get his liquidity, right? It'll all be great, whether it's a nothing burger IPO or not. I guess it might hurt OpenAI the most because they've been so aggressive on their valuations and so aggressive on their capital raise. If that means they have to cut back their aspirations for the amount of capital raise, valuation maybe doesn't matter as much, but they are related. That could be the biggest negative effect. It could take some of the wind out of the sails of OpenAI. The other thing I'll say briefly, I was in Hong Kong as we record this, but before I got on a plane, I spoke to one of my LPs who's getting lots of cash here, got cash in Cerebus, getting cash in all these other deals. And it does tie to a conversation we said before, which is the expectations are so high now for performance. And I think that will permeate through the ecosystem. I do think it's a minor negative, but I do think it's something for founders and others to understand that it's not a free lunch, right? The bar will continue to go up after these events. When LPs are looking for seven to eight X routinely from GPs, which is hard to do, right, outside of anomalous periods of time, the expectations that GPs will have from founders continues to go up. And as this LP said to me,
SPEAKER_01
[SPEAKER_00] got cash in Cerebus, getting cash in all these other deals. And it does tie to a conversation we said before, which is the expectations are so high now for performance. And I think that will permeate through the ecosystem. And again, I think it's a minor negative, but I do think it's something for founders and others to understand that it's not a free lunch, right? The bar will continue to go up after these events. When LPs are looking for seven to eight X routinely from GPs, which is hard to do, right? Outside of anomalous periods of time, the expectations that GPs will have from founders continues to go up. And as this LP said to me, I don't know that little five to eight billion dollar IPOs really make this math work anymore, right? And so we've talked about it, but to hear it from a large LP, it echoed in my ears of how the bar goes up.
SPEAKER_01
I don't think you can take a once in a decade event and start extrapolating it as a norm. I think in life, you should take this as the once in a decade. [SPEAKER_00] But there are four or five of these once in a decade events. There's going to be Anthropic, OpenAI, SpaceX. It's interesting that you say that, but of course, the opportunity, the once in a decade, I mean, SpaceX was once in a decade. It was last decade. Reminder here, founders wrote that check in 2008, but it's now 2024. It's 16 years ago, right? So for that kind of huge return, I mean, yes, there's been a 10X since then. [SPEAKER_00] When was the Cursor C check written again? Remind me.
SPEAKER_01
[SPEAKER_00] Four years ago. [SPEAKER_00] The Cursor C check three years ago, yes. [SPEAKER_00] Yeah. [SPEAKER_00] So maybe they do happen more than once a decade.
SPEAKER_01
There they seem to be. I think you're going to have one trillion dollar outcome from the last decade and two, it looks like from this decade, if it all happens according to plan. But my point is, yes, you probably can't assume 10X. You don't run your business on the expectation that every check you write is going to be a trillion dollar outcome. If you're really smart and you get one, you should say, yay. Right? So I think eight billion dollar outcomes will make everyone perfectly happy. Obviously, unless you have a ten billion dollar fund, in which case it doesn't. I mean, that's why fund size, the amount of, fund size dictates the level of the amount of market cap it takes. It's a Josh comment thing from ages ago. You know, the venture arrogance index, whatever. Right? The bigger the fund, the bigger the deal that has to be to make it work. There's nothing surprising here.
SPEAKER_01
[SPEAKER_02] Will this have knock on effects in terms of LPs direct investing more and see an increase in fund investments from LPs? You've got Ontario Teachers who will make, I think, over ten billion dollars from their SpaceX.
SPEAKER_02
[SPEAKER_01] Will Barron, Ph.D.: To clarify, I know you think the entire Midwest is the same, Harry, but I think it's Ontario Teachers. Right? [SPEAKER_01] Will Barron, Ph.D.: Fair enough. [SPEAKER_01] Will Barron, Ph.D.: But now, at this point, you're conflating Canada and America, which is an easy mistake to make because we're making it ourselves, starting with the president. And it does begin with O and it's in the middle. So I understand your ignorance. But let's go back to— [SPEAKER_00] Will Barron, Ph.D.: Maybe he's just a big Fallout player too.
SPEAKER_01
Will Barron, Ph.D.: Easy. But the bottom line is, yes, Ontario Pension nailed it. I mean, they're going to make a magnificent return. And there's a bunch of others. It's great. University of Washington, they have an extremely savvy CIO who, and by the way, Washington, Harry, just to confuse you further, is not in either Washington state or Washington city, but we'll keep that for now. But yeah, look, by definition, these are going to be the best co-investments ever because it's the best deal ever. I mean, there's nothing surprising in it. I know some of our RLPs—
SPEAKER_01
[SPEAKER_02] Will Barron, Ph.D.: RLP is going to come back and go, those that will get liquidity from this, go, hey, we're going to reinvest more— Of course they are. [SPEAKER_02] RLP D.: Of course they are. [SPEAKER_02] RLP D.: And will all that brethren be like, hey, we're going to join this because we want the next generation, even if we didn't have them.
SPEAKER_01
RLP D.: Yes, because everyone's just going to go, wow, that looks amazing. As I say, again, it's back to the extrapolation from the unique event. Of course they are, because it is going to be amazing. I saw, I think in a journal this morning, I think this is Washington University. Again, I'm not going to confuse it. It's 10 or 15% of their endowment. It's awesome. It's awesome. Right? Yes, this is the best venture capital deal ever in terms of absolute return. And yeah, anyone involved is going to do really well. And even if it has a dip in price, they're going to do extraordinarily well.
SPEAKER_01
[SPEAKER_02] RLP D.: Speaking of a once in a lifetime or once in a decade moment, as Roy very articulately put, another once in a decade moment is obviously OpenAI filing to go public. Not so confidentially. Anything to say here that we haven't covered? Rory D.: The only thing I don't understand is maybe it's a question for Rory, because I don't get it. Other than the captain obvious element, what's the point of hedging your bet on the timing, but filing? I mostly get it, but I don't totally get it. Right?
SPEAKER_01
[SPEAKER_00] I only have to get this. Oh, we may want to stay private. We want flexibility, but we're going public. Rory D.: I think it's actually all they're doing is being smart and managing expectations finally. Right? Which is, I read that as we're finally to go public. In a perfect world, we'd love to go public as quickly as we can. But if it's delayed, for whatever reason, we don't want to have a whole bunch of negative stories there and that says, see it slipping. So if you preemptively say, manage expectations and say, we're filing, but we're not committing to a timeline, we're not all going to be sitting here in late October going, they said they'd be going public in early November, what is going on. The big aha here, and we said it two weeks ago, it's everyone's suddenly gunning for the door. At some point, you need the capital markets, the public capital markets, because the scale involved is such that that's where you have to go. And if everyone's just hit that point, they're going for it.
SPEAKER_00
[SPEAKER_01] For whatever reason, we don't want to have a whole bunch of negative stories there and that says, see it slipping. So if you preemptively say, manage expectations and say, we're filing, but we're not committing to a timeline, we're not all going to be sitting here in late October going, they said they'd be going public in early November, WTF is going on. The big aha here, and we said it two weeks ago, it's everyone's suddenly gunning for the door. At some point, you need the capital markets, the public capital markets, because the scale involved is such that that's where you got to go. And if everyone's just hit that point, they're going for it. I think going back to your comment earlier on this SpaceX, it feels like the market is very risk on. I mean, we had that little dip last week and then everyone got over it in two days. So it's as good a time as any. There's no obvious. You keep cranking while you can and see if you can get it done. I mean, I'm sure that they made that caveat of, we'll take our time, but they made that statement in the press department. My guess is in finance and legal, the mandate is get this puppy done as quickly as possible. So we have maximum optionality. Right. And so that with the SEC, and we're pointing out, by the way, the SpaceX S1 went through the SEC very quickly. And normally that's, I mean, I remember when that used to be a painful process with multiple iterations and it seemed to happen here extraordinarily quickly, probably because we don't regulate anything anymore. So go team. So, you know, this may all process through real quickly, in which case, brace yourself for a fun fall.
SPEAKER_00
[SPEAKER_02] Rory's on fire this morning. Gosh, I really want to touch on something beneath the product layer for OpenAI, which is, you know, Sam Altman's been driving towards persistent and always on AI. They shipped Dreaming V3, biggest memory architecture upgrade since launch. I'm just intrigued, Jason, in particular to hear your thoughts on this. Is the future of AI continuous, persistent, 24 hours a day, fabric of life always on in your mind? And how do you see this and that?
SPEAKER_00
I think we all believe it. I think that, and I mean, we can make fun of Apple this week, repackaging Gemini and giving up on AI, right? If that's the way we want to view it. But that's a little piece of wanting ultimately AI to be persistent 24-7. We do want this. We already live little hints of it. And it's pretty silly that AI, for the most part, lives in our browser, right? This, which is, if you think about it, very dated. I mean, it's so dated that we still use browsers. I mean, who would have thought. We got to get Marc André. I mean, the fact that we still live in the era of Netscape in so many ways. So I do think it's exciting. I do think as this show continues, the token apocalypse, I think it will morph into just standard business practice, right? At some point, there's only so large IT budgets can be. There's only so much, even if we lay off half of employment, I mean, employment keeps growing. We're going to have to manage spend. So I do think we're going to look back in two years and think of this non-persistent AI as almost archaic, right? As almost desktop-like.
SPEAKER_00
[SPEAKER_01] Yeah. I mean, you've thrown a lot there. We've pulled several faces there for the audience listening. Rory's facial. No, no, no. It's just that Jason, as he often does, covered a lot of different things. And I'm just processing through it more slowly. On that, on the memory thing, I'm kind of with Jason is that it just totally makes sense, right? And the question, yeah, if you step back, you know, you have the core models and then you have what people are calling all the harness, which is all the stuff around it to make those models effective. And part of that, and it can either be in them, it should be in the model or it could in theory be in the harness, is just understanding memory so that you could, and the impact of that. And I think why Jason went to the token economics part of it is part of the thing should be, you should get better answers with memory. And part of the thing, it should be more cost effective in terms of token, because you're not passing through all the context all the time. You can perhaps, it's part of it. I mean, I think a lot of the trend on this harnesses will be adding stuff to minimize your cost on frontier models. And part of that will be having memory, right? It also leads to a better experience, right? I think that I actually just went in and tried to see, have it been switched on in mine yet? Because it just makes a ton of sense. You should know who I am after I look up 58, 20 VC podcasts. You know, I'm probably here to look at my 20 VC podcast researcher guys. So it just makes a ton of sense.
SPEAKER_00
[SPEAKER_02] Right. Most people know who you are now. [SPEAKER_01] No, I'm sure. But my OpenAI sometimes doesn't. So yeah, it's a really, it's absolutely one of the necessary to do's and they're doing it. That's great. And I just went to each other.
SPEAKER_01
[SPEAKER_02] Well, you pulled a face when Jason said about Apple giving up on AI with Gemini. You're right there.
SPEAKER_01
You're moving on to that. That was an interesting one. Ben Thompson and Stratechery did a really good piece on it this morning I was reading. Is that, I think, to some extent, they're giving in the sense that they're paying Google a billion dollars to use their model as the default model. But reminder, Google pays them, I think, 12 or 20, I used to know the number, 20 billion dollars to be the default search engine. And so it's a minor asset. I give them credit. I actually think that they're making some progress. Yes, it would be better if they'd had their own model, but they're making progress on the use cases that just make a ton of sense for the consumer. And I think it was, I think the amount of context you have when you're on someone's phone is such a, they can, they should be able to deliver a unique and compelling consumer experience for the kind of things they demoed on the thing about knowing context on which Rory. It's like your memory comment, Jason. It's like knowing which Rory Harry's talking about, knowing your calendar, knowing everything and deliver a much better experience. Now, should they have been able to do it with their own model? Yeah. But the bottom line is they control the handset and for the consumer,
SPEAKER_01
on the use cases that just make a ton of sense for the consumer. And I think the amount of context you have when you're on someone's phone is such that they should be able to deliver a unique and compelling consumer experience for the kind of things they demoed on, about knowing context on which Rory. It's like your memory comment, Jason, it's like knowing which Rory Harry's talking about, knowing your calendar, knowing everything and deliver a much better experience. Now, should they have been able to do it with their own model? Yeah. But the bottom line is they control the handset and for the consumer, it's a pretty powerful product. So I think they're in a good position to make progress. I don't think they're giving up. I actually think they're pragmatically saying, we kind of screwed up and not have our own model, but that's actually not what matters for us, for Apple. What matters for Apple is delivering an amazing experience to our consumers. Because if we do that, they'll keep buying handsets. And if we keep buying handsets, we can probably afford to give someone a billion bucks a year, right? So I give them credit for getting their act together. I mean, it is stunning that Siri is so bad for so long. So I think actually trying to fix it is just awesome. So I give them credit for stepping in the right direction. That's my takeaway from it. So the opposite, I don't think they've given up. I think they're doing what it takes to win coming from behind. And they have a great position. I mean, it's interesting. The person you have to think about this a lot with obviously is if you're OpenAI versus if you're on Anthropic, because then Anthropic has made the enterprise bet and OpenAI in part has made the consumer bet. And I like my OpenAI subscription because I sit at my desk and I do research, but for a lot, I mean, it was a great line and give Ben Thompson credit. He said very clearly. I've thought it, but I hadn't heard anyone say it clear. He said, consumers don't want to work. There's not a big market for consumers in their non-working life to do a whole bunch of complex research or using AI for productivity. They just want delightful experiences because they want to relax and entertain. So I think actually, the consumer space is going to be a tougher space for OpenAI. The enterprise space has really been validated because an enterprise is all about automation efficiency and consumer space. It's about experiences. Apple's well-placed to do that. OpenAI has got to compete with that and compete with Google. And it's a tough space, especially if Apple's getting their act together.
SPEAKER_01
[SPEAKER_02] Well, speaking of consumers not wanting to work soon, they won't have to. Uber cuts 23% of HR. HR. Just to make Jason happy. We can now have Jason. [SPEAKER_02] Sorry. I'm so sorry. Obviously it's people losing jobs. It's terribly sad, but I'm the one who said no great CEO likes HR and everyone got angry at me. And then everyone starts cutting HR. Anything of note here from Uber cutting 23% of HR, remote work rescinded, three-day in-office mandate company denies AI played a role despite 95% of engineers using it daily. Anything of note there?
SPEAKER_00
Well, look, HR and recruiting, right? Let's consider them different are the easiest things to cut, right? They're there. Recruiting is all, you know, you always see any big tech leader stumble a little bit and they lay off 30% of the recruiting department. We're going to, you often want them back. I always wonder, I always think this is a, I mean, it makes sense on paper, right? The HR one will be interesting. I mean, we've put out a call for someone to report to our AI VP of marketing, and I've gotten my head cut off a lot on social media for that by people not really listening to what I'm saying about that. But I do think HR is one of these areas that in many parts of it will be better managed by AI. I think an AI can be a better VP of HR for certain parts of the job than a biased human. I think there are advantages to having an AI VP of HR. I don't want to get rid of all of the humans or even lay people off, but an AI VP of HR can evaluate every single thing you've ever done. Every little bit of your work, all of your issues, whether an AI VP of HR can figure out, hey, maybe it really is your idiot boss, Jason, you know, maybe that really is the problem. It's not you. An AI VP of HR can find out a lot of things and process a lot. So I don't think it's an under-discussed area versus other areas, but it should be massively disrupted. The big picture question in all these areas is, how much efficiency do you get? My God, 23%. I doubt everyone is automating and saving 23% using AI in the non-engineering departments because adoption there isn't as strong as engineering. Do I think there's some? Of course I do. So my bottom line is, I think my guess is some portion of this is automation. I doubt it's 20% because I'm always calibrating off what is, I mean, it's the Dario number, what percentage of knowledge work is going to be automated and it's knowledge work tasks and knowledge jobs. Is it five? Is it 10? Is it 50? As Dario has said, 23% felt like a lot, but whatever. Again, what you don't know is how much of it is just too many folks there and they're just rationalizing. So it's a data point. I mean, I think the other data point from Uber is far more interesting, right? Which is not the AI for HR, but the AI for autonomous driving that they continue to make progress on autonomous driving. Which stat was that, Rory?
SPEAKER_00
[SPEAKER_01] No, that's the one you mentioned. I'm sorry, you made a point there that they're actually rolling out some more autonomous driving experience in Europe, in Madrid, I think. Right. So they're kind of partnering with, I think it's Waymo, some of the technology providers, but it's the big, I mean, if you want to talk automation, driving is one of the biggest targets in terms of the number of humans that do that job. And when you see Uber making experimental progress on robot taxi in Europe, it's something obviously to keep an eye on. It's worth pointing out this stuff is still moving way slower than I think people anticipated. It hasn't been
SPEAKER_01
they're actually rolling out some more autonomous driving experience in Europe, in Madrid, I think. Right. So, and they're partnering with, I think it's WeRider, some of the technology providers, but it's the big thing. If you want to talk automation, driving is one of the biggest targets in terms of the number of humans that do that job. And when you see Uber making experimental progress on robot taxi in Europe, it's something obviously to keep an eye on. It's worth pointing out this stuff is still moving way slower than I think people anticipated. It hasn't been Waymo in San Francisco resulting in Waymo everywhere within six months. It's been a long, steady progress for Waymo and Uber's doing what it should do, which is this is existential. The Travis Kalanick devotees would say the failure, the cutting of their autonomous project in 2016 or 17 was a fatal error for Uber. I'm not sure. I think 10 years later, they can pick up the thread and catch up on that because it's not like the technology tips like a domino, but I think they're smart to now start pushing robotaxis and partnering with technology providers. And this is because the question on the Uber stock is always, oh my God, is robotaxi existential, which is a bad scenario, or the good scenario is lots of people build robotaxi technology and Uber is in a wonderful position to be the coordinating thing because it's the app we use. And if they just add 10,000 robotaxis to the fleet, then things continue just fine. And frankly, it's good to see the Europeans do something. I mean, I said this respectfully, Harry, but typically Europe is the slow technical laggard, especially on stuff like that. So go Madrid.
SPEAKER_01
[SPEAKER_02] David Shepard [SPEAKER_02] Should we discuss the Revolut 115 billion? 115 billion. Amazing. David Shepard [SPEAKER_02] Yeah, thank you. David Shepard I think you're doing that. I'm going to push it. I think you're doing that defensively. You felt I was dissing on you in Europe and you're basically implicitly saying, oh, look at Revolut. It's amazing. Correct? David Shepard Correct. David Shepard
SPEAKER_01
And it is amazing. And you know why it exists? Because the European banks, unlike the American banks in general, are so crappy. There's a reason that Revolut's worth 115 billion because the incumbent European banks were fat, dumb, and happy and making margin off their customers. And there's a reason why Chime is worth 5 billion, still a great outcome, by the way. That's because the US banks are now a little more efficient. David Shepard David Shepard
SPEAKER_01
That's also why Newbank is such a valuable business. Because the Brazilian banks were inefficient. I think all these fintechs, they can be a proven market. It's a function of how egregiously priced the incumbents are. And Europe, especially when it had non-single currency, you had all this foreign exchange. Because you guys aren't in Europe, you had the FX chargers, you had all this transporter nonsense. And Revolut just blew a hole in that. So I think it's amazing. And I know you're a big fan of the CEO. And I think it's great. I wish him all the best and pound those old school European banks into the dirt. I mean, at some point, we're going to have to deal with the fact that the largest bank by market cap doesn't do much lending. And that's actually going to be a real problem in the aggregate. Because the whole point of banking is to recycle savings into lending. And right now, Revolut is not a long term lender, but that's by the by. They're killing it.
SPEAKER_01
[SPEAKER_02] David I'm fascinated to hear Jason's thoughts on this one. What's dominated my Twitter over the last week is Greg Eisenberg's original tweet about a horror story of venture fund raise. It led to a slew, hundreds and hundreds of founders sharing horror stories, including the Cloudflare CEO, who said about his experience with Khosla and Vinod Khosla. Jason, I'm really intrigued to hear your thoughts on this one. I'm sure you have some. How did you feel about this slew of founders bluntly saying how terrible a VC experience they had in certain cases?
SPEAKER_00
Well, I'd say a couple things. First of all, I have as when I was in the most intense phase of founder, I had those stories too. I really we forget how deep some of these things cut, these slights. The folks that are friends of ours now, that we co-invest with, I thought terrible things of at the time, literally. One that we both know really well would constantly use me just to do diligence on another investment constantly. And now I'm pretty zen about that. The founders, I'm saying just take the meeting and do reverse intel. If you're just being used for a competitor, then sit down with him and just find out about your competitor, get the exact information. But man, that stuff really burned me. And founders hold grudges. So a couple of things, first of all, the whole thing with the CEO of Cloudflare, just remember founders hold grudges. I still do. I'm just getting over them now. I'm just getting over my founder grudges. So founders hold grudges in a way that VCs actually, I think don't because VCs, you miss the deal. You got to find another bus, right? Having said all that, get over it because it's sales. The only thing that to really have a grudge, a true grudge on is if you got fired. Okay. That one, I think the folks that hate Benchmark from Uber, I think they deserve to hate Benchmark. I think there's others, but if you're treated poorly during the fundraising, get over it, it's sales. Have you never sold? This is what I say to people. Have you never sold anything? Have you ever not thought a customer deal was going to close and it didn't? Have you ever not talked to a prospect where they told you, Rory, of course we're going to buy by the end of the quarter. And then you just send them 28 emails and 87 texts and the deal never closes. How is it any different selling stock than anything else? So there's a bunch of issues to separate the grudge, the firing, which is a niche issue, and learn to sell, man, grow some. In one sense, you're right, Jason. But I think the difference for the founder, and I think a ton of what you said, super insightful. The difference is
SPEAKER_00
I say to people, have you never sold anything? Have you ever thought a customer deal was going to close and it didn't? Have you ever not talked to a prospect where they told you, Rory, of course we're going to buy by the end of the quarter, and then you just send them 28 emails and 87 texts and the deal never closes. How is it any different selling stock than anything else? So there's a bunch of issues to separate the grudge, the firing, which is a niche issue, and learn to sell, but grow some.
SPEAKER_00
[SPEAKER_01] In one sense, you're right, Jason. But I think the difference for the founder, and I think a ton of what you said is super insightful. The difference is the founder in this case isn't selling their product. They're selling themselves. So I think you're right about one thing, the rejections cut deeper, right? And there's no doubt. Even on my side, I remember a VC 30 years ago said to me, you never forget the LP turndowns. And 30 years later, he's so right. You remember those people who turned you down. It's just a personal thing because you're not just selling your product. You're not selling Ford cars on the deal. You're selling yourself. And when you get turned down, it hurts. So I totally with you, Jason, is that you do have to grow a pair. You do have to get a thick skin. But I totally get why founders, even if nothing goes wrong in the process, I totally get it. Rejection sucks, right? And as yet, so that's the founder side. And I thought you were super sympathetic there. And then just to put the other side of the table, every venture person is in a business where we turn down 99 out of 100 deals that we look at. So rejection is our default MO. And that's why I always wrestle with these ratings businesses, right? The kind of rating VCs. It's doable. And I think there actually are appropriate ways to do it. But you do have to remember that the default is a no. And it's really hard to high customer sat when 99 times out of 100, you're going to tell the customer no. It's why no one ever loves the bank that they apply to for lending money. Because a well-run bank turns down five out of six customers. No one likes that experience. Rejection sucks, right? So it's set up for failure out of the gate. Sometimes, in the course of turning down two, three hundred people a year, you get some stuff wrong. What was interesting is Matthew was really upset that Vinod asked him to consider getting rid of Michelle, who we know is great and his CTO, and giving him the shares, not stealing his shares, which I think was misinterpreted. He made a suggestion in a pitch. And listen, I'm a super fan of Michelle. I would not make that suggestion. But let's step back for a minute. We've all had those meetings with founders where the team is very unbalanced. And would I, am I the node? And would I say it that way? No, but you might know me well enough. I almost would, in a different situation. I almost would say that to a founder. I just wouldn't do it during a pitch. I would just say it's not a fit for me. But I find myself constantly post-investing being the only one that would say things, you know, what are you going to do with your co-founder? And she's just not committed enough. He's not getting it done. And so I think his directness is interesting that it bothered the CEO of Cloudflare so much. But in a way, it was just his read of the team. I think it was wrong, at least for one of them, but the read of the team.
SPEAKER_00
[SPEAKER_01] And by wrong, you mean incorrect relative to the subsequent outcome, right? Well, I would, I know Michelle, I don't know Michelle that well. I think she's a great founder. So I would keep her. But the fact that VCs go in and you see that the founders are not equal in terms of their commitment and skill set, right?
SPEAKER_00
[SPEAKER_01] I mean, look, I don't comment on this because look, it's clear, given the superb outcome, that whatever Cloudflare had, it shouldn't have been touched one little bit. It should have just been let do exactly what it did. It's a great outcome. So you're right. I think, again, Jason, you raise a good point. You go in, you know, you see things and especially at the earliest stages, if you think the team is wrong, but you want to do the deal, then, you know, that's a really tricky conversation, right? And you should be aware of having, and I think just as well as when you're as successful as Vinod, you're like, I could take three meetings and slowly and delicately get to this point, or maybe I'll just say it. Now, it's also worth pointing out, he said very clearly, he doesn't believe that happened. So I think, you know, I think stepping back, I don't know if it's a useful way to rehash. I mean, the more successful you are, the more meetings you'll have, the more meetings you have, the more likely some of them go wrong, especially if you're direct and Vinod is nothing if not direct. So stuff happens. I mean, as someone pointed out, he was on the Juniper list, he was on the Midas list the first time for Juniper and he's on the Midas list this year for OpenAI. And there's 30 years between those two events. So he must be doing something right overall. But we just still have to say that on an individual day, you can piss people off. And look, I'm sure I look back across 300, 400 turn downs a year for 30 years. I know there's been some where I wish I'd handled it differently. There's been one or two at the term sheet level. I wish I'd handled it differently. It happens. It's not ideal. You know, if you're aware of it, you apologize later and say, look, I got that wrong. And you just have to move on. Some element of breakage is inevitable.
SPEAKER_00
[SPEAKER_02] I have to admit, Rory, I disagree with you. [SPEAKER_02] What? [SPEAKER_02] I've been turned down by lots of LPs. The best way to have revenge is that you forget they even existed. I'm being a dick here, but a lot of them ping me now. I'm like, wow. And when they turned me down when I was 21, I'm like, whoa. And you're like, who are you?
SPEAKER_00
[SPEAKER_01] Yeah, maybe early on, you early on, you remember you're right over time to Jason's point, you developed a thick skin and you're right. I remember much less the turn downs on fund seven than on fund one. Yeah, the first one was fun. So I do remember on fund three, our first independent fund, which we foolishly timed literally for the week of the great financial crisis in November 08, getting turned down.
SPEAKER_01
[SPEAKER_02] existed. I'm being a dick here, but a lot of them ping me now. I'm like, wow. And when they turned me down when I was 21, I'm like, whoa. And you're like, who are you?
SPEAKER_00
[SPEAKER_01] Yeah, maybe early on, you remember you're right over time to Jason's point, you developed a thick skin and you're right. I remember much less the turn downs on fund seven than on fund one. Yeah, the first one was fun. So I do remember on fund three, our first independent fund, which we foolishly timed literally for the week of the great financial crisis in November 08, getting turned down three times in the space of an hour. So I do remember that pretty vividly, but life goes on.
SPEAKER_00
[SPEAKER_02] Okay. So again, big milestones for Lovable and Cursor this week. Lovable, so literally just before we came on, Lovable hit 500 million of ARR. The number was wrong. So 500 million of ARR with 146 employees. Cursor has hit 4 billion and it's targeting 6 billion at the end of the year. Jason, you're the man of the hour for this one. You're the coder. Any thoughts on this? This was unprecedented.
SPEAKER_00
Listen, I think there's two different things you said. One was about the scale, right, of these companies, right? Which we've talked, I do think the headcount thing is something that we're still learning about, right? And so I think when we started this show, we were in an area where folks were very lean and growing very quickly. But the question was, does this normalize over time? As you approach scale, as you approach 100 million, 200 million, 500 million, a billion in revenue, will startups get fat again, right? Do you just need these layers? And I can think of a number of hot AI startups that are getting pretty fat, especially on go-to-market teams and others, but we're seeing more and more examples to the contrary. And it is disruptive on many levels if you can stay as efficient as these guys are. It is disruptive to investing. It is disruptive to employees because it will shrink the number of these great roles and it will increase compensation, right? To the Click-Up point, to Zeb's point, I'm doing layoffs to give million dollars to a handful of folks. Lovable can pay its team whatever it wants, right? With less than 200 employees, it can pay whatever it wants. But man, if this becomes the steady state for startups, and maybe it was in the old days, maybe in the old days of Microsoft it was true, but it's just so different if they're not going to reflate, is what I think about. Because it's not a lot of people, man. And what people don't understand, I know Replit a little bit of Lovable, but they're the same. They're pushing out a lot of code. One thing you could say is, oh, it's easy because they only have one product, right? That would be a comeback that I think a little bit like, you don't have to have 22 products like Datadog or 7000 like Salesforce. Well, maybe, but these are pretty complicated products, okay? You've got database, you've got hosting, you've got management, you've got SEO you're running. These guys are pushed because it's the most brutally competitive space it is. They're pushing out more features than any of us did our entire lifetimes a generation ago. So I don't think these folks are working, they're incredibly hard and they're incredibly productive. So I did almost, and if you want to be, you want to have some contempt for VCs tying this together, I'm kind of contentious of startups that need to be fat. I'm like, what's your excuse? What do you need another 200 people for? And when I'm at a board meeting and a VP says, or they're all C levels now, right? A C of something. There's no VPs anymore in startups. They're all Cs. And they say, well, I could do that, but I need another 50 or 100 heads. I need another 10 or 20 or 40 million. I just think that person should go.
SPEAKER_01
The only comment on, and first of all, broadly agree, but the only pushback I'll make is this, right? We're having the, oh, they're amazing that they can do this with only 146 heads. But remember, if you're spending 50 to 70% of your revenue on intelligence from Anthropic or OpenAI, you don't have the, I mean, it's a different business, right? You don't have the option to also have 50 to 70% of your revenue on employees because there's not enough room in the percentages, right? So there's some, I mean, they're just different businesses with different business models, right? [SPEAKER_00] They are, but you have the choice of who you invest in or who you work for, right?
SPEAKER_01
We have our legs in pocketbooks, right? No, of course. And this is actually one of the core challenges many of these other companies are going to have. If you can be one of the 146 employees, that is, I agree with you, Jason, 100%, that is getting levered from this AI such that your economics are compelling because you're one of a small group of people making a lot of money in a business that's leveraging technology to have a very high revenue per headcount. It means we can pay you a lot. That's a far better place to be as an employee, you're right, than, you know, one of, yeah, 18, whatever it is, 90,000 employees at Salesforce. You're exactly right because you're not getting levered from the models and intelligence, right? And this is the, how much will be labor and how much will be intelligence? This is the question of what's the split and what you're seeing to your point. I'm sorry, I'm rambling on this, but it's clear in my head. I want to get it across. In businesses that are using a lot of intelligence and I'm using tokens as a proxy for that, then small numbers of people can achieve a lot and make a lot. And those are better places to be as an employee and often as an investor, right? Yeah. Then to be, you know, slogging it out with 10 times the employees, not a ton of new leverage from AI. And yeah, you're stuck in 2010's ground game. Which sucks. That's what you'd want to do if you could as a founder, as an employee, as an investor, you'd want that all, if you could, that's the model you'd want. That's where I'd want to go work. I want to go work somewhere where I'm empowered, where I'm one of 172 people at 500 million in revenue. I matter. To your point, Jason, I do think, and I want to call it out. I do think as you start to develop an enterprise motion and you implicitly said it, you're probably talking about the foundation models who are building big go to market machines, because they have to, we are going to see way more bodies. I don't buy, there's not going to be
SPEAKER_01
[SPEAKER_00] employee, as an investor, you'd want that all, if you could, that's the model you'd want. That's where I'd want to go work. I want to go work somewhere where I'm empowered, where I'm one of 172 people at 500 million in revenue. I matter. To your point, Jason, I do think, and I want to call it out. I do think as you start to develop an enterprise motion and you implicitly said it, you're probably talking about the foundation models who are building big go to market machines, because they have to, we are going to see way more bodies. I don't buy there's not going to be an infinite number of— Oh, worry, I hate that. It's not just, I mean, it's Lagorre, it's Harvey, it's your Sierras. When you're selling to enterprise, this idea that 157 people can do it on their own is not going to be true. I think for products, because remember, in the end of the day, someone wants to— It's not that it— Hang on, agree. In any business, there's only two things that happen. People are either making stuff or selling stuff. If they're not doing any of those two things, they're just overhead. To your point, if you're selling stuff via PLG, then you only need people to make stuff, so you can be pretty lean. Once you start selling to, as you say, to law firms, once you start selling to corporates, then you do end up with a big sales force. One of my theories is that that doesn't change from cycle to cycle. The enterprise sales force in five years will look like the Oracle sales force, the Microsoft sales force, and the IBM sales force 50 years ago. Because—
SPEAKER_01
[SPEAKER_00] But here's the thing. I don't know that that's going to be true, Rory. First of all, I don't mean to go back to the law. If we compare Replit and Lovable, I know Replit's hiring 250 sales reps this year. So that's going to look very much like a traditional organization. Lovable isn't, okay? And it's different DNAs and different goals. And the majority of Anthropic's enterprise sales are not allowed to talk to a human. And so my point from that, we can't all be Anthropic. Founders are choosing, they are choosing to have leaner go-to-market teams, leaner sales. They just don't want this crap. They just don't want 250 people running around. And they're willing to trade off some marginal revenue. I mean, Anthropic has less than 5,000 employees, right? So they're just saying culturally. And so I don't think that they're all going to, I thought they would all look like SAP and Oracle and Salesforce. We're not seeing that. We're not seeing that. We're seeing something in the middle where they still want to be lean.
SPEAKER_01
It's not going to be 147 people doing 500 million when it's enterprise sales. [SPEAKER_00] But what you might see is three to two to five times the level of efficiency. And it just changes the culture, the head counts where people are. That's the difference, right? It doesn't really matter whether it's zero or four X, right?
SPEAKER_01
I agree. It will be better. No matter what happens, when you start with a clean slate and leveraging intelligence, you just become way more efficient. I agree. These companies, on average, will be way more efficient. When you do a comparison, it's over 3 million an hour per head versus, and I'm not, but a Salesforce, which is 350K per head. It's nine times more efficient. Yeah. But again, I'm just going to say it here. Yes, you're true. But Salesforce, enterprise heavy, R and D heavy, no intelligence costs, right? Remember, they have 300 million of, they just said it of tokens, which let's just do it here. We did the math. That's roughly 10 or 15 grand per engineer and engineers are about only one fifth of what they have. So remember that 300,000 ARR, probably only 1% of that is tokens. Do you understand me, Harry? In other words, Salesforce has $300,000 of revenue per head, which means if they're going to make money, they can't pay anyone more than 200,000, right? And they're probably spending 1% of revenue per head on tokens. Contrast that with your example of Replet. They're getting 2.3 million per head, but they're probably spending 70% of dollars on tokens. It's just vastly different businesses. And one of them is more aggressively leveraging the new enabling technology. So to Jason's point, it's probably a sweeter spot to be one of the 147 people in that gig than one of the, I used to know the head count. Now I don't, I probably could do it by math, that 20, 30,000 people in a much larger organization where you don't have leverage. They're just different businesses. But this is, to me, this is much more interesting than layoffs in these stories. I think everybody, every founder, forget about older companies, every founder today wants to run a startup that's at least a million in revenue per employee or more. They're targeting 2 million. They want to be in a million, and they want it because they want great teams. They want lean teams. They want the best people. They want to work this way. They want to go to work with people they look up to and respect. They so I, my sense is that roughly over the coming years, startups will be half the size that they used to be for revenue, including enterprise. This is very much B2B focused. And that's a big, that's a much bigger change than whether this company does a 10 or 15% layoff. If everyone's half the size they used to be, it's a much bigger change.
SPEAKER_01
By definition, if you invent something that's meant to augment humans and make them more efficient, and that thing is called AI and it does a trillion in revenue, by definition, you need to see a trillion of efficiencies. And the way efficiencies show up is less humans per unit of task. You're exactly right. That's the bet. If it wasn't happening, the entire thesis of the case would be bullshit. So you're right, Jason, it's gotta be happening. If the people who sell AI can't be efficient with AI, then what chance is there for the rest of them? Do I agree with you?
SPEAKER_01
[SPEAKER_02] David Morgan Did Elon have the acquisition of the year buying Cursor for what will be 10 times end of year revenue? It looks a pretty prescient buy if they're going to hit target. Jason It looks pretty clever. I mean, I think what we talked about, it was a clever deal on every dimension. I mean, when I was thinking about this, because I'm always skeptical on the valuation, but Elon did such an amazing job of meeting the AI moment. And let me tell you what I mean by that. It's like, you know, you look back and you go, he obviously founded OpenAI and then all the drama happened, blah, blah, blah. But in the last 24 months,
SPEAKER_01
[SPEAKER_02] David Morgan Did Elon have the acquisition of the year buying Cursor for what will be 10 times end of year revenue? It looks pretty prescient if they're going to hit target.
SPEAKER_01
Jason It looks pretty clever. I think what we talked about, it was a clever deal on every dimension. When I was thinking about this, because I'm always skeptical on the valuation, but Elon did such an amazing job of meeting the AI moment. Let me tell you what I mean by that. You look back and you go, he obviously founded OpenAI and then all the drama happened. But in the last 24 months, he moved from ground zero to building Colossus, building Colossus 2, dealing with his model. But just because he had the guts to show up and spend that kind of money, because to be fair, he does have the cheapest cost of capital on the planet. He found himself with gigawatts of capacity just when everyone needed it, was able to sell it to them, and then did the Cursor deal also to kind of backfill the space. Everything stems from the fact that he had the big picture conviction that AI mattered and he was willing to put 20 to 30 billion dollars of capital in the ground in advance of revenue because he felt this was the trend to back. And at least right now, it looks like a great trend. You're right, prescient is exactly the right word. He found two of his biggest competitors who want to buy from him. He's getting 2 billion a month, 1.25 from Anthropic and 950 from Google. So 2 billion a month, 24 billion a year in terms of compute revenue. And then on top of that, he has Cursor coming in at the back end to fill those servers. So he is the most efficient compute player with the lowest cost of capital. It doesn't mean you have a foundation model. It means you're just a better compute player, but did he turn a loss into a win in the space of three months? In January 1st, you could have said, look at all those data centers and you don't have a foundation model. You're screwed. Here we are June 9th and he can say, I have a 24 billion dollar compute business and I have this other business that's coming in that's going to be doing 6 billion that will run on my servers.
SPEAKER_01
[SPEAKER_02] And Elon, an incredible transition. Two private rounds that were large. Ramp raises $750 million at a $44 billion valuation. We've discussed Ramp a lot, tripled in a year, crossed a billion in ARR, positive free cash flow. And then also Suno, the AI music creator company, raised $400 million at a $5.4 billion valuation, testing first license model. Bond led that one. It was double the previous valuation just six months ago. Anything on either of those? Ramp, we've said it before.
SPEAKER_01
It gets to the revenue. They'll trade like financial services companies, but they will be adjusted for growth. When Brex slowed down to, I can't remember what it was, 30, 40%, they sold for six X. Here we have Ramp. I've heard they're actually as much as 1.25 billion. So they're trading at 30 to 40 times. It's all a growth path. If the growth keeps up, this will be a smart round. If the growth goes down to anything like normalized growth, it won't be. It's the same bet with Revolut. They're raising at a hundred and something, they're doing what? Four and a half billion in revenue, 1.5 billion in operating income, which is amazing. These companies are great. Banks don't trade at 40 times, 50 times earnings. They trade at 12 times. On both of them, it's really just people always say, will this trade like a tech company or like a financial services company? It'll trade like a financial services company, but it will be adjusted for growth. Ramp is getting the growth and they just seem to do a very good job of reading the Zeitgeist and their AI story, their adoption story. They just seem to do a good job on all that. So for now they got the growth. As long as they got the growth, the math works and it's a big opportunity. So we'll see.
SPEAKER_01
[SPEAKER_02] Jason, you're trying Suno, the music AI company.
SPEAKER_01
[SPEAKER_00] You having it for your personless office, Suno, just playing AI music. I do like Suno. I do pay for Suno. It's one of those ones that if I were more cost sensitive, I would cancel my subscription because I think I pay 15 or 20 bucks a month for three songs. There are certain apps that I think they're fragile for certain users because I'll continue to pay them, but barely. The utility is there, but barely. It is amazing. I'm not maybe even though I'm a customer for a while and user, the rate at which that valuation doubled and the 20 billion outcome for it, I'm not smart enough to see it yet. So it feels a little bit to me like risk on. The revenue justifies it. The growth justifies it. The stickiness justifies it. The brand justifies it. Nothing you can't lose in AI. But I don't know. We'll see it at the IPO. I just don't know where all this money's coming from.
SPEAKER_02
I'm saying with all the IPOs and then rather you mentioned Revolut again, Rory, is that targeting 750 million with the secondary sale that they're doing at the one 15. And then all the IPOs, we say, where is all this money coming from?
SPEAKER_01
There's always money when people aren't afraid. When it gets scary, it's not that money runs out. It's that money gets scared. In the same thing in a bull market, it's not that more money's been made. It's that people are [SPEAKER_02] Is that targeting 750 million with the secondary sale that they're doing at 1.15? [SPEAKER_02] And then all the IPOs, we say, should we, where is all this money coming from? David Pérez There's always money when people aren't afraid.
SPEAKER_01
David Pérez Man, there's no money. And when it gets scary, as I always say that, cause the converse, I actually came to my point. I always say the converse is important. When things get scary, it's not that money runs out. It's that money gets scared. Right. And in the same thing in a bull market, it's not that more money's been made. It's that people are brave. There'll always be money when people are brave and there'll be nothing but treasuries when they're not. [SPEAKER_02] David Pérez How long will they be brave for, Rory?
SPEAKER_01
David Pérez If I knew that, Harry, I wouldn't be sitting there talking to you. I'd be trading in QQQ. I don't know. At some point they won't get brave, but right now, it fills everyone's risk on. So yeah, I think people are brave.
SPEAKER_01
[SPEAKER_00] David Pérez Well, we've all convinced ourselves the rules have changed now, right? You can go one to a hundred in a year and so many other things have changed. We throw these numbers, these growth numbers out as if it doesn't require a massive change in externalities to justify them. Oh, everyone, all the best startups go from one to a hundred in a year. One to 20 in a year is pretty good today. You want to be doing five to eight by the time you get out of YC. The rules have changed and they have changed, but there's a limit to how much the rules can change, right? There is, it's called GDP.
SPEAKER_01
Harry Sperger Yes. And it's also called human nature. I think the rules have changed what's doable. But what we do is in the face of these increased opportunities, we all get more aggressive and we keep on getting aggressive until the only thing that stops us being aggressive is someone gets burnt, right? It's the whole Minsky analysis of, you're going to do what you're going to do and it's going to continue. And the only thing that will stop it is overreaching. And the skill is to figure out when you're at that point. Like it was funny. Last Friday, there was a little dip and you never know why stocks go down when things were overpriced. But the narrative was, the employment numbers were good. So therefore rates won't go down and therefore stocks went down and intellectually. Yeah. I generally find things don't go to hell in the hand basket because employment is good, but that's not going to be how this thing ends. Right.
SPEAKER_01
[SPEAKER_02] David Wright Well, it was because of chip. It was because of chip guidance to be clear as chip guidance of 16 billion, Mr. 17.2. [SPEAKER_02] David Wright Yeah. You're talking about Broadcom. [SPEAKER_02] David Wright Yeah.
SPEAKER_01
David Wright It was some of that. And then it was just yeah. But yes, they got guided. I mean, I think what that, if we're going to talk about that, all that said is when you're priced for perfection, which is always true, when you're priced for perfection, even a small miss to expectations filters true very quickly. And that's all that happened there. You know, the semiconductor index is up 100% year to date. So it turns out it's pretty vulnerable to correction. [SPEAKER_02] David Wright Oh, well.
SPEAKER_01
[SPEAKER_02] David Wright One that's amazing, which we may not have commented on, but it is amazing. It's Bending Spoons. This is a roll up play on traditionally consumer companies. Some of their properties are very well known, but Evernote, Vimeo, WeTransfer, AOL, Eventbrite, very massively executed roll up strategy, a billion three in revenue, and they're filing to go public at $20 billion in the US from Italy. I hasten to add, one of few large Italian success stories to be very blunt. I thought it was amazing. I don't know if you guys have comment on it, but I thought fantastic success story.
SPEAKER_01
[SPEAKER_00] David Wright Well, to me, the part I didn't appreciate, and I do appreciate it, is that they turned around these companies. I mean, Evernote was dead and they reaccelerated the growth of Evernote with a fifth of the employees. I mean, it sure makes you think a lot of management teams are pretty suspect if frickin' Bending Spoons from Italy can turn Vimeo around, Evernote around, good God. If AOL becomes the next hot thing, I mean, these guys are geniuses.
SPEAKER_01
David Wright I think I did read it in detail because I was super interested, right? And turned around is an interesting expression. I mean, what they do, their MO is they buy these things, they cut all extraneous expenditure, including a lot of the acquisition expenditure. It's very like a little ironic, like the Vista playbook in Enterprise. And then they raise prices massively. So if you look, I actually tried to figure out the organic growth rate of each enterprise because they're growing nicely overall, but a large part of the reason they're growing is they're adding new companies. So by definition, revenue goes up, right? I think they had, I'm trying to find my notes here. I had the growth rate last year. It was stellar, something like 90%, but most of it's acquisition. So you're trying to piece through, Jason, and then you're trying to find out what did they do in terms of growth by entity. That's the next level down. And even then they get pretty good growth rate, to your point out of the gate, right? But then you go one level below that. How do they do that? It's mainly price rising. It's very hard to get any sense of unit growth by individual products.
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David Wright It was stellar, something like 90%, but most of it's acquisition.
SPEAKER_00
[SPEAKER_01] David Wright So you're trying to piece through, Jason, [SPEAKER_01] David Wright And then you're trying to find out what did they do in terms of growth by entity. [SPEAKER_01] David Wright That's the next level down. [SPEAKER_01] David Wright And even then they get pretty good growth rate, [SPEAKER_01] to your point out of the gate, right? [SPEAKER_01] David Wright But then you go one level below that. [SPEAKER_01] David Wright How do they do that? [SPEAKER_01] David Wright It's mainly price rising. [SPEAKER_01] David Wright It's very hard to get any sense of unit growth by individual products.
SPEAKER_00
[SPEAKER_01] David Wright So in other words, what they're doing is they're taking Evernote, [SPEAKER_01] David Wright As an example, it's doing 200 million in revenue. [SPEAKER_01] David Wright They just cut all the marketing initiatives other than high ROI stuff. [SPEAKER_01] David Wright So they take out 80% of the marketing spend, [SPEAKER_01] David Wright Focus the team on features, raise the prices 80% over the course of two years, [SPEAKER_01] 10% of the existing users go maybe 20%. [SPEAKER_01] David Wright Their net retention is reasonably decent. [SPEAKER_01] David Wright It's below 100, but it's reasonably decent.
SPEAKER_00
[SPEAKER_01] David Wright So they raise prices and the people who really want it stay, right? [SPEAKER_01] David Wright And it's really hard to grow new businesses, but what it means is it kicks off cash. [SPEAKER_01] David Wright And you know, let's get real here.
SPEAKER_01
David Wright Anyone who hasn't churned from AOL now Ain't churned until they die, right?
SPEAKER_00
[SPEAKER_01] David Wright So you can raise money on that.
SPEAKER_01
David Wright You know, you've had a whole two decades, people. David Wright I mean, it is 26 years since the AOL Time Warner acquisition, right? David Wright You've had 26 years to churn off this thing. David Wright You're going nowhere, right? David Wright So they have very sticky inertia customers and they stick it to them, right?
SPEAKER_00
[SPEAKER_01] David Wright It's an excellent business. [SPEAKER_01] David Wright I mean, the big three properties are AOL, Eventbrite, and I want to say Vimeo. [SPEAKER_01] David Wright It was interesting in the top 10 or about 80%. [SPEAKER_01] David Wright I think Evernote, which I use is in the top 10, but not top three. [SPEAKER_01] David Wright You still use Evernote?
SPEAKER_01
David Wright I don't use it, but I have a bunch of stuff in it. David Wright So I paid for another year. David Wright I need to get it out and figure out where I'm going. David Wright It's a long story, but I'm not using it. David Wright I'm using ChatGPT, but I got to get all my stuff into one place. David Wright It's a long discussion. David Wright Well, they've increased pricing from... David Wright What was the last supper like? David Wright Sure, shut up. David Wright Let's focus on the business.
SPEAKER_02
[SPEAKER_01] David Wright So yeah, I looked at my goal. [SPEAKER_01] David Wright The odd thing is this is a consumer internet version of early Vista, Toma Brava. [SPEAKER_01] David Wright Buy those companies, cut the costs, raise the prices, and probably tap them out.
SPEAKER_01
David Wright So the question, is it a great business? David Wright Should it go public at 20 times revenues or 15 times revenues? David Wright Maybe not, because you are relying on the acquisition for organic. David Wright I mean, you're not getting organic growth. David Wright You're getting a profitable business, and you probably have to look at the David Wright But it's hard to value on a growth multiple, and you might be leaning in another
SPEAKER_00
[SPEAKER_01] David Wright But I think it's a great story, because everyone was playing in the enterprise space.
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David Wright What these guys realize is there's similar opportunity in the consumer side, David Wright Which simply, the whole idea was in these verticals, David Wright No one's going to change their car dealer accounting system because they put prices up 20% David Wright In the same way, the default consumer is going to stay. David Wright So it's totally sensible, an orthogonal plate, David Wright What everyone else was doing said it deserved the prize. David Wright Should the prize be 10 or 20? That's a different question.
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[SPEAKER_01] David Wright But yeah, great story. David Wright Does it diminish what we've previously said about the bar to go public today?
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[SPEAKER_02] David Wright You know, they don't get me wrong. They're that fantastic scale. It's a billion three
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in revenue, which is awesome. But we have said that we're seeing this kind of bifurcation and you need to be huge. David Wright No, you said it. I haven't said it. [SPEAKER_00] David Wright But they're growing what 70 or 80%? What are
SPEAKER_01
[SPEAKER_00] Ben's been growing? David Wright I mean, [SPEAKER_00] David Wright I mean, Rory would know better than me. I'm not even convinced the markets care as much [SPEAKER_00] as we think whether it's organic or inorganic. Salesforce itself is, [SPEAKER_00] David Wright The balance of it is inorganic at some point, and then it becomes organic. [SPEAKER_00] David Wright We don't even think about a lot of these [SPEAKER_00] David Wright As inorganic or again, does anybody really care? I mean, [SPEAKER_00] David Wright As long as it works, if they can keep finding these targets for the right price,
SPEAKER_02
[SPEAKER_00] David Wright If they can do what they did with Evernote, which is raise the pricing from $75 to $250 [SPEAKER_00] a year on average, right? If they can find enough of these without just running out of affordable [SPEAKER_00] targets, going to the founder's letter, it sounds better to me than starting something from scratch.
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David Wright There's got to be 800 unicorns to buy. Just go buy those ones. [SPEAKER_02] David Wright I really liked his letter. He said, [SPEAKER_02] David Wright Finding product market fit is just a continuous mission of luck [SPEAKER_02] David Wright In some ways. And then the execution machine built after that requires no luck at all.
SPEAKER_01
[SPEAKER_00] David Wright Totally. Absolutely. [SPEAKER_00] David Wright It's just traditionally, [SPEAKER_00] David Wright The Constellation version was one to two [SPEAKER_00] X revenues, right? I don't know what bending spoons blended [SPEAKER_00] David Wright Well, we do. [SPEAKER_00] David Wright Maybe it's not revenue based. I just don't know. David Wright Yeah. This is Constellation for consumer with a much higher valuation because right now, David Wright Software is under pressure and this stuff isn't. David Wright Speaking of big enough to go public, guys,
SPEAKER_01
[SPEAKER_02] David Wright Data Bricks come out today. No, no. We're going to do another round. We're going to do [SPEAKER_02] another round. 165 billion priced up from 134 billion earlier this year. Obviously not going public [SPEAKER_02] with that announcement anytime soon. How do we think about that? David Wright I mean, look, [SPEAKER_00] David Wright Well, we do. [SPEAKER_00] David Wright Maybe it's not revenue based. I just don't know. David Wright Yeah. This is Constellation for consumer with a much higher valuation because right now, Software is under pressure and this stuff isn't. David Wright Speaking of big enough to go public, guys,
SPEAKER_01
[SPEAKER_02] David Wright Databricks came out today. No, no. We're going to do another round. We're going to do another round. 165 billion priced up from 134 billion earlier this year. Obviously not going public with that announcement anytime soon. How do we think about that?
SPEAKER_01
David Wright I mean, look, the argument we said for why the big model providers are going public is they have a huge capital need, right? And I actually think I was, might have been Diamond or someone who said, the Goldman guy said recently, there are three reasons to go public. You want capital, you want currency to buy other things, you want to get liquidity for your shareholders, right? If you don't have one of those three things, then do you want the hassle? So I think Databricks, unlike these guys, for now at least, may well be in the position where their capital needs are still manageable. I mean, for context, reminder, the last private round at Anthropic was 30 billion and the last private round at OpenAI was 122 billion, right? So this is less than, oh my God, it's 0.1% of the last OpenAI private round. So what that says is, if there's money to fund OpenAI, there was money to fund Databricks private. So they can do it for longer because it's not the same need. It's a software company, not a model. They don't have to. Now, I personally think you should at four or five billion in revenue at the margin. I think in the end, you'll find logically the cost of capital should be cheaper in the public markets. But right now it's not. Databricks can get capital at a higher revenue multiple because of their higher growth rate than Snowflake can and on hassle-free terms. I also think the other argument made, which does resonate with me, is the idea that this is going to be a noisy year. I mean, you've got SpaceX by Friday, you've got the two big model companies by the end of the year. There's a lot going on. It may well be next year is a clean deal. But the bigger point is they don't need it. The amount of money that you need to build a foundation model is two or three orders of magnitude more than anything else. So the imperative for those guys to do public is different. All right, boys, is there anything that I've missed that you think we should discuss? Other things that made it to the top? SaaS now trades at a discount to the S&P 500 for the first time in history. Wow. That's sad.
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Meta weighing tens of billions more for capex spend following in the suit of Google. Zuck. Atta boy.
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[SPEAKER_00] I'll tell you the only one, what small one I'll pick just for fun, if we're breaking. I think it's actually a more important story, but takes time to track. It is Microsoft's new models that it launches, right? Which I think they were clear there. I don't know what terms they use. Sorry, I'm traveling. It's in beta. I found it very interesting that the models can't even search the web. So there are certainly use cases where that's not important, but it's interesting to me that you would launch a model that can't extend its knowledge by searching the web. It's a flashback to when this show started when basically every chat with ChatGPT and everything was nine months ago, right? I don't remember. I have my memories only through September 2024. So the only thing that says to me is it's hard to predict whether anyone can really catch up. We think everyone can catch up. We think Microsoft can catch up. We think DeepSeek and open source can catch up, but if Microsoft launches these models and it doesn't even search the web, can we really keep up with the pace at Anthropic? I mean, the pace of change is so rapid. It's so impressive. So much progress. I just can't predict where it will play out over the rest of the year next year. I can't predict.
SPEAKER_02
[SPEAKER_01] But you are right, Jason. It didn't matter because it was the final recognition that frankly we should say for ages is you can't have Microsoft with such a core foundational technology and the way they don't control it just wasn't the long-term sustainable state. And they and OpenAI are somewhere between an open relationship and divorced. I can't quite figure it out. They're allowed as partners, but they're still together. I can't quite figure it out. But whatever, Microsoft needs its own control and they needed to do this. And you're right, Jason. The reviews, I haven't used it yet. The reviews are good, but not even as good as the best open source. But my takeaway is well done because you needed to do something and it's hard to imagine not playing here. And they tell a story about local use and a range of models, which I read as some version of we don't have to be the very best because we know we're not the very best. In general in life, you need to be the very best, but at least you need to be playing. It's a step to the goal. And that's why Google is so much further ahead. They're at least in the game. But this was the end of the period where you could fool yourself even slightly that your plan for AI is to partner with OpenAI. That's not the answer anymore. And it hasn't been for a couple of years for Microsoft. So onwards from here, my guess is they'll become the next sucking sound for talent and money. And you're right. They need to add the stuff that the other guys added two years ago. Can they do the Microsoft thing and grind their way to good enough over three to four years? Like Azure was never as good as AWS, but it was good enough for most of their corporates. Can they grind to something that's good enough in this space over the next two or three years, whereby they're not going to be as good as Anthropic or OpenAI, but they're good enough for the bulk of low end intelligence work. I don't know. It's an interesting question. I mean, they never caught up.
SPEAKER_02
[SPEAKER_01] sucking sound for talent and money. And you're right. They need to add the stuff that the other guys added two years ago. Can they, I hadn't thought, it's an interesting question. Can they do the Microsoft thing and grind their way to good enough over three to four years? Azure was never as good as AWS, but it was good enough for most of their corporates. Can they grind to something that's good enough in this space over the next two or three years, whereby they're not going to be as good as Entropic or OpenAI, but they're good enough for the bulk of low end intelligence work. I don't know. It's an interesting question. They never caught up in mobile. They never caught up in search. They did catch up in cloud compute, cloud compute with Azure and who knows here, but you're right. It is the one that matters. I mean, that and the where are the I mean, one of the big questions is between Microsoft and then the open source vendors are the open source vendors, especially, is it going to be a non-Chinese U.S. open source vendor? That's even within the spitting distance of the frontier models. Because that matters a lot from a pricing perspective. I think there's a lot of open source models today that are within spitting distance now.
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Yeah, there are, but mainly Chinese.
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[SPEAKER_01] And yeah, the question is, is that sustainable? And a lot of our companies are using them and is that sustainable, even though it's open source, is that sustainable over the medium term? If your only plan is you can download Kimmy or DeepSeek and you can fine tune it, that's great. But some of those Chinese companies are themselves going closed source. I think what happens to a U.S. open source competitor in the U.S. matters. And obviously you've got, I think it's Recursive and Poolside, a couple of Reflection and Poolside doing that. But that's to Jason's point. Sometimes you get caught up in the stories and you're the worst for that, Harry, because you just love the gossip, but Jason's right. What really matters is, is this going to be an oligopoly? Or is it going to be four or five players in foundation model and two years from now, which is why what Microsoft did matters.
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[SPEAKER_02] I just did a show with the founder of Nabius and he said the single biggest threat to Nabius is consolidation of models. Yes. If we have concentration of model kind of winning, we are in a tough space and we want an ecosystem, not a monopoly. Yes. There's a reason that everyone, other than Anthropic and OpenAI, is shoving money furiously at anyone else who can help or grow that competitive advantage. Now, I just did a show with Aaron of Perplexity, and he said that export controls have actually hurt the U.S. in many ways, because it's meant that they've innovated on architecture that they wouldn't have needed to and really built muscle that they wouldn't have had to. And combined with the open source model capability that they have, it's now a competitive threat that's even stronger. It was an interesting discussion. Rory, I have to say, we'll wrap. My mother texted me after our last episode and said that your quote on making money is like sex was the favorite moment of any Trio show that she's heard. And I got about 50 texts from people being like, that is the quote of the century. I've got to tell you, I think it's not in direct format, but there's a version like there's a version of that either in Fred Schwed's "Where Are the Customers' Yachts" from the 1960s or in "Reminiscence of a Stock Operator" from the 1920s. One of those two investing books hinted at that, but I always remembered it. So I'm not the original author, but the books are kind of three to five times older than you are, Harry. So it's kind of like the Bible as far as you're concerned.
SPEAKER_00
repackaging Gemini and giving up on AI, right? If that's the way we want to view it. But that's a little piece of wanting ultimately AI to be persistent 24-7. We do want this. We already we already live little hints of it. And it's pretty silly that AI, for the most part, lives lives in our browser, right? This, which is, if you think about it, very dated, very dated. I mean, it's so dated that we still use browsers. I mean, who would have, we got to get Marc Andre, I mean, the fact that we still live in the era of Netscape in so many ways. So I do think it's exciting. I do think as this show continues, the, you know, the, whatever we want to call it, the token
SPEAKER_00
apocalypse, I think it will morph into just standard business practice, right? At some point, there's only the IT budgets can only be so large. There's only so much, even if we lay off half of the, you know, unemployment, I mean, employment keeps growing. We're going to have to manage spend. So I do, I do think we're going to look back in two years and think of this non-persistent AI as, as almost archaic, right? As almost sort of desktop-like.
SPEAKER_01
Yeah. I mean, yeah, because you, you've thrown a lot there. We, we've pulled several faces there for the audience listening, Rory's facial. No, no, no. It's just that Jason, as he often does, covered a lot of different things. And I'm just processing through it more slowly is that on that, on the memory thing, I'm kind of with Jason is that it just totally makes sense, right? And the question, yeah, if you step back, you know, you have the core models and then you have what people are calling all the harness, which is all the stuff around it to make those models effective. And part of that, and it can either be in them,
SPEAKER_01
it should be in the model or it could in theory be in the harness, is just understanding memory so that you could, and the impact of that. And I think why Jason went to the token economics part of it is part of the thing should be, you should get better answers with memory. And part of the thing, it should be more cost effective in terms of token, because you're not passing through all the context all the time. You can perhaps, it's part of it. I mean, I think a lot of the trend on this harnesses will be adding stuff to minimize your cost on frontier models. And part of that will
SPEAKER_01
be having memory, right? It also leads to a better experience, right? I think that I actually just went in and tried to see, um, have it, has it been switched on in mine yet? Because it just makes a ton of sense. You should know who I am after I, after I look up 58, 20 VC podcasts, you know, I'm probably here to look at my 20 VC podcast researcher guys. So it just makes a ton of sense.
SPEAKER_02
Right. Most people know who you are now.
SPEAKER_01
No, I'm sure. But, but, but, but my opening eye sometimes doesn't. So yeah, it's a really, it's absolutely, it's one of the necessary to do's and they're doing it. That's great. And I just went to each other.
SPEAKER_02
Well, you pulled a face, you pulled a face when Jason said about Apple giving up on AI with Gemini. You're right there.
SPEAKER_01
You're moving on to that. That was an interesting one. Ben Thompson and Strackery did a really good piece on it this morning I was reading. Is that, I think, to some extent, they're giving in the sense that they're paying Google a billion dollars to use their model as the default model. But reminder, Google pays them, I think, 12 or 20, I used to know the number, 20 billion dollars to be the default search engine. And so it's a minor asset. I give them credit. I actually think that they're making some, yes, it would be better if they'd had their own model, but they're making progress on the use cases that just make a ton of sense for the consumer. And I think it was a,
SPEAKER_01
I think the amount of context you have when you're on someone's phone is such a, they can, they should be able to deliver a unique and compelling consumer experience for the kind of things they demoed on the thing about knowing context on which Rory. It's like, it's like to your memory comment, Jason, it's like knowing which Rory Harry's talking about, knowing your calendar, knowing everything and deliver a much better experience. Now, should they have been able to do it with their own model? Yeah. But the bottom line is they control the handset and for the consumer, it's a pretty powerful product. So I think they're in a good position to make progress. I don't think
SPEAKER_01
they're giving up. I actually think they're pragmatically saying, we kind of screwed up and not have our own model, but that's actually now what matters for us, for Apple. What matters for us, Apple is delivering an amazing experience to our consumers. Because if we do that, they'll keep buying handsets. And if keep buying handsets, we can probably afford to give someone a billion bucks a year, right? So I give them credit for getting their shit together. I mean, it is stunning that Siri is so bad for so long. So I think actually trying to fix it is just awesome. So I give them credit for step in the right direction, right? Is my takeaway from it.
SPEAKER_01
So the opposite, I don't think they've given up. I think they're doing what it needs to win coming from behind. And they have a great position. I mean, it's interesting. The person you have to think about this a lot with obviously is if you're open AI versus if you're on Tropic, because then Tropic has made the enterprise bet and open AI in part has made the consumer bet. And I like my open AI subscription because I sit at my desk and I do research, but for a lot, I mean, it was a great line and give Ben Thompson credit. He said, very clear. I've thought it, but I hadn't let anyone say it clear. He said, consumers don't want to work.
SPEAKER_01
There's not a big market for consumers in their non-working life to do a whole bunch of complex research or kind of using AI for productivity. They just want delightful experiences because they want to relax and attain. So I think actually, the consumer space is going to be a tougher space for open. The enterprise space has really been validated because an enterprise is all about automation efficiency and a consumer space. It's about experiences. Apple's well-placed to do that. Open AI has got to compete with that and compete with Google. And you know, it's a, it's a tough space, especially if Apple's getting a ship together.
SPEAKER_02
Well, speaking of consumers not wanting to work soon, they won't have to. Uber cuts 23% of HR.
SPEAKER_01
HR. Just to make Jason happy. We can now have Jason.
SPEAKER_02
Sorry. I'm so sorry. Obviously it's people losing jobs. It's terribly sad, but I'm the one who fucking said no great CEO likes HR and everyone got angry at me. And then everyone starts cutting HR. Anything of note here from Uber cutting 23% of HR, remote work rescinded, three-day in-office mandate company denies AI played a role despite 95% of engineers using it daily. Anything of note there?
SPEAKER_00
Well, look, HR and recruiting, right? Let's consider them different are the easiest things to cut, right? They're there. Recruiting is all, you know, you always, you always see any, any, any, any, any big tech leader stumble a little bit and they lay off 30% of the recruiting department. We're going to, you often want them back. I always wonder, I always think this is a, I mean, it makes sense on paper, right? The HR one will be interesting. I mean, we've, we've put out a call for someone to report to our AI VP of marketing, and I've gotten my head cut off a lot on social media for that by people not, it's okay. Not really listening to what I'm saying about that. But I do
SPEAKER_00
think HR is one of these areas that in many parts of it will be better managed by AI. I think an AI can be a better VP of HR for certain parts of the job than a biased human. I think there are advantages to having an AI VP of HR. Not, not, not, I don't want to get rid of all of the humans or even lay people off, but it's, it's an AI VP of HR can, can evaluate every single thing you've ever done. Every little bit of your work, all of your issues, whether an AI VP of HR can figure out, hey, maybe it really is your, your idiot boss, Jason, you know, maybe it really, maybe that really is the problem. It's not, it's not you. An AI VP of HR can find out a lot of things and
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process of ask. So I don't, I think it's a, it's under discussed versus area, other areas, but it
SPEAKER_01
should be massively disrupted. The big picture question in all these areas is, you know, how much efficiency do you get? My God, it felt 23%. I doubt everyone is automating and saving 23% using AI in the non-engineering departments because adoption there isn't as strong as engineering. Do I think there's some? Of course I do. So my bottom line is, I think my guess is some portion of this is quote unquote AI automation. I doubt it's 20% because I'm always calibrating off, you know, what is, I mean, it's on what percent it's, it's the Dario number, what percentage of quote unquote knowledge work is going to be automated and it's knowledge work tasks and then knowledge jobs.
SPEAKER_01
Is it five? Is it 10? Is it 50? As Dario has said, 23% felt like a lot, but whatever. Again, what you don't know is how much of it is just too many folks there and they're just party rationalizing. So it's a data point. I mean, I think the other data point from Uber is far more interesting, right? Which is not the AI for HR, but the AI for autonomous driving that they continue to make progress on autonomous driving. Which stat was that, Rory? No, that's the one you'd mentioned. I'm sorry, you'd, you'd met, you'd made a point there that they're, they're actually rolling out some more autonomous driving experience in Europe,
SPEAKER_01
in Madrid, I think. Right. So, you know, and they're kind of partnering with, I think it's a WeRider, some of the technology providers, but you know, it's the, the big, I mean, you know, if you want to talk automation, driving is one of the biggest targets in terms of the number of humans that do that job. And, you know, when you see Uber making experimental progress on robot taxi in Europe, you know, it's something obviously to keep an eye on. It's all, it's worth pointing out this stuff is still moving way slower than I think people anticipated. It hasn't been, you know, Waymo in San Francisco resulting in, you know, Waymo is everywhere within six months. It's been
SPEAKER_01
a long, steady progress for Waymo and Uber's doing what it should do, which is it obviously, this is existential. I mean, the Travis Kalnick devotees would say the failure, the cutting of their autonomous project in 2016 or 17 was a fatal error for Uber. I'm not sure. I think 10 years later, they can pick up the thread and which is what they're doing and catch up on that because it's not like the technology tip like a domino, but I think they're smart to now start, you know, pushing robotaxis and partnering with technology providers. And this is the, because you know, the question on the Uber stock is always, oh my God, is robotaxi existential, which is a bad scenario,
SPEAKER_01
or the good scenario is lots of people build robotaxi technology and Uber is in a wonderful position to be the coordinating thing because it's the app we use. And if they just add, you know, 10,000 robotaxis to the fleet, then things continue just fine. And frankly, it's good to see the Europeans do something. I mean, I said this respectfully, Harry, but typically, you know, Europe is the slow technical laggard, especially on stuff like that. So go Madrid.
SPEAKER_02
David Shepard Should we discuss the Revolut 115 billion? 115 billion.
SPEAKER_01
Amazing. David Shepard
SPEAKER_02
Yeah, thank you.
SPEAKER_01
David Shepard I think you're doing that. I'm going to push it. I think you're doing that defensively. You felt I was dissing on you in Europe and you're basically implicitly saying, oh, look at Revolut. It's amazing. Correct? David Shepard Correct. David Shepard And it is amazing. And you know why it exists? Because the European banks, unlike the American banks in general, are so crappy. There's a reason that Revolut's worth 115 billion because the incumbent European banks were fat, dumb, and happy and making margin off their customers. And there's a reason why Chime is worth 5 billion, still a great outcome, by the way.
SPEAKER_01
That's because the US banks are now a little more efficient. David Shepard David Shepard That's also why Newbank is such a valuable business. Because the Brazilian banks were inefficient. I think all these fintechs, they can be, I mean, it really is a, I mean, it's proven markets. It's a function of how egregiously priced the incumbents are. And, you know, Europe, especially when it had non-single currency, you had all this foreign exchange, because you guys aren't in the Europe. You had, you know, the FX chargers, you had all this transporter bullshit. And Revolut just blew a hole for that. So I think it's amazing. And I know you're
SPEAKER_01
a big fan of the CEO. And I think it's just, I wish him all the best and pound those old school European banks into the dirt. I mean, at some point, we're going to have to deal with the fact that the largest bank by market cap doesn't do much lending. And that's actually going to be a real problem in the aggregate. Because the whole point is of banking is to recycle savings into lending. And right now, Revolut is not a long term lender, but that's by the by. They're killing it.
SPEAKER_02
David I'm fascinated to hear Jason's thoughts on this one. What's dominated my Twitter over the last week is Greg Eisenberg's original tweet about a horror story of venture fund raise. It led to a slew, I mean, hundreds and hundreds and hundreds of founders sharing horror stories, including the Cloudflare CEO, who said about his experience with Kostler and Vinod Kostler. Jason, I'm really intrigued to hear your thoughts on this one. I'm sure you have some. How did you feel about this slew of founders bluntly saying how terrible a VC experience they had in certain cases?
SPEAKER_00
Well, I'd say a couple things. First of all, I have, you know, as when I was in the most intense phase of founder, I had those stories too. I really, we forget how deep some of these things cut, these slights. The folks that are friends of ours now, that we co-invest with, I thought terrible things of at the time, literally. One that we both know really well would constantly use me just to do diligence on another investment constantly. And now I'm pretty zen about that crap. The founders, I'm like, just take the meeting and do reverse intel. Like if you're just being used for a competitor, then sit down with him and just
SPEAKER_00
find out about your competitor, you know, get, get the exact information. But man, that stuff really, it really burned me. And founders hold, you know, so a couple of things, first of all, the, the whole thing with the CEO of Cloudflare, just remember founders hold grudges. I still do. I'm just getting over them now. I'm just getting over my founder grudges. So founders hold grudges in a way that VCs actually, I think don't because VCs, you miss the deal. You got to find another bus, right? Having said all that, get over it because it's, it's sales. The only thing that to really have a
SPEAKER_00
grudge, a true grudge on is if you got fired. Okay. That one, that one, I think, I think the folks that hate benchmark from Uber, I think they deserve to hate benchmark. I think there's others, but if you're treated poorly during the fundraising, get over it, it's sales. Have you never sold? This is what I say to people. Have you never sold anything? Have you ever, never thought a customer deal was going to close and it didn't? Have you ever not talked to a prospect where they told you, Rory, of course we're going to buy by the end of the quarter. And then you just send them 28 emails
SPEAKER_00
and 87 texts and the deal never closes. How is it any different selling stock than anything else? So there's a bunch of issues to separate the grudge, the firing, which is a niche issue,
SPEAKER_01
and learn, learn to sell, man, but grow some. In one sense, you're right, Jason. But I think the difference for the founder, and I think a ton of what you said, super insightful. The difference is the founder in this case, isn't selling their product. They're selling themselves. So I think you're right about one thing, the rejections cut deeper, right? And there's no doubt. Even on my side, I remember a VCR 30 years ago said to me, you never forget the LP turndowns. And 30 years later, he's so right. You remember those people who turned it. It's just a personal thing because you're not
SPEAKER_01
just selling your product. You're not selling Ford cars on the deal a lot. You're selling yourself. And when you get turned down, it hurts. So I totally with you, Jason, is that you do have to grow a pair. You do have to get a thick skin. But I totally get the way founders, even if it's something doesn't go wrong in the process, I totally get it. Rejection sucks, right? And as yet, so that's the founder side. And I thought you were super sympathetic there. And then just to put the other side of the table, every venture person is in a business where we turn down 99 out of 100 deals that we look at.
SPEAKER_01
So rejection is our default MO. And that's why I always rest with these ratings businesses, right? You know, the kind of rating VCs. It's doable. And I think there actually is appropriate ways to do it. But you do have to remember that the default is a no. And it's really hard to high customer sat when 99 times out of 100, you're going to tell the customer no. It's why no one ever loves the bank that they apply to the lending money. Because a well-run bank turns down, you know, five out of six customers. No one likes that experience. Rejection sucks, right? So it's set up for failure out of the gate. Sometimes, you know, in the course of turning down two,
SPEAKER_01
three hundred people a year, you get some stuff wrong. What was interesting is Matthew was really
SPEAKER_00
upset that Vinod asked him to consider getting rid of Michelle, who we know who is great and his CTO, and giving him the shares, not stealing his shares, which I think was misinterpreted. He made a suggestion in a pitch. And listen, I'm a super fan of Michelle. I would not make that suggestion. But let's step back for a minute. We've all had those meetings with founders where the team is very unbalanced. And would I, am I the node? And would I say it that way? No, but you might know me well enough. I almost would, you know, in a different situation. I almost would say that to a founder. I just wouldn't do it during a pitch. I would just say it's not a fit for me.
SPEAKER_00
But I find myself constantly post-investing the only one that would say things like, you know, what are you going to do with your co-founder? You know what? And she's just Rory's just not committed enough. He's not getting it done. And so I think his directness is interesting that it bothered the CEO of Cloudflare so much. But in a way, it was just his read of the team. I think it was wrong, at least for one of them, but the read of the team.
SPEAKER_01
And by wrong, you mean incorrect relative to the subsequent outcome, right?
SPEAKER_00
Well, I would, I know Michelle, I don't know Michelle that well. I think she's a great founder. So I would keep her. But the fact that BC's go in and you see that the founders are not equal in terms of their commitment and skill set, right?
SPEAKER_01
I mean, look, don't comment on this because look, it's clear, given the superb outcome, that whatever Cloudflare had, it shouldn't have been touched one little bit. It should have just been let do exactly what it did. It's a great outcome. So you're right. I think, again, Jason, you raise a good point. You go in, you know, you see things and especially at the earliest stages, if you think the team is wrong, but you want to do the deal, then, you know, that's a really tricky conversation, right? And you should be aware of having, and I think just as well as when you're as successful as Vinod, you're like, I could take three meetings and
SPEAKER_01
slowly and delicately get to this point, or maybe I'll just say it. Now, it's also worth pointing out, he said very clearly, he doesn't believe that happened. So I think, you know, I think stepping back, I don't know if it's a useful way to rehash. I mean, the more successful you are, the more meetings you'll have, the more meetings you have, the more likely some of them go wrong, especially if you're direct and Vinod is nothing if not direct. So stuff happens. I mean, as someone pointed out, he was on the Juniper list for the first, he was on the Midas list the first time for Juniper and he's on the Midas list this year for OpenAI. And there's 30 years between those
SPEAKER_01
two events. So he must be doing something right overall. But we just still have to say that on an individual day, you can piss people off. And look, I'm sure I look back across 300, 400 turn downs a year for 30 years. I know there's been some where I wish I'd handled it differently. There's been one or two or Lily at the term sheet level. I wish I'd handled it differently. It happens. It's not ideal. You know, if you're aware of it, you apologize later and say, look, I got that wrong. And you just have to move on. It's some element of breakage is inevitable.
SPEAKER_02
I have to admit, Rory, I disagree with you. What? I've been turned down by lots of LPs. The best way to have revenge is that you forget they even existed. I'm being a dick here, but like a lot of them ping me now. I'm like, wow. And when they turned me down when I was 21, I'm like, whoa. And you're like, who are you?
SPEAKER_01
Yeah, maybe early on, you early on, you remember you're right over time to Jason's point, you developed a thick skin and you're right. I remember much less the turn downs on fund seven than on fund. Yeah, the first one was fun. So I do remember on fund three, our first independent fund, which we foolishly timed literally for the week of the great financial crisis in November 08, getting turned down three times in the space of an hour. So I do remember that pretty vividly, but life goes on.
SPEAKER_02
Okay. So again, big milestones for Lovable and Cursor this week. Lovable, so literally just before we came on, Lovable hit 500 million of error. The number was wrong. So 500 million of error with 146 employees. Cursor has hit 4 billion and it's targeting 6 billion at the end of the year. Jason, you're the man of the hour for this one. You're the coder. Any thoughts on this? This was unprecedented.
SPEAKER_00
Listen, I think there's two different things you said. One was about the scale, right, of these companies, right? Which we've talked, I do think the headcount thing is something that we're still learning about, right? And so I think when we started this show, we were in an area where folks were very lean and growing very quickly. But the question was, does this normalize over time? As you approach scale, as you approach 100 million, 200 million, 500 million, a billion in revenue, will startups get fat again, right? Do you just need these layers? And I can think of a number of hot AI startups that are getting pretty fat, especially on go-to-market teams and others,
SPEAKER_00
but we're seeing more and more examples to the contrary. And it is disruptive on many levels if you can stay as efficient as these guys are. It is disruptive to investing. It is disruptive to employees because it will shrink the number of these great roles and it will increase compensation, right? To the click-up point, to Zeb's point, I'm doing layoffs to give million dollars to a handful of folks. Lovable can pay its team whatever it wants, right? With less than 200 employees, it can pay whatever it wants. But man, if this becomes the steady state for startups, and maybe it was in the old days, maybe in the old days of Microsoft it was true,
SPEAKER_00
but it's just so different if they're not going to reflate, is what I think about. Because it's not a lot of people, man. And what people don't understand, I know Replit a little bit of Lovable, but they're the same. They're pushing out a lot of code. One thing you could say is, oh, it's easy because they only have one product, right? That would be a comeback that I think a little bit like, you don't have to have 22 products like Datadog or 7000 like Salesforce. Well, maybe, but these are pretty complicated products, okay? You've got database, you've got hosting, you've got management, you've got SEO you're running. These guys are pushed because it's the most
SPEAKER_00
brutally competitive space it is. They're pushing out more features than any of us did our entire lifetimes a generation ago. So I don't think these folks are working, they're incredibly hard and they're incredibly productive. So I did almost, and if you want to be, you want to have some contempt for VCs tying this together, I'm kind of contentious of startups that need to be fat. I'm like, what's your excuse? What do you need another 200 people for? And when I'm at a board meeting and a VP says, or they're all C levels now, right? A C of something. There's no VPs anymore in startups. They're all Cs. And they say, well, I could do that, but I need another 50 or 100 heads.
SPEAKER_00
I need another 10 or 20 or 40 million. I just think that person should go.
SPEAKER_01
The only comment on, and first of all, broadly agree, but the only pushback I'll make is this, right? We're having the, oh, they're amazing that they can do this with only 146 heads. But remember, if you're spending 50 to 70% of your revenue on intelligence from Entropic or OpenAI, you don't have the, I mean, it's a different business, right? You don't have the option to also have 50 to 70% of your revenue on employees because there's not enough room in the percentages, right? So there's some, I mean, they're just different businesses with different business
SPEAKER_00
models, right? They are, but you have the choice of who you invest in or who you work for, right?
SPEAKER_01
We have our legs in pocketbooks, right? No, of course. And this is actually one of the core challenges many of these other companies are going to have. If you can be one of the 146 employees, that is, I agree with you, Jason, 100%, that is getting levered from this AI such that your economics are compelling because you're one of a small group of people making a lot of money in a business that's leveraging technology to have a very high revenue per head count. It means we can pay you a lot. That's a far better place to be as an employee, you're right, than, you know, one of,
SPEAKER_01
yeah, 18, whatever it is, 90,000 employees at Salesforce. You're exactly right because you're not getting levered from the, you're not getting levered from the models and intelligence, right? And this is the, how much will be labor and how much will be intelligence? This is the kind of what's the split and what you're seeing to your point. I'm sorry, I'm rambling on this, but it's clear in my head. I want to get it across. In businesses that are using a lot of intelligence and I'm using tokens as a proxy for that, then small numbers of people can achieve a lot and make a lot. And those are better
SPEAKER_01
places to be as an employee and often as an investor, right? Yeah. Then to be, you know, slogging it out with 10 times the employees, not a ton of new leverage from AI. And yeah, you're stuck
SPEAKER_00
in 2010's ground game. Which sucks. That's what you'd want to do if you could as a founder, as an employee, as an investor, you'd want that all, if you could, that's the model you'd want. That's where I'd want to go work. I want to go work somewhere where I'm empowered, where I'm one of 172
SPEAKER_01
people at 500 million in revenue. I matter. To your point, Jason, I do think, and I want to call it out. I do think as you start to develop an enterprise motion and you implicitly said it, you're probably talking about the foundation models who are building big go to market machines, because they have to, we are going to see way more bodies. I don't buy, there's not going to be an infinite number of- Oh, worry, I hate that. It's not just, I mean, it's Lagorre, it's Harvey, it's your Sierras. When you're selling to enterprise, this idea that 157 people can do it on their own is not going to be true. I think for products, because remember, in the end of the day,
SPEAKER_01
someone wants to- It's not that it- Hang on, agree. In any business, there's only two things that happen. People are either making stuff or selling stuff. If they're not doing any of those two things, they're just overhead. To your point, if you're selling stuff via PLG, then you only need people to make stuff, so you can be pretty lean. Once you start selling to, as you say, to law firms, once you start selling to corporates, then you do end up with a big-ass sales force. One of my theories is that that doesn't change from cycle to cycle. The Entropic sales force in five years will look like the Oracle sales force, the Microsoft sales force, and the IBM
SPEAKER_01
sales force 50 years ago. Because-
SPEAKER_00
But here's the thing. I don't know that that's going to be true, Rory. First of all, I don't mean to go back to the law. If we compare Replit and Lovable, I know Replit's hiring 250 sales reps this year. So that's going to look very much like a traditional organization. Lovable isn't, okay? And it's different DNAs and different goals. And the majority of Anthropics, enterprise sales are not allowed to talk to a human. And so my point from that, we can't all be Anthropic. Founders are choosing, they are choosing to have leaner go-to-market teams, leaner sales. They just don't want this crap. They just don't want 250 people running around.
SPEAKER_00
And they're willing to trade off some marginal revenue. I mean, Anthropic has less than 5,000 employees, right? So they're just saying culturally. And so I don't think that they're all going to, I thought they would all look like SAP and Oracle and Salesforce. We're not seeing that. We're not seeing that. We're seeing something in the middle where they still want to be lean.
SPEAKER_01
It's not going to be 147 people doing 500 million when it's enterprise sales.
SPEAKER_00
But what you might see is, is three to two to five times the level of efficiency. And it just changes the culture, the head counts where people are. That's the difference, right? It doesn't really matter whether it's zero or four X, right?
SPEAKER_01
I agree. It will be better. No matter what happens, when you start with a clean slate and leveraging intelligence, you just become way more efficient. I agree. These companies, on average, will be way more efficient. When you do a comparison, it's over 3 million
SPEAKER_02
an hour per head versus, and I'm not, but like a Salesforce, which is 350K per head.
SPEAKER_01
It's nine times more efficient. Yeah. But again, I'm just going to say it here. Yes, you're true. But Salesforce, enterprise heavy, R and D heavy, no intelligence costs, right? Remember, they have 300 million of, they just said it of tokens, which let's just do it here. We did the math. That's roughly 10 or 15 grand per engineer and engineers are about only one fifth of what they have. So remember that 300,000 ARR, probably only 1% of that is tokens. Do you understand me, Harry? In other words, Salesforce has $300,000 of revenue per head, which means if they're going to make money, they can't pay anyone more than 200,000, right? And they're probably spending 1% of revenue
SPEAKER_01
per head on tokens. Contrast that with your example of Wepplet. They're getting 2.3 million per head, but they're probably spending 70% of dollars on tokens. It's just vastly different businesses. And one of them is more aggressively leveraging the new enabling technology. So to Jason's point, it's probably a sweeter spot to be one of the 147 people in that gig than one of the, I used to know the head cut. Now I don't, I probably could do it by Matt, that 20, 30,000 people in a much larger organization where you don't have leverage. They're just different businesses. But this is, to me,
SPEAKER_00
this is, this is much more interesting than layoffs in these stories. I think everybody, every founder, forget about older companies, every founder today wants to run a startup that's at least a million in revenue per employee or more. They're targeting 2 million. They want to be in a million, and they want it because they want great teams. They want lean teams. They want the best people. They, they want to work this way. They want to go to work with people they look up to and respect. They so I, my, my sense is that roughly over the coming years, startups will be half the size that they
SPEAKER_00
used to be for revenue, including enterprise. This is, this is very much B2B focused. And that's a big, that's a much bigger change than whether this company does a 10 or 15% lab. If everyone's half the size they used to be, it's a much bigger change.
SPEAKER_01
By definition, if you invent something that's meant to augment humans and make them more efficient, and that thing is called AI and it does a trillion in revenue, by definition, you need to see a trillion of efficiencies. And the way efficiencies show up is less humans per unit of task. You're exactly right. That's the bet. If it wasn't happening, the entire thesis of the case would be bullshit. So you're right, Jason, it's gotta be happening. If the people who sell AI can't be efficient with AI, then what chance is there for the rest of them? Do I agree with you?
SPEAKER_02
David Morgan Did Elon have the acquisition of the year buying cursor for what will be 10 times end of year revenue? It looks a pretty prescient buy if
SPEAKER_01
they're going to hit target. Jason It looks pretty clever. I mean, I think what we talked about, it was a clever deal on every dimension. I mean, when I was thinking about this, because I'm always skeptical on the valuation, but Elon did such an amazing job of meeting the AI moment. And let me tell you what I mean by that. It's like, you know, you look back and you go, he obviously founded OpenAI and then all the drama happened, blah, blah, blah. But in the last 24 months, he moved from ground zero to building Colossus, building Colossus 2, dealing with his model, but just because he had the guts to show up and spend that kind of money, because to be fair,
SPEAKER_01
he does have the cheapest cost of capital on the planet. He found himself with, you know, gigawatts of capacity just when everyone needed it, was able to sell it to them, and then did the cursor deal also to kind of backfill the space, right? And everything stems from the fact that he had the big picture conviction that AI mattered and he was willing to put 30, I mean, it's astonishing, 20 to 30 billion dollars of capital in the ground in advance of revenue because he felt this was the trend to back. And at least right now, it looks like a great trend. You're right, pressing this is exactly the right word. He found two of his biggest competitors who want to buy from him.
SPEAKER_01
You know, he's getting 2 billion a month, 1.25 from Antropic and 950 from, no, the other way around, 950 from Antropic, I won't put two of our from Google, the other way around, 2 billion a month, 2 billion a month, 24 billion a year in terms of compute revenue. And then on top of that, he has cursor coming in at the back end to fill those servers. So he is the most efficient core weave with the lowest cost of capital. Now, separate comment, it doesn't mean you have a foundation model. It means you're just a better core weave, but oh my God, did he, did he turn a loss into a win
SPEAKER_01
in the space of three months? I mean, in January 1st, you could have said, look at all those data centers and you don't have a foundation model. You're screwed. Here we are June 9th and he can say, I have a 24 billion dollar outsource business and I have this other business that's coming in that's going to be doing $6 billion that will run on my servers. I went. Yeah. Great move.
SPEAKER_02
And the Elon, an incredible transition. Two private rounds that were large. Ramp raises $750 at 44. We've discussed Ramp a lot, tripled in a year, cross a billion in ARR, positive free cash flow. And then also Suno, the AI music creator company, raised $400 million and a $5.4 billion, teasing first license model. Bond led that one. It was double the previous valuation just six months ago. Anything on either of those? I mean, Ramp, we've said it before.
SPEAKER_01
It's kind of gets to the revenue. They'll trade like financial companies, financial services companies, but they will be adjusted for growth. And you know, we also have, we kind of do them, you know, when Brex slowed down to our, I can't remember what it was, 30, 40%. They sold for six X and here we have Ramp. I've heard they're actually as much as 1.25 billion. So they're trading at 30 to 40 times, right? Whatever the number is, right? Of that order. And it's all, it's a growth path, right? And if the growth keeps up, this will be a smart round. And if the growth goes down to anything like quote unquote normalized growth, it won't be. And it's the
SPEAKER_01
same bet with Revolut. They raising at a hundred and something, they're doing what? Four and a half billion in revenue, you know, 1.5 billion in operating income, which is fricking amazing. These companies are great. And you know, banks don't trade at 40 times, 50 times earnings. They trade at 12 times. So on both of them, it's really just, I mean, people always say, you know, will this trade like a tech company or like a financial services company? And I was, it'll trade like a financial scurvy, but it will be adjusted for growth. And you know, Ramp is getting the growth and they just seem to do a very good job of writing the Zeitgeist and you know, their AI story,
SPEAKER_01
their adoption story. They just seem to do a good job on all that. So for now they got the growth. And as long as they got the growth, the math works and it's a big town. So we'll see.
SPEAKER_02
Jason, you're trying Suno, the music AI company.
SPEAKER_00
You having for your personless office, Suno, just playing AI music. I do like Suno. I do, I do, I do, I do pay for Suno. Um, it's one of those ones that if I were more cost sensitive, I would cancel my subscription because I think I pay 15 or 20 bucks a month for three songs. Um, and so there is, um, there, there are certain apps that I think they're fragile for certain users because, um, I'll, I'll pay to continue to pay them, but, but barely that, but the utilities there, but barely. Um, but, um, you know, it's, it is amazing. I, I don't, um, I'm not maybe even though I'm a customer for a while, um, and user, I, I, you know,
SPEAKER_00
the, the rate at which that valuation doubled and you know, the, the, the $20 billion outcome for it, I'm not smart enough to see it yet. So it, it, it, it feels a little bit to me like risk on, right? Because the revenue justifies it. The growth justifies it. The stickiness justifies it. The brand justifies it. It, it, nothing, nothing you can't lose an AI. Um, but I don't know. We'll see. We'll see it. We'll see. We'll see it. The IPO. I just don't know where all this money's coming
SPEAKER_02
from. No, I'm, I'm saying with all the IPOs and then rather you mentioned Revolut again, Rory, is that targeting 750 million with the secondary sale, um, that they're doing at the one 15. And then all the IPOs, we say, should we, where all this money's coming from?
SPEAKER_01
David Pérez There's always money when people aren't afraid. David Pérez Man, there's no money. And you know, when, when it gets scary, as I, I always say that, cause the converse, I actually came to my point. I always say the converse is important. When things get scary, it's not that money runs out. It's that money gets scared. Right. And in the same thing in a bull market, it's not that more money's been made. It's that people are brave. There'll always be money when people are brave and there'll be nothing but treasuries when they're not. David Pérez How long will they be brave for, Rory? David Pérez If I knew that, Harry, I wouldn't be sitting
SPEAKER_01
there talking to you. I'd be, I would trade in QQQ. I don't know. I mean, at some point they won't get brave, but right now, right now it fills everyone's risk on. So yeah, I think people are brave.
SPEAKER_00
David Pérez Well, we've all convinced ourselves the rules of change now, right? You can go one to a hundred in a year and so many other things have changed. We, we throw these numbers, these growth numbers out as if it doesn't require a massive change in externalities to justify them. David Pérez Like, oh, everyone, all the best startups go from one to a hundred in a year. One to 20 in a year is pretty good today. You want to be doing five to eight by the time you get out of YC. The rules have changed and they have changed, but there's a limit to how much the rules can change, right? There is, it's called GDP.
SPEAKER_01
Harry Sperger Yes. And it's also called human nature. I think that the rules have changed what's doable. But what we do is in the face of these increased opportunities, we all get more aggressive and we keep on getting aggressive until the only thing that stops us being aggressive is someone gets burnt, right? It's the whole Minsky analysis of, you know, you're going to do what you're going to do and it's going to continue. And the only thing that will stop it is overreaching. And the skill is to figure out when you're at that point. Like it was funny. Last Friday, there was a little dip
SPEAKER_01
and you never know why stocks go down when things were overpriced. But you know, the, the, the narrative was, you know, the, um, employment numbers were good. So therefore rates won't go down and therefore stocks went down and, you know, intellectually. Yeah. I generally find things don't go to hell in the hand basket because employment is good, but that's not going to be how this thing ends. Right.
SPEAKER_02
David Wright Well, it was because of chip. It was because of chip guidance to be clear as chip guidance of 16 billion, Mr. 17.2. David Wright Yeah. You're talking about Broadcom. David Wright Yeah.
SPEAKER_01
David Wright It was some of that. And then it was just David Wright Yeah. Yeah. But yes, they got, David Wright Definitely got guide. I mean, I think what that, David Wright If we're going to talk about that, David Wright All that said is when you're priced David Wright For perfection, which is always true, David Wright When you're priced for perfection, David Wright Even a small miss to expectations, David Wright Filters true very quickly. And that's all that happened there. David Wright You know, the semiconductor index is up 100% year to date. David Wright So it turns out it's pretty vulnerable to correction.
SPEAKER_02
David Wright Oh, well. David Wright One that's amazing, which we may not have comment on, David Wright But it is amazing. It's bending spoons. David Wright This is kind of a roll up play on David Wright On traditionally kind of consumer companies. David Wright Some of their properties are very well known, David Wright But, you know, Evernote, Vimeo, David Wright WeTransfer, AOL, Eventbrite, David Wright Very massively executed roll up strategy, David Wright A billion three in revenue, David Wright And they're filing to go public at $20 billion on in the US from Italy. I hasten to add, David Wright One of few large Italian success stories to be very blunt.
SPEAKER_02
David Wright I thought it was amazing. David Wright I don't know if you guys have comment on it, David Wright But I thought fantastic success story.
SPEAKER_00
David Wright Well, to me, the part I didn't, David Wright I didn't appreciate, and I do appreciate it, David Wright Is that they turned around these effing companies. David Wright I mean, Evernote was dead and they reaccelerated the growth of Evernote, David Wright With a fifth of the employees. David Wright I mean, it sure makes you think a lot of management teams are pretty suspect if David Wright If friggin' Ben and Spoons from Italy can turn Vimeo around, Evernote around, David Wright Good God. If AOL becomes the next hot thing, David Wright I mean, these guys are fucking geniuses.
SPEAKER_01
David Wright I think David Wright I did read it in detail because I was super interested, right? David Wright And turned around is an interesting expression. David Wright I mean, what they do, their MO is they buy these things, David Wright They cut all extraneous expenditure, David Wright including a lot of the acquisition expenditure. David Wright It's very like David Wright A little ironic, like the Vista playbook in Enterprise. David Wright And then they raise prices massively. David Wright So if you look, I actually tried to figure out the organic growth rate David Wright of each enterprise because they're growing nicely overall, but a large part of the
SPEAKER_01
David Wright The reason they're growing is they're adding new companies. David Wright So by definition, revenue go up, right? David Wright I think they had, I'm trying to find my notes here. David Wright I had the growth rate last year. David Wright It was stellar, like something like 90%, but most of it's acquisition. David Wright So you're trying to piece through, Jason, David Wright And then you're trying to find out what did they do in terms of growth by entity. David Wright That's the next level down. David Wright And even then they get pretty good growth rate, to your point out of the gate, right? David Wright But then you go one level below that.
SPEAKER_01
David Wright How do they do that? David Wright It's mainly price rising. David Wright It's very hard to get any sense of unit growth by individual products. David Wright So in other words, what they're doing is they're taking Evernote, David Wright As an example, it's doing 200 million in revenue. David Wright They just cut all the marketing initiatives other than high ROI stuff. David Wright So they take out 80% of the marketing spend, David Wright Focus the team on features, raise the prices 80% over the course of two years, 10% of the existing users go maybe 20%. David Wright Their net retention is reasonably decent.
SPEAKER_01
David Wright It's below 100, but it's reasonably decent. David Wright So they raise prices and the people who really want it stay, right? David Wright And it's really hard to grow new businesses, but what it means is it kicks off cash. David Wright And you know, let's get real here. David Wright Anyone who hasn't churned from AOL now ! Ain't churned until they die, right? David Wright So you can raise money on that. David Wright You know, you've had a whole two decades, people. David Wright I mean, it is 26 years since the AOL Time Warner acquisition, right? David Wright You've had 26 years to churn off this thing. David Wright You're going nowhere, right?
SPEAKER_01
David Wright So they have very sticky inertia customers and they stick it to them, right? David Wright It's an excellent business. David Wright I mean, you know, the big three properties are AOL, Eventbrite, and I want to say Vimeo. David Wright It was interesting in the top 10 or about 80%. David Wright I think Evernote, which I use is in the top 10, but not top three. David Wright You still use Evernote? David Wright I don't use it, but I have a bunch of stuff in it. David Wright So I paid for another year. David Wright I need to get it out and figure out where I'm going. David Wright It's a long story, but you know, I'm not using it.
SPEAKER_01
David Wright I'm using ChatGPT, but I got to get all my shit into one place. David Wright It's a long discussion. David Wright Well, they've increased pricing from... David Wright What was the last supper like? David Wright Sure, shut up. David Wright Let's focus on the business. David Wright So yeah, I looked at my goal. David Wright The odd thing is this is a consumer internet version of early Vista, Toma Brava. David Wright Buy those companies, cut the costs, raise the prices, and just, you know, probably tap them out. David Wright So the question, is it a great business? David Wright Should it go public at 20 times revenues or 15 times revenues?
SPEAKER_01
David Wright Maybe not, because you are relying on the acquisition for organic. David Wright I mean, you're not getting organic growth. David Wright You're getting a profitable business, and you know, you probably have to look at the David Wright But it's hard to value on a growth multiple, and you might be leaning in another David Wright But I think it's a great story, because everyone was playing in the enterprise space. David Wright What these guys realize is there's similar opportunity in the consumer side, David Wright Which simply, you know, just as, you know, the whole idea was in these verticals,
SPEAKER_01
David Wright No one's going to change their car dealer accounting system because they put prices up 20% David Wright In the same way, you know, the default consumer is going to stay. David Wright So it's totally sensible, an orthogonal plate, David Wright What everyone else was doing said it deserved the prize. David Wright Should the prize be 10 or 20? That's a different question. David Wright But yeah, great story.
SPEAKER_02
David Wright Does it diminish what we've previously said about the bar to go public today? David Wright You know, they don't get me wrong. They're that fantastic scale. It's a billion three in revenue, which is awesome. But we have said that we're seeing this kind of bifurcation and you need to be huge. David Wright No, you said it. I haven't said it.
SPEAKER_00
David Wright But they're growing what 70 or 80%? What are Ben's been growing? David Wright I mean, David Wright I mean, Rory would know better than me. I'm not even convinced the markets care as much as we think whether it's organic or inorganic. Salesforce itself is, David Wright The balance of it is inorganic at some point, and then it becomes organic. David Wright We don't even think about a lot of these David Wright As inorganic or again, I mean, does anybody really care? I mean, David Wright As long as it works, if they can keep finding these targets for the right price,
SPEAKER_00
David Wright If they can do what they did with Evernote, which is raise the pricing from $75 to $250 a year on average, right? If they can find enough of these without just running out of affordable targets, going to the founder's letter, it sounds better to me than starting something from scratch. David Wright There's got to be 800 unicorns to buy. Just go buy those ones.
SPEAKER_02
David Wright I really liked his letter. He said, David Wright Finding product market fit is just a continuous mission of luck David Wright In some ways. And then the execution machine built after that requires no luck at all.
SPEAKER_00
David Wright Totally. Absolutely. David Wright It's just traditionally, David Wright The Constellation version was one to two X revenues, right? I don't know what bending spoons blended David Wright Well, we do. David Wright Maybe it's not revenue based. I just don't know.
SPEAKER_01
David Wright Yeah. This is Constellation for consumer with, you know, a much higher valuation because right now, David Wright Software is under pressure and this stuff isn't. David Wright Speaking of big enough to go public, guys,
SPEAKER_02
David Wright Data Bricks come out today. No, no. We're going to do another round. We're going to do another round. 165 billion priced up from 134 billion earlier this year. Obviously not going public with that announcement anytime soon. How do we think about that?
SPEAKER_01
David Wright I mean, look, David Wright The argument we said for why the big model providers are going public are they have a huge capital need, right? And, you know, I actually think I was, might have been Diamond or someone who said, I mean, the Goldman guy said recently, there's three reasons to go public. You want capital, you want currency to buy other things, you want to get liquidity for your shareholders, right? If you don't have one of those three things, David Wright Then, you know, do you want the hassle? So I think Databricks, unlike these guys, for now at least, may well be in the position where their capital needs are still manageable. I mean,
SPEAKER_01
for context, reminder, the last private round at Antropic was 30 billion and the last private round at OpenAI was 122 billion, right? So this is less than, oh my God, it's 0.1% of the last OpenAI private round. So what that says is, if there's money to fund OpenAI, there was money to fund Databricks private. So they can do it for longer because it's just not the same need. It's a software company, it's not a month. They don't quote unquote have to. Now, I personally think you should at four or five billion in revenue at the margin. I think in the end, you'll find logically in the end,
SPEAKER_01
the cost of capital should be cheaper in the public markets. But right now it's not. Databricks can get capital at a higher revenue multiple because they're higher growth rate than Snowflake can and on hassle-free terms. I also think the other argument he did make, which does resonate a little with me, is the idea that this is just going to be a noisy year. I mean, you've got, you know, you've got, you know, SpaceX by Friday, you've got the two big model companies by the end of the year. There's just a lot going on. It may well be next year is a clean deal. But yeah. I mean, the bigger hard was they don't need, it's just the amount of money that you need to build a
SPEAKER_01
foundation model is two or three orders of magnitude more than anything else. So the imperative for those
SPEAKER_02
guys to do public is just different. All right, boys, is there anything that I've missed that you think we should discuss? Other things that made it to the top? SaaS now trades at a discount to the S&P 500 for the first time in history. Wow. That's sad.
SPEAKER_02
Meta weighing tens of billions more for capex spend following in the suit of Google. Zuck. Atta boy.
SPEAKER_00
I'll tell you the only, I'll tell you about the one, what small one I'll pick just for fun, if we're breaking. I think it's actually a more important story, but maybe it takes time to track. It is, you know, Microsoft's new models that it launches, right? Which I think it said, they were clear there. I don't know what terms they use. Sorry, I'm traveling. It's in beta. I found it very interesting that the models can't even search the web. So there are certainly use cases where that's not important, but it's interesting to me that you would launch a model that can't extend its knowledge by searching the web. It's a flashback to when this
SPEAKER_00
show started when basically, you know, every, you chat, talk to chat GPT and everything was nine months ago, right? I don't remember. I don't, I have my memories only through September, 2024. So the only thing that says to me is hard to predict whether anyone can, can really, we, we, we think everyone can catch up. We think Microsoft can catch up. We think deep seek and open source can catch up, but if Microsoft launches these models and it doesn't even search the web, can we really keep up with the pace at Anthropic? I mean, the pace of change is so rapid. It's so impressive, like so much progress. I just don't, I just can't predict. I can't predict where we'll,
SPEAKER_00
we'll play out over the rest of the year next year. I can't predict.
SPEAKER_01
But you are right, Jason. It, it didn't matter because it was the final recognition that frankly we should say for ages is you can't for Microsoft to have such a core foundational technology and the, the way they don't control it just wasn't the long-term sustainable state. And you know, they and open AI are somewhere between an open relationship, but actually divorced. I can't quite figure it out. Well, they're allowed out of partners, but they're still together. I can't quite, but whatever. Oh, Microsoft needs its own control and they needed to do this. And you're right,
SPEAKER_01
Jason is it, you know, the reviews, I haven't used it yet. The reviews are like good, but not even as good as the best open source. But my takeaway on is, you know, well done because you needed to do something and you, it's hard to imagine not playing here. And they tell a story about, you know, local use and, you know, range of models and which I read all as some version of, we don't have to be the very best because we know we're not the very best in general in life. You need to be the very best, but at least you need to be playing. It's a step, it's a step to the goal. And that's why Google is
SPEAKER_01
so much further ahead. They're at least in the game. But yeah, this was the end of the period where you could fool yourself even slightly that your plan for, uh, your plan for AI is to partner with open AI. That's just not the answer anymore. And it hasn't been for a couple of years for Microsoft. So yeah, I mean, onwards from here, my guess is they'll, you know, they will become the next sucking sound for talent and money. And you're right. They need to add the stuff that the other guys added two years ago. You know, can they, I hadn't thought, it's an interesting question. Can they do the Microsoft thing and grind their way to good enough over three to four years?
SPEAKER_01
Like Azure was never as good as AWS, but it was good enough for most of their corporates. Can they grind to something that's good enough in this space over the next two or three years, whereby they're not going to be as good as Entropic or OpenAI, but they're good enough for the bulk of low end intelligence work. I don't know. It's an interesting question. I mean, they never caught up in mobile. They never caught up in search. They did catch up in, uh, cloud compute, cloud compute with Azure and you know, who knows here, but you're right. It is the one that matters. I mean, that and the, you know, where are the, I mean, one of the big questions is between Microsoft
SPEAKER_01
and then the open source vendors are the open source vendors, especially, is it going to be a non-Chinese U S open source vendor? That's kind of even within the spitting distance of the frontier models. Cause that matters a lot from a pricing perspective. I think there's, there's a lot of open
SPEAKER_02
source models today that are within spitting distance now. Yeah, there are, but mainly Chinese.
SPEAKER_01
And yeah, the question, and I, yeah, the question then is, you know, is that sustainable? And a lot of our companies are using them and is that sustainable, even though it's open source, is that sustainable over the medium term? Is it, if your only plan is you can download Kimmy or DeepSeek and you can, you know, fine tune it, that's great. But A, some of those Chinese companies are themselves going closed source. I think what happens to a U S what happens in terms of an open source competitor in the U S matters. And obviously you've got, I think it's recursive and poolside, a couple of
SPEAKER_01
reflection and poolside doing that. But that's, that's to Jason's point. Sometimes you get caught up in the stories and you, you're the worst for that, Harry, because you just love the gossip, but Jason's right. What really matters is, is this going to be an oligopoly? Or is it going to be four or five players in foundation model and two years from now, which is why what Microsoft did
SPEAKER_02
matters. I just did a show with the founder of Nabius and he said the single biggest threat to Nabius is consolidation of models. Yes. If we have concentration of model kind of winning, we are in a tough space and we want an ecosystem, not a monopoly. Yes. There's a reason, yes, that everyone,
SPEAKER_01
other than Anthropic and open AI, shoving money furiously at anyone else who can help
SPEAKER_02
or grow that competitive advantage. Now, I just did a show with Aaron, the perplexity, and he said that export controls have actually hurt the U S in many ways, because it's meant that they've innovated on architecture that they wouldn't have needed to and really built muscle that they wouldn't have had to. And combined with the open source model capability that they have, it's now a competitive threat that's even stronger. It was an interesting discussion. Rory, I have to say, uh, we'll wrap. My mother text me after our last episode and said that your quote on making money is
SPEAKER_02
like sex was the favorite moment of any trio show that she's heard. And I got about 50 texts from people being like, that is the quote of the century. I've got to tell you, I think it's
SPEAKER_01
not in direct format, but there's a version like there's a version of that either in Fred Schwed's where are the customers yachts from the 1960s or in reminiscence of a stock operator from the 1920s. One of those two investing books hinted at that, but I always remembered it. So I, I'm not the original author, but I, but, but, but the books are kind of three to five times older than you are, Harry. So it's kind of like the Bible as far as you're concerned.
So just just just ! just just ! ! ! just just