Anthropic Raises $45B but Falls Short on Compute & Thoma Bravo Hand Back Medallia Keys to Creditors

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It's entirely plausible that 10 super big exits cover the entire nut from the LP perspective, such that it's still a good business. [SPEAKER_02] So what's on the agenda this week?

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$45 billion poured into Anthropic from the hyperscalers. Next, China blocks Meta's $2 billion acquisition of Manus. And then finally, Thoma Bravo hands over the keys to Medallia to creditors. $5.1 billion of equity wiped out. What is the future of this stage of private equity? [SPEAKER_00] It's a whole new world where I think OpenAI is even more competitive again.

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[SPEAKER_01] The dirty little secret adventure again is how much of your money you make in that one year in 10 when everybody buys the dream.

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[SPEAKER_00] More and more, the agent is going to choose what models and just what vendors we use.

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It's possible you look back and see that as the first disconnect from compute equals revenue. [SPEAKER_01] It isn't way over-leveled it, it was way over-paid for it.

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You can service $2 billion plus of debt on a $1 billion low-growth company with a pre-AI story that has to transform to AI. Ready to go? [SPEAKER_02] Boys, we are back.

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[SPEAKER_02] It is another week of Harry asks questions. [SPEAKER_02] Rory continuously puts them down as being terribly phrased and useless. [SPEAKER_02] And then Jason provides the actual wisdom and value. But whoa, he's turning on me. Don't worry, Rory. I love you, dude. Sorry. Feeling spicy. I just came from an LP meeting. I wanted to start with OpenAI missing numbers, specifically across user growth and revenues, with the two obviously matches missed numbers on. It's led to CoreWeave dropping and Oracle dropping, I think 5% and 7% respectively. Is this being made too big a deal of? Or is this justified in terms of the response that we're seeing?

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How did we analyze this? [SPEAKER_01] It feels a little overdone in the sense of it accurately reflects what happened last year. If you take it with Zoom, if you think of the two big picture jobs here, you got two jobs when you run them. [SPEAKER_01] You got to build great models and you got to buy enough compute to be able to run them. [SPEAKER_01] Right? [SPEAKER_01] And there's no doubt in the back half of last year, OpenAI failed at the first part of that job. [SPEAKER_01] They didn't build great models. [SPEAKER_01] And as a result, their traction relative to Anthropic declined markedly.

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Their market share declined markedly. Right? And that's probably the shoe that's dropping now. If you look at the model that they shipped recently, I think it's 5.5, reviews of the coding say it's pretty good and arguably better than the current Anthropic model. So I think to some extent, this is a late dropping shoe on facts that were probably knowable three, four months ago if you were paying attention to the traction. And the funny thing is, in the super connected Twitter AI universe, in fact, Anthropic is the guy that's getting the slamming right now. There's a whole bunch of, oh, Claude can't keep up, can't support the users, and the current codex model is better.

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So this feels a little old news that maybe is news to the Wall Street Journal, but probably isn't news to anyone paying more attention. [SPEAKER_00] This is looking backwards, right? [SPEAKER_00] This is looking backwards a lens into last year, and it confirms what we knew, right? [SPEAKER_00] Anthropic, obviously, the rate of growth was incredible, and some of that was market share, right? [SPEAKER_00] It wasn't all AI. [SPEAKER_00] Some of it was market share, and it stole market share. [SPEAKER_00] And Elon was clear about this, that Anthropic had something special in coding, which underestimates how much of the overall growth in the market coding was, right?

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[SPEAKER_00] And I think OpenAI acknowledged it by double coding red and getting codex better. [SPEAKER_00] I have just two thoughts. [SPEAKER_00] One, as crazy as it sounds, I think this is also yesterday's war. [SPEAKER_00] But I think going forward, more and more the agent is going to choose what models and just what vendors we use. [SPEAKER_00] Do we use Canva, or do we use native AI-based generation tools like Fall? [SPEAKER_00] And the agents are going to choose which LLM we use, okay? [SPEAKER_00] And just like everyone from Dario down to said there's going to be more and more agents doing coding, the agents are going to make the decision on everything.

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[SPEAKER_00] And I would say as a consumer of LLM, forget about coding, which is the number one by dollars, right? [SPEAKER_00] As workflows expand to do everything, as agents do more, they will pick the LLM.

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And I see no competitive advantage to Claude for most workflows. It is so good. OpenAI, whether it's Codex, Wi-Fi, whether it's just state-of-the-art of the models, it's so good for my workflows that I think the advantage that humans get out of Claude and Claude code, which is huge, right? This was a story last year. Humans shipping code, shipping products, built like we got an advantage. We got more superpowers from Claude and Claude code. I'm not sure agents are going to get the same advantages. They may get just as many advantages from OpenAI. And I already see that with our agents, our AI VP of marketing, AI VP customers, our applications. They love OpenAI.

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They love it. So I think this is another benefit that is ephemeral as agents take over more and more of the workflows of our lives. And we're going to look back at last year's transition era where most workflows were managed by humans. And late 2026 into 2027 most workflows are going to be managed by AI agents, not AI agents working autonomously, not crazy open claws blowing up our Mac minis, but running everything. And I think this is where OpenAI is very well positioned. The agents will pick what they want. And it's not about what makes humans better. And our agents like OpenAI.

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And that's why I'm one of the many reasons I've come back to Team Sam and Team OpenAI is not because I care because my agents like OpenAI. They like the API. They love it. So I got to follow my agents. And late 2026 into 2027, most workflows are going to be managed by AI agents, not AI agents working autonomously, not crazy open claws blowing up our Mac minis, but running everything. And I think this is where OpenAI is very well positioned. The agents will pick what they want. And it's not about what makes humans better. And our agents like OpenAI.

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And that's why I'm on one of the many reasons I've come back to Team Sam and Team OpenAI is not because I care because my agents like OpenAI. They like the API. They love it. So I got to follow my agents. Just like you got to back your team of humans in the old days, like 2024. Today, I have to back my team of agents. If they pick OpenAI, I got to be on the team. I'm not exaggerating. It's a radical change that most folks are just still in the human-led AI world they're not seeing yet. [SPEAKER_01] We're off-piste already, but I'm going with it. [SPEAKER_01] I'm going to paraphrase, and then I'll have two questions.

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[SPEAKER_01] What you're basically saying is, in a world where agents pick the models, you don't have this human anchoring bias for my favorite agent. [SPEAKER_01] And thus, it becomes more of a every day is a new day kind of market, right? [SPEAKER_01] What that means is- They have very different perspectives on what vendors to pick. [SPEAKER_01] Agreed. [SPEAKER_01] And presumably has better perspective. [SPEAKER_01] So the interesting thing about that, the obvious question, what does that mean for the large AI companies? [SPEAKER_01] And so I have a couple of questions.

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[SPEAKER_01] And one is, if the choice is between OpenAI, Claude, and Gemini, then it's still a nice, cozy little oligopoly. [SPEAKER_01] To get in the game where you can be chosen by an agent between it, do you still think it's just the state-of-the-art foundation models who are going to be relevant here? Well, listen, I think it will change. It's fun. Over the weekend, my 996 project was I built an agentic API grader where I just had Claude, OpenAI and Gemini together take the top 120 APIs and grade which ones they thought were the best, which tools I thought. 11 labs, everything on down.

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Interestingly, Stripe got the highest grade, got the only A+, which is a reason to go along in Stripe. I did not think Stripe would come out on top. My captain, obvious learning, and you'll see the same thing if you just ask Claude what to use.

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[SPEAKER_00] Very biased toward the leaders. [SPEAKER_00] Now, very biased toward momentum. [SPEAKER_00] They're not going to recommend Marketo for your agent to do marketing automation. [SPEAKER_00] In fact, it mocked Marketo outreach and sales loft as tools useless to agents. [SPEAKER_00] Okay, this API grader. [SPEAKER_00] They said there is no place, an agent will never send an email through outreach, sales, after Marketo because it will just craft and send a better email itself.

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And so these are worthless products in the age of agents.

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[SPEAKER_00] But they are very, if you had to do a two by two, they want market leaders that are innovative. [SPEAKER_00] That's who the agents pick. [SPEAKER_00] So I think for now, a three by three is Gemini, OpenAI and Anthropic, right? [SPEAKER_00] In fact, the order is Anthropic. [SPEAKER_00] And so the grader, it graded Anthropic just above OpenAI. [SPEAKER_00] And then Gemini was just down here. [SPEAKER_00] So it was interesting. [SPEAKER_00] That's what all of them wanted to pick. [SPEAKER_00] And I think that's the world we're going into.

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And the old guard are going to be bypassed or useless. So that's why, to your point, I think this is an interesting story, but it's a whole new story as the agents pick. It's a whole new world where I think OpenAI is even more competitive again. [SPEAKER_01] So let's go at that. [SPEAKER_01] So my mental model remains. [SPEAKER_01] It's a three-way oligopoly, just like cloud is a three-way oligopoly with Google Cloud, Amazon, and Azure. [SPEAKER_01] Right? [SPEAKER_01] What you're saying here is, which is fine. [SPEAKER_01] Got it.

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[SPEAKER_01] And then the other question that I'd be curious to get your thoughts on is, when OpenAI just announced that agent product, it seems to me, if you're running one of the foundation model companies and Jason's world is the world you agree is going to happen, then you just make damn sure that you build the agent harness such that, you know, so that the device picking the agents is your device or the agent picking the model. Under discussed. The public markets have the right idea, but the wrong direction. The public markets think vibe coding and cloud are their threat. No, the threat is what the agents pick.

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And actually, if you look at overall, the markets are they almost get it right. They're worried about Atlassian and Monday because agents don't need project management tools. They have no use for them. Okay. And the ones that are actually have outperformed, right? The Twilio, the CloudFlares and others, the agents still have use for it. So our whole narrative, the public markets somehow saw the future that most podcasts couldn't see, which is what matters is what the agents will pick. And to your point, this is why the agent wars. I mean, Mark Benioff gets it even more. This is why Sam Altman, they're all, you got to win the agent wars.

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Because if OpenAI wins the agent wars, then you have lock-in. Then OpenAI will probably pick OpenAI as the API. Now, maybe they will evolve where they're actually agnostic at some level, right? Where these agents are so successful, they have to pick the best of breed.

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[SPEAKER_00] One could imagine it. [SPEAKER_00] But you got to own the agentic layer, not just the fabric, but you got to own the agents too, because they're going to make these decisions. [SPEAKER_02] Do we place no value then on large multi-year enterprise deals? [SPEAKER_02] A la ServiceNow, a la, we had Mike from Atlassian on who talked about the increased rate of multi-enterprise deals that are very large. [SPEAKER_02] Do they just not have value because we're going to see the eradication? [SPEAKER_02] They just mass decay. [SPEAKER_00] Churn that is deferred still exists. [SPEAKER_00] And it is where the rent to CEO and the mediocre hide. [SPEAKER_00] Okay.

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Workday does three-year contracts up front and five-year renewals. So the average Workday customer effectively signs up for an eight-year contract. Three and five is their standard term, okay? Does that mean they're going to stay on Workday forever? No. [SPEAKER_02] A la ServiceNow, a la, we had Mike from Atlassian on who talked about the increased rate of multi-enterprise deals that are very large. [SPEAKER_02] Do they just not have value because we're going to see the eradication? [SPEAKER_02] They just mass decay. Churn that is deferred still exists. And it is where the rent to CEO and the mediocre hide. Okay.

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Workday does three-year contracts up front and five-year renewals. So the average Workday customer effectively signs up for an eight-year contract. Three and five is their standard term, okay? Does that mean they're going to stay on Workday forever? No. That means they have eight years to find better agentic solutions. Now, maybe the executives are all gone by the time that comes up. But I don't believe there's... If you believe that public values...

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[SPEAKER_00] Rory's better at this than me. [SPEAKER_00] If you believe that public stock prices are the sum of terminal values of cash flows and profits, then deferring churn, masking churn doesn't matter. [SPEAKER_00] It doesn't help if you defer it four years because if it dies, if the customer dies anyway, at the end, you never have it because it falls off your ARR rules. [SPEAKER_01] I'm not sure it's extreme in a sense.

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[SPEAKER_01] I can envisage a world where even eight years from now, you don't churn off your SaaS system of record, but you're not growing. [SPEAKER_01] So interestingly, and again, I didn't... You're out buying more, right? Hang on, Jason. [SPEAKER_01] I'm going to greet you on something. [SPEAKER_01] It was interesting because we're going to discuss service now at some point in time, right? [SPEAKER_01] Which grew 20% plus or minus, very negative market reaction. [SPEAKER_01] And if you listen to the analyst call, this will make you very happy, Jason. [SPEAKER_01] A lot of the really grindy questions were, is your AI agent revenue really real?

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[SPEAKER_01] Are you just bundling it? [SPEAKER_01] Is it growing fast enough, right? [SPEAKER_01] In other words, basically saying, I buy into... Let's call it Jason, the narrative you articulated, which is, if all you are is a system of record for humans, you are a bounded cash. [SPEAKER_01] Even if you're not a negative NPV, and I think some companies will be. We'll talk about that later. [SPEAKER_01] But even if you're not a negative NPV, you're a slow growth at best NPV, terminal value. [SPEAKER_01] And the only way to get the high price that you need to make the stocks compelling is to have, yeah, agent-based activity on your platform.

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[SPEAKER_01] And it was just super interesting. [SPEAKER_01] We had that talk a few weeks ago where you gave me clarity on that, that you need to see agent acceleration.

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And then it was funny to look at the call. And this is a company, I should know the numbers, doing $16, $20 billion. And they're grinding the CEO about a half a billion to a billion dollars worth of agent revenue because what they've recognized is that's the tell for the future. Right.

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[SPEAKER_01] And I'm willing to bet in a quarter or two, someone's going to be asking Benioff for how many calls to your agent, your headless API did you get? [SPEAKER_01] How do you measure that?

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How do you measure value? And that kind of stuff. This is the way it's going. So you are right. [SPEAKER_00] I think it's, let's take for, I think Canva is going to have a wildly successful IPO. [SPEAKER_00] And they just launched their agentic suite. [SPEAKER_00] Okay. [SPEAKER_00] And it's got a lot of great agentic products. [SPEAKER_00] And you can vibe images. [SPEAKER_00] You can vibe everything. [SPEAKER_00] It's actually very, very good. [SPEAKER_00] This Canva, I think it's called Canva 2.0. [SPEAKER_00] It's great. [SPEAKER_00] And if it had come out last year, it might even be the default that we use instead of startups. [SPEAKER_00] Okay.

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[SPEAKER_00] And so no question, Canva 2.0 is great. [SPEAKER_00] Is it the best? [SPEAKER_00] It's definitely better than make. [SPEAKER_00] No, I mean, it's great. [SPEAKER_00] It's great. [SPEAKER_00] Okay. [SPEAKER_00] But ask yourself a question. [SPEAKER_00] Would an AI agent use it? [SPEAKER_00] No. [SPEAKER_00] An AI agent is not going to go in and move assets around, vibe them. [SPEAKER_00] It's just going to create the assets. [SPEAKER_00] So an agent doesn't need Canva. [SPEAKER_00] This is the meta threat that the stock prices reflect, but the narrative misses, right? [SPEAKER_00] Canva maybe in 2026 built the right 2025 product.

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[SPEAKER_00] But will agents buy? [SPEAKER_00] I don't think there's any chance an agent is going to use Canva.

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And I don't think there's any chance an agent is going to use Jira or Confluence unless it's forced to. There's no need for these products. [SPEAKER_02] Can you help me? [SPEAKER_02] I'm saying I love Cliff. [SPEAKER_02] He's been a guest. [SPEAKER_02] I'm sure he's a really good friend of mine. [SPEAKER_02] If he's going out in 28, which I think is a realistic timeline for when he would want to go out. [SPEAKER_02] And you just said he will have a successful IPO, but agents would never use it. Yeah. Can you? I don't know when it crosses over at the low end at consumer versus enterprise. Actually, I think this is one area where the enterprise crosses overhead of consumer.

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Because we want to automate these workflows as soon as we can, right? I don't know the answer. I don't know if the average low end B2C user who gets so much value from Canva is going to make themselves obsolete with an agent. They're going to still be designed. They're going to pay 18 bucks a month, getting incredible value out of Canva. So they may be, it may take time because we, none of us really want to replace ourselves with agents, right? It's our team. So the more people you have on your team, the more you're going to deploy more agents to replace them.

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The more you're just yourself, a solopreneur, the more you're going to use AI tools, but not agents to replace you. Agents to enhance you. So listen, I don't know the answer to your question, but I think this is going to harm enterprise workflows before it hits the prosumer market. [SPEAKER_01] I think there's a lot in that and I want to just put a bookmark on it because I think it was actually going to help. So they may be, it may take time because none of us really want to replace ourselves with agents, right? It's our team. So the more people you have on your team, the more you're going to deploy more agents to replace them.

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The more you're just yourself, a solopreneur, the more you're going to use AI tools, but not agents to replace you. Agents to enhance you.

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[SPEAKER_00] So listen, I don't know the answer to your question, but I think this is going to harm enterprise workflows before it hits the prosumer market. [SPEAKER_01] I think there's a lot in that and I want to put a bookmark on it because I think it was actually going to help. [SPEAKER_01] What it means, Harry, if you think of three categories for software companies: eroding terminal value, melting iceberg, you're in trouble. [SPEAKER_01] You have a low stock price. [SPEAKER_01] We'll talk about it later. [SPEAKER_01] And if you've leveraged, you're dead, right?

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[SPEAKER_01] Then the middle category is system of record. [SPEAKER_01] They're going to keep you forever, but not a ton of agentic activity on top, right? [SPEAKER_01] You're going to be worth something. [SPEAKER_01] There is a positive terminal value. [SPEAKER_01] It's calculatable and there's a price at which you should buy the stock. [SPEAKER_01] And then the happy outcome is the agents are using you when you're getting increasing returns as you know, from AI leveraging your technology.

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[SPEAKER_01] So if you put those three buckets, I think what Jason, you're right in saying, Jason, in those three buckets, successful enterprise software companies can easily get to that top bucket because you're right. [SPEAKER_01] Companies want to automate because it's called taking costs out and it's called making yourself more efficient, right? [SPEAKER_01] So successful SaaS companies in the enterprise that adapt to this reality can probably reignite growth. [SPEAKER_01] Obviously, unsuccessful ones will fail. [SPEAKER_01] But that's what you're saying. [SPEAKER_01] With what you're saying about Canva, I'm not a design person.

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[SPEAKER_01] I don't have a feel for it. [SPEAKER_01] I like the team, but I'm not a designer. [SPEAKER_01] I have zero creativity.

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But I think you could be right, which is that individual user, small user, they want to have AI tools, but they don't need to create a whole AI automated workflow because they're just not doing enough to matter, right? So intuitively what that says is they end up in that middle bucket where I think now bringing it back to the IPO, I think the point is they have the scale and the profitability to be an IPO. This company is going to do great. The problem is, as we've discussed before, so much of venture is about the pixie dust upside and any IPO without pixie dust upside just gets priced like a real company.

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And it's always a bummer for venture people when their company gets priced like a real company because it's just so much easier to make money when you get pixie dust credit, right? And the truth is, SaaS pixie dust credit expired in 2025. [SPEAKER_00] Yeah, you got to be. [SPEAKER_00] We talked about Rippling growing 70 some odd percent at a billion, right? [SPEAKER_00] This should be, if this were an AI play, it would be a jaw dropper, right? [SPEAKER_00] AI. [SPEAKER_00] Will it trade at a SaaS discount? [SPEAKER_00] I sure hope not. No, it'll trade. See, I don't like the second half because I actually think it's a great story.

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It said, and I know you do too, but it's going to trade on a sensible, adjusted PE multiple based on growth, based on cash flows, entirely rationally, in a way that any value investor could buy it, which by definition means it won't trade like SpaceX, which is going to trade hopes, dreams, and prayers, right? And the dirty little secret of venture, again, is how much of your money you make in that one year in 10 when everybody buys the dream. So you're right. I think it's a great outcome.

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And so it's not going to trade. I don't think it's a SaaS discount as much as I think it's going to trade at fair value. I mean, maybe that's the way to say it even starker. A lot of venture capital makes money when their assets don't trade at fair value. They trade at a narrative premium to fair value. And in those one year in 10, when you make 30% to 40% of your total cash back, you get an unexpected gift. Good SaaS companies that aren't AI first are going to trade at fair value, which means if you've created value, you'll get value. And I think Canva and Rippling have both created enormous value. So they'll get value. But what they won't get is that stupid 30 times revenue premium that looking back, you might've gotten 2021. We started this conversation on OpenAI missing numbers, switching to Anthropic. You had Google committing up to 40 billion, 10 billion in cash now, 350 billion, sorry, at 350 billion and then 30 based on performance milestones. And then Amazon adding, adding another 5 billion to the round. This was the latest fundraising news from Anthropic. How did we analyze this? And as the ultimate loser here, when I read this, not NVIDIA. You're training on Tranium and TPUs and getting closer there with no NVIDIA. I mean, there's just so much to disentangle. Let's put a pin in NVIDIA for a second and go back to the big picture on what do the deals mean. And I've been thinking a lot about this. That's that, remember I said earlier, right? You have two jobs when you're running an enterprise foundation model, leaving aside the consumer business. You have to build amazing models and you have to buy enough compute to make sure they can run them at the demand you see. And both jobs are incredibly hard. And the funny thing is right now, OpenAI got one job right, they have enough compute, and they got the model wrong. So that's why they're in trouble. And Anthropic did it the exact opposite way, right? They got the model perfect. In fact, they may have over-succeeded. And as a result of that, they'll light on compute, right? So that's what's big picture going on. Anthropic are massively constrained on compute, which is why they're doing these big deals. And Dario has articulated in the past, I'm a little careful about this. And let's get real. No one had a business plan last year when they went from one to nine that said they're going to go to 30 by the end of Q1, right?

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[SPEAKER_02] So they were hit by their own success, right? So that's what happened. And the bigger picture going back to the two big jobs is, and I just internalize this, how incredibly hard and risky the second job, the buying compute job is, and how capital intensive this is. I don't think we internalize it, right? I was thinking about it. If you're at a $10 billion run rate right now, which is roughly Anthropic end of last year, right? And you're looking forward two years, [SPEAKER_02] year when they went from one to nine that said they're going to go to 30 by the end of Q1, right?

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[SPEAKER_02] So they were hit by their own success, right? So that's what happened. And the bigger picture going back to the two big jobs is, and I just internalize this, how incredibly hard and risky the second job, the buying compute job is, and how capital intensive this is. I don't think we internalize it, right? I was thinking about it. If you're at a $10 billion run rate right now, which is roughly Anthropic end of last year, right? And you're looking forward two years, and you think you're going to go 5x this year and maybe 4x next year, not crazy, which means you're going to be, which is 20 times. So that's $200 billion two years from now, right? So let's run,

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there's even $100 billion two years from now, right? So whatever you have today capacity to serve $10 billion, you run that model and you say, now I need capacity to serve two years from now, 10 times that amount, which is a hundred billion. I need 90 billion of new capacity, right? And the capital intensity for every dollar of run rate revenue, it probably takes four or $5 of CapEx to support that, right? So if you're going to add 90 billion in revenue capacity, someone between you and your partners has to find plus or minus $300 billion to buy chips, dig holes in the ground, build data centers and make it all happen, right? And it's easy to lose sight of that. Think about how capital intensive that is. You're doing 10 billion in run rate and you're effectively saying between you and your partners to be able to meet demand two years from now, you've got to invest 300 billion. Not all yourself, some of it to your partners, but think how... And by the way, if you get it wrong and you end up doing 200 billion in run rate revenue, you're going to only have half the compute you need, you're going to look like an idiot. And if you get it wrong and you only get to 50 billion in revenue two years from now, you're going to be left with 150 billion of stranded capacity. I mean, we lose it because in software land, it was so easy. If you sold more, you made more money. You didn't have to spend a lot to make that happen. At worst, you had to hire some reps. Microsoft had to hire no one when they exploded in revenue. They just shipped more PCs, more PCs shipped and they got there 20 bucks per PC. In this case, two years before you get the revenue, you have to bet four times that amount on CapEx, right? So my big aha from this is, it's obvious when you say it, but how incredibly risky this bet is. And it's no accident that if you look at the two CEOs, who is going to take the risk to the upside and just spend the money and just devil take the consequences, it's going to be Sam. So he has lots of compute. And who's the more careful guy and might understand? It's Dario, right? And I don't blame either of them in the sense of the sums involved. It's not just that the business is capital intensive, that there's $4 of CapEx for every 1x of revenue, but it's also 10xing in growth. Yeah. The combination means you have to bet four or five, eight times your current run rate revenue in CapEx just to meet demand. And you've got to do that every year. So I'm sitting here going, all these stories, I want Anthropic screwed up because they don't have enough compute. Dude, if you can predict two years out what the demand is, let me tell you, you can join Leopold in a special situation, in the situational awareness trading game, right? It's really hard. And betting this kind of so. So that's my big aha, which is that the compute intensity means the capital intensity and the growth means that the spread and the risk of that capital intensive bet is just huge. Yeah, I don't think it's a huge deal. But if OpenAI really missed last year, and I think some of it's definitional what the miss is, right? We're reading an information report. And again, I don't think this is a huge deal, but it's possible you look back and see that as the first disconnect from compute equals revenue. Right? Because the risk mitigation to Rory's point is as stressful as this is all the spend. If Sam's right, that really compute equals revenue one to one, if there's a perfect correlation, then it all kind of works out in the end, assuming that capital is available. If that breaks for any reason, right, then it just adds a level of risk to the model that's even higher. And I'm not saying that happened for sure, but superficially, it seemed to have happened, right? Superficially. Jason, you're exactly right. I mean, I think it's a stupid statement by Sam, right? It implies causation. It's just correlation. Let's rephrase that statement because the Altman statement is compute equals revenue. Not true. I mean, I can tell you what is true. No compute equals no revenue, but compute and a bad model also equals no revenue. See Grok for details, right? The truth is to succeed, you need to have enough compute to meet demand and a good enough model to generate demand, right? And you've got to do both of them in sync. It's hard. So I agree. The correlation argument, everyone was making that correlation argument, sorry, causation argument that compute equals revenue only because while they were making that argument, the demand seemed almost infinite. But the minute your model underperforms a little bit, it's not quite infinite anymore. Now, I think the good news is if aggregate demand is growing up 5, 10x per year, I think these air pockets are just going to be air pockets for both sides, right? I mean, I think because zooming out, Jason, the big picture comment is agents. I mean, what do you think? How many more tokens does your agent use per day than you did, Jason? Our Salesforce bill went up from 12,000 to $22,000 a year, and our seats went down from 10 to 2 plus 1. So there's your map. What about your token? I'm actually—I don't know the noun, but it's derivative of it. It's your data center number, dramatically up. They're using dramatically more tokens. That's my point. I think they're using literally, I saw a number, it's 50 to 100 times more expensive in terms of tokens to serve an agent than a JSON. Actually, probably 10 times than a JSON, 100 times than a Rory because I'm not—Well, it's because it runs constantly if you let it. Exactly. So the good news, and that's why you don't want to get caught lost in the who's winning, who's losing on a weekly, monthly basis. The good news and the reason these guys can all take these risks is in the short term, the compute equals revenue is not always true if your model's not there,

SPEAKER_01

your data center number dramatically up. They're using dramatically more tokens. That's my point. I think they're using literally, I saw a number like it's 50 to 100 times more expensive in terms of tokens to serve an agent than a JSON. Actually, probably 10 times than a JSON, 100 times than a Rory because I'm not- Well, it's because it runs constantly if you let it.

SPEAKER_01

Exactly. So the good news, and that's why you don't want to get caught lost in the who's winning, who's losing on a weekly, monthly basis. The good news and the reason these guys can all take these risks is in the short term, the compute equals revenue is not always true if your model's not there, but the big picture trend is over the next, as agents kick off, the demand for compute over the medium term will be there. So it makes sense to lean in, but you should also accept- You're leaning into a thing where there's going to be wide short term swings. There's probably going to be six months period where you're like, I'm an idiot. I don't have enough demand. And then six months later, I'm an idiot. I don't have enough compute. And it's just going to be the journey.

SPEAKER_01

I'm an idiot. What's easier to rectify? Is it easier to resell excess compute that you have, or is it easier to emergency buy compute that you don't? It sounds like it, again, I hadn't thought of it, but the problem is if you're one of the two big guys, you are so much, what are you going to do? Can you imagine it? You open AI, you have half a gig of excess compute, and Anthropic is desperate for compute. The hell you sell it to them.

SPEAKER_00

[SPEAKER_01] You might. You might. [SPEAKER_01] You might. [SPEAKER_01] You want to buy it? [SPEAKER_01] Oh, sure. [SPEAKER_01] I mean, it sounds crazy, but Samsung would build phones and then sell its components to all its direct competitors. Right? [SPEAKER_01] Totally. That's fair.

SPEAKER_01

I mean, you get zen about it at some point. We're going to have two divisions. We're going to have our compute division and our application divisions, and they've got their own P&Ls and...

SPEAKER_01

What's more, remember, you don't have that. The truth is you actually have the compute under a long-term contract, but Amazon, Google, Microsoft, CoreWeaver, Oracle will actually have the compute. So maybe the way to phrase it is, if foundation model company A can't take their take-or-pay, the hyperscalers will probably take that compute to foundation model company two and say, hey, guys, I got some cheap short-term compute. It's a sublet. Yeah, just a $10 billion sublet. So yeah, there will be some kind of market, I mean, as one is ahead and behind. I mean, what we're seeing de facto is that's happening right now at a macro level. Remember that whole CoreWeave, the reallocating a data center from company A to company B? That's this going on in real time. Right? People are trying to figure out...

SPEAKER_01

Again, remember that forecasting problem I articulated. On top of that, there's a two-year lead time. So it's not that you're forecasting next month's demand. You have to forecast two years out, that 10 times your revenue on CapEx and hope you're right. It makes running an airplane company, an airline look easy. And it benefits Google. It benefits Google too. Google's the big winner here.

SPEAKER_01

Why? Well, first of all, now Anthropic is deeply tied to them, right? So Google wins whether you use Gemini or whether you use Anthropic now, right? We should go back to that. Two, Google has infinite capacity because they're the largest provider of traditional web software. So they have all this capacity for themselves that they can allocate even better than Microsoft. Do I want to give it to my own compute? Do I want to give it to Anthropic? Do I want to give to them? They have the surplus, to your point, Harry, that they can route between their customers and themselves and others. They win-win here. They have Gemini, they have Amazon, and they have the capacity and they have the ability to rotate it when they want. And they have the cashflow. They have the cashflow to manage it all. So Google win-win-win. They definitely have one. And to stick with the more ways to win, comment, we forgot Harry's original question on NVIDIA. Yeah, the last shoe to drop here is both Amazon and Google have chip products they can bundle into the equation. And for context, chip, GPU spend is roughly 50, 55% of total capex on any build out. So if you're building out a one gig data center and estimates range $30, $40 billion, $20 billion that is compute. And NVIDIA's gross margins are 70%, which means 14 billion of that per gig is raw profit to NVIDIA. So if you're sitting there now, that's what Google and Amazon are trying to do, which is substitute that for their chips. Now, Jensen will make the argument as he did on the podcast, dude, it's a mistake. Our chips are better. They have more support. And you got to be in the weeds on that to know the exact answer, especially for specialized use. Google and Amazon would say that the NVIDIA advantages aren't as good on specialist use, but I wonder myself. But nonetheless, that is what's happening, which is some attempt to bundle. Neither of those two chips, the Google chip or the Amazon chip are widely available on a standalone basis. So what both of the hyperscalers are doing is effectively bundling their chip with their capital and their equity investment to convince Anthropic to continue to run on their products and just take more of the gross margin, arguably with the NVIDIA.

SPEAKER_01

[SPEAKER_00] But tech is, there's many examples in tech of substandard bundling products succeeding. See Microsoft for details. A quickfire round. Google hit $4 trillion. NVIDIA is a $5 trillion company for maximum value gain on a per dollar basis. Which one would you invest in today?

SPEAKER_01

Okay. Not the question I was expecting. I would probably, I mean, for maximum dollar, it's a bad question. I'm not doing my thing again. I think risk adjusted, I would do Google reluctantly because I think if you just wanted the upside, you can paint an NVIDIA as a more single threaded story around raw CapEx demand. But I think risk adjusted, you probably would do Google because even to Jason's point, the biggest advantage NVIDIA has is if this thing happens, if this one thing happens, which is CapEx explosion, they get it all. The biggest advantage Google has is, but if it slows down even a little, they're really in a different place. The biggest advantage Google has, it has multiple

SPEAKER_01

It's a maximum dollar gain. It's a bad question. I'm not doing my thing again. I think risk adjusted, I would do Google reluctantly because it's, I think if you just wanted the upside, you can paint an NVIDIA is a more single threaded story around raw CapEx demand. But I think risk adjusted, you probably would do Google because even to Jason's point, the biggest advantage NVIDIA has is if this thing happens, if this one thing happens, which is CapEx explosion, they get it all. The biggest advantage Google, but if it slows down even a little, they're really in a different place. The biggest advantage Google has, it has multiple ways to win. It can win if AI adopts fast. It can win if AI adopts slow. It's kicking off cash flow. It's got a bunch of steady businesses. Provided only one thing can go wrong. Provided ChatGPT does not avoid Google search, which is the mother load of cash. They're golden. So risk adjusted, I'd probably reluctantly buy Google. No, you got to do NVIDIA. Okay. Because it is, despite the fact that it obviously potentially has reached its market share ceiling with Anthropic and deals and others. It's the best pure play into the AI vector. Agreed. I think we're saying the same thing. Yeah, we are. So you don't want to minimize your risk. Just put it into VTI or bonds. If you want to bet on AI today, because we can't buy Anthropic or OpenAI, just buy NVIDIA. That's how you buy AI today. Just buy NVIDIA. Don't even think or spell it. Just buy it. For what it's worth, that's totally fair. And I think if you're just going for max upside, yes, if you wanted to create your AI upside exposure, it's NVIDIA and then a bunch of other weird things we can talk about another time. Don't even buy CoreWeaver, these crazy things. Just go, back the truck up to NVIDIA. And if NVIDIA loses AI, AI stumbles, it's okay. I want to be a long only manager. Buy NVIDIA, buy Google. Done. Go home for three years. Seriously. This game is great. I wish a long only seems like the place to be. Yeah. Just charge your fees and commissions and well, it looks good today. I think NVIDIA looks good this week, boys. Let's buy NVIDIA. And I heard good things about Google. My friends use it. Let's get started.

SPEAKER_01

[SPEAKER_00] This show is shit. Yeah. We love Janssen. Go Janssen. Yeah. I mean, look, the data says most managers, I mean, we all know that underperform the index. And then especially if you adjust for beta, they underperform the index. So no, it turns out to be remarkably hard, Harry, but keep telling yourself that. I think it's because they don't do Google and NVIDIA. I think it's because they try and have a diverse portfolio. [SPEAKER_00] Yeah, I agree. Yes. And when you're not diversified, you're either right or wrong. I mean, yes, survival bias here, but yes. Yeah. Well, look, ARK is down 3.88% this year. We're definitely getting our— [SPEAKER_00] Move on. Yeah.

SPEAKER_01

[SPEAKER_00] Okay. Is there anything else on Anthropic or OpenAI that you want us to discuss? I mean, there's a couple of things being Mythos, the ads. No. No, we're happy to move on? Yeah. I don't want to be all Anthropic all the time.

SPEAKER_01

Right. Let's do it. China blocks Meta's 2 billion acquisition of Manus. This was a surprise. Distributions have been made to investors. The company is a Singaporean company. The people aren't in China. This feels like a regulatory overreach. Well, Benchmark has their money. All right. Who cares? If I own 20% of Manus and got my 400 million out, I would love the boys. I'd want to help get the boys out. Don't get me wrong, but I don't care if I got my money out. I ain't giving it back. I'm not accepting the service of process. I'm hiding from the service of process provider. I'm keeping my 400 million. I'm taking my 80 million and carry for myself and I'm hiding.

SPEAKER_01

Dude, I don't know if you can hide in Woodside from the CCP.

SPEAKER_01

It is a real risk, but I ain't giving my money back. If I'm Benchmark, I ain't giving my money back. I don't want to trivialize it only because there are humans at the heart of this who are at risk. I don't want to be at risk stuck in China. But I do agree with your assessment. The investors who've gotten their capital out, the chances of them having to or being willing to return that capital is zero. So when China says they want to unwind the transaction, I actually don't think they're talking about the money as much as... I think the leverage point is over Meta, where they're really saying, you have this technology, we'd like it back. And let me give you a clue. If that had happened to Tesla, where they have a massive car plant in China, they'd be coming to the table right now with the Chinese government and saying, maybe we should unwind this transaction because you've got a lot of leverage over me. From memory, I think if you do a lot of business in China, this ruling is going to start a discussion. If you don't do a ton of business in China, no one's going to be pursuing the venture investors. I think that to some extent, it's going to be pushing on Meta. And then obviously, the more human thing is some of those, the team are still based in China and they're not going to be able to get exit visas. I think this process will unwind. What it really is doing is it's less about getting this thing back than it's preventing it from ever happening again. That's the first, last and only one of these deals that anyone will do, because I just think it's going to be really... Unless literally, before you wire your money as a venture investor, the night before you put everyone in a 737 in Beijing and say, dude, we'll wire the money when you hit Singapore and bring your family. It's just not going to be a thing. So I think China is just sending a very close... And look, I'm sorry, it's all funny.

SPEAKER_01

What was that? Meta loses then? Just because they've lost the money, they've paid and they're not getting the tax. [SPEAKER_00] No, but they have the technology other than some of the... They have the technology and any of the team that's based in Singapore, they have. I actually think what happens is there'll be some resolution. As I said, I go back, I don't remember how much business Meta does in China, but if they do a lot, they'll have to settle. If they don't do a lot... I think they're bad. I can't even remember. I know Google didn't for the longest time. I just don't care what And look, I'm sorry, it's all funny.

SPEAKER_01

What was that? Meta loses then? Just because they've lost the money, they've paid and they're not

SPEAKER_01

[SPEAKER_00] getting the tax. No, but they have the technology other than some of the... They have the technology technology and any of the team that's based in Singapore, they have. I actually think what happens is there'll be some resolution. As I said, I go back, I don't remember how much business Meta does in China, but if they do a lot, they'll have to settle. If they don't do a lot, I think they're bad. I can't even remember. I know Google didn't for the longest time. I just don't care what Meta does in China. Neither subject interests me and the combination interests me less. So, but I think that if they do, they're going to have some. They're going to feel some pressure. As I said, just like if you were a big US manufacturing company or Tesla, and the Chinese government took this position, you'd have to take it seriously because they'd say otherwise, we're just going to register a 4 billion judgment against you and exercise it against your local plant. Have a great day. I think it's just a blip. Human issues aside, to Rory's point,

SPEAKER_01

[SPEAKER_00] I don't mean to minimize them, right? I would just take my carry and hide. I don't think you can. The service providers will come from China. I think that the... And I don't want to spend too much time on it. I think it will be a minor blip in some upcoming AI war between China and the US that is difficult to fully understand today how this war goes, right? Well, Nvidia is supporting AI to China,

SPEAKER_02

[SPEAKER_01] right? Let's do more. That's in their best interest. Others are against it. It's clearly a war at some level, but I'm not smart enough to fully predict where it will go. But this will just be the start of... Not the start, but one of the first expressions beyond this Nvidia chip drama of where this war will go. It's a war. I agree. And I don't love the war word because I think that implies actual violence. But I think you're right because it's funny. You often have to step in the other person's shoes. If you think back, if you're looking at it from China's perspective, there is someone going to go to prison somewhere, I think in Singapore or the US, for selling Nvidia chips to China in breach of the sanctions, right? And they're probably sitting there going, well, if you won't give us your chips, I'd be damned if we're going to give you our researchers. And it feels a lot more balanced from their perspective. And you evil Westerners are putting this dude in prison and all he tried to do is sell us some black wall chips back off. The sanctions we're exerting on them probably feel problematic to them. Now, I remain on Team USA. I live in Team USA. I'm with Team USA. But just put yourself in the shoes of the other side and think, well, they're probably sitting there going, we'll show you with Manus like you showed us with Nvidia. All makes sense?

SPEAKER_02

[SPEAKER_01] Yeah. I mean, it's at least slightly tied to DeepSeek finally raising outside financing at 20 billion, right? Maybe war is the wrong term. I think there's two great battles that will come before this pot ends, right? That are subtle, that we won't hit everyone. This is China versus US in AI is a battle that's happening. And the other is just the social dislocation from AI. It's already happening. I think there'll be more revolts and issues as layoffs happen. I think California will pass its billionaire tax and the exodus will continue. I think New York is already, pat is just trying to pass its penthouse tax, which is already leading to wars with the Citadel founders and others. So there's going to be this theme of social unrest and this war with battle with China over AI that won't bubble up each week. But I think at a meta meta nonpolitical level, these are the two big things, I think, that we can ignore in our quest to get rich fast. And we're going to have $3 trillion IPOs. Who cares? Who cares about the little guys when we have $3 trillion IPO care? Who cares? Yeah. But I think that bit at the end sounds mean, Jason,

SPEAKER_02

[SPEAKER_00] but I think what you're saying in the rest of it is it turns out that the non-trillionaires or non-billionaires can see that the billionaires don't care. And you're right. I think the political climate has shifted. And yes, this is going to be a continuing social drama. It's not the thing that preoccupies my day because I'm just trying to do my job. But you're right. If you were to zoom out and write a social history of the 2020s in 30 years time, I think you're exactly right. I think the two historians will talk about the revolt against inequality and AI, and they'll talk about China.

SPEAKER_02

[SPEAKER_01] I think it's a very good framing. I think those are the two big social slash political framing things here, provided we don't blow up the world. Right. And I think it's interesting because I haven't seen the polling on the billionaires tax. My rule of thumb used to be California, the electorate is quite sensible. They elect Dems, but they're pretty profoundly right wing at heart, which is what no one ever talks about. Polymarket says mid forties now that it passes. Interesting. Because normally they vote down any tax because they're like, no, we've learned just vote no to anything. Right. Yeah. We're Democrats in our heart, but we're Republicans in our pocketbook. But if it's 40% already, that's interesting. I haven't paid attention because unfortunately, it's not a billionaire that I'm not in the price bracket, but duly noted. Okay. Now in the venture game, we have a lot of zeros. In the PE game, it's rare to have a zero. Yeah.

SPEAKER_02

[SPEAKER_00] Home at Bravo hands Medallia to creditors. 5.1 billion equity wipeout is the first total loss. There was 3 billion in debt. That seems to all be going. And it's just very significant because you never or very rarely see an asset of this scale being handed back to creditors. And it's the first of its kind. Might be second behind Pluralsight, depending on how you define it. It might be the second big one. We just weren't as focused on Pluralsight, but Pluralsight died under massive debt. Yeah. What was the size of that, Jason? You're right. I'm wrong. Misspoken from me. It wasn't a billion. It wasn't as big. It was a couple of billion. No, you're absolutely right. I misspoken. So I'm sorry for that. Can we just confirm though on this? Because when I was reading it, I didn't quite get it. Are Thoma losing money here? Did they recoup back money? 100% they're losing money. From memory, 2021, the deal, I think, went down in 21. It was a $6 billion transaction or whatever, and 5 billion of it was equity. So it was not wildly overleveraged.

SPEAKER_02

[SPEAKER_00] Yeah. What was the size of that, Jason? You're right. I'm wrong. Misspoken from me. [SPEAKER_00] It wasn't a billion. It wasn't as big. It was a couple of billion. No, you're absolutely right. I misspoken. So I'm sorry for that. Can we just confirm though on this? Because when I was reading it, I didn't quite get it. Are Toma losing money here? Did they recoup back money? 100% they're losing money. From memory, 2021, the deal, I think, went down in 21. It was a

SPEAKER_02

[SPEAKER_01] $6 billion transaction or whatever, and 5 billion of it was equity. So it was not wildly overleveraged. Yeah. Right? Maybe 1.6 of debt, the rest of equity. So not wildly overleveraged. Fast forward today, they have more debt than that now. So it could be there was a minor dividend recap and they took some money out. Maybe they got 20 cents on the dollar. But the big picture here is this, and it's terrifying, is that this is a company, I believe, with a couple of hundred million dollars in EBITDA. If you look at it from a cap structure perspective, it was four or five times equity. It was 80% equity, only 20% debt. And that should be pretty safe. But when you way overpay for a company that now has way underperformed, and for reasons we'll talk about vis-a-vis AI, has very significant terminal value questions, then even though you've only got a small amount of debt, the stunning thing is with less than a couple of billion, did you say it was 3 billion of that? Right? I thought it was closer to two, but that's okay. Right? They basically said the debt smothers the company, right? Even though it was fairly underleveled. What that means is at 200 billion, they basically realized at eight, nine times adjusted EBITDA, it wasn't worth putting any more equity in. They've massively overpaid and the deals underperformed. So it's a business that looked like nothing could go wrong in, which is enterprise software. And it turns out, and funny, and people would have said, if something does go wrong, it would be, oh my God, you way overlevered it. They didn't way overlevered it, they just way overpaid for it. Right? That's the important insight that I think is missed, right? Pluralsight was both, right? Vista apparently lost 2 billion, but it was very levered, right? This is not heavily levered, but they can't afford the 300 million of debt service, or it's not worth servicing the 300 million, right? You're right. Actually, that's the thing, because I'd say, relative to the, and I wasn't precise here, in terms of the transaction size, most of the, most of the consideration was equity. So in that sense, it wasn't overlevered. But relative to the size of the company, I think the medallion was doing a billion. You can't service, this is it, you can't service 2 billion plus of debt on a 1 billion low growth company with a pre-AI story that has to transform to AI. You simply can't, and that's the big scary aha across all these other companies, right? It used to be the only, you'd be, ah, you muddle along, you do 10% operating income, service the debt at low interest rates, and refinance it, right? You don't have a chance to do that now. There's nothing good about this, because they don't have an AI story. They'd have to invest a lot to get one, because this is a, Medallia, stepping back, is a measuring customer engagement, customer happiness, survey business. It's not a major system of record like ERP. You can, it's fairly easy to transition to a next generation product, and you can totally see a whole bunch of AI first, very much better products in the space. We have an investment in Onwrap. It's a small company that has customer analysis of customer sentiment. There's a whole bunch of much, and I don't push our own product, there's a whole bunch of way better AI first products in this space. So they're looking at an asset that just doesn't have a story that's relevant. It's a full rewrite to change it, and it's just too hard. And this is a full write down, and that's not what this business is meant to be. I mean, that sales quota attainment was 21% reportedly. Yeah. I mean, I think the other problem with Medallia, and I'm not sure it's true of all the ones that are at risk. There's some big ones at risk. Coupa, New Relic, Anaplan, even Zendesk, Avalara, Smartsheet. They all look like they may not be able to fully repay their debt. But my limited understanding of the problem with Medallia, it's just it's one of the ones that CIOs want to reduce. Correct. It's just that simple. It's not even whether it's a system of record. That's an ultimate threat. But why it's already struggling to even retain 100% of its revenue is you sit around the room. It's one that's under discussed is the amount of vendor consolidation that's occurring at the same time as AI growth. You know, whether you look at Gartner's numbers, 30 to 50% of AI dollars are coming from consolidation. Medallia is a top target. Do we really need that half million dollar a year dated survey product? Did we really learn that much from it, guys? No. So it gets cut before you cut before you cut your Workday or Salesforce, right? Agreed. It's just prioritizations. I think for venture, the question is and Rory would be the expert here. Sorry, Harry, you're the boss. So that does it matter? And what I mean is, okay, so Tom O'Bravo is going to take a $5 billion hit here on, I don't know, $20 billion fund, right? That's not expected outside of the bound, but it happened, right? Even if all of these died, Medallia, Proofpoint, even Qualtrics, Alteryx, Cornerstone appears to be potentially going under. Coupa, New Relic, Anaplan, does it matter? Because we got to just move on into the AI age. Does it really matter? It matters a bunch of different dimensions. But and, you know, I'm sure I'll say it to save Cornerstone ringing and yelling. Don't say anyone's going under because that pulls you into saying things that may or may not be multiple term loans underperforming. Apparently, that's exactly they're already underperforming the loan. It's not a great sign, right? Yeah. I mean, look, the horsemen of the apocalypse are, first of all, the debt starts trading well below par. And then the second thing is the debt starts doing payment in kind and activating the toggles that activate when you need more time. And then when the refinancing cliff happens, that's when you face the music.

SPEAKER_02

[SPEAKER_01] bunch of different dimensions. But I'm sure I'll say it to save Cornerstone ringing and yelling. Don't say anyone's going under because that pulls you into saying things that may or may not be multiple term loans underperforming. Apparently, that's exactly they're already underperforming the loan. It's not a great sign, right? Yeah. I mean, look, the horsemen of the apocalypse are, first of all, the debt starts trading well below par. And then the second thing is the debt starts doing payment in kind and activating the toggles that activate when you need more time. And then when the refinancing cliff happens, that's when you face the music. So that's the movie. And I'm not commenting on any of those comments. But you're right, Jason, every one of them in the category of highly levered 2021 deals, which means high absolute price. So

SPEAKER_02

[SPEAKER_00] again, back to my comment, even if the equity versus debt mix was fairly unaggressive, the debt has a percentage of current revenue, which is what you got to look at now, because the evaluation you paid in 21 is irrelevant. The debt as a percentage of current revenue was probably pretty high. And you're right. Does it matter if half of these go? I think it matters in three ways, right? A bunch of different ways, actually. First is a lot of LPs are going to take a lot of losses if this happens. And we share LPs. This looked like the other part of a balanced private portfolio. And PE was always, this is the safe part of the business and venture. We always said was risky, which is why you had to have the better return to justify the pain. Right. And now if the safe part of the business takes some significant hits, it definitely is going to reduce the appetite for risk. Now it may well be that—

SPEAKER_02

[SPEAKER_00] But just to challenge that, is that true? And the reason I only ask the question from ignorance. For example, yeah. Most of the LPs I talked to pre-boom, AI boom, were like, well, we're expecting that 2021 funds are going to perform terribly. We've just got to move on. OK, they were terrible investments. The LPs I talked to be like, we just got to give them a mulligan on the 2021 fund. It's done. It's time to move on or we got to quit the asset class. I think a lot of LPs had internalized that 21 vintage was a tough venture vintage, right? Typically smaller dollars of risk, right? I think the mental model was, but the PE guys in return for never giving me that 4X, 5X upside, they've been consistent 2X earners all the time. And now it's one thing when your speculative early stage seed fund blows up. It's quite another thing when your safest house $500 million commit to mega PE fund A, B, or C, ends up with a subpar performance, right? And there's a lot of co-investments in there. So I think if a bunch of these names that you articulated, Jason, do lose money, it'll be significant. It won't be fatal, but it will be significant. And in general, I've observed with people, including myself, that you can seem calm and phlegmatic about the prospect of loss, but when it actually happens, it hurts, right? So I do think there will be some element of loss there. And then the other thing, just to put it out there, is there goes one of our exit routes. I mean, there's three

SPEAKER_02

[SPEAKER_00] Jason Gleisner- Well, that's for sure. That's the biggest impact, right? There it goes, right?

SPEAKER_02

Jason Gleisner- Yeah. I mean, you can wander around the Thoma Bravo all you like and say, and yeah, they'll say they're still doing deals and they are, but the bar is going to be much higher because the automatic, you can't build a company big enough to go public, strategics don't care. So you can sell this thing for 3X revenues to fill in the PE from, that's not going to be true going forward, right? And that has significant consequences in particular for your older companies, your 2015 to 2022 companies, where if they don't have an AI story and they're tracking, they don't have a strategic outcome. And if they don't have a strategic outcome or an IPO, what are you going to do with a $100 million revenue company going 10%, even if it has no leverage, even if it's not blowing up from a performance perspective, because the buyer of last resort is no longer in the market. There's no exit. There's no exit.

SPEAKER_01

[SPEAKER_00] Do we only have one exit route left? What's that? Secondaries to each other? [SPEAKER_00] I missed the route. What's the route? I think there's no exit. [SPEAKER_00] It's selling to a strategic incumbent. Sell to Google, sell to Nvidia. [SPEAKER_00] But they don't have, but here's the thing. They don't have the appetite. PE is a much better buyer for most, at least B2B plays. The volume isn't there at these guys. And more importantly, what they want is very specific. It's very specific. You can't count on anything. I mean,

SPEAKER_01

I can tell you when I was a VP at Adobe, you would say, oh, Adobe should buy these companies. It's the perfect fit. I'd be in the meetings. They never even heard of that company. And it didn't matter if you had a buddy, unless your buddy was shot new, it didn't matter. They didn't care, right? It's more narrow than you would ever imagine. It's narrower than you'd ever imagine. What is the exit funnel of the future? I think it's really straight. I think, you're exactly, first of all, you're exactly right, Harry. It's like the IPO has not gone away. They just have to be big. The strategics haven't gone away. They just have to be super targeted. And the PEs have gone away, except at very low prices. What it says to us is, you know, our perspective is, and this is contrary to someone that received wisdom out there, at the stage all of us are investing at, which even though it's slightly different between us, all to a rounding error is early. And I now define early as anything before you can squint and see an IPO, which is now $400 million minimum. I mean, your portfolio construction has to reflect the reality that we call it internally fewer but bigger winners, right? Instead of having a bunch of companies exit early, you're going to have a bunch of companies taper out, maybe get so-so exits. And then the one that goes the distance and gets to $400 million in revenue could have an even bigger outcome than you've seen before. It's the corollary to the statement that we're having some of the biggest exits we've ever seen. And that's true. Both things are true together. The exits that you're going to have now are going to be huge. There's going to be a lot less of them. And therefore,

SPEAKER_01

[SPEAKER_02] which is now $400 million minimum. Your portfolio construction has to reflect the reality that we call it internally fewer but bigger winners, right? Instead of having a bunch of companies exit early, you're going to have a bunch of companies taper out, maybe get so-so exits. And

SPEAKER_01

then the one that goes the distance and gets to $400 million in revenue could have an even bigger outcome than you've seen before. It's the corollary to the statement that we're having some of the biggest exits we've ever seen. And that's true. Both things are true together. The exits that you're going to have now are going to be huge. There's going to be a lot less of them. And therefore, from a portfolio construction at the early stage, early broadly defined, you just have to have a higher end count because your probability of getting one right is lower. Now, at the late stage, and by late stage, I now mean when you're investing in companies that could already be public,

SPEAKER_01

[SPEAKER_00] right? Above $400 million, right? Then you don't have that risk, that risk, and it won't make public scale, right? Because you're already at public. There's many things that can go wrong with Stripe investment, but it's not going to fail to be big enough to go public, right? So therefore, at that stage, you see this massive concentration because there's only a small number of companies big enough, right? So that's why you really... There are two venture businesses now. There's the, as I say, early, which I think, pick a number below $100 million ARR, where it's have a pretty diversified set of, except it's fewer but bigger winners and have diversification. And then there's late, where it's Thrive puts $3 billion in company A, $2 billion in company B. But as I think one of the guests on your show said from Thrive, partially it's easy because there's only 40 names you even have to think about. It's just a different business, right? Because the number of places where you can park a building is few and far between, right? And they're both sides of the same coin.

SPEAKER_01

[SPEAKER_02] The business has totally changed. I remember when I started the business in the 90s, there were years where there are 300 IPOs a year. Because what were the valuations? [SPEAKER_02] We used to have IPOs 50, 100, 250, 300. It used to be basically the Series C. That's Harry's average A round right there. I know. The point is this. The public markets had an appetite to be part of the IPO process by a process of regulation and a whole bunch of other reasons. And that's no longer the case. And so the trend, which I thought would flatten out in the kind of 2015, 2020 level has even further accentuated. But yes, it's a different game.

SPEAKER_01

[SPEAKER_02] I literally had this discussion at a board meeting the other week with a company that just crossed 100 million. And I'm saying, great. And you're cash flow positive. You're in control of your destiny. [SPEAKER_00] Yeah, you're in control of your destiny. [SPEAKER_00] Let's be clear, though. To achieve your outcome in today's market, you need to hit a billion in revenue, probably growing 40%. And the room went silent, okay? Because 400 million growing 30% is not good enough, okay? You can go, maybe you can go public. You'll get it done.

SPEAKER_01

[SPEAKER_00] Yeah, but they're all failed. The Navon, Figma, SailPoint, Netscope. They're all broken, crappy IPOs. I'm not saying they're crappy companies. They're great companies. But the IPOs are crap.

SPEAKER_01

[SPEAKER_00] So the bar has gone up even further since the IPO. And there was just no answer. And so one of the things I think is going to happen is unless Tom O'Bravo decides these are all AI enhanced winners it wants to buy in Vista, which could happen. Actually, we could talk about it. I don't want to spend too much time. It could happen. They could come back into the market for a variety of reasons. If they don't and the barred IPO is a billion growing 40%, I think what's going to happen more is they're just going to give the company to their friends, CEOs, founders. Okay, and what's going to happen is let's say I'm at 100 million in revenue. And my best friend at my peer, he's my best CEO. We're great together. He's at 200. Okay, we're both growing 40%. Okay,

SPEAKER_01

[SPEAKER_02] I'm done after 10 years. It's not that I don't care, but I don't see any path to that IPO. I have not gotten an M&A offer from Google. Harry said it would come. I've never gotten an offer from Google. I used to get P calls. I haven't gotten a P call in three years and I don't see it anymore. [SPEAKER_00] So I'm giving the keys to Rory and I'm going to give a third of my company. Right. Because I don't see any exit and the founder gets out. Right. The emotional weight, the heaviness, the VCs,

SPEAKER_01

I guess, get to roll over this into a fake company where the valuations line up. But no one really gets anywhere. Right. There's no distributions to the LPs. You haven't achieved critical mass. But this is a micro trend that I think is going to accelerate this year as founders giving the keys to their friends, not completely quitting eight months after an accelerator that didn't work out. But I mean, it's just I'm at 40 million, 50 million, 20 million, 100 million. I'm not going to get there, guys. So Harry, here's let's merge our companies. I don't know if CODA or what's Grammarly is taking any more mergers. So I'm giving company to my buddy, Harry. It sounds like I'm kidding, but I think we're going to see this happen all the time is give the keys to my friend that's bigger and better than me. Just give the keys away. I think it will be part of the overall process because look, there's a huge amount. I mean, there's just a huge amount of rationalization that's got to happen because look, these numbers are big enough. I mean, if the total privately held FMV is plus or minus 6 trillion, and if the big three or four and the other guys who can comfortably get out is three or four trillion, then the world of everyone else is two or three trillion bucks. Right. Let me tell you, no one's going to just walk away from two or three trillion bucks, but at the same time, it's obvious. I mean, it's not obvious what has to happen. And capitalism works. People are going to come up with solutions. But Jason, you're right. It's going to be some guy who's a mid-career operator who's willing to take the pain is going to say, I got this. I'll take these five software companies all broadly speaking in the systems management space. We'll put them together. I'll run them like a hard ass. We'll get to 20% growth, 30% EBITDA, and just compound our way because

SPEAKER_01

Right. Let me tell you, no one's going to just walk away from two or three trillion bucks, but at the same time, it's obvious. I mean, it's not obvious what has to happen. And capitalism works. People are going to come up with solutions. But Jason, you're right. It's going to be some guy who's a mid-career operator who's willing to take the pain is going to say, I got this. I'll take these five software companies all broadly speaking in the systems management space. We'll put them together. I'll run them hard. We'll get to 20% growth, 30% EBITDA, and just compound our way because I'm a mid-market manager. This is a chance for me to make 50 million bucks as the CEO. We won't have a ton of stock-based comp because only me and five other people are getting stock. And there'll be a whole bunch of tough, hard acts that will happen because people aren't just going to say, okay, you caught me. It's two trillion. I don't want it. I'm not going to walk away from our older companies. We have value there. My LPs have value. And frankly, I have value. But you're right. Jason, there's going to be a fair amount of industrial, non-glamorous work involved in converting that stuff into free cash flow or to distributed cash flow.

SPEAKER_01

Jason Vale Before we move to venture, just final thing on this. This is not exclusive to Toma. You can go from Francisco to Vista to EQT. Everyone's got theirs. So genuine question, what happens to this as an asset class, as a cohort of funds? Do they just raise the same size funds and inshallah we move on? Do they move away completely?

SPEAKER_01

Jason Vale My rule of thumb is this. Whenever something looks incredibly easy and it looks like it always works and everyone who does it make money and everyone says that everyone who does it makes money and it becomes the conventional wisdom that everyone's going to make money, it's going to blow up in your fucking face. Right? And that's what happened in PE. It was like, well, you're going to make two X regardless. So whatever. And then let's talk beyond that. Right? And it's going to happen in venture too. When you get whenever someone says you can't lose, you're just about to lose money. By the way, the fact that you had 20 names all doing the same thing with exactly the same strategy, that was probably a clue. And we're pointed out in venture to Tomo Bravo and Vista in particular. We're all in on AI enhanced B2B. OK, so in my own portfolio, I've only seen one soft offer this year. OK, but it was from a PE firm that was exactly that startup at scale that is not growing at astronomic rates, but growing at really good rates. That is clearly AI enhanced in the AI category got what I would say a decent soft offer. OK, so those deals are happening not at the rate they were in 2021 or even 2023. That's the current seems like the current playbook is near as I can see it. So they're reviving that play and they've been clear. Orlando Bravo has been clear that's what he sees. That's the playbook today. The meta question is the whole B2B thesis broken because these it's just not a stable category of software anymore. Right. And I think my sense is no matter everyone's talking to their game to Rory's to use Rory's language, I think they're kicking the can on this issue because I don't think most of these PE firms have a reason to exist if B2B software is stable. Now, if it just means they need to evolve to a new category of B2B software, no problem. Raise another 10, 20, 30 billion. And if these AI enhanced candidates exist, right, that are affordable, you just buy them and you do the same thing. Right. But if it's not to use the trite term of durable, but there is an argument the classic B2B market is just broken. There is an argument that even the high flyers may not the ones, you know, the one that Kleiner just did in a billion for voice agents for plumbers or Lagor or Harvey. We may find they're not durable. I'm not saying that the answer is if they're not durable, then the whole classic PE model is broken. Right. This massive amount of software. And that's the crack in the debt market was it doesn't appear durable. So I don't know. But there is there's a chance it's all broken because AI has rendered it all non durable. That would be what the Yahoos that think Claude destroys everything would say is none of it's durable anymore. Doesn't matter if you're great or grinding or struggling. Doesn't matter if you're Lagorra or Medallia, none of it's durable. It's a great point, Jason, because what in that world and I'm not sure I believe in that world, but you're right, people have deposited if the AI first venture backed startups that exist adjacent to the foundation models can't make it with equity dollars only, then they sure as hell can't make it with debt on top. Right. So what you're saying is there would just simply be no compelling investment opportunities for PE debt type firms. It's the most depressing realization ever. Exit markets have gone. B2B markets have gone. I do think that the exit narrowing is a little depressing. OK, and I think it will solve itself. I will tell you, I beat myself up. Rory and I first met when I sold my last startup and the post I wrote just a couple of months later was nothing to do with the timing. It was an okay decision at the time. OK, but I didn't know about this PE market. I never would have sold at a million in revenue if I had known PE would come to the rescue and buy me for two or three times more a couple of years when I had 140% NRR and was profitable. But it didn't. It started just a couple of months later and a friend of mine called me up and he said, hey, Jason, I just got an offer to buy my company for 100 million. I'm like, this is just no way. I love you. Your little bootstrap company. Who the hell is going to buy you? And it was the start of the PE wave. And so it opened up this wonderful era to Rory's point where we had plan B's. Everyone had a plan B, right, for your investment. And I do think it is depressing. I think it'll work itself out. The big exits will solve it, right? The whizzes and the I mean, we thought whizz was big. Now we have cursor. Now I'm going to win the bet of $100 billion exit in the next year. Right. So in the aggregate, it'll work itself out. But I do think for the average person, it's a little depressing. It's a little depressing that there may be no exit for so many companies that there used to be exits for. I think it's stressful as

SPEAKER_01

[SPEAKER_00] era to Rory's point where we had plan B's. Everyone had a plan B, right, for your investment.

SPEAKER_01

[SPEAKER_00] And I do think it is depressing. I think it'll work itself out. The big exits will solve it, right? The whizzes and I mean, we thought whizz was big. Now we have cursor. Now I'm going to win the bet of $100 billion exit in the next year. Right. So in the aggregate, it'll work itself out. But I do think for the average person, it's a little depressing. It's a little depressing that there may be no exit for so many companies that there used to be exits for. I think it's stressful as heck. It was stressful for me just before the PE wave came in. I was, God, I wish I hadn't sold. Just for this reason, only for PE, I wish I hadn't sold. It's entirely plausible in a world of super big exits that 10 super big exits cover the entire nut from the LP perspective, such that it's still a good business. And they literally nobody cares about the fact that the other 96 companies wither off on the vine, right? And the 96 other VCs wither off on the vine. This is why many of the big firms are trying to get bigger because they see this and they go, if there's only a small number of slots, and if you're in those slots, you make a billion dollars. And if you're not in those slots, you make zero, then do what it takes to be in those slots. I totally get the logic. It's all Darwinian. It's firms trying to adapt to that reality. I don't think it's quite as stark as that, but it is definitely on that trend line and you have to adapt to it.

SPEAKER_01

OK, guys, we're going to do privates. There's a lot in privates. You guys, you choose. Maybe choose one with a positive slant. Sorry, sorry. What are the choices? There's Thrive. There's Chamath's numbers. There's Gary Tan on bullshit ARR. There's SBF, the greatest ambassador of our generation. [SPEAKER_02] I think the Gary Tan one is worth a quick discussion. We've hit it before. But I appreciated that he called out these issues. Yes. Can you provide some context, Jason, just for those that missed it? Well, I think it was started by a guy at this legal tech startup. What's what are the... Spell book.

SPEAKER_01

[SPEAKER_00] Spell book who pointed out how there's a lot of bullshit ARR. OK. And for example, I've got one investment I made that's north of nine figures in revenue. I get three different ARR numbers each month. Three different definitions. I can't at least they're trying to be honest. Right. What's like core software ARR, what software plus variable usage and what's like committed revenue. OK. And there's a massive delta between these. And the point was, it's so what startups are saying they're doing in classic real revenue, gap revenue, certainly versus what a non-gap number has grown so great it borders on fraud was the initial point. OK. And rather than say no big deal, who cares at the seed level like YC, who cares at the YC that it's so early? Gary's, no, man, be truthful and precise about your revenue. Be truthful. And he laid out five points which hit most of the issues.

SPEAKER_01

[SPEAKER_00] And if you go into those news, the ironic thing to me is even I felt by the time I got through Gary's whole memo, I didn't even understand what revenue meant anymore. It was so correct, but also so confusing the way we've rebooted revenue. And if you're I don't know what you guys have seen, but I've you know, everyone I got burned once on this in the old days. Right. But everyone's been burned on this. That's done a deal quickly. And I've personally found if it's mostly disclosed it's been okay if it's been hidden I ain't gonna make any money I ain't gonna make any money when this, which is to Gary's point and obviously frankly the fact that he had to say it probably suggested it is rampant at the seed stage or he wouldn't have to say it. It's rampant. That's my experience is that it's rampant as well. That people radically, how can everybody get to 3 million in revenue by the end of demo day? Maybe everyone can't. Maybe only a couple can. Yeah, I think it was simultaneously really good and really shrewd, right? I'll talk about the second because the really good comment is pretty obvious. It's necessary. There's you're right. There's this ambiguity about revenue. Young founders are overstating things and at best suckering people into doing investments they shouldn't do and at worst ending up in litigation and potential fraud allegations down the line if they misstate things. So it behooves some guidance. It's really good and helpful and I predict if it sticks the shorthand version of the seed stage will be, does this conform to the Y Combinator revenue guidelines? Right? So that's why it's a good thing. It needed to be done. Let me tell you what's a shrewd thing. Right. Because if you own a market you want to make sure that that trust in the market remains. It's a little like De Beers has policed the diamond market for years. You want to know that people can transact in complete confidence. Right. Y Combinator has a dominant market share in the seed market, right? 25 percent. It erodes the value of their product if a whole bunch of people start thinking the numbers are bullshit, right? So not only was it a good thing, it was a shrewd thing because it's now basically saying, if you look at these deals at the margin, you know, you want to say you've got the Y Combinator here's how things are calculated correctly, seal of approval. So I think, again, it's good and shrewd and as such it's going to stick. Some version of it's going to stick just like it's a good point. If they're a market maker so you want to have this level of transparency. If one in 20 NYSE stocks lied about the revenue at some point, the NYSE would say we need to fix this thing here. People, let's get the auditors in a room and that's just what happened here on the slightly other end of this venture spectrum. Thrive. Eternal. Josh just continuously bringing out new products and new packages for his investors. Thrive Eternal. I didn't want to say this but it looks remarkably similar to Sequoia's Evergreen fund in terms of the whole periods but I think I actually think, sorry, keep going a second. I think you misread it because I understand that the verbiage looked the same, whole companies forever, but and you were saying, is this an example? Because, again, for context, folks, in late 21, Sequoia correctly said over the long term our very best companies continue to compounding. If you held all the companies, even the bad ones, the good ones would have swamped it because you'd have

SPEAKER_01

Venture Spectrum Thrive Eternal Josh just continuously bringing out new products and new packages for his investors Thrive Eternal. I didn't want to say this but it looks remarkably similar to Sequoia's Evergreen Fund in terms of the whole periods but I think I actually think sorry keep going a second I think you misread it because I understand that the verbiage looked the same whole companies forever but and you were saying is this an example because again for context folks in late 21 Sequoia correctly said over the long term our very best companies continue to compounding. If you held all the companies even the bad ones the good ones would have swamped it because you'd have Apple you'd have Cisco and the analysis is entirely correct and over and it's like the old analysis on any equity return business over any 20-year rolling return it's positive over 10 most are positive over five some are positive and every once in a while over one it blows up in your face and unfortunately Sequoia opted to do the eternal hold every stock forever in that one year where it blew up in your face right so they felt a little foolish about that though I think over 10 and 20 years their analysis will still be correct if you build enduring companies yeah even in the public markets the compounding will happen right.

SPEAKER_01

[SPEAKER_00] So that was the Sequoia comment that Harry was referencing.

SPEAKER_01

But I think the Thrive products actually very different if you read the perspectives or at least are the information on it it's much less about holding a public stock forever it's actually it's interesting kind of very marketing and positioning around different kinds of assets that aren't impacted by AI that are going to be eternal it's an entirely different form of investing because I think their first investment is in one of the San Francisco teams I can't remember which one is it is it the Giant I can't remember was it the baseball team or whatever I think it's the Giants yeah again in other words what they're actually it's actually just a totally different product line it's they're making the big picture point that there was a I mean there were assets beyond the digital that are enduring and can't be replaced in any way shape or form by digital because they're right about that there's no amount of automation. It's that stupid people who say oh my god the robots can run faster than people on the half marathon therefore it's over.

SPEAKER_01

[SPEAKER_02] Well as someone pointed out a Toyota Corolla can drive faster than people but we still watch the marathon right. What they're saying is this group of assets is so different than AI that they're enduring long-run media assets and at that level they're correct I don't know if the average venture investor would be a really good buyer of sports assets. Though history would say the Warriors has been a great deal. It's just a totally different. It's a different bet than the Sequoia bet it's a different asset it's a different asset type and you know if their LPs want to do it and they can pull it off the guy's showing great taste good luck to him. It's this is totally off script but you know we do business of sport a sports show where we interview the biggest owners of sports teams in the world.

SPEAKER_01

[SPEAKER_02] The business of sport is dictated largely in Europe at least so I don't want to speak for America but by media rights yeah. If you see the personalization of media whereby everyone gets very independent media that they consume whether it's games TV shows they can customize craft to their own preferences and it impacts slash to Jason's point maims the consumption of sports then you have a significant impact on the digital rights package that teams get that is very very significant and so if you wanted to paint a world where AI changes content consumption patterns that has the ability to significantly maim digital rights for these sports teams which would significantly impact their revenue generating ability that would be the bear case.

SPEAKER_01

You're right in the case of sport you're right you have the individual personal journey and you're right you're seeing a bunch of that in at the margin in sport. You know you're seeing it even at the high school and college level where the athlete's personal journey is a large part of it and they can monetize that and in fact the way Lionel Messi monetized being Lionel Messi when he came to America is an example of that he extracted the value which by definition means that value that the sports team owner didn't get because he was able to get it so I do hear your point at the margin. I mean I still think you know you're gonna if you own the entity that's playing the game you know you do have the marquee asset and especially in the US the NFL economics have been widely compared the US in fact has been even more successful at creating sports money printing machines than even in Europe.

SPEAKER_01

[SPEAKER_02] But so I do hear you Harry mind you I will say something I said earlier you do go back to that comment I made earlier which is when something is so obvious that everyone thinks it can't lose that's just a time when you do and sports has been a home run win for 20 years maybe 30 years right it's been yeah it's been the one irreplaceable asset and so I'll give you one fun example but when Ryan Smith sold Qualtrics I think he made about a billion dollars after 20 years or so and I believe that billion most of it went back into the Jazz and it has quadrupled.

SPEAKER_01

[SPEAKER_02] Yep absolutely sports teams go up quadrupled now he needed the billion of course to lead that takeover but you know he's made he's up three billion on the Jazz or something like that versus the 20 years to get there.

SPEAKER_01

This is a very it's a super US centric perspective sports teams do not go up Tottenham are on the brink of disaster I want to just get very because I can comment on that actually sports teams in Europe do go up in a sense of one key differences yeah some of the best worldwide assets are some of the European sports teams one key difference though in in England in particular you have the concept of relegation which are American friends mightn't understand which means in the NFL you're always in the NFL and no matter what happens you in the NFL same thing in basketball in in English soccer if you're the bottom three teams in the bottom of the division of Premier League you get kicked down one right and your economics go to and that's how he pointed out Paul Tottenham look like they're going to be relegated Leicester's been relegated twice so but not only that we're seeing this with Clear Lake's ownership of Chelsea whereby Clear Lake's LPs this is publicly reported have been significantly concerned about the amount of time no because and they're not being relegated to the point of actually impact on enterprise value Chelsea I'm going to leave that for a second because I actually think the more interesting point going back to the relegation companies it is worth noting that Europe the alleged socialist capital of the world has a far more performance oriented sports culture than America where it's a nasty little oligopoly I mean can the NFL and all the American things have been constructed partly because they're the only three businesses that have an exemption from antitrust so they're all constructed as nasty little oligopolies where there's no penalty for failure which is the definition of socialism and Europe you know in general from an American perspective which is meant to be the home of molly coddling socialist wimps in fact has a brutally

SPEAKER_01

to the point of actually impact on enterprise value chelsea i'm going to leave that for a second because i actually think the more interesting point going back to the relegation companies it is worth noting that europe the alleged socialist capital of the world has a far more performance oriented sports culture than america where it's a nasty little oligopoly. The nfl and all the american things have been constructed partly because they're the only three businesses that have an exemption from antitrust so they're all constructed as nasty little oligopolies where there's no penalty for failure which is the definition of socialism. In europe you know in general from an american perspective which is meant to be the home of mollycoddling socialist wimps in fact has a brutally accountable soccer culture whereby if you're the bottom of your league you go down and your revenue goes down 5x right. I actually think it's one of the best things about the english premier league and the english league system in general it's that there's real penalties for failure and wrexham could go up 100 aligned rory yeah of course it's worth pointing out it's the only part of europe that has that accountability and we have it everywhere else but it shows it shows what you think important harry although i have said i don't think anywhere hates billionaires as much as the us right now maybe norway does but i wouldn't say you're exactly pro-capitalism are you yeah that's a lot of yeah okay uh jason you can choose one more rory delegates decision making to us on topics maybe maybe it may be a happier one we've a happier one or just anyone i do wonder i think the last one that would be interesting and then the next show will be all happy all good times the one maybe that is mixed at the end but maybe it is good times i just think it's worth touching on is robin hood ventures one and the angel list usvc fund are these good bad ugly? Should i put a couple hundred grand into each of them? Can i put them on the saster fund website if i do the underlying entities are these good investments crappy or are these just play investments for a token amount of your portfolio and it just doesn't matter? I mean i think it's catering to a need which is that public investors have been denied access to these products and want to do it right so it's a way to say i got an investment in spacex a tropic and open ai you know. So first of all at the level of symbolic i think they'll get some action right and as proof of that i felt this morning i put the literally the lowest amount possible in us the vc product so i am now an individual investor in entropic spacex and open ai and even as we speak i'm adding the logos to our website right. Okay we have a disclosure at the start of each show rory is an investor in all of the companies discussed on today's 20 vc my 500 bucks work for me what what's the minimum 500 bucks you do cheapskate you put in 500 bucks i just thought i actually genuinely wanted to process through the thing this morning because in anticipation of this i try and use the products.

SPEAKER_01

[SPEAKER_00] By the way wonderfully easy flow took 10 seconds done and it uses plaid which we can talk about in a second but the serious comment is are they worth doing? I mean to around i think 30 40 of it is those three investments it boils down to if you think those investments are good at 1.8 for sp whatever it is 1.75 for spacex i don't know what the stated value is because for 500 bucks i'm not doing the analysis would you put one percent of your network in there which is kind of what the level of diversity i mean if you step back i've been looking at this if the three if the big three go public at around you know three or four billion dollars it's about a little under five percent of the sp right so if you were say if you're 60 equities 40 bonds and you wanted to get that action a little earlier putting plus or minus one percent of your net worth in a vehicle that offered those things privately would be kind of logically correct which is different than saying it is correct because i haven't looked at the valuations before i put one percent of my net worth in there i'd want to do a lot more analysis but that's the product they're offering if you think those valuations are correct you could you know it's a little like the logic for doing blockchain you know do you put one percent of your assets in bitcoin do you put one percent of your assets in these high mark because these high market cap companies right i personally would be angsty about the valuations on aggregate but before i'd put one percent of my net worth but the world i get why the product exists and it's probably going to do reasonably well let me ask a question that i'm ignorant on harry sorry you're the boss but there was some controversy on twitter so angel list charges 3.61 a year to manage this fund right i'm confused on the one hand for a mutual fund that's going to destroy your returns right if you charge me 3.6 a year to manage the sp not only is it expensive but over 20 years i'll make it just destroys your capital right their point was our cost to deliver this product this complicated venture product and managing these funds is actually as high as it is 3.61 in fact we're subsidizing that because it's not even 3.6 so is this a high load on a mutual fund or a cheap way to get into the underlying managers and underlying funds?

SPEAKER_01

Well i think what it proves is that it's the argument for companies going public because first of all you're right if these companies were public you know to look at the system as a whole the companies would have to pay 5 10 million a year more kind of compliance costs but individual virtues could buy in for the in mutual funds that are paying 50 bips or less versus 380 bips so it would be a lot cheaper right. You know looking at on the other hand from the venture side as a private asset 3.81 is high but every venture let he who is without sin cast the first stone the average venture investor is charging two percent and then 20 of the profits which typically turns into if you're successful a four or five percent drag between gross and net right so it would be a real it would be hypocritical of me to say 3.8 is awful if we're successful our fee drag should be around four percent including carry i guess the counter argument you're better than me the counter argument might be for a it's a fund of funds so it's expensive for a fund to fund right i don't yes but well the only reason you can pay in the long term two percent to vcs and 20 of the profit is because the gross returns have to be high enough 25 plus that the net return is still you know 20 which is so far above the ibbots and small cop return of 11 12 that it's worth doing right.

SPEAKER_01

[SPEAKER_02] If your gross return is only 10 15 and you put four percent fees on top of it then you would have been far better off in the public markets so the question is do these companies still have 15 compounding returns from here right and look the bigger you are and the closer you get to the public Counter argument might be for it's a fund of funds so it's expensive for a fund to fund right.

SPEAKER_01

I don't, yes but well the only reason you can pay in the long term two percent to VCs and 20 percent of the profit is because the gross returns have to be high enough, 25 plus, that the net return is still 20 percent, which is so far above the iBbots and small cap return of 11-12 percent that it's worth doing right. If your gross return is only 10-15 percent and you put four percent fees on top of it then you would have been far better off in the public markets. [SPEAKER_02] So the question is do these companies still have 15 percent compounding returns from here. Look, the bigger you are and the closer you get to the public markets the harder it gets.

SPEAKER_01

[SPEAKER_00] Now it has to be said the companies that have proved every sentence that I've just uttered to be incorrect have been Anthropic and OpenAI where you've had 10x returns at 60 billion in the case of Anthropic. So in truth, that's why these products are taking off. There are some companies that even at 60 billion have demonstrated wildly great returns over an entire business cycle across all the return across all the investments of that size. Will it return 10x? I doubt it. The lesson is Rory, to your point, who made money from Medallia? Ultimate ones, Sequoia baby. Who makes money from Anthropic with a 17 and a half percent carry and a one percent upfront fee? Goldman B, Goldman or B Sequoia is the takeaway? Yes. You know what, a related lesson from yeah, Sequoia owned like 40 percent of Medallia right. It was basically bootstrapped right. I think a reminder lesson is, and you don't want this to be true, but when a top fund doesn't go all in on an investment it's such a bad signal. Not only is it bad if the tier, if the if Andreessen does your seed and doesn't lead your A, that's the classic discussion we could have done on 20 VC in 2015 right. But the subtle one is when you do the growth round, when you do the billion dollar round, when you do whatever, and you don't see the big fund lean in for the super pro rata, I just think it's a terrible sign in today's world. I know people are going to challenge it but it's my experience. If they've got the billions to deploy they're going to put it into your winners. And if they don't, if they don't, they're going to stick you in the side of your chest with an elbow to get super pro rata. It's a bad sign. I'm going to be honest, I just couldn't take for the last few weeks it's been gnawing at me so much my Figma and Duolingo positions. I was like you know what, I've just had enough. I've had enough. After this conversation I'm selling them all. While you guys were doing my Skydio I just sold Figma, 40 down. You know the agents don't need either of them Harry. No way to run your money but okay, the agents don't need. I do. I'm up 24 percent Rory. You know I agree but it just seems yeah okay. Do you know Roy the big lesson I have? Don't wait for it to come up, just sell it and redeploy. I agree with that. I think that is very true as a part. Yes, and it's why I've been so long waiting for Figma and Duo to come back. Don't just sell it and put it back. It is by the way as a random comment, it is the big difference between public investing and private investing. You know you do as a private investor, you end up especially when you're on the board and you're involved, you end up dismantled. We're working this out together. And the whole beauty of public companies is no dude, you're working this out, I'm leaving because I don't know how you're going to work it out right. And it's just a different mentality. And it's why I think, you know, it's one of the things why I think venture investors can be mediocre public investors. And I talk to the best. I remember talking to Brad from Altimeter. You can tell that's a guy very dialed into every position has an exit price and it's a discipline that you need as a public investor. So maybe maybe I cancel my comment. You are, if you don't have the way, my version of your thesis is if you don't have an active reason for holding the stock and a belief that it can outperform the S&P 500, which you can get access to for 50-20 bips, then why are you holding it? If you don't know why you're holding it you shouldn't be holding it.

SPEAKER_01

[SPEAKER_00] Yeah, so yes, you're probably right. [SPEAKER_00] Jason, sell me this pen on Figma. Make, honestly I'm just, I'm just I don't know that our agents will work with Figma because they have to but they don't need it right. They don't need it forever right. They definitely don't need Duolingo. So I can't. I want to see the turnaround story for the agentic Figma. I do want to see it. I'm just, you know, it's getting, it's May. I'm just going to leave on the Jeff Bezos's Project Prometheus establishes a high lab in London Kings Cross baby. We're back boys.

SPEAKER_01

Thank you as always a wonderfully uplifting episode. Every week you have to have the feel good story from 20VC. I'm voting for a new edition of the show. I think we should. That's my point. I think they're using literally, I saw a number like it's 50 to 100 times more expensive in terms of tokens to serve an agent than a JSON. Actually, probably 10 times than a JSON 100 times than a Rory because I'm not- Well, it's because it runs constantly if you let it. Exactly. So the good news, and that's why you don't want to get caught lost in the who's winning, who's losing on a weekly, monthly basis. The good news and the reason these guys can all take these

SPEAKER_01

risks is in the short term, the compute equals revenue is not always true if your model's not there, but the big picture trend is over the next, as agents kick off, the demand for compute over the medium term will be there. So it makes sense to lean in, but you should also accept- You're leaning into a thing where there's going to be wide short term swings. There's probably going to be six months period where you're like, I'm an idiot. I don't have enough demand. And then six months later, I'm an idiot. I don't have enough compute. And it's just going to be the journey. I'm an idiot. What's easier to rectify? Is it easier to resell excess compute that you have,

SPEAKER_01

or is it easier to emergency buy compute that you don't? It sounds like it, again, I hadn't thought of it, but the problem is if you're one of the two big guys, you are so much, what are you going to do? Can you imagine it? You open AI, you have half a gig of excess compute, and Tropic is desperate for compute. The hell you sell it to them. You might. You might. You might. You want to buy it? Oh, sure. I mean, it sounds crazy, but like Samsung would build phones and then sell its components to all its direct competitors. Right? Totally. That's fair. I mean, you get Zen about it at some point. We're going to have two divisions. We're going to have

SPEAKER_01

our compute division and our application divisions, and they've got their own P&Ls and... What's more like, remember, you don't have that. The truth is you actually have the compute under a long-term contract, but Amazon, Google, Microsoft, CoreWeaver, Oracle will actually, quote, have the compute. So maybe the way to phrase it is, if foundation model company A can't take their take-or-pay, the hyperscalers will probably take that compute to foundation model company two and say, hey, guys, I got some cheap short-term compute. It's like a sublet. Yeah, just a $10 billion sublet. So yeah, there will be some kind of market,

SPEAKER_01

I mean, as one is ahead and behind. I mean, what we're seeing de facto is that's happening right now at a kind of macro... Remember that whole core weave, the reallocating a data center from company A to company B? That's this going on in real time. Right? People are trying to figure out... Again, remember that forecasting problem I articulated. On top of that, there's a two-year lead time. So it's not like you're forecasting next month's demand. You have to forecast two years out, that 10 times your revenue on CapEx and hope you're right. It makes running an airplane company,

SPEAKER_01

an airline look easy. And it benefits Google. It benefits Google too. Google's the big winner here. Why? Well, first of all, now Anthropic is deeply tied to them, right? So Google wins whether you use Gemini or whether you use Anthropic now, right? We should go back to that. Two, Google has infinite capacity because they're the largest provider of traditional web software. So they have all this capacity for themselves that they can allocate even better than Microsoft. Do I want to give it to my own compute? Do I want to give it to Anthropic? Do I want to give to them? They have the surplus,

SPEAKER_01

to Rory's point, to your point, Harry, that they can route between their customers and themselves and others. They win-win here. They have Gemini, they have Amazon, and they have the capacity and they have the ability to rotate it when they want. And they have the cashflow. They have the cashflow to manage it

SPEAKER_00

all. So Google win-win-win. They definitely have one. And to stick with the more ways to win, comment, we forgot Harry's original question on NVIDIA. Yeah, the last shoe to drop here is both Amazon and Google have chip products they can bundle into the equation. And for context, you know, chip, you know, is GPU spend is roughly 50, 55% of total capex on any build out. So if you're building out a one gig data center and, you know, estimates range 30, $40 billion, 20 billion that is compute. And NVIDIA's gross margins are 70%, which means 14 billion of that per gig is raw profit to NVIDIA.

SPEAKER_00

So if you're sitting there now, you know, that's what Google and Amazon are trying to do, which is substitute that for their chips. Now, Jensen will make the argument as he did on the podcast, dude, it's a mistake. Our chips are better. They have more support. And you got to be in the weeds on that to know the exact answer, especially for specialized use, like Google and Amazon would say that the NVIDIA advantages aren't as good on specialist use, but I wonder myself. But nonetheless, that is what's happening, which is some attempt to bundle. Neither of those two chips, the Google chip

SPEAKER_00

or the Amazon chip are widely available on a standalone basis. So what both of the hyperscalers are doing is effectively bundling their chip with their capital and their equity investment to convince Entropic to continue to run on their products and just take more of the gross margin, arguably with the NVIDIA. So I'm not going to be able to do that. I'm going to be able to do that. But, you know, tech is, there's many examples in tech of substandard bundling products succeeding.

SPEAKER_01

See Microsoft for details. A mini quickfire round. Google hit $4 trillion. NVIDIA is a $5 trillion company for maximum value gain on a per dollar basis. Which one would you invest in today? Okay. Not the question I was expecting. I would probably, I mean, for maximum dollar, it's a, I mean, maximum dollar gain. It's a bad question. I'm not doing my thing again. I think risk adjusted, I would do Google reluctantly because it's, I think if you just wanted the upside, you know, you can paint an NVIDIA is a more single threaded story around raw CapEx demand. But I think risk adjusted, you probably would do Google because even to Jason's point,

SPEAKER_01

the biggest advantage NVIDIA has is if this thing happens, if this one thing happens, which is CapEx explosion, they get it all. The biggest advantage Google, but if it slows down even a little, they're really in a different place. The biggest advantage Google has, it has multiple ways to win. It can win if AI adopts fast. It can win if AI adopts slow. It's kicking off cash flow. It's got a bunch of steady businesses. Provided only one thing can go wrong. Provided ChatGPT does not avoid Google search, which is the mother load of cash. They're golden. So risk adjusted, I'd probably reluctantly buy Google. No, you got to do NVIDIA.

SPEAKER_01

Okay. Because it is, it is despite the fact that, that it obviously, it potentially has reached its, its, its market share ceiling with, with, with Anthropic and deals and others. It's the, it's the best pure play into the AI vector. Agreed. I think we're saying the same thing. Yeah, we are. So you don't want to, you don't want to minimize your risk. Just put it into VTI or bonds. If you want to bet on AI today, because we can't buy Anthropic or OpenAI, just buy NVIDIA. That's how you buy AI today. Just, just buy NVIDIA. Don't even think or spell it. Just buy it. For what it's worth, that's totally fair. And I think if you're just going for max upside,

SPEAKER_01

yes, if you wanted to create your AI upside exposure, it's NVIDIA and then a bunch of other weird things we can talk about another time. Yeah. Don't even buy CoreWeaver, these crazy things. Just go, back the truck up to NVIDIA. And if, if NVIDIA loses AI, AI, AI stumbles, it's okay. I want to be a long only manager. Fuck it. Buy NVIDIA, buy, buy Google. Done. Go home for three years. Seriously. This game is great. I wish a long only seems like the place to be. Yeah. Yeah. Just charge your fees and commissions and just, well, it looks good today. I think NVIDIA looks good this week, boys. Let's buy NVIDIA. And I heard good things about Google. My friends use it. Let's

SPEAKER_00

get started. This show is shit. Yeah. We love Janssen. Go Janssen. Yeah. I mean, look, the data says most managers, I mean, we all know that underperform the index. And then especially if you adjust for beta, they underperform the index. So no, it turns out to be

SPEAKER_01

remarkably hard, Harry, but keep telling yourself that. I think it's because they don't do Google and NVIDIA. I think it's because they try and have a diverse portfolio. Yeah, I agree. Yes.

SPEAKER_00

And when you're not diversified, you're either right or wrong. I mean, yeah, survival bias here, but yes. Yeah. Yeah. Well, look, ARK is down 3.88% this year. We're definitely getting our- Move on. Yeah. Okay. Is there anything else on Anthropic or OpenAI that you want us to discuss? I mean,

SPEAKER_01

there's a couple of things being Mythos, the ads. No. No, we're happy to move on? Yeah. I don't want to be all Anthropic all the time. Right. Let's do it. China blocks Meta's 2 billion acquisition of Manus. This was a surprise. Distributions have been made to investors. The company is a Singaporean company. The people aren't in China. This feels like a regulatory overreach. Well, Benchmark has their money. All right. Who cares? If I own 20% of Manus and got my 400 million out, I would love the boys. I'd want to help get the boys out. Don't get me wrong, but I don't care if I got my money out. I ain't giving

SPEAKER_01

it back. I'm not accepting the service of process. I'm hiding from the service of process provider. I'm keeping my 400 million. I'm taking my 80 million and carry for myself and I'm hiding. Dude, I don't know if you can hide in Woodside from the CCP. It is a real risk, but I ain't giving my money back. If I'm benchmarking France, I ain't giving my money back. I don't want to trivialize it only cause there are humans at the heart of this who are at risk. I don't want to be a risk stuck in China. But I do agree with your assessment. The investors who've gotten their capital out, the chances of them having to or being willing to return that capital

SPEAKER_01

is zero. So when China says they want to unwind the transaction, I actually don't think they're talking about the money as much as... I think the leverage point is over Meta, where they're really saying, you have this technology, we'd like it back. And let me give you a clue. If that had happened to Tesla, where they have a massive car plant in China, they'd be coming to the table right now with the Chinese government and saying, maybe we should unwind this transaction because you've got a lot of leverage over me. From memory, I think if you do a lot of business in China, this ruling is going

SPEAKER_01

to start a discussion. If you don't do a ton of business in China, no one's going to be pursuing the

SPEAKER_02

venture investors. I think that to some extent, it's going to be pushing on Meta. And then obviously, the more human thing is some of those, the team are still based in China and they're not going to be able to get exit visas. I think this process will unwind. What it really is doing is it's less about getting this thing back than it's preventing it from ever happening again. That's the first,

SPEAKER_01

last and only one of these deals that anyone will do, because I just think it's going to be really... Unless literally, before you wire your money as a venture investor, the night before you put everyone in a 737 in Beijing and say, dude, we'll wire the money when you hit Singapore and bring your family. It's just not going to be a thing. So I think China is just sending a very close... And look- I'm sorry, it's all funny. What was that? Meta loses then? Just because they've lost the money, they've paid and they're not

SPEAKER_00

getting the tax. No, but they have the technology other than some of the... They have the technology technology and any of the team that's based in Singapore, they have. I actually think what happens is there'll be some resolution. As I said, I go back, I don't remember how much business Meta does in China, but if they do a lot, they'll have to settle. If they don't do a lot... I think they're bad. I can't even remember. I know Google didn't for the longest time. I just don't care what Meta does in China. Neither subject interests me and the combination interests me less. So, but I think that if they do, they're going to have some... They're going to feel some pressure.

SPEAKER_00

As I said, just like if you were a big US manufacturing company or Tesla, and the Chinese government took this position, you'd have to take it seriously because they'd say otherwise, we're just going to register a 4 billion judgment against you and exercise it against your local

SPEAKER_01

plant. Have a great day. I think it's just a blip. Human issues aside, to Rory's point,

SPEAKER_00

I don't mean to minimize them, right? I would just take my carry and hide. I don't think you can... The service providers will come from China. I think that the... And I don't want to spend too much time on it. I think it will be a minor blip in some upcoming AI war between China and the US that is difficult to fully understand today how this war goes, right? Well, Nvidia is supporting AI to China,

SPEAKER_01

right? Let's do more. That's in their best interest. Others are against it. It's clearly a war at some level, but I'm not smart enough to fully predict where it will go. But this will just be the start of... Not the start, but one of the first expressions beyond this Nvidia chip drama of where this war will go. It's a war. I agree. And I don't love the war word because I think that implies actual violence. But I think you're right because it's funny. You often have to step in the other person's shoes. If you think back, if you're looking at it from China's perspective, there is someone going to

SPEAKER_01

go to prison somewhere, I think in Singapore or the US, for selling Nvidia chips to China in breach of the sanctions, right? And they're probably sitting there going, well, if you won't give us your chips, I'd be damned if we're going to give you our researchers. And it feels a lot more balanced from their perspective. And you evil Westerners are putting this dude in prison and all he tried to do is sell us some black wall chips back off. The sanctions we're exerting on them probably feel problematic to them. Now, I remain on Team USA. I live in Team USA. I'm with Team USA. But just put

SPEAKER_01

yourself in the shoes of the other side and think, well, they're probably sitting there going, we'll show you with Manus like you showed us with Nvidia. All makes sense? Yeah. I mean, it's at least slightly tied to DeepSeek finally raising outside financing at 20 billion, right? Maybe war is the wrong term. I think there's two great battles that will come before this pot ends, right? That are subtle, that we won't hit everyone. This is China versus US in AI is a battle that's happening. And the other is just the social dislocation from AI. It's already happening. I think there'll be more revolts and issues as layoffs happen. I think the California

SPEAKER_01

will pass its billionaire tax and the exodus will continue. I think New York is already pat is just trying to pass its penthouse tax, which is already leading to wars with the Citadel founders and others. So there's going to be this theme of of social unrest and this war with battle with China over AI that won't bubble up each week. But I think at a meta meta nonpolitical level, these are the two big things, I think, that we can ignore in our quest to get rich fast. And we're going to have $3 trillion IPOs. Who cares? Who cares about the little guys when we have $3 trillion IPO care? Who cares? Yeah. But I think that bit at the end sounds mean, Jason,

SPEAKER_00

but I think what you're saying in the rest of it is it turns out that the non trillionaires or non billionaires can see that the billionaires don't care. And you're right. I think the political

SPEAKER_01

climate has shifted. And yes, this is going to be a continuing social drama. It's not the thing

SPEAKER_00

that preoccupies my day because I'm just trying to do my job. But you're right. If you were to zoom out and write a social history of the 2020s in 30 years time, I think you're exactly right. I think the two historians will talk about the revolt against inequality and AI, and they'll talk about China.

SPEAKER_01

I think it's a very good framing. I think those are the two big social slash political framing things here, provided we don't blow up the world. Right. And I think it's interesting because I haven't seen

SPEAKER_00

the polling on the billionaires tax. My rule of thumb used to be California, the electorate is quite sensible. They elect Dems, but they're pretty profoundly right wing at heart, which is what no one ever talks about. Polymarket says mid forties now that it passes. Interesting. Because normally they vote down any tax because they're like, no, we've learned just vote no to anything. Right. Yeah. We're Democrats in our heart, but we're Republicans in our pocketbook. But if it's 40% already, that's interesting. I haven't paid attention because unfortunately, it's not a billionaire that I'm

SPEAKER_00

not in the price bracket, but duly noted. Okay. Now in the venture game, we have a lot of zeros. In the PE game, it's rare to have a zero. Yeah. Home at Bravo hands medallia to creditors. 5.1 billion equity wipeout is the first total loss. There was 3 billion in debt. That seems to all be going. And it's just very significant because you never or very rarely see an asset of this scale being handed back to creditors. And it's the first of its kind. Might be second behind Pluralsight, depending on how you define it. It might be the second big one. We just weren't as focused on Pluralsight, but Pluralsight died under massive debt.

SPEAKER_00

Yeah. What was the size of that, Jason? You're right. I'm wrong. Misspoken from me. It wasn't a billion. It wasn't as big. It was a couple of billion. No, you're absolutely right. I misspoken. So I'm sorry for that. Can we just confirm though on this? Because when I was reading it, I didn't quite get it. Are Toma losing money here? Did they recoup back money? 100% they're losing money. From memory, 2021, the deal, I think, went down in 21. It was a

SPEAKER_01

$6 billion transaction or whatever, and 5 billion of it was equity. So it was not wildly overleveraged. Yeah. Right? Maybe 1.6 of debt, the rest of equity. So not wildly overleveraged. Fast forward today, they have more debt than that now. So it could be there was a minor dividend recap and they took some money out. Maybe they got 20 cents on the dollar. But the big picture here is this, and it's terrifying, is that this is a company, I believe, with a couple of hundred million dollars in EBITDA. If you look at it from a cap structure perspective, it was four or five times equity.

SPEAKER_01

It was 80% equity, only 20% debt. And that should be pretty safe. But when you way overpay for a company that now has way underperformed, and for reasons we'll talk about vis-a-vis AI, has very significant terminal value questions, then even though you've only got a small amount of debt, the stunning thing is with less than a couple of billion, did you say it was 3 billion of that? Right? I thought it was closer to two, but that's okay. Right? They basically said the debt smothers the company, right? Even though it was fairly underleveled. What that means is at 200 billion, they basically realized at eight,

SPEAKER_01

nine times adjusted EBITDA, it wasn't worth putting any more equity in. They've massively overpaid and the deals underperformed. So it's a business that looked like nothing could go wrong in, which is enterprise software. And it turns out, and funny, and people would have said, if something does go wrong, it would be, oh my God, you way overlevered it. They didn't way overlevered it, they just way overpaid for it. Right? That's the important insight that I think is missed, right? Pluralsight was both, right? Vista apparently lost 2 billion, but it was very levered, right? This is not heavily levered, but they can't afford the 300 million of debt service, or it's not worth

SPEAKER_01

servicing the 300 million, right? You're right. Actually, that's the thing, because I'd say, relative to the, and I wasn't precise here, in terms of the transaction size, most of the, most of the consideration was equity. So in that sense, it wasn't overlevered. But relative to the size of the company, I think the medallion was doing a billion. You can't service, this is it, you can't service 2 billion plus of debt on a 1 billion low growth company with a pre-AI story that has to transform to AI. You simply can't, and that's the big scary aha across all these other companies, right? It used to be the only, you'd be like, ah, you muddle along, you do 10% operating income,

SPEAKER_01

service the debt at low interest rates, and refinance it, right? You don't have a chance to do that now. There's nothing good about this, because they don't have an AI story. They'd have to invest a lot to get one, because this is a, Medallia, stepping back, is kind of in the measuring customer engagement, customer happiness, kind of survey business. It's not a major system of record like ERP. You can, it's fairly easy to transition to a next generation product, and you can totally see a whole bunch of AI first, very much better products in the space. We have an investment

SPEAKER_02

in Onwrap. It's a small company that has customer analysis of customer sentiment. There's a whole bunch of much, and I don't push our own product, there's a whole bunch of way better AI first products in this space. So they're looking at an asset that just doesn't have a story that's relevant. It's a full rewrite to change it, and it's just too hard. And this is a full write down, and that's not what this business is meant to be. I mean, that sales quota attainment was 21%

SPEAKER_01

reportedly. Yeah. I mean, I think the other problem with Medallia, and I'm not sure it's true of all the ones that are at risk. There's some big ones at risk. Coupa, New Relic, Anaplan, even Zendesk, Avalara, Smartsheet. They all look like they may not be able to fully repay their debt. But my limited understanding of the problem with Medallia, it's just it's one of the ones that that that CIOs want to reduce. Correct. It's just that simple. It's not even whether it's a system of record. That's an ultimate threat. But why it's already struggling to even retain 100% of its revenue is you sit around the

SPEAKER_01

room. It's one like under discussed is the amount of vendor consolidation that's occurring at the same time as AI growth. You know, whether you look at Gartner's numbers, 30 to 50% of AI dollars are coming from consolidation. Medallia is a top target. Do we really need that half million dollar a year dated survey product? Did we really learn that much from it, guys? No. So it gets cut before you cut before you cut your workday or Salesforce, right? Agreed. It's just prioritizations. I think for venture, the question is and Rory would be the expert here. Sorry, Harry, you're the boss is

SPEAKER_01

so that does it matter? And what I mean is, OK, so so so Tom O'Bravo is going to take a $5 billion hit here on like, I don't know, $20 billion fund, right? That's not expected outside of the bound, but it happened, right? Even if all of these died, Medallia, Proofpoint, even Qualtrics, Alterics, Cornerstone appears to be potentially going under. Koopa, New Relic, Anapline, does it matter? Because we got to just move on into the AI age. Does it really matter? It matters a bunch of bunch of different dimensions. But and, you know, I'm sure I'll say it to save Cornerstone ringing and yelling. Don't say anyone's going under because that that that pulls you into saying things

SPEAKER_01

that may or may not be multiple term loans underperforming. Apparently, that's exactly they're already underperforming the loan. It's not a great sign, right? Yeah. I mean, look, the horsemen of the apocalypse are, first of all, the debt starts trading well below par. And then the second thing is the debt starts doing kind of payment in kind and kind of activating the toggles that activate when you need more time. And then when the refinancing cliff happens, that's when you face the music. So that's the movie. And I'm not commenting on any of those comments. But you're right, Jason,

SPEAKER_01

every one of them in the category of highly levered 2021 deals, which means high absolute price. So

SPEAKER_00

again, back to my comment, even if the equity versus debt mix was fairly unaggressive, the debt has a percentage of current revenue, which is what you got to look at now, because the evaluation you paid in 21 is irrelevant. The debt as a percentage of current revenue was probably pretty high. And you're right. Does it matter if half of these go? I think it matters in three ways, right? A bunch of different ways, actually. First is a lot of LPs are going to take a lot of losses if this happens. And we share LPs. This looked like the other part of a balanced private portfolio. And PE was always,

SPEAKER_00

this is the safe part of the business and venture. We always said was risky, which is why you had to have the better return to justify the pain. Right. And now if the safe part of the business takes some significant hits, it, you know, it's definitely going to reduce the appetite for risk. Now it may well be that- But just to challenge that, is that true? And the reason I only ask the question from ignorance, for example, Yeah. Most of the LPs I talked to pre-boom, AI boom, were like, well, we're expecting that 2021 funds are going to perform terribly. We've just got to move on. OK, they were terrible investments. The LPs I

SPEAKER_00

talked to be like, we just got to give them a mulligan on the 2021 fund. It's done. It's time to move on or we got to quit the asset class. I think a lot of LPs had internalized that 21 vintage was a tough venture vintage, right? Typically smaller dollars of risk, right? I think the mental model was, but the PE guys in return for never giving me that 4X, 5X upside, they've been consistent 2X

SPEAKER_01

earners all the time. And now it's kind of, it's one thing when your speculative early stage seed fund blows up. It's quite another thing when your safest houses $500 million commit to mega PE fund, A, B, or C, kind of ends up with a subpar performance, right? And there's a lot of co-investments in there. So I think if a bunch of these names that you articulated, Jason, do lose money, it'll be significant. It won't be fatal, but it will be significant. And in general, I've observed with people, including

SPEAKER_00

myself, that you can be, you can seem calm and phlegmatic about the prospect of loss, but when it actually happens, it hurts, right? So I do think there will be some element of loss there. And then the other thing, just to put it out there, is there goes one of our exit routes. I mean, there's three Jason Gleisner- Well, that's for sure. That's the biggest impact, right? There it goes, right?

SPEAKER_02

Jason Gleisner- Yeah. I mean, you can wander around the Toma Bravo all you like and say, you know, and yeah, they'll say they're still doing deals and they are, but the bar is going to be much higher because, and you know, the automatic, you can't build a company big enough to go public, strategics don't care. So you can sell this thing for 3X revenues to fill in the PE from, that's not going to be true going forward, right? And that has significant consequences in particular for

SPEAKER_01

your older companies, you know, your 2015 to 2022 companies, where if they don't have an AI story and they're tracking, they don't have a strategic outcome. And if they don't have a strategic outcome or an IPO, what are you going to do with a $100 million revenue company going 10%, even if it has

SPEAKER_02

no leverage, even if it's not blowing up from a performance perspective, because the buyer of last resort is no longer in the market. There's no exit. There's no exit.

SPEAKER_00

Do we only have one exit route left? What's that? Secondaries to each other? I missed the route. What's the route? I think there's no exit. It's selling to a strategic incumbent. Sell to Google, sell to Nvidia. But they don't have, but here's the thing. They don't have the appetite. PE is a much better buyer for most, at least B2B plays. The volume isn't there at these guys. And more importantly, what they want is very specific. It's very specific. You can't count on anything. I mean,

SPEAKER_01

I can tell you when I was a VP at Adobe, you would say, oh, Adobe should buy these companies. Like,

SPEAKER_02

it's the perfect fit. I'd be in the meetings. They never even heard of that company. And it didn't matter if you had a buddy, unless your buddy was shot new, it didn't matter. Like, they didn't care, right? It's more narrow than you would ever imagine. It's narrower than you'd ever imagine. What is the exit funnel of the future? I think it's really straight. I think, you're exactly, first of all, you're exactly right, Harry. It's like the OPE has not,

SPEAKER_01

the IPO has not gone away. They just have to be big. The strategics haven't gone away. They just have to be super targeted. And the PEs have gone away, except at very low prices. What it says to us is, you know, our perspective is, and this is contrary to someone that received wisdom out there, at the stage all of us are investing at, which even though it's slightly different between us, all to a rounding error is early. And I now define early as anything before you can squint and see an IPO,

SPEAKER_02

which is now $400 million minimum. I mean, your portfolio construction has to reflect the reality that we call it internally fewer but bigger winners, right? Instead of having a bunch of companies exit early, you're going to have a bunch of companies taper out, maybe get so-so exits. And

SPEAKER_01

then the one that goes the distance and gets to $400 million in revenue could have an even bigger outcome than you've seen before. It's kind of the corollary to the statement that we're having some of the biggest exits we've ever seen. And that's true. Both things are true together. The exits that you're going to have now are going to be huge. There's going to be a lot less of them. And therefore, from a portfolio construction at the early stage, early broadly defined, you just have to have a higher end count because your probability of getting one right is lower. Now, at the late stage,

SPEAKER_01

and by late stage, I now mean when you're investing in companies that could already be public,

SPEAKER_00

right? Above $400 million, right? Then you don't have that risk, that risk, and it won't make public

SPEAKER_01

scale, right? Because you're already at public. There's many things that can go wrong with Stripe investment, but it's not going to fail to be big enough to go public, right? So therefore, at that

SPEAKER_02

stage, you see this massive concentration because there's only a small number of companies big enough, right? So that's why you really... There are two venture businesses now. There's the, as I say, early, which I think, pick a number below $100 million ARR, where it's have a pretty diversified set of, except it's fewer but bigger winners and have diversification. And then there's late, where it's, you know, Thrive puts $3 billion in company A, $2 billion in company B. But as I think one of the guests on your show said from Thrive, partially it's easy because there's only 40 names

SPEAKER_01

you even have to think about. It's just a different business, right? Because the number of places where you can park a building is few and far between, right? And they're both sides of the same coin.

SPEAKER_02

The business has totally... I remember when I started the business in the 90s, there were years where there are 300 IPOs a year. Because what... And what were the valuations? We used to have IPOs 50, 100, 250, 300. It used to be basically the Series C. That's Harry's average A round right there. I know. The point is this. The public markets had an appetite to be part of the IPO process by a process of regulation and a whole bunch of other reasons. And that's no longer the case. And so the trend, which I thought would flatten out in the kind of 2015, 2020 level has even further accentuated. But yeah, it's a different game.

SPEAKER_02

I literally had this discussion at a board meeting the other week with a company that just crossed 100 million. And I'm like, great. And you're cash flow positive. You're in control of your destiny.

SPEAKER_00

Yeah, you're in control of your destiny. Let's be clear, though. To achieve your outcome in today's market, you need to hit a billion in revenue, probably growing 40%. And the room went silent, OK? Because 400 million growing 30% is not good enough, OK? You can go... Maybe you can go public. You'll get it done. Yeah, but they're all failed. The Navon, Figma, SailPoint, Netscope. They're all broken, crappy IPOs. I'm not saying they're crappy companies. They're great companies. But the IPOs are crap. So the bar has gone up even further since the IPO. And there was just no answer. And so

SPEAKER_00

one of the things I think is going to happen is unless Tom O'Bravo decides these are all AI enhanced winners it wants to buy in Vista, which could happen. Actually, we could talk about it. I don't want to spend too much time. It could happen. They could come back into the market for a variety of reasons. If they don't and the barred IPO is a billion growing 40%, I think what's going to happen more is they're just going to give the company to their friends, CEOs, founders. OK, and what's going to happen is let's say I'm at 100 million in revenue. And my best friend at my peer, he's my best CEO. We're great together. He's at 200. OK, we're both growing 40%. OK,

SPEAKER_02

I'm done after 10 years. It's not that I don't care, but I don't see any path to that IPO. I have

SPEAKER_00

not gotten an M&A offer from Google. Harry said it would come. I've never gotten an offer from Google. I've never I used to get P calls. I haven't gotten a P call in three years and I don't see it anymore. So I'm giving the keys to Rory and I'm going to give a third of my company. Right. Because I don't see

SPEAKER_01

any exit and the founder gets out. Right. The emotional weight, the heaviness, the VCs, I guess, get to roll over this into a fake company where the valuations line up. But no one really gets anywhere. Right. There's no distributions to the LPs. You haven't achieved critical mass. But this is a micro trend that I think is going to accelerate this year as founders giving the keys to their friends, not completely quitting like eight months after an accelerator that didn't work out. But I mean, it's just I'm at 40 million, 50 million, 20 million, 100 million. I'm not going to get there, guys. So

SPEAKER_01

so Harry, here's let's merge our companies. I don't know if if CODA or what's Grammarly is taking any more mergers. So I'm giving company to my buddy, Harry. It sounds like I'm kidding, but I think we're going to see this happen all the time is give the keys to my friend that's bigger and better than me. Just give the keys away. I think it will be part of the overall process because look, there's a huge amount. I mean, a couple of times, there's just a huge amount of rationalization that's got to happen because look, these numbers are big enough. I mean, if the total privately held

SPEAKER_01

FMV is plus or minus 6 trillion, and if the big three or four and the other guys who can comfortably get out is three or four trillion, then the world of everyone else is two or three trillion bucks. Right. Let me tell you, no one's going to just walk away from two or three trillion bucks, but at the same time, it's obvious. I mean, it's not obvious what has to happen. And capitalism works. People are going to come up with solutions. But Jason, you're right. It's going to be some guy who's a mid-career operator who's willing to take the pain is going to say, I got this. I'll take these five software

SPEAKER_01

companies all broadly speaking in the systems management space. We'll put them together. I'll run them like a hard ass. We'll get to 20% growth, 30% EBITDA, and just compound our way because I'm a mid-market manager. This is a chance for me to make 50 million bucks as the CEO. We won't have a ton of stock-based comp because only me and five other people are getting stock. And there'll be a whole bunch of tough, hard acts that will happen because people aren't just going to say, okay, you caught me. It's two trillion. I don't want it. I'm not going to walk away from our older companies. We have value there. My LPs have value. And frankly, I have value. But you're right.

SPEAKER_01

Jason, there's going to be a fair amount of industrial, non-glamorous work involved in converting that stuff into free cash flow or to distributed cash flow. Jason Vale Before we move to venture, just final thing on this. This is not exclusive to Toma. You can go from Francisco to Vista to EQT. Everyone's got theirs. So genuine question, what happens to this as an asset class, as a cohort of funds? Do they just raise the same size funds and inshallah we move on? Do they move away completely? Jason Vale My rule of thumb is this. Whenever something looks incredibly easy and it looks

SPEAKER_01

like it always works and everyone who does it make money and everyone says that everyone who does it makes money and it becomes the conventional wisdom that everyone's going to make money, it's going to blow up in your fucking face. Right? And that's what happened in PE. It was like, well, you're going

SPEAKER_02

to make two X regardless. So whatever. And then let's talk beyond that. Right? And it's going to happen in venture to, you know, when you get whenever someone says you can't lose, you're just about

SPEAKER_01

to lose money. By the way, the fact that you had 20 names all doing the same thing with exactly the same strategy, that was probably a clue. And, you know, we're pointed out in venture to Tomo Bravo and Vista in particular, like we're all in on AI enhanced B2B. OK, so so I've only in my own portfolio, I've only seen one soft offer this year. OK, but it was from a PE firm that was exactly that startup at scale that is not growing at astronomic rates, but growing at really good rates. That is clearly AI enhanced in the AI category got what I would say a decent soft offer. OK, so those deals are happening

SPEAKER_01

not at the rate they were in 2021 or even 2023. That's the current seems like the current playbook is near as I can see it. So so they're reviving that play and and and they've been clear, you know, Orlando Bravo has been clear that's what he sees. That's the playbook today. The meta question is the whole B2B thesis broken because these it's just not a stable category of software anymore. Right. And I think my my my sense is no matter everyone's talking to their game to Rory's to use Rory's language, I think they're kicking the can on this issue because I don't think most of these

SPEAKER_01

PE firms have a reason to exist if B2B software is stable. Now, if it just means they need to evolve to a new category of B2B software, no problem. Raise raise another 10, 20, 30 billion. And if these AI enhanced candidates exist, right, that are affordable, you just buy them and you do the same thing. Right. But if it's not not to use the trite term of durable, but there is an argument, the classic B2B market is just broken. There is an argument that even the high flyers may not the ones, you know, the the one that Kleiner just did in a billion for voice agents for for plumbers or

SPEAKER_01

Lagor or Harvey. We may find they're not durable. I'm not I'm not saying that the answers if they're not durable, then the whole classic P model is broken. Right. This massive amount of software. And that's that's the crack in the debt market was it doesn't appear durable. So I don't know. But there is there's a chance it's all broken because AI has rendered it all non durable. That would be what the the Yahoo's that think Claude destroys everything would say is none of it's durable anymore. Doesn't matter

SPEAKER_00

if you're great or grinding or struggling. Doesn't matter if you're Lagorra or Medallia, none of it's durable. It's a great point, Jason, because, you know, because what because in that world and I'm not sure I believe in that world, but you're right, people have deposited if the AI first venture backed startups that exist adjacent to the foundation models can't make it with equity dollars only, then they sure as hell can't make it with debt on top. Right. So what you're saying is there would just simply be no compelling investment opportunities for PE debt type firms.

SPEAKER_00

It's like the most depressing realization ever. Basically, exit markets have gone. B2B markets have gone. I do think that the exit the exit narrowing is a little depressing. OK, and I think it will solve itself. I will tell you, I beat myself up. Rory and I first met when I sold my last startup and the post I wrote just a couple of months later was nothing to do with the timing. It was an OK decision at the time. OK, but I didn't know about this PE market. I never would have sold at a million in revenue if I had known PE would come to the rescue and buy me for two or three times more a couple of years when I

SPEAKER_00

had 140% NRR and was profitable. But it didn't. It started just a couple of months later and a friend of mine called me up and he said, hey, Jason, I just got an offer to buy my company for 100 million. I'm like, this is just no way. I love you. Your little bootstrap company. Who the hell is going to buy you? And it was, you know, it was the start of the PE wave. And so it opened up this wonderful era to Rory's point where we had plan B's. Everyone had a plan B, right, for your investment. And I do think it is depressing. I think it'll work itself out. The big exits will solve it,

SPEAKER_00

right? The whizzes and the I mean, we thought whizz was big. Now we have cursor. Now I'm going to win the bet of $100 billion exit in the next year. Right. So in the aggregate, it'll work itself out. But I do think for the average person, it's a little depressing. It's a little depressing that there may be no exit for so many companies that there used to be exits for. I think it's stressful as

SPEAKER_01

as heck. It was stressful for me just before the PE wave came in. I was like, God, I wish I hadn't sold. Just for this reason, only for PE, I wish I hadn't sold. It's entirely plausible in a world of super big exits that 10 super big exits cover the entire nut from the LP perspective, such that it's still a good business. And they literally nobody cares about the fact that the other 96 companies wither off on the vine, right? And the 96 other VCs wither off on the vine. This is why many of the big firms are trying to get bigger because they see this and they go like, if there's only a small number of slots,

SPEAKER_01

and if you're in those slots, you make a billion dollars. And if you're not in those slots, you make zero, then do what it takes to be in those slots. I totally get the logic. It's all Darwinian. It's firms trying to adapt to that reality. I don't think it's quite as stark as that, but it is definitely on that trend line and you have to adapt to it. David Pelley OK, guys, we're going to do privates. There's a lot in privates. You guys, you choose. Maybe choose one with a positive slant. David Pelley Sorry, sorry. David Pelley What are the choices? David Pelley There's Thrive. There's Chamath's numbers. There's Gary

SPEAKER_01

Tan on bullshit ARR. There's SBF, the greatest ambassador of our generation.

SPEAKER_02

David Pelley I think the Gary Tan one is worth a quick discussion. We've hit it before,

SPEAKER_01

David Pelley But I appreciated that he called out these issues. David Pelley Yes. David Pelley Can you provide some context, Jason, just for those that missed it? David Pelley Well, I think it was started by a guy at this legal tech startup. What's what are the... David Pelley A spell book.

SPEAKER_00

David Pelley Spell book who pointed out, kind of made too much of it, how there's a lot of bullshit ARR. OK. And for example, I've got one investment I made that's north of nine figures in revenue. I get three different ARR numbers each month. Three different definitions. I can't at least at least they're trying to be honest. Right. What's like core software ARR, what software plus variable usage and what's like committed revenue. OK. And there's a massive delta between these. And David Pelley And the point was like, it's just so what startups are saying they're doing in classic

SPEAKER_00

real revenue, gap revenue, certainly versus what a non-gap number has grown so great it borders on fraud was the initial point. OK. And rather than say no big deal, who cares at the seed level like YC, who cares at the YC that it's so early? Gary's like, no, man, be truthful and precise about your revenue. Be truthful. And he laid out five points which hit most of the issues. Mike Arrington And if you go into those news, the ironic thing to me is even I felt by the time I got through Gary's whole memo, I didn't even understand what revenue meant anymore. It was so it was so correct, but also so confusing the way we've rebooted revenue. And if you're I don't know what you

SPEAKER_00

guys have seen, but I've you know, everyone I got burned once on this in the old days. Right. But everyone's kind of been burned on this. That's done a deal quickly. And I've personally found if it sort of mostly disclosed it's been okay if it's been hidden i ain't gonna make any money i ain't gonna make any money when this is which is to gary's point and obviously frankly the fact that he had to say it probably suggested it is rampant at the seed stage or he wouldn't have to say it it's rampant that's my experience is that it's rampant as well that people radically like how can everybody get to 3 million in revenue by the end of demo day maybe everyone can't

SPEAKER_00

maybe only a couple can yeah i think it was simultaneously really good and really shrewd right i'll talk about the second because the really good comment is pretty obvious it's necessary there's you're right there's this all ambiguity about revenue young founders are overstating things and at best suckering people into doing investments they shouldn't do and at worst ending up in litigation and potential fraud allegations down the line if they mistake things so it behooves so some guidance is really good and helpful and i predict if it sticks the shorthand version of the seed stages will be does this conform to the y-combinator revenue guidelines right so that's

SPEAKER_01

why it's a good thing it needed to be done let me tell you what's a shrewd thing right because if you own a market you want to make sure that that trust in the market remains it's a little like way de beir has policed the diamond market for years you want to know that people can transact in complete confidence right white combinator has a dominant market share in the seed market right 25 it erodes the value of their product if a whole bunch of people start thinking the numbers are bullshit right so not only was it a good thing it was a shrewd thing because it's now basically saying

SPEAKER_01

if you look at these deals at the margin you know you want to say you've got the y combinator here's how things are calculated correctly steal of approval so i think again it's a it was good and shrewd and as such it's going to stick some version of it's going to stick just like it's a good point if they're a market maker so you want to you want to have this level of transparency if one in 20 nyse stocks um lied about the revenue at some point the nyse would say we need to fix this thing here people let's get the auditors in a room and that's just what happened here on the slightly other end of this

SPEAKER_01

venture spectrum thrive eternal josh just continuously bringing out new new products and new packages for his investors thrive eternal i didn't want to say this but it looks remarkably similar to sequoia's evergreen fund in terms of the whole periods but i think i actually think sorry keep going a second i think you misread it because i understand that the the verbiage looked the same whole companies forever but and you were saying is this an example because again for context folks in 21 late 21 sequoia correctly said over the long term our very best companies continue to compounding

SPEAKER_01

if you held all the companies even the bad ones the good ones would have swamped it because you'd have apple you'd have cisco and the analysis is entirely correct and over and it's like the old analysis on any equity return business over any 20-year rolling return it's positive over 10 most are positive over five some are positive and every once in a while over one it blows up in your face and unfortunately sequoia opted to do the eternal hold every stock forever in that one year where it blew up in your face right so they felt a little foolish about that though i think over 10 and 20 years their analysis

SPEAKER_01

will still be correct if you build enduring companies yeah even in the public markets the

SPEAKER_00

compounding will happen right so that was the sequoia comment that harry was referencing

SPEAKER_01

but i think the thrive products actually very different if you read the perspectives or at least are the information on it it's much less about holding a public stock forever it's actually it's interesting kind of very marketing and positioning around different kinds of assets that aren't impacted by ai that are going to be eternal it's an entirely different form of investing because i think their first investment is in one of the san francisco teams i can't remember which one is it is it the giant i can't remember was it the baseball team or whatever i think it's the giants yeah again my in

SPEAKER_01

other words what they're actually it's actually just a totally different product line it's they're making the big picture point that there was a i mean there was there were there were assets beyond the digital that are enduring and can't be replaced in any way shape or form by digital because they're right about that there's no amount of automation like it's like that stupid people who say oh my god the robots can run faster than people on the half marathon therefore it's over well as someone

SPEAKER_02

pointed out a toyota corolla can drive faster than people but we still watch the marathon right what they're saying is this group of assets is so different than ai that they're enduring long-run media assets and at that level they're correct i don't know if the average venture investor would be a really good buyer of sports assets um though history would say the warriors has been a great deal it's just a totally different it's a different bet than the sequoia bet it's a different asset it's a different asset type and you know if their lps want to do it and they can pull it off the guy's

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showing great taste good luck to him it's this is totally off script but you know we do business of sport a sports show where we interview the biggest owners of sports teams in the world the business of sport is dictated largely in europe at least so i don't want to speak for america but by media rights yeah if you see the personalization of media whereby everyone gets very independent

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media that they consume whether it's games tv shows they can customize craft to their own preferences and it impacts slash to jason's point maims the consumption of sports then you have a significant impact on the digital rights package that teams get that is very very significant and so if you wanted to paint a world where ai changes content consumption patterns that has the ability to significantly maim digital rights for these sports teams which would significantly impact their revenue generating

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ability that would be the bear case you're right in the case of sport you're right you have the

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individual personal journey and you're right you're seeing a bunch of that in at the margin in sport you know you're seeing it even at the high school and college level where the athlete's personal journey is a large part of it and they can monetize that and in fact the way leo lionel messi monetized being lionel messi when he came to america is an example of that he extracted the value which by definition means that value that the sports team owner didn't get because he was able to get it so i do hear your

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point at the margin i mean i still think you know you you're gonna if you own the entity that's playing

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the game um you know you do have the marquee asset and especially in the us the nfl economics have been widely compared the us in fact has been even more successful at creating sports money printing machines than even in even in europe but so i do hear you harry mind you i will say something i said earlier you do go back to that comment i made earlier which is when something is so obvious that everyone thinks it can't lose that's just a time when you do and sports has been a home run win for 20 years maybe 30 years right it's been yeah it's been the one irreplaceable asset and so i'll give you

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one fun example but when ryan smith sold qualtrics i think he made about a billion dollars um after 20 years or so uh and i believe that billion most of it went back into the jazz and it has quadrupled yep absolutely sports teams go up quadrupled now he needed the billion of course to to to to to lead that takeover but you know he's made he's up three billion on the jazz or something like that versus

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the 20 years to get there this is a very it's a super u.s centric perspective sports teams do not go up tottenham are on the brink of disaster i want to just get very because i can comment on that actually sports teams in europe do go up in a sense of one key differences yeah some of the best worldwide assets are some of the european sports teams one key difference though in in england in particular you have the concept of relegation which are american friends mightn't understand which means in the nfl you're always in the nfl and no matter what happens you in the nfl same thing in basketball

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in in english soccer if you're the bottom three teams in the bottom of the division of premier league you get kicked down one right and your economics go to and that's how he pointed out paul tottenham look like they're going to be relegated leicester's been relegated twice so but not only that we're seeing this with clear lake's ownership of chelsea whereby clear lakes lps this is publicly reported have been significantly concerned about the amount of time no because and they're not being relegated to the point of actually impact on enterprise value chelsea i'm going to leave that for a second

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because i actually think the more interesting point going back to the relegation companies it is worth noting that europe the alleged socialist capital of the world has a far more performance oriented sports culture than america where it's a nasty little oligopoly i mean can the nfl and all the american things have been constructed partly because they're the only three businesses that have an exemption from antitrust so they're all constructed as nasty little oligopolies where there's no penalty for failure which is the definition of socialism and europe you know in general from an american

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perspective which is meant to be the home of molly coddling socialist wimps in fact has a brutally accountable soccer culture whereby if you're the bottom of your league you go down and your revenue goes down 5x right i actually think it's one of the best things about the english premier league and the english league system in general it's like there's real penalties for failure and wrexham could go up 100 aligned rory yeah of course it's worth pointing out it's the only part of europe that has that accountability and we have it everywhere else but okay it's just it shows it shows what you think

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important harry although i have said i don't think anywhere hates billionaires as much as the us right now maybe norway does but i wouldn't say you're exactly pro-capitalism are you yeah that's a lot of yeah okay uh jason you can choose one more rory delegates decision making to us on topics maybe maybe it may be a happier one we've a happier one um or just anyone i do wonder i think the last one that would be interesting and then then the next show will be all happy all good times the one maybe that is mixed at the end but maybe it is good times i just think it's worth touching on

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is robin hood ventures one and the angel list usvc fund are these good bad ugly um should i put put put a couple hundred grand into each of them can i put them on the saster fund website if i do the the the underlying entities are are these good investments crappy or are these just play investments for a token amount of your portfolio and it just doesn't matter i mean i think it's k for step back it's catering to a need which is is that public investors have been denied access to these products and want to do it right so it's a way to say i got an investment in spacex a tropic and open ai you know so first

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of all at the level of symbolic i think they'll get some action right and as proof of that i felt this morning i put the literally the lowest amount possible in us the vc product so i am now an individual investor in entropic spacex and open ai and even as we speak i'm adding the logos to our website right okay we have a disclosure at the start of each show rory is an investor in all of the companies discussed on today's 20 vc my 500 bucks work for me what what's the minimum 500 bucks you do cheapskate you put in 500 bucks i just thought i actually genuinely wanted to process

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through the thing this morning because in anticipation of this i try and use the products by the way wonderfully easy flow took 10 seconds done and it uses plaid which we can talk about in a second but the serious comment is are they worth doing i mean to around i think 30 40 of it is those three investments it boils down to if you think those investments are good at 1.8 for sp whatever it is 1.75 for spacex i don't know what the stated value is because look for 500 bucks i'm not doing the

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analysis would you put you know one percent of your network in there which is kind of what the level of diversity i mean if you step back i've been looking at this if the three if the big three go public at around you know three or four billion dollars it's about a little under five percent of the s p right so if you were say if you're six so if you're 60 equities 40 bonds and you wanted to get that action a little earlier putting plus or minus one percent of your net worth in a vehicle that offered those things privately would be kind of logically correct which is different than saying it is correct because

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i haven't looked at the valuations before i put one percent of my net worth in there i'd want to do a lot more analysis but that's the product they're offering if you think those valuations are correct you could you know it's a little like the logic for doing um blockchain you know do you put one percent of your assets in bitcoin do you put one percent of your assets in these high mark because these high market cap companies right i personally would be angsty about the valuations on aggregate but before i'd put one percent of my net worth but the world i i get why the product exists and

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it's probably going to do reasonably well let me ask a question that i'm ignorant on harry sorry you're the boss but there was some controversy on twitter so angel list charges 3.61 a year to manage this fund right i'm confused on the one hand for a mutual fund that's going to destroy your your returns right if you charge me 3.6 a year to manage the s p not only is it expensive but over 20 years i'll make it just destroys your capital right their point was our cost to deliver this product this complicated venture product and managing these funds is actually as higher as it is 3.61 in fact we're subsidizing

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that because it's not even 3.6 so is this a high load on on a mutual fund or a cheap way to get into the underlying managers and underlying funds well i think what it proves is is that it's the argument for companies going public because uh first of all you're right if these companies were public you know to look at the system as a whole the companies would have to pay 5 10 million a year more kind of compliance costs but individual virtues could buy in for the in mutual funds that are paying 50 bips or less versus 380 bips so it would be a lot cheaper right you know looking at on the other hand from the

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venture side as a private asset 3.81 is high but let every venture let he who is without sin cast the first stone the average venture investor is charging two percent and then 20 of the profits which typically turns into if you're successful a four or five percent drag between gross and net right so um it would be a real hip it would be hypocritical of me to say oh 3.8 is awful if we're successful our fee drag should be around four percent including carry i guess the counter argument you're better than me the counter argument might be for a it's a fund of funds so it's expensive for a fund to fund right

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i don't yes but well the only reason you can pay in the long term two percent to vcs and 20 of the profit is because the gross returns have to be high enough 25 plus that the net return is still you know 20 which is so far above the ibbots and small cop return of 11 12 that it's worth doing right if

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your gross return is only 10 15 and you put four percent fees on top of it then you would have been far better off in the public markets so the question is do these companies still have 15 compounding returns from here right and look the bigger you are and the closer you get to the public

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markets the harder it gets now it has to be said the companies that have proved every sentence that i've just uttered to be incorrect have been entropic and open ai where you've had 10x returns at 60 billion in the case of entropic so in the truth and that's why these products are taking off there are some companies that even at 60 bill have demonstrated wildly great returns over an entire business cycle across all the return across all the investments of that size will it return 10x i doubt the lesson is rory to your point who made money from medallia ultimate ones sequoia baby

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who makes money from anthropic with a 17 and a half percent carry and a one percent upfront fee goldman b goldman or b sequoia is the takeaway yeah yes you know what a related lesson from yeah sequoia owned like 40 of medallia right it was basically bootstrapped right i think a reminder lesson is and you don't want this to be true but when a top fund doesn't go all in on an investment it's such a bad signal not only is it bad if the tier if the if andresen does your seed and doesn't lead your a that's the classic discussion we could have done on 20 vc in 2015 right um but the subtle one is when you do the

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growth round when you do the billion dollar run when you do whatever and you don't see the big fund lean in for the super pro rata i i just think it's a terrible sign in today's world i know people are going to challenge it but it's my experience like if they've got the billions to deploy they're going to put it into your winners and if they don't if they don't like they're going to stick you in the side of your chest with an elbow to get super pro rata it's a bad sign i'm going to be so honest i just couldn't take for the last few weeks it's been gnawing at me so much my figma and duolingo positions i was like you know what i've just had enough i've had enough

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after this conversation i'm selling them all while you guys were doing my skydio i just sold figma 40 down you know the agents don't need either of them harry no way to run your money but okay the agents don't need i do i'm up 24 rory um um you know i agree but it just seems yeah okay do you know roy the big lesson i have don't wait for the to come up just sell it and redeploy i agree with that i think that is very true as a part yeah i i think yes and it's why i've been so long waiting for figma and duo to come back don't just sell it and put it back it is by the way as a random comment it is

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the big difference between public investing and private investing you know you do as a private investor you end up especially when you're on the board and you're involved you end up dismantled we're working this out together and the whole beauty of public companies is no dude you're working this out i'm leaving because i don't know how you're going to work it out right and it's just a different mentality and it's why i think you know it's one of the things why i think venture investors can be mediocre public investors and i talk to the best i remember talking to brad from altimeter you can tell

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that's a guy very dialed into every position has an exit price and it's a discipline that you need as a public investor so maybe maybe i cancel my comment you are if you don't have the way my version of your thesis is if you don't have an active reason for holding the stock and a belief that can outperform the s p 500 which you can get access to for 50 20 bips then why are you holding it if you don't know why you're holding it you shouldn't be holding it yeah so yeah you're probably right yeah jason sell me this pen on figma make honestly i'm just i'm i'm i i just don't know that our agents will work with figma because they have to but they don't need it right they don't

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need it forever right they definitely don't need duolingo so i can't i want to see the turnaround story for the agentic figma i do want to see it i'm just you know it's getting it's it's may i'm just gonna leave on the jeff bezos's project prometheus establishes a high lab in london

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kings cross baby we're back boys thank you as always a wonderfully uplifting episode every week you have to have the feel good story from 20 vc i'm voting for a new edition of the show i think we should you you you you

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you

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you you you