OpenAI Kills Sora & Hits $100M ARR on Ads | Oura Going Public & Whoop Raises at $10BN

SPEAKER_02

So we start with Anthropics Monster Week. We may be at the stage where we throw the humans under the bus, not the AI anymore, which I think at some level is pretty terrifying. We move to OpenAI killing Sora. I think shooting in the head is even more significant. [SPEAKER_00] A big part of the whole strategic direction of the company was flawed.

SPEAKER_00

Agreed. [SPEAKER_02] You're seeing the economists, the accountants have wandered into the room and they said, we have a scarce resource here.

SPEAKER_02

Let's optimize it. Let's devote this compute to the people who can pay the most for it. [SPEAKER_01] And then we finish on the man with the biggest balls in tech, Musk. You haven't lived till you've seen an 85% decline in an index.

SPEAKER_01

[SPEAKER_02] This is one where it's just backwards.

SPEAKER_02

I don't believe there's right or wrong in money. There's just money. [SPEAKER_00] I just don't think raising at five or eight billion when you're at 80 million or 100 million of suspect ARR is the most exciting accomplishment in the world. Let me be direct.

SPEAKER_00

[SPEAKER_02] Get over it. [SPEAKER_02] You should conform your company around your customers and your model, not your VCs.

SPEAKER_02

Being mean to a billionaire is actually a feature. [SPEAKER_01] Ready to go? [SPEAKER_01] Guys, welcome back. [SPEAKER_01] It is this week in Anthropic, otherwise known as the Sassogees, which has been renamed.

SPEAKER_01

I want to start with, you guessed it, Anthropic.

SPEAKER_01

Unbelievable 28-day month of February where they did six billion in revenue, which was more than Databricks has done in their entire lifetime. Do you know what I think was the most interesting news out of Anthropic this week? It was actually the accidental leak of Claude Mythos. Essentially, 3,000 unpublished assets leaked. It's a 10 trillion parameter model, apparently, that is this next level step-changing capabilities that they're not releasing because of how powerful it is. This is by far the most interesting to me. Jason, how did you think about this news? [SPEAKER_00] Well, look, obviously, it's embarrassing to Anthropic to leak it.

SPEAKER_01

[SPEAKER_00] I actually just think we're going to see more and more of this accelerate. [SPEAKER_00] The faster we ship code, the faster we ship, the more corners we cut in general on application-level security. [SPEAKER_00] It happens. [SPEAKER_00] I mean, so many folks are accidentally uploading code to insecure GitHub, to database, to super bases that are by default open.

SPEAKER_00

So this is accelerating our data, which is just open on the internet. And you could say, God, this shouldn't happen at the Anthropic level. And I'm sure someone will get scolded, right? I'm sure it will. But overall, this is accelerating. And it's going to accelerate even more as we let our AI agents make decisions. Our agents are going to decide where to put code. They're going to decide what level of security to use. And this is going to become happenstance. And it's funny. I mean, people were saying, oh, how could Anthropic have a new security agent and have this happen at the same time? I think it makes perfect sense.

SPEAKER_00

The Anthropic AI security agents, which I've basically used in REPL, it's very good. And it also makes sense as we rush. We're going to leak source code data, PII, right? I don't know whether it's happened. It was reported today. All of Mercury's data leak. It's being held hostage. All of it. Every single interview. Every single piece of PII. Every single piece of humans. And so, you know, we used to mock these. I think it's going to start happening daily and weekly in the agentic era. And it doesn't excuse it. But it's a reality. Agents are goal-seeking.

SPEAKER_00

And agents are going to make, not only are they going to make the same mistake as humans, they're going to work a thousand times faster. So even if they make the mistakes 10% as often, Rory, help me with the math. If they do a thousand times more productive, they're still going to make a hundred times more mistakes. We're going to see it everywhere. [SPEAKER_02] Again, just for perspective, because there's two things going on here. [SPEAKER_02] Anthropic, some data leaked from Anthropic about their new model Mythos, which of itself is meant to be amazingly powerful in dealing with cybersecurity.

SPEAKER_00

[SPEAKER_02] And there was a whole consequence that we'll talk about in a second in terms of how that impacted cybersecurity stocks. [SPEAKER_02] But as Jason pointed out, the level of irony here is acute because it was an inadvertent leak. [SPEAKER_02] So you had the situation where a model that's meant to be amazing for cybersecurity actually leaks via cybersecurity leak. [SPEAKER_02] So we're toggling between the two. [SPEAKER_02] On the cybersecurity leak, it was news-worthy, Anthropic quote-unquote blamed human error. [SPEAKER_02] We may be at the stage where we throw the humans under the bus, not the AI anymore, which I think at some level is pretty terrifying.

SPEAKER_00

[SPEAKER_02] And you know exactly what happened. [SPEAKER_02] You see this, I mean, down in the weeds.

SPEAKER_02

You often see this where you're about to do a big announcement. You have your content management system. You stage all the assets, be it their Fed press release. So in the UK, it happened on the budget, if you remember, Harry. The budget, you have the press release ready to hit play the minute the budget has ended and someone inadvertently forgets and put it on the published site in advance. It's the same thing here. So it probably was a human error. There's a whole bunch of content ready for, I don't know, pick a date, the March, the May 15th announcement of Mythos. They forget to secure it correctly and out it goes. So that's the first thing. Right.

SPEAKER_02

So that's the embarrassing part of it. And then the interesting part of it, and you really do have to do this without sniggering, despite the fact that it all leaked, you also have to separately talk about the fact there's some big claims on Mythos, right? And on Anthropic, we're making via, again, via this leaked memo. Reminder, no one else has seen it. And the actual model, at least not publicly available. May 15th announcement of Mythos. They forget to secure it correctly and out it goes. So that's the first thing. Right. So that's the embarrassing part of it.

SPEAKER_02

And then the interesting part of it, and you really do have to do this without sniggering, despite the fact that it all leaked, you also have to separately talk about the fact there's some big claims on Mythos, right? And on Tropic, we're making via this leaked memo. Reminder, no one else has seen it. And the actual model, at least not publicly available. Obviously, some people have seen it, but not publicly available. And even I was trying to get copies of the leaked memo. There's just a few screenshots at this stage. It's hard to track it down, at least quickly anyway. But the statement is, it's way more powerful.

SPEAKER_02

Second thing is, it's going to be way more expensive for them to serve, and therefore, it's going to be way more expensive for customers to buy. And then the third thing is a particular focus on cybersecurity. It's meant to be extremely good at detecting cyber issues. And the result of that was a 4% or 5% decline in the average cybersecurity stock last Friday when this leak happened. [SPEAKER_00] Yeah, maybe just two other things on the leak. [SPEAKER_00] Just for this trade-off. [SPEAKER_00] I'm dating myself, but when I was at Adobe and we were acquired, we were an early customer of GitHub. [SPEAKER_00] And so we were putting source code in the cloud.

SPEAKER_02

[SPEAKER_00] And that was banned at Adobe at the time. [SPEAKER_00] It was banned because the source code was their crown jewel. [SPEAKER_00] It was pretty easy to make a crappy PDF reader or a crappy image generator. [SPEAKER_00] But to do what Photoshop or Adobe Acrobat did, all the exceptions, all the tens of thousands of corner cases was the crown jewel, right, of the company. [SPEAKER_00] And so everything, we got the first exemption to be able to use source code in the cloud and pros and cons. [SPEAKER_00] But when they used this on-prem source code management tool, it took a month to do a release. [SPEAKER_00] A month. [SPEAKER_00] A month.

SPEAKER_00

Okay, now we're doing 60 releases a day, right? Or even Anthropic, fastest growing enterprise company of all time, is still doing massive releases every month or two and dropping features every day, right? So we went to something that took 30 days at a tech leader, to something that takes hours. There's trade-offs there, and I'll take them. But we're going to see it explode in terms of the stuff that was published today. Going back a few threads on show number 50 to Rory, one of the things that I thought was pretty cool in Kairos was two things. Always on background assistant that works constantly. Our AI is working with us 24-7.

SPEAKER_00

And agents that can sleep, wake, and self-resume without any prompt. The autonomous agents, which I've been talking about how this is going to consume orders of magnitude more tokens and change our life, I'm excited to see more is coming. And OpenClaw was just this brief thing that woke us up to what Anthropic appears to be all in on, right? Truly autonomous agents running 24-7, hopefully safely, hopefully not leaking all of our source code. But it's coming soon, right? Not this whole idea that we've been doing. When we started this podcast, you went on to ChatGPT or Claude. No one had heard of Claude when we started this. I was a quirky guy using Claude.

SPEAKER_00

And you'd talk to it and go back the next day. The next release is going to be on all the time. All the time. Debating Harry's latest investment. Was it big enough? Is he too concentrated in the fund? Where should he go? What was Rory thinking on that deal, right? Why was Rory abusing Harry by email again for the second time in a day? We laugh, but this is the future. I'm excited to see it coming sooner when our agents are 24-7. They're literally around us. And we give up all of our personal freedoms and autonomy as part of it. [SPEAKER_01] I hear you on the embarrassment of it being leaked and the human error element.

SPEAKER_00

[SPEAKER_01] But while Anthropic has Mythos, which is supposedly as powerful as it is, you're juxtaposing that with OpenAI killing Sora, ads not really working and people being unhappy with it. [SPEAKER_01] And it's seeming like this massive chasm of the progression of force that is Dario and Anthropic continuing faster and harder than ever with a faltering, confused and dazed OpenAI wandering around the product desert trying to find some water. [SPEAKER_01] You're just being mean. [SPEAKER_02] I mean, again, as I said last, Adam Sider. [SPEAKER_02] Is that not fair? [SPEAKER_02] Yeah, again, narrative is overdone on both sides, right?

SPEAKER_00

[SPEAKER_02] So I think some parts of it are true. [SPEAKER_02] Obviously, you're true in a bunch of different things. [SPEAKER_02] The decision to shoot Sora in the head, right? [SPEAKER_02] Almost certainly a good decision. [SPEAKER_02] Look, it's obviously embarrassing to say something is going to be amazing less than four or five months ago and then shoot it in the head. [SPEAKER_02] But if it's a mistake, give them credit for at least saying it's a mistake, move on, right? [SPEAKER_02] And yeah, that relationship with Disney, again, I think I'm going to give you... [SPEAKER_02] It wasn't me. [SPEAKER_02] I was sneering at it on real time when it happened.

SPEAKER_00

[SPEAKER_02] I think someone else in this podcast said it's really significant. [SPEAKER_02] Just saying, right? [SPEAKER_02] It's crockshed. [SPEAKER_02] I think it's massively significant.

SPEAKER_01

[SPEAKER_02] I think shooting it in the head is even more significant. [SPEAKER_00] I think it's saying that a big part of the whole strategic direction of the company was flawed. [SPEAKER_00] Agreed. [SPEAKER_00] The whole... [SPEAKER_00] That we are going all in on consumer. [SPEAKER_00] From what I read, Sora made single digit millions of revenue, right? [SPEAKER_00] And was consuming a million a week, which actually sounds way too low, right? [SPEAKER_00] It must have consumed billions and made single digit millions.

SPEAKER_02

[SPEAKER_00] It makes no sense as a product, either in the short term or long term. [SPEAKER_00] But if you want to own the whole consumer experience with AI, they decided we have to own image and video. [SPEAKER_00] And Anthropic never even attempted to do it, right? [SPEAKER_00] I think it's saying that a big part of the whole strategic direction of the company was flawed. [SPEAKER_00] Agreed. [SPEAKER_00] The whole... [SPEAKER_00] That we are going all in on consumer. [SPEAKER_00] From what I read, Sora made single digit millions of revenue, right? [SPEAKER_00] And was consuming a million a week, which actually sounds way too low, right?

SPEAKER_02

[SPEAKER_00] It must have consumed billions and made single digit millions. [SPEAKER_00] It makes no sense as a product, either in the short term or long term. [SPEAKER_00] But if you want to own the whole consumer experience with AI, they decided we have to own image and video. [SPEAKER_00] And Anthropic never even attempted to do it, right? [SPEAKER_00] So it's a massive retreat. [SPEAKER_00] It doesn't mean it's the right... [SPEAKER_00] It's probably the right decision, to your point. [SPEAKER_00] In fact, it almost certainly is. [SPEAKER_00] But man, our strategy was wrong.

SPEAKER_00

This is a huge own goal. Our strategy was wrong. [SPEAKER_02] Agreed. [SPEAKER_02] And I agree with that. [SPEAKER_02] But I still think that, as I say, I still think Harry's over-egging it a little bit. [SPEAKER_02] Because look, you made a comment about ads that I think is effectively implying that the ad strategy hasn't worked. [SPEAKER_02] That's a bit of a bigger leap. [SPEAKER_02] I mean, Sora hasn't worked. [SPEAKER_02] They've killed it. [SPEAKER_02] I think I'm with Jason.

SPEAKER_00

[SPEAKER_02] I think that's smart because I think one of the things you're seeing right now is in a world of scarce compute, and astonishingly, despite all the investments that we've seen in terms of actual available compute for people to sell AI on, we're in a scarcity mode. [SPEAKER_02] You don't devote compute to things that are highly compute intensive and low revenue intensive. [SPEAKER_02] I mean, and Sora was almost the definition of that. [SPEAKER_02] Video generation is extraordinarily compute intensive, relatively speaking. [SPEAKER_02] And the revenue is almost minuscule.

SPEAKER_00

[SPEAKER_02] Conversely, Cogen, while it is compute intensive, is orders of magnitude less compute intensive, and there's real dollars attached to it. [SPEAKER_02] So you're literally...

SPEAKER_02

What's happening right now, I actually think at a higher level, it's actually very healthy. You're seeing the economists, the accountants have wandered into the room and they said, we have a scarce resource here. Let's optimize it. Let's devote this compute to the people who can pay the most for it. So that's the Sora comment. On the ads comment, Harry, it's early days for ChatGPT ads. But again, I cite that quote that Brian Kim did that I thought was really good. Of course, they're going to run ads because there's no other way to build a mass consumer business. And they have no choice, right? Because their consumer conversion rates run roughly 5%.

SPEAKER_02

It gets them to, I think, a roughly $10, $15 billion consumer business, right? And out of their $500 million uniques or whatever it is. So what if two things have to happen in the consumer business? Again, I'm going to leave the enterprise business out. On a consumer business, either A, they take that conversion rate to a number we've never seen before from a typical consumer business. I think that's unlikely. I don't think most consumers are going to pay $20 a month for this. Or option B is you make an ad business work. They've got no choice to make it work. And by working, I don't mean $100 million. People are ragging on the $100 million. It's in the noise. It's scale.

SPEAKER_02

Big picture here. Facebook and Google each do $200 billion plus or minus a year in digital ads. If these guys aren't doing $20 billion within a couple of years, they're not even in the game. And to get to the market cap of, I mean, remember, Facebook has a 1.7 trillion market cap doing $200 billion. Alphabet slash Google has a $3 trillion market cap doing $260 billion plus. If they're going to grow into their market cap on the consumer side, $20 billion is not enough. They have to do $50 billion, $70 billion of ads. So unlike Sora, this is not going to be a try the ads and then fold. There's only two existential bets for this company.

SPEAKER_02

One of them is ads to make the consumer business work. And then the other is, oh my God, we should have done coding all along. Let's get a competitive coding and enterprise model out there and compete with Anthropic on that side. So those are the only two things they're doing and they're the only two things they should be doing. It's straightforward. I mean, I actually see this as good news. At least they've gone from the let's wander around the woods feeling cool building stuff to there's only two things to do. Let's get them done. Net it's a positive. Better late than never. [SPEAKER_00] Man, they had the Wall Street Journal this week.

SPEAKER_02

[SPEAKER_00] They had a story of why Dario left OpenAI. [SPEAKER_00] Did you know the story? [SPEAKER_00] Yeah. [SPEAKER_00] Did you see? [SPEAKER_00] Yeah. [SPEAKER_00] Yes, I did. [SPEAKER_00] The amount of tension at OpenAI, the fact that Greg Brockman recruited them and no one would work for him. [SPEAKER_00] He and his sister would not work for Greg Brockman, would not talk to him. [SPEAKER_00] They would not allow him to be part of the LLM or ChatGPT groups. [SPEAKER_00] Then Sam had to constantly tell each of them that they were in charge, right?

SPEAKER_02

[SPEAKER_00] Told Dario he was the boss, then told Ilya and Greg they could fire him at any time if they wanted to fire Sam, right? [SPEAKER_00] Then begging Dario to come back. [SPEAKER_00] Then Dario saying he would stay only if he directly reported to the board and nobody else. [SPEAKER_00] I mean, then firing Sam and then bringing him back and then Sora and de-Sora and we're not doing coding. [SPEAKER_00] It's just, I mean, I'm exhausted. [SPEAKER_00] Maybe I'm wrong. [SPEAKER_00] I have to think at least someone like me would feel much more comfortable at Anthropic where it appears there's a much more consistent process and leadership, right?

SPEAKER_02

[SPEAKER_00] Same founders, same thing, same goals.

SPEAKER_00

It just, I have to think a company organized like that's just going to out execute someone with that level of drama. I almost can't take it. [SPEAKER_01] You're going to kill me for this, Rory. [SPEAKER_01] It's the best thing for OpenAI not to buy Sierra, incorporate that as a customer support product and have Brett Taylor come in as the day-to-day CEO. [SPEAKER_01] And Sam can be fundraiser. [SPEAKER_01] Sam can be master of... Maybe I'm wrong. I have to think at least someone like me would feel much more comfortable at Anthropic where it appears there's a much more consistent process and leadership, right? Same founders, same thing, same goals.

SPEAKER_00

It just, I have to think a company organized like that's just going to out execute someone with that level of drama. I almost can't take it. [SPEAKER_01] You're going to kill me for this, Rory. [SPEAKER_01] It's the best thing for OpenAI not to buy Sierra, incorporate that as a customer support product and have Brett Taylor come in as the day-to-day CEO. [SPEAKER_01] And Sam can be fundraiser. [SPEAKER_01] Sam can be master of... [SPEAKER_01] I'm not in the boardroom. [SPEAKER_01] So I hear, look, at the end of the day... [SPEAKER_01] At the end of the day, I think you're right, Harry, and I would favor that as a board member.

SPEAKER_00

[SPEAKER_01] But I'm not going to say that publicly because I don't want Sam to break my balls. [SPEAKER_02] I am too unimportant for Sam to even give a shit about, right? [SPEAKER_02] So I don't worry about that at all.

SPEAKER_01

[SPEAKER_02] So let me say this delicately. [SPEAKER_02] That amount of board level and senior team level turnover over an extended period of time is probably the highest warning signal that you could have as a board member about how your CEO is doing, right? [SPEAKER_02] And if it was anything other than a founder... [SPEAKER_02] Let's put it this way. [SPEAKER_02] If it was anything other than a founder-led company and this level of drama was going on, you'd probably be sitting down with the CEO and asking, how's it going, at least? [SPEAKER_02] And what are you thinking of doing about this? [SPEAKER_02] I don't think you turn on people just when things go to shit.

SPEAKER_01

[SPEAKER_02] But you probably want to cut down the drama from here, build a team, and try and call a shot and play it for more than six months at a time.

SPEAKER_02

[SPEAKER_00] When you've worked at or observed startups where the CEO is spending so much of their time load balancing talent that can't work together versus when you've worked at one or with one where the talent's growing in the same direction, to say that it's night and day would be an understatement, right? [SPEAKER_00] It's like the backside of Pluto and the front side of Mercury. [SPEAKER_00] And I think, Sam, we can criticize him. [SPEAKER_00] Actually, everything I've seen and when I read the Wall Street Journal, it's like, my God, this guy has spent so much time load balancing the drama of these extremely brilliant personalities.

SPEAKER_02

[SPEAKER_00] It's just, oh, my God. [SPEAKER_00] That can consume most of your time as CEO, most of your time load balancing it. You're exactly right. It is the drama of, we're not dealing with a bunch of people just trying to crank out some B2B software and make a paycheck. We're dealing with people who are angsting about whether this is going to change the world, who have fears about the technology, who have desires to be seen as credited for the technology despite their fears about it. This is extraordinarily talented people on an extraordinarily high bandwidth demand on attention and care and feeding.

SPEAKER_00

[SPEAKER_02] It's been a real slog, I'd say. [SPEAKER_01] Okay. [SPEAKER_01] The man with the most balls in investing, Massa Sun. [SPEAKER_01] SoftBank gets $40 billion bridge loan to buy OpenAI stock. [SPEAKER_01] How deep can Massa go? [SPEAKER_01] He'll go as deep as they let him.

SPEAKER_02

I mean, that's the one thing we know. If they give him another 20, he'll borrow that too. I mean, look, this is a high... I checked the SoftBank. You've got SoftBank holdings.

SPEAKER_01

[SPEAKER_02] I have to be careful. [SPEAKER_02] There's the Telco Group, which is reasonably levered at the Japan level. [SPEAKER_02] And then SoftBank Group is around 2x levered. [SPEAKER_02] Right? [SPEAKER_02] 1.5 to 2x levered in terms of equity. [SPEAKER_02] Right?

SPEAKER_02

What that means is a 30%, 40% decline wipes them out. It's a very aggressive stance. Right? It would be like me taking our $800 million venture fund, borrowing $1.8 billion, and investing it all. And if it works, I really juice my return. But if it goes wrong by 30%, I'm done. Right? And it's super aggressive. I mean, I suppose his lesson is Massa survived 2002 when I remind everyone the Nasdaq went down 85%. You haven't lived until you've seen an 85% decline in an index. Right? And obviously, if that happened or anything like it, you'd just be way underwater. Right? So it's a fairly high amount of leverage for an investment fund, to say the least. [SPEAKER_00] Yeah.

SPEAKER_02

[SPEAKER_00] I mean, it's dramatic. [SPEAKER_00] Having said that, real estate investment funds get the maximum leverage they can by design. [SPEAKER_00] Right? [SPEAKER_00] That is how they work. [SPEAKER_00] I would imagine if venture had access to more debt, we'd all load up on it. [SPEAKER_00] If we all could do the growth rounds in your hottest company, and maybe we could get all the carry from it. [SPEAKER_00] And the worst thing is we leave the keys to fund seven on the table, we might load up too. [SPEAKER_00] I'm not sure. [SPEAKER_00] But certainly, real estate funds load up as much as they can.

SPEAKER_02

But just pushing back again, because real estate funds load up because the cash flows are predictable.

SPEAKER_00

[SPEAKER_02] At the end of the day, I mean, look. And they can't. But they can. Because the cash flows are predictable, they can load up. Agreed. Right? It's just harder for my little fund to go to Silicon Valley Bank and borrow $200 million against the assets. [SPEAKER_02] In the continuum of risk, I would argue the SoftBank portfolio, not the telecom company at the subsidiary level, but I would argue the SoftBank portfolio is more like Jason's fund than it is a real estate fund. [SPEAKER_02] So I think it's a high level of risk. [SPEAKER_02] Well, Plessy, what did he lose on WeWork?

SPEAKER_02

$12 billion? [SPEAKER_02] He knows. He knows what it's like.

SPEAKER_00

[SPEAKER_02] The two big assets from memory are obviously the OpenAI position and I think the ARM position, which I still think is in the holding company. [SPEAKER_02] And yeah, but I mean, amazing companies, world-class companies, easily imaginable, have bought them with a client 30%. [SPEAKER_01] So yeah, it's a hell of a way to live. [SPEAKER_01] Speaking of declining 30% and being in the hole, we touched on it earlier, but obviously Mythos leak hammered cyber stocks. [SPEAKER_01] Crowdstrike, Palo Alto, Zscaler all down 6%. [SPEAKER_01] Okta, Netscope down 7%.

SPEAKER_02

[SPEAKER_01] Tenable down 9%. He knows what it's like. The two big assets from memory are obviously the OpenAI position and I think the ARM position, which I still think is in the holding company. And yeah, amazing companies, world-class companies, easily imaginable, have bought them with a client 30%. [SPEAKER_01] So, yeah, it's a hell of a way to live. [SPEAKER_01] Speaking of declining 30% and being in the hole, we touched on it earlier, but obviously Anthropic leak hammered cyber stocks. [SPEAKER_01] CrowdStrike, Palo Alto, Zscaler all down 6%. [SPEAKER_01] Okta, Netscope down 7%. [SPEAKER_01] Tenable down 9%.

SPEAKER_02

[SPEAKER_01] Was this a justified dip or is this an unjust reaction to Anthropic news?

SPEAKER_01

[SPEAKER_02] I was listening carefully to the names and there's different aspects of security. [SPEAKER_02] And some of them I can say, yeah, maybe that overlaps. [SPEAKER_02] And then some of them I go, that's just a different thing. [SPEAKER_02] And when you listen to all the names being shown out, you say, that's just throwing baby with the bathwater. [SPEAKER_02] Because step back, how does Anthropic make security better? [SPEAKER_02] At the code development stage, they can look at code and find security flaws. [SPEAKER_02] So there are companies that upfront do something like that and application security companies.

SPEAKER_02

And you could argue that this is a different way of doing that. Maybe some of those guys will be impacted. What they're not doing, for example, is real-time perimeter defense. They're not, in a real-time basis, blocking people like a firewall. Nor are they doing what, for example, Okta does, which is single sign-on and authentication. That's simply not what they do. It's a different thing. And the fact that both of those kind of stocks sold off says it's just a knee-jerk reaction rather than anything thought through. It will have an impact.

SPEAKER_02

If you were doing application security or code review for security code review, you're probably going to have to either incorporate how this works in your analysis or you'll be redundant. Just as the coding companies, anyone who had GitHub had to roll in code completion models and figure out how to adopt it, right? So for some of them, this is really going to matter. And then for others, it's just a different thing. Stepping back, I think we're in the panicky stage. I think we're in the stage where because these companies are doing so well, because they're private, no one sees the numbers.

SPEAKER_02

Because AI is so sexy and so potentially amazing, we're at the stage now where anything can cause a panic. [SPEAKER_01] Robinhood was down 10% because Elon didn't potentially give them the tender and was going straight through E-Trade. [SPEAKER_01] And that alone was a massive hit for them. [SPEAKER_00] Obviously, there's a panic in the market. [SPEAKER_00] And the question is, is the panic justified? [SPEAKER_00] The panic is that this revenue is not durable. [SPEAKER_00] That's the panic. [SPEAKER_00] The cybersecurity one's really interesting. [SPEAKER_00] In my experience and opinion, this is one where it's just backwards.

SPEAKER_02

[SPEAKER_00] Because if you're in the agentic world, this is the golden age of security. [SPEAKER_00] The number of security threats and issues is going up orders of magnitude.

SPEAKER_01

[SPEAKER_00] Claude leaking its source code. [SPEAKER_00] It doesn't matter.

SPEAKER_00

The number of apps exploding. The number of mobile apps, App Store is like, it's a month to get your app reviewed versus a week. Everything is exploding. These apps are being built by agents. They're being built in unpredictable ways. Folks aren't looking at the code. The pace of features being shipped, products being shipped, corners being cut. This is a golden age of taking any mature category and acknowledging good news for us. There's more threats. I don't care whether it's application level, perimeter. The good news is threats are exploding.

SPEAKER_00

And the whole shtick of cyber—I'm not a real cybersecurity expert, although I'm doing another investment right now for just this reason—and the whole shtick in my whole lifetime has been, look, you've got to constantly buy new products because new threats keep emerging. This has been a golden goose of cybersecurity that has allowed new entrants to come into a conservative category. Someone like Wiz will show up and say, guys, we know how to do this on the web. And people are so terrified of new threats, they'll take the meeting. This should be the golden age for new and existing investors because the threats are terrifying.

SPEAKER_00

And you can't stop the rogue engineers that vibe coded something that accessed your data. This should benefit everybody. Everyone should be a rocket ship. Everybody monetizing GPUs is a rocket ship. And the fact that the market doesn't see it shows, in my opinion, we're in a true panic, which is hard to predict a bottom. But I don't get it. Everyone should be benefiting when you see an explosion in application production and a change in the paradigm. The change in the paradigm is good for everybody except, you know, Windows Defender from 1996. It probably doesn't help that product or whatever the hell they have. But everyone with engineers should benefit.

SPEAKER_00

[SPEAKER_02] I broadly agree with Jason. [SPEAKER_02] I mean, there are more than Windows Defender 2006 that might be impacted. [SPEAKER_02] And as I say, some of the application security code review stuff could be. [SPEAKER_02] But big picture, Jason's right. [SPEAKER_02] Instead of having people trying to get into your firewall, everyone is now downloading an agent, giving it full root access to their computer and telling it, have a go. [SPEAKER_02] And as Jason just pointed out, work overnight. [SPEAKER_02] It's going to be—no one yet—it's funny, my colleague who does a lot of the security, we've been looking at a lot of these companies.

SPEAKER_00

[SPEAKER_02] No one yet knows the exact approach that we're going to have to take to defend against agents running within the organization. [SPEAKER_02] But everyone 100% understands that this is an emerging mega threat because of the velocity adoption times the power of the solution. [SPEAKER_02] So I agree with Jason.

SPEAKER_00

[SPEAKER_02] It might not be the old guard that takes advantage of it, but there's no—but they tend to be—I mean, one of the things I admire about the security companies is the CrowdStrikes, the Palo Alto Networks of this world—they know damn fine that when a new threat emerges and a new solution emerges for that threat, when an earlier winner comes out, you better spend your 300 million bucks, your 500 million bucks, and just swoop up the winner and add it to your product. [SPEAKER_02] So I think there'll be a ton of fast acquisitions as agent security solutions emerge.

SPEAKER_00

[SPEAKER_02] But everyone 100% understands that this is an emerging mega threat because of the velocity adoption times the power of the solution.

SPEAKER_02

So I agree with Jason. It might not be the old guard that takes advantage of it, but there's no, but they tend to be, one of the things I admire about the security companies is the CrowdStrikes, the Palo Alto Networks of this world is they know that when a new threat emerges and a new solution emerges for that threat, when an earlier winner comes out, you better spend your 300 million bucks, your 500 million bucks, and just swoop up the winner and add it to your product. Right? So I think there'll be a ton of fast acquisitions as agentic security solutions emerge.

SPEAKER_02

And people will be doing, if they're smart, and I think those two companies are extraordinarily smart, they'll be doing acquisitions long before it's quote certain, because you're going to have CIOs come and talking to you. Right? One thing worth mentioning on that is, it was interesting, again, and somebody leaked information from Anthropic. They're masters at selling fear. One of the things they're doing is they're releasing the Mythos model first to CISOs within companies. It's, oh, it's so scary. We're going to give you this model and give you time to figure out how to use it. Of course, part of that time will involve giving a million bucks to Anthropic.

SPEAKER_02

So it's just great marketing. So they're actually leaning into that and saying to the CISOs, you're going to have to figure this out. This is the new terrifying weapon we've invented. Please give us a million dollars and we'll let you defend yourself with it also. Great marketing. But it speaks to the perceived, to Jason's point, it speaks to how correctly afraid every security CISOs should be given the pace of agentic AI adoption of the enterprise. The golden age of cyber. [SPEAKER_00] It should be. [SPEAKER_00] I mean, it's just, how hard is it to get a meeting? [SPEAKER_00] Whoever you are, if you have any established brand, we've got a new agentic product.

SPEAKER_02

[SPEAKER_00] We're going to help protect you from this. [SPEAKER_00] You're going to get a meeting that afternoon. [SPEAKER_01] Right? [SPEAKER_01] Wish I bought them over Figma. [SPEAKER_01] That's a depressing chart that I'm looking at. You need to let go, Howie.

SPEAKER_00

[SPEAKER_02] You need to let go. [SPEAKER_01] I'm down 30% in a month, Rory. [SPEAKER_01] It's hard to let go after 30% in a month. [SPEAKER_01] Okay. [SPEAKER_01] No crying in the casino.

SPEAKER_01

Move on. I do want to discuss revenue kind of questionability. We've got Anthropic recognizing revenue in a very different way to OpenAI.

SPEAKER_02

[SPEAKER_01] And then you also have questionability around Emergent Labs. [SPEAKER_01] And is it okay if ARR is questionable in terms of how it's accounted for?

SPEAKER_01

How do we think about that? You can choose which one you want to take. [SPEAKER_00] Let me just, can I just, maybe Rory can dig into it, but I'll tell you there's one startup I invested in that's over a hundred million ARR. [SPEAKER_00] And I get them, I own just enough to get the investor updates. [SPEAKER_00] It's not, I'm not on the board. [SPEAKER_00] And I get three numbers every month. [SPEAKER_00] Three revenue numbers. [SPEAKER_00] I don't know what the hell they are over a hundred million, but the smallest one is ARR. [SPEAKER_00] Now I invested in seed. [SPEAKER_00] I don't really care. [SPEAKER_00] I'm in the money.

SPEAKER_00

I don't have a choice, but I can't understand. This company is doing great, but I can't understand, for the life of me, I cannot understand these three numbers and there's asterisks and daggers and there's charts that go everywhere, but they keep going up and to the right, which I think was on this emergent thing we could talk about next, I think that's what some of the investors said, who cares? But I can't tell the hell the difference what an ARR is in 2026. [SPEAKER_01] What I always get is pipe, which is complete bullshit. [SPEAKER_01] Yeah. [SPEAKER_01] The contracted, and then there's live. [SPEAKER_02] So first of all, stepping back.

SPEAKER_00

[SPEAKER_02] To be fair about Anthropic and OpenAI, they have a very clear and sensible way they define ARR. [SPEAKER_02] What they say is they take the last, the average of the last four weeks to smooth out times 13, because there are 13 four week periods in a year, which is more sensible than monthly because you have these varying months. [SPEAKER_02] So they're basically, what they're saying is realized revenue for the last four weeks averaged, the average of the last four weeks times 13, that, obviously if it's the average is times 52, but basically it's actual GAAP revenue.

SPEAKER_00

[SPEAKER_02] What did we bill for the last four, the average, calculated across the last four weeks to take into account how it is, that's their run rate. [SPEAKER_02] So it's actually pretty, it's not committed, to be fair to them, it's not committed to any of the bullshit higher level stuff. [SPEAKER_02] It's actual money flowing through the system. [SPEAKER_02] Anthropic is roughly at 1.9 billion according, based on that trailing four week metric, and OpenAI is around 2.5. [SPEAKER_02] But now let's talk about your thing. [SPEAKER_02] There was this whole meme of OpenAI reports net on their partner revenue and Anthropic reports gross.

SPEAKER_01

[SPEAKER_02] And what they're saying there is if OpenAI sells through Microsoft and Microsoft takes some money off the top, OpenAI only reports the net amount. [SPEAKER_02] If Anthropic sells through AWS and they sell $100 worth of revenue, they report the gross amount and then they give $20 back to Amazon as a cost of sale. [SPEAKER_02] So there's two different methods for what looked like the same revenue mix, same revenue approach.

SPEAKER_02

[SPEAKER_00] I thought you were going to extend that. [SPEAKER_00] I thought part of where you're going was to Michael Cannon-Brooks' point on the show was that a lot of this revenue is getting double or triple counted because of all it's being recognized. [SPEAKER_00] And not only does this happen, then Cursor is selling it again and recognizing the revenue, right? [SPEAKER_00] The same, people keep reselling these tokens again and again and recognizing them as their own ARR, how many times do we get to resell these poor little tokens? I think that's actually a great point, Jason. I hadn't got to, but you're exactly right.

SPEAKER_02

No, it's the, everyone's got amazing revenue growth because it's the same little token going, I just can't picture this little token. [SPEAKER_00] I mean, if we all agree to have essentially 0% gross margins, an infinite number of us can [SPEAKER_00] recognized. [SPEAKER_00] And not only does this happen, then Cursor is selling it again and recognizing the revenue, right? [SPEAKER_00] The same, people keep reselling these tokens again and again and recognizing them as their own ARR. How many times do we get to resell these poor little tokens?

SPEAKER_02

I think that's actually a great point, Jason. I hadn't got to it, but you're exactly right. It's like everyone's got amazing revenue growth because it's the same little token going around. [SPEAKER_00] I just can't picture this little token. If we all agree to have essentially 0% gross margins, an infinite number of us can keep reselling tokens to each other, can't we? This is our new 20 VC scale Saster demo day. We all resell a million tokens to each other on the first week. So everyone in batch 0-0-0-1 has a million ARR its first week because we just resold our tokens to each other. So it's completely fair. The VCs don't mind.

SPEAKER_02

And you're exactly right. And the sentence that you added in passing is the key one. Until we all have to get profitable, all this can continue. And then at some point, that's why I said, I think you're starting to see it. Someone's going to have to say, assuming we want to have a net present value and a cashflow, what's going on here? And then all this becomes more clear. I didn't comment on the emergent labs fastest to 100 million. [SPEAKER_01] Jason, you actually tried it, didn't you? You thought it was good.

SPEAKER_02

[SPEAKER_00] I did. I thought, listen, it's hard for me to know the criticism, right? Some folks in the press in the India B2B environment tried to make this some sort of scandal, right? Because, and in a sense, fair enough, if you go to emergent labs, and emergent labs is an Indian competitor to Replit and Lovable, which I'll show you what I learned in a minute, right? And if you go right now to the homepage, they say zero to 100 million, I think in eight months. It's right there. It's the biggest banner. So in all fairness, if you're going to put yourself out there, not just as a tweet, but if it's going to be right there on your website, one would expect 70 to 80% accuracy in that number, ideally higher, right? So if it's lower than that, I think it's fair that some daggers came out. But I was curious, but I don't actually know what happened. Is it triple counting?

SPEAKER_02

[SPEAKER_00] I can tell you one thing that I learned, which I don't love, which is that, and a lot of AI startups do this. So this is not unique to emergent. They try to get you to immediately do a free trial instantly that says it's $0 and $20 a month thereafter. Now, so many folks do this. It is not unique to them. It's probably best practice in most accelerators, but I'm pretty sure that means they recognize all $240 in ARR that first month when you're paying zero. And they trick you because you don't even, yeah, you do have to click on the stripe link, but you almost think you're just using the free product. So is that, if I do a $0 a month product that's discounted as a marketing cost and I churn after 30 days, does that count as $240 of ARR? I think for a lot of startups, it does.

SPEAKER_02

[SPEAKER_00] Okay. So that's a fair criticism. I'm not saying this is what Emergent did, but a lot of startups will instantly recognize that as $240 in ARR, which is how they rock it. If you're self-serve, that's how you. Otherwise you can't get there that quickly, right? So they clearly did that.

SPEAKER_02

[SPEAKER_00] I will say what was interesting is I overall, I think the criticism is probably unfounded because I thought the product was pretty good, much better than make. It's an order of magnitude better than the disaster of make. Because I do a five part test, a six part test. The first part is awareness test. So I ask it to redo the Saster.ai homepage. Actually of all the platforms that did the best job, it beat all of them, all of the leaders. Because I redid this recently. And they're all good at it. I redid it. And they're all good at it. Replit, Lovable, V0. They're all good at it. They all pass the test, but it actually was probably the best and it passed a bunch of the other tests. So I'm not going to switch to Emergent Labs, but I would say it's in the top 10% of web coding apps. That's pretty good. So that tells me it's a legit business. They did the work. And a lot of these, they're just, the truth is if you play with a lot of these, even from leaders, make's not the only one that's crappy.

SPEAKER_02

[SPEAKER_00] Okay. Because they're basically relying on the fact that Claude code does 90% of the work for you, right? They're just putting the simplest wrap around this. And so they did a good job, but it is, I really didn't like the way they do the billing. But we'd probably have to shoot half our portfolio companies that do PLG AI. Cause I think it's a sus practice. I just don't like tricking you with this $0 for the first month when you think you're using a free trial, right? That's the sus part. I don't love that kind of gray area. But the product's pretty good.

SPEAKER_02

[SPEAKER_01] You know what I don't like when it comes to confusing. I was wondering whether to go off on one in this show. And then I thought, fuck it. Let's go off on one. It's been a long day. [SPEAKER_01] Yeah. I'm pissed off by these tranched rounds. I see them all the time. The amount of Sequoia rounds where it's like, oh, you know, X raises money from Sequoia at 5 billion. Trust me, Sequoia got in at one, but they just club it together and then announced the... [SPEAKER_00] But the product's pretty good. [SPEAKER_01] What I don't like when it comes to confusing. [SPEAKER_01] I was wondering whether to go off on one in this show.

SPEAKER_00

[SPEAKER_01] And then I thought, fuck it. [SPEAKER_01] Let's go off on one. [SPEAKER_01] It's been a long day. [SPEAKER_01] Yeah. [SPEAKER_01] I'm pissed off by these tranched rounds. [SPEAKER_01] I see them all the time. [SPEAKER_01] The amount of Sequoia rounds where it's like, X raises money from Square at 5 billion. [SPEAKER_01] Trust me, Sequoia got in at one, but they just club it together and then announced the sum and then the latest valuation.

SPEAKER_02

[SPEAKER_01] And it's just very misleading. [SPEAKER_01] The tier ones get in early. [SPEAKER_01] A tier two, tier three instantly marks it up.

SPEAKER_00

Same as crypto, isn't it? [SPEAKER_01] For years. What's the difference? [SPEAKER_01] Well, I think crypto. We'll give the Andreessen crypto fund, essentially 80% off the token. What's the, it's the same thing, isn't it? The, you're paying for the signal. [SPEAKER_02] I think if you break it down, first of all, just so everyone's on the same page, because interestingly, neither Claude nor GPT was on the same page and didn't know what a tranched round was. [SPEAKER_02] And they gave the old conventional venture tranched round based on performance milestones, from back in the day when we actually ran businesses, right?

SPEAKER_02

So they didn't have a clue about this. So let's be clear on the practice here. The practice here is when a company, a hot company raises a round where there are effectively two different prices per share. A first, let's call it a first close and a second close, even if they're at or near contemporaneous, where the first one might be at 250 and the pre, and the second one is at a billion pre. And the highlight and the headline is always at a billion pre. There's two impacts of this. First, let's do the simple one, but there's just a single participant in the round, right? That's where, if I'm the new investor, I want to pay 600.

SPEAKER_01

[SPEAKER_02] The company wants a headline of a billion. [SPEAKER_02] And to win the deal, someone says, okay, let me put some money in at 250, some money in at a billion.

SPEAKER_00

[SPEAKER_02] I can do math because I'm paid to do math because I'm an investor. [SPEAKER_02] So I know my overall basis is a billion. [SPEAKER_02] I'm sorry, 600 million. [SPEAKER_02] So I'm getting what I want. [SPEAKER_02] And the company is getting what it wants, which is a headline number of a billion, right? [SPEAKER_02] It's silly, but that's all that's happening in that case. [SPEAKER_02] That's the single participant tranche deal, right? [SPEAKER_02] And if a company wants a headline, that's what they get, right?

SPEAKER_00

[SPEAKER_02] Generally, those things come back to bite you because by definition, if you're the company, just as the investor can do math, presumably you can do math. [SPEAKER_02] If you accept that combined deal, you're implicitly saying, I know I'm only worth 600, but I'd like the optics of a billion. [SPEAKER_02] You better be damn sure that your next round, you're at one and a half billion. [SPEAKER_02] Otherwise, you'll have the optics of a down round. [SPEAKER_02] And if you're an optics believer, that's probably worse than the uptick, right? [SPEAKER_02] So that's the single participant version.

SPEAKER_00

[SPEAKER_02] The much more annoying version that Harry clearly was getting on his high horse about is when you have the same structure, but access to those rounds where the lead investor maybe does all of the 250 pre-round and only half of the billion round, and then some new investors just get to do the billion round. [SPEAKER_02] So literally at the same time, the lead investor is investing at 600 billion and the follower investor, less marquee investor, is investing in the same asset at a billion. [SPEAKER_02] And I don't believe there's right or wrong in money. [SPEAKER_02] There's just money, right?

SPEAKER_00

[SPEAKER_02] That's where at the minimum, you have to look yourself in the mirror as the other investor and saying, wow, that's the price of being cool, right? [SPEAKER_02] That's the price of access. [SPEAKER_02] I'm paying 50% more because I just can't access that deal, right? [SPEAKER_02] And that feels pretty invidious. [SPEAKER_02] I mean, again, going back to the comment, you've got to remember, if you think about... [SPEAKER_02] And again, trying to avoid morality and saying, oh, it would feel shitty. [SPEAKER_02] I mean, you really would feel a loser if you did that. [SPEAKER_02] But let's play it out.

SPEAKER_00

[SPEAKER_02] It's a situation where the lead investor, let's say it's Sequoia because everything good and strong should be Sequoia. [SPEAKER_02] They're admitting it's only worth 600 on average, and they're just doing this fakie transaction. [SPEAKER_02] The company is admitting it's only worth 600 on average because they're taking the money at a blended cost of 600. [SPEAKER_02] So what you're saying at a billion is you're either saying I have a lower cost of capital and I'm willing to take a lower return than everyone else, or the only positive spin you can come up with is the company thinks it's worth 600.

SPEAKER_00

[SPEAKER_02] Sequoia thinks it's worth 600, but I am smart enough, even though I don't have access, I am smart enough and clever enough to know that it's really worth a billion and I should do it at a billion even though I can't get to 600. [SPEAKER_02] And I'm willing to put up with the upfront tax and foolishness look because I think 6, 12 months from now, it'll be obvious that I bought at a great price and maybe I look a genius. Yeah, but we've entered an era though, I think the meta thing, maybe this wasn't exactly what you were queuing up, Harry, but it is tough. We've entered an era where so many founders are obsessed about headline prices, obsessed.

SPEAKER_00

They're obsessed coming out of demo day. They're obsessed. Once they cross a billion, which I think should be a moment to take a pause because of the M&A options, they're obsessed about driving to 11 billion and 9 billion and one-upping their competition and the numbers have become a joke to many founders, right? They just don't think through any of the ramifications of the valuation they're hiring and they don't care. And I'm not even saying that's bad. We've entered an era where so many founders are obsessed about headline prices, obsessed. They're obsessed coming out of demo day. They're obsessed. They're obsessed.

SPEAKER_00

Once they cross a billion, which I think should be a moment to take a pause because of the M&A options, they're obsessed about driving to 11 billion and 9 billion and one-upping their competition and the numbers have become a joke to many founders, right? They don't think through any of the ramifications of the valuation they're hiring and they don't care. And I'm not even saying that's bad. I think burning the bridges is a good way to have a big outcome, but it's become utterly gamified on many levels, right? It's just become gamified. And so this 11 teen tranches in a round is just part of gamifying it, right? It's been true of YC since I started investing.

SPEAKER_00

There was always a cheaper price before demo day if you're reasonably hot, a higher price at demo day, and then a 20% or 30% after demo day. So that version has just become institutionalized and so be it if it's what the founders want. If they want to gamify it, so be it, right? I just don't think raising 5 or 8 billion when you're at 80 million or 100 million of suspect ARR is the most exciting accomplishment in the world. I'm not going to, I'm going to send a few thumb emojis on the email, but that's about it. That's about it. They're all fake anyway. They're all just bets, right? These are not public companies.

SPEAKER_00

[SPEAKER_01] It goes back to your point though on Emergent Labs and the graph doing the eight months to a hundred million. [SPEAKER_01] The gamification of the race to a hundred million, I'm not choosing the Emergent Labs. Listen, I think they built a good product. I think I'm sure they've been overly lambasting because whether it's a hundred or 80 or 60, I don't care. It's pretty damn good, right? Whatever it is. But if you're going to do that, you deserve the daggers to come out when it's not a hundred percent, right? [SPEAKER_01] One that I thought was fantastic, exciting. [SPEAKER_01] I always like to see a potential IPO or an IPO shortly.

SPEAKER_00

[SPEAKER_01] I thought this was fascinating.

SPEAKER_01

It's been an incredible journey actually from Scandinavia, these founders building this business has had a couple of CEO changes. The business is actually in incredible shape. Both actually Whoop announced today that they raised, I think it was 500 million at 10 billion fitness and health data. Do you know what, actually Rory, Jason's annoyingly right again. I don't know if you remember his predictions, but he predicted if I'm not wrong, that 2027 would be the year for human healthcare data and longevity. [SPEAKER_02] Yes. [SPEAKER_02] And it looks like it might even be 2026.

SPEAKER_01

[SPEAKER_02] And the great thing about both stories is very defendable from, and this is not an AI envy story. [SPEAKER_02] This is they use AI in what they do, but these are fundamentally standalone products with a clear consumer value proposition. [SPEAKER_02] And they're not going to be cloud coded on Friday. [SPEAKER_02] I totally see it. [SPEAKER_02] And they clearly have had critical mass in terms of revenues. [SPEAKER_02] I think it's awesome. [SPEAKER_00] I think the question, listen, the interesting thing for these products, obviously it's exploded is they are recurring, going back to the topic of ARR, these are recurring revenue products, right?

SPEAKER_01

[SPEAKER_00] For the most part, right? [SPEAKER_00] So fairly expensive subscriptions.

SPEAKER_00

And they're exciting until Peloton when they aren't right now.

SPEAKER_01

[SPEAKER_00] That's not, there's not a $2,000 cost here.

SPEAKER_00

But, and I'm not being critical.

SPEAKER_01

[SPEAKER_00] I think that they're exciting, but there's also a faddishness.

SPEAKER_00

People can switch. So the ARR, the pirate R, what multiples do these companies deserve? What is it?

SPEAKER_02

[SPEAKER_00] I'm not smart enough to know, but the acceleration is a force of nature, right? [SPEAKER_00] I'd love to be a seed investor. [SPEAKER_00] Don't get me wrong. [SPEAKER_01] Do you think there's a faddishness in the same way? [SPEAKER_00] I think you can switch from Whoop. Harry, you're into fitness. [SPEAKER_00] I'm not so much, but I run 360 days a year, five miles a day for 10 years. [SPEAKER_00] So if there's a better treadmill, a better device, a better thing, I would switch. [SPEAKER_00] And whatever, you're fairly fit, Harry. [SPEAKER_00] If you are, and you love it, but Whoop is better and you care, you're going to switch.

SPEAKER_02

[SPEAKER_00] So it's not Service Now ARR, right? [SPEAKER_00] It's not, you will, you're loyal, you're loyal, but there's just some disruption. [SPEAKER_00] Look at Peloton. [SPEAKER_00] When Peloton blew up, but actually as the world changed, even though people loved Peloton, right? [SPEAKER_00] Super high NPS. [SPEAKER_00] You remember the Peloton addicts of 2020 on Zoom. [SPEAKER_00] They loved it. [SPEAKER_00] But when the world changed, they just switched. [SPEAKER_00] They just switched. [SPEAKER_00] And Whoop is different than Aura. [SPEAKER_00] And there could be a Whoop or Whoop Aura.

SPEAKER_02

[SPEAKER_00] And maybe one is your ankle and it has your AI Rock from Johnny Ivan. [SPEAKER_00] And then we'll switch. Two comments on this. One disclosure. We are lucky enough to have a small investment or a sure, the acquisition of one of our companies. So I don't have a ton of information, so I'm not going to breach any confidentiality, but just an abundance of caution, I'm not going to comment on numbers at all. Right? Great products. Right? But to your point, Jason, on it's not ARR like Service Now. Let me be direct. Get over it. Right? Not every business on the planet. Hang on. Not every business on the planet has five-year design.

SPEAKER_02

We are lucky enough to have a small investment or an acquisition of one of our companies. So I don't have a ton of information, so I'm not going to breach any confidentiality, but just an abundance of caution, I'm not going to comment on numbers at all. Right? Great products. Right? But to your point, Jason, on it's not ARR like ServiceNow. Let me be direct. Get over it. Right? Not every business on the planet. Hang on. Not every business on the planet has five-year design. And if you're running a bar down the street, every night I can go drink at a different bar. If you're selling Coca-Cola, every day I can switch to Pepsi. Right?

SPEAKER_02

If you're running Amazon consumer, every day I can go and search and go on Walmart. Right? Not every business is going to have enduring long-term lock-in. And that's obviously, you'd prefer to have lock-in. Right? But there are lots of businesses that have been around for 50 years where every day they have to earn the right for the consumer to go to them. Right? And I think there's no doubt in my mind that any consumer hardware, software combination product has some residual asset from the subscription. But then, every new device has to be awesome. You're in competition with other awesome products. It turns out capitalism is hard.

SPEAKER_02

If you want to make $10 billion in value, you've got to deliver value for your consumers. And I think for what it's worth on Peloton, I actually think what really happened to them, it's a little like the Zoom story, is demand that would have been wonderful. It would have been the greatest stock ever had that demand been spread out over five or six years, increasing at 20% a year. We'd be talking about the Peloton compounding machine.

SPEAKER_00

[SPEAKER_02] Instead, everyone bought the thing at the same time. [SPEAKER_02] They staffed up to meet that demand. [SPEAKER_02] The market was wildly saturated, and then the stock went down and broke the narrative. [SPEAKER_02] So I do agree. [SPEAKER_02] There's nothing you can do to make a market bigger than what it is. [SPEAKER_02] But I think they got whiplash by virtue of the COVID demand spike followed by demand falloff. No, I think the meta question, listen, these are great markets. They're large markets. They're markets where people will pay actually relatively high subscription fees for data. A lot of attractiveness.

SPEAKER_00

The meta question for venture is the classic Peter Thiel zero to one. Only competitions for losers is what Dr. Thiel said. Competitions for losers. Competition destroys profits. Monopolies drive innovation. You want to invest in monopolies. And so that's my meta anxiety is if these are unmonopolizable markets, are they good ones for venture or not? And obviously, there's two sides to it. But we hope I would feel more comfortable investing in things that become monopolies. I mean, it's a better landing place than investing in bars. [SPEAKER_01] And you can't ascribe the same durability of revenue to this as you can what? [SPEAKER_01] As much as I love.

SPEAKER_00

[SPEAKER_02] But on the other hand, you can't ascribe super high growth and you can't ascribe big time. [SPEAKER_02] You might just look if there were enough monopolies to do even one good monopoly a year, I'd be in. [SPEAKER_02] Right. [SPEAKER_02] And speaking of the founders are about to get the all-time prize because they invested in the space monopoly. [SPEAKER_02] And 20 years later, they're going to cash in their chips. [SPEAKER_02] Right. [SPEAKER_02] Monopolies are better businesses than competitive markets. [SPEAKER_02] But I do think you can still build billions of dollars of value from a good consumer product.

SPEAKER_01

[SPEAKER_02] Right. [SPEAKER_02] And there are lots of prior examples of that. [SPEAKER_02] And yet we all understand the dynamics of I think it's much less competitive.

SPEAKER_00

[SPEAKER_02] I mean, actually, for what it's worth. [SPEAKER_02] I think if you look at consumer products that flame out like the GoPro, it's much less a competition issue. [SPEAKER_02] It's not like GoPro died because the competitor to GoPro emerged. [SPEAKER_02] Right. [SPEAKER_02] It's that saturation is as big a problem as anything else. Well, DJI might disagree with you.

SPEAKER_01

[SPEAKER_00] I mean, there was a whole step function in the industry that they got left behind. [SPEAKER_00] Right. [SPEAKER_00] Yeah. [SPEAKER_02] Would you prefer two billion dollars in consumer hardware revenue or two billion dollars worth of five-year contracts like Palantir? [SPEAKER_02] I'll take the contracts with the 90 percent gross margin of the five-year lock-in. [SPEAKER_02] Your starter for 10. [SPEAKER_02] But you got to give a lot of respect. [SPEAKER_00] I think maybe the more interesting question, Rory, that you brought up because so much has changed. [SPEAKER_00] This is our 50th show. [SPEAKER_00] So much has changed. [SPEAKER_00] Right.

SPEAKER_02

[SPEAKER_00] When we started the show, public durable public company revenue, despite slowdown in the top line was the gold standard. [SPEAKER_00] Right. [SPEAKER_00] It was the best revenue out there. [SPEAKER_00] Fast forward to today. [SPEAKER_00] Do we or going public? [SPEAKER_00] Do we care what type of revenue it is? [SPEAKER_00] Because the durable software stuff is trading lower than the S&P 500. [SPEAKER_00] Maybe I'd rather have ring revenue. [SPEAKER_00] And with a somewhat suspect customer lifetime value because the software value is so low. [SPEAKER_00] Maybe I don't care where my revenue comes from.

SPEAKER_00

Right. It used to matter. It used to matter. Right. We'd be in board meetings where you would torture companies so that they would have more ARR. And that they would have less variable revenue. I mean, that seems archaic today. [SPEAKER_02] Yeah. [SPEAKER_02] And I remember doing that. [SPEAKER_02] I remember telling people not to do that because I'm a big believer that you can't make. [SPEAKER_02] You should sell your product the way the customer wants to buy it. [SPEAKER_02] And I agree. [SPEAKER_02] One of the things I hated about venture was when people would say, make it all recurring revenue. It used to matter. It used to matter.

SPEAKER_01

[SPEAKER_00] Right.

SPEAKER_00

We were in board meetings where you would torture companies so that they would have more ARR. And that they would have less variable revenue. That seems archaic today. [SPEAKER_02] Yeah. [SPEAKER_02] And I remember doing that. [SPEAKER_02] I remember telling people not to do that because I'm a big believer that you can't make—you should sell your product the way the customer wants to buy it. [SPEAKER_02] And I agree. [SPEAKER_02] One of the things I hated about venture was when people would say, oh, make it all recurring revenue.

SPEAKER_00

[SPEAKER_02] And then the fun one that's actually really relevant right now is you remember everyone would say, oh, it's a hardware product, but all the values in the software. [SPEAKER_02] So we're really a software company. [SPEAKER_02] And now hilariously, everyone's going, oh, thank God I've got hardware because hardware is defensible, not software. [SPEAKER_02] Right. [SPEAKER_02] And I think the big picture comment is you should conform your company around your customers and your model, not your VCs. [SPEAKER_02] Because I agree with you. [SPEAKER_02] This kind of pretend it's ARR, but then next year we hate ARR.

SPEAKER_00

[SPEAKER_02] It's just a total waste of time for entrepreneurs. [SPEAKER_02] Things are what they are. [SPEAKER_02] And you do best in business if you actually say what they are and just live and die by that. [SPEAKER_02] Most consumer products have high volatility associated with them. [SPEAKER_02] You better have a damn good R&D function and continue to build great products. Looking today, this week, they also talked about how I think Allbirds was acquired for less than 30 million?

SPEAKER_02

[SPEAKER_01] Yeah, it was acquired. [SPEAKER_01] Yeah, I was literally about to bring this up, Jason. [SPEAKER_01] It was acquired by Almex for $39 million. [SPEAKER_00] So my question is, if a company like Aura goes public and you see weakness in a quarter, should you dump this thing instantly like Allbirds versus forgive a little bit of weakness in a sales force or service? Again, I'm going to avoid any specifics, genuine comment here, right? Yeah. Because it's not appropriate. I'm going to avoid it, but I would say something unlike the other two guys, I've run a textile manufacturing company 30 years ago.

SPEAKER_02

The technology required to make an Allbirds or a shoe is not the same as the technology required to make a modular electronic device that sits on the human finger and measures blood. Either of these kinds of consumer electronic products—they're not a monopoly in the same way NVIDIA is, but it's a pretty rare number of companies that can do that. Put it this way, Jason, I'll name a wearable, you'll name a wearable, and then I'll name a sneaker and you'll name a sneaker. We'll be done with wearables long before we're done with sneakers because there's a lot of different sneaker companies.

SPEAKER_02

And it turns out sneakers are easier to make than wearables, which are easier to make than NVIDIA GPU chips. [SPEAKER_01] Speaking of, do we care? What do we actually care about? There were two that I don't know if you guys know this, but I have wonderful partners. [SPEAKER_01] And one of my partners is much more intelligent than me, which Rory, you're going to make some form of gag about. [SPEAKER_01] But he helped me put together some of the schedules too. And he was, whoa, I had no idea about this. [SPEAKER_01] He was, whoa, Epic Games laid off 25%. I didn't even hear about that.

SPEAKER_02

[SPEAKER_00] Yeah. And then I had Mark Andreessen on your last pod sort of laughing about how we all overhired in 2021. [SPEAKER_01] Well, Mark Andreessen was very clear. He thought that we were all using AI as an excuse and that we were all overstaffed by 50 or at least 75%. [SPEAKER_01] Did any of his portfolio companies do that overhiring? By the way, just logically, it would be 75% or at least 50% overstaffed by 50% or at least 75%. This doesn't make any logical sense, but keep going. Just picking up on the arrows here. [SPEAKER_01] Rory. [SPEAKER_01] He's pissed now. He's pissed. [SPEAKER_01] I would love to see you do a day of my life.

SPEAKER_02

[SPEAKER_01] I would love to do a day of my life. [SPEAKER_01] That's actually fair. I now feel free. You've been cracking. [SPEAKER_01] I will give you two hours sleep for six hours a day running two companies at once. [SPEAKER_01] Okay. Now I'm feeling guilty. Move on. [SPEAKER_01] Don't worry. But point being, point completely under the radar. They didn't try and do an AI bullshit story. They basically said daily active use of their Fortnite game and their games is down. So your revenue is down. So you take your expenses down. It struck me as a no bullshit layoff announcement. It's like we sell less stuff. We have less people. It sucks.

SPEAKER_02

And again, I really do try never to be cavalier about people losing their jobs because every one of those has to put food on the table. They're not earning the kind of money we're earning. And now they've got to go out and find another job in a shitty job market. It sucks. But the lesson is, and that's why I respect them. It's like we're selling less. So we got to do what we got to do to keep the company profitable. [SPEAKER_01] Guys, we keep talking about these layoffs and these big numbers. [SPEAKER_01] I mean, it was over a thousand people laid off in this layoff. [SPEAKER_01] A thousand. [SPEAKER_01] And numbers are relatively meaningless.

SPEAKER_00

[SPEAKER_01] And we've had so many of these conversations. [SPEAKER_01] What happens to the labor markets? Well, one thing on the epic thing, if you and the Wall Street Journal did a good article on this one this week on the permanent decline of Hollywood employment. It's permanently in decline. It's in decline because fewer movies and TV shows are being made. TikToks and YouTubes are doing it. And it's in permanent decline because every other country provides larger subsidies. Right. And so there's this permanent decline in Hollywood labor. I think entertainment shows us the future. Epic Games is entertainment, too. Right.

SPEAKER_00

And they will absorb as much AI and technology as they can to address it, to adapt. And it's just early. It's just early. They've had to adapt to YouTube.

SPEAKER_01

[SPEAKER_00] They've had to adapt to social gaming. [SPEAKER_00] And I think we talk about these thousand people last year or whatever.

SPEAKER_02

[SPEAKER_00] But I think Epic Games is just interesting—it's a more interesting view of the future than block. [SPEAKER_00] We talk about folks might vibe code a B2B app, but content's already being massively disrupted. And some part of that is, as you pointed out to me when I got it wrong a few episodes back, AI related in terms of recommendation engines. [SPEAKER_00] Right. [SPEAKER_00] And they will absorb as much AI and technology as they can to address it, to adapt. [SPEAKER_00] And it's just early. [SPEAKER_00] It's just early. [SPEAKER_00] They've had to adapt to YouTube. [SPEAKER_00] They've had to adapt to social gaming.

SPEAKER_02

[SPEAKER_00] And I think we talk about these thousand people at last year or whatever. [SPEAKER_00] But I think Epic Games is just it's I think it's a more interesting view of the future than block. [SPEAKER_00] We talk about folks might vibe code a B2B app, but content's already being massively disrupted. And some part of that is, as you pointed out to me when I got it wrong a few episodes back, AI related in terms of recommendation engines. But I think a lot of it is just a very competitive attention economy. You're right. Fortnite was the game everyone talked about.

SPEAKER_00

[SPEAKER_02] Now it's not. [SPEAKER_02] It's the nature of the gaming industry. [SPEAKER_02] So, yes. [SPEAKER_02] What does that mean?

SPEAKER_02

It's the Fortnite circle coming for everybody at the end. [SPEAKER_00] Oh, yeah, yeah, yeah, the little circle. [SPEAKER_00] Coming for everybody. [SPEAKER_00] Even Fortnite.

SPEAKER_00

Oh, yeah. The Fortnite circle has come to Fortnite itself. It's surrounded itself. Poor Epic Games is in the middle of its end game of Fortnite. [SPEAKER_02] Yeah. It's just hidden content creators shooting it out at the very end. It's coming for all of the Fortnite circles coming for all of us. [SPEAKER_01] The other one that was, I think, maybe a little bit overlooked is reports of Manus founders. [SPEAKER_01] Manus, obviously, for context, being bought by Meta recently. [SPEAKER_01] Manus founders trapped or kept in China. [SPEAKER_02] So just, again, give people context and then put out one question mark there.

SPEAKER_00

[SPEAKER_02] Manus was a company originally based in China, had some Chinese investors. [SPEAKER_02] Then we domiciled to Singapore, benchmark invested, effectively we founded it as a US, a Singapore company. [SPEAKER_02] Meta acquired it. [SPEAKER_02] I want to say, and I use the word past tense, acquired, because my understanding is the transaction's closed and the money's moved. [SPEAKER_02] Though, interestingly, neither Chachi, Pino, Antropic were clear on that. [SPEAKER_02] But my understanding is that's what happened.

SPEAKER_00

[SPEAKER_02] But then now the latest thing is two of the Chinese government takes a dim view of this because they don't want Chinese talent leeching overseas and going to the US and effectively not being Chinese anymore. [SPEAKER_02] And they feel that as a brain drain. [SPEAKER_02] So they did something that was pretty coercive in the sense of two of the key founders of Manus, I think, were either in China or summoned to China, and they're no longer able to leave. [SPEAKER_02] So those are the facts.

SPEAKER_02

Yeah, of course you care. I mean, I think that, well, starting from scratch, I mean, that sucks. I wish them the best because that's not a pleasant place to be. I mean, I think you've had the Jack Ma thing at Alibaba of effectively going, as it were, under the radar for a few years when you kind of incurred the displeasure of the administration. You also have people who've had significantly worse consequences than that. So let's start with the basic. You wish them all the best, right? [SPEAKER_00] I don't think another deal like this would happen to you. [SPEAKER_00] I think this whole Singapore-Washington thing is over. [SPEAKER_00] It's over. I totally agree.

SPEAKER_02

That's where it's going to go with that long preamble. I'll tell you who did notice. Maybe no one in America spent any time thinking about it, but every Chinese founder who was thinking about doing this is going, hmm. [SPEAKER_01] Hmm. I don't know how I feel about this. I don't know if I can do this deal. I do know if I do this deal, I am never going home again.

SPEAKER_00

[SPEAKER_02] But I'm with you, Jason.

SPEAKER_01

[SPEAKER_02] I think all these other China-Washington deals, they're put on pause or they're put on re-evaluation or next thing is going to sound harsh. [SPEAKER_02] It's a fairly coercive regime. [SPEAKER_02] If your family is not out of the country, do you have exposure there?

SPEAKER_00

[SPEAKER_02] Right?

SPEAKER_02

I think it just shows authoritarian governments can take pretty drastic steps to impact our citizenry if they want to. And I agree, Jason. It makes it really hard to imagine doing another one of these deals without being worried about this consequence. And hopefully, they'll go, nor do you pay 50%. You know, California makes it hard to leave too. But if you pay them 13%, they'll let you go to Nevada. Yeah. Hopefully, it turns out to something like that. And please, God, it's not something more coercive.

SPEAKER_01

[SPEAKER_02] But I agree, Jason. [SPEAKER_02] Wouldn't do another one. [SPEAKER_00] You know, in venture, you take risk, right? [SPEAKER_00] It's part of the job.

SPEAKER_00

So we've all had deals where there's some rule, some corner that was cut.

SPEAKER_01

[SPEAKER_00] And we talked ourselves into it's okay, right? [SPEAKER_00] This is companies, something weird about this company.

SPEAKER_02

[SPEAKER_00] And we convince ourselves as talking to some mediocre lawyer or asking an LLM today that it's okay. [SPEAKER_00] So the Singapore washing must work, right?

SPEAKER_01

[SPEAKER_00] They've moved to Singapore. [SPEAKER_00] It's got to work. [SPEAKER_00] And you convince yourself that you talk to a few people and you take the risk. [SPEAKER_00] And it appears to have bounced the right way for benchmarking friends, right? [SPEAKER_00] It appears they've gotten their money. [SPEAKER_00] But you don't do the next one, right? [SPEAKER_00] And there's 242 millionaires in Singapore. [SPEAKER_00] The majority of the inflow is Chinese.

SPEAKER_02

[SPEAKER_00] You don't do the next deal. [SPEAKER_00] And maybe other capital does the deal. [SPEAKER_00] And that's fine, right? [SPEAKER_00] Capital is fungible. [SPEAKER_00] But you just can't do the next one like this. [SPEAKER_00] It's too risky. [SPEAKER_01] What do you do if you're Meta? [SPEAKER_01] Part of the asset you're acquiring is the team. [SPEAKER_00] Two billion is not a lot for Meta. [SPEAKER_00] And they have the product.

SPEAKER_01

[SPEAKER_02] Yeah. [SPEAKER_02] What are you going to do, Harry? [SPEAKER_02] What would you recommend? [SPEAKER_02] Getting angry at the Chinese? [SPEAKER_02] That'll work well for them, right? [SPEAKER_02] I mean, I think it'll be, you know, yet another acquisition that looked clever.

SPEAKER_00

[SPEAKER_02] But in retrospect, wasn't amazing. Well, listen, for Meta, I'll just say one thing. I only have a tiny bit of information. But it appears to me, Manus is running mostly and smoothly as an application in a company. Two billion is not a lot for Meta. And they have the product. [SPEAKER_02] Yeah. [SPEAKER_02] What are you going to do, Harry? [SPEAKER_02] What would you recommend? [SPEAKER_02] Getting angry at the Chinese? [SPEAKER_02] That'll work well for them, right? [SPEAKER_02] I think it'll be yet another acquisition that looked clever, but in retrospect, wasn't amazing. Well, listen, for Meta, I'll just say one thing.

SPEAKER_00

I only have a tiny bit of information, but it appears to me Manus is running mostly smoothly as an application in a company. Now, I don't know if the founders are working at it. I certainly feel strongly when you lose your founders, you lose the heart and soul of your company. But in the short term, I don't think it's a big deal for Meta outside of the founders because it's running smoothly. Right? That's my take in the short term.

SPEAKER_02

[SPEAKER_00] It's not down. [SPEAKER_00] The team's functioning. [SPEAKER_00] They're running. [SPEAKER_00] But it's crazy. And at the risk of being Pollyanna, but also wanting to assume the best of people, I would hope that the Meta management team and board, to the extent they do have any influence, can help these guys come to an amicable end. And if it requires a tax settlement or whatever, you don't want to leave people you just acquired in limbo. At some zoom out level, when you listen to the rhetoric on both capitals, you just have to realize that trying to tread between these two countries is pretty hard right now. Right? We have China hawks in the US government.

SPEAKER_00

[SPEAKER_02] They obviously have a whole ton of US hawks or whatever the equivalent is. [SPEAKER_02] There's a real perception of competition. [SPEAKER_02] We don't let them buy the Nvidia chips, et cetera, et cetera. [SPEAKER_02] You're playing with fire on that thing, and sometimes it bites you. I just think overall, it's natural given the outcomes and given the growth that I think it's tied to taking the highest levels of risk we've also taken because the app seemed to be there. And when this deal happened, folks thought this was aggressive. Benchmark's never done a deal like this.

SPEAKER_02

[SPEAKER_00] Why are they doing a deal like this?

SPEAKER_00

It's not even very cheap. Right?

SPEAKER_01

[SPEAKER_00] It seems a little crazy. [SPEAKER_00] And they're like, well, we've never seen anything grow like this and the team's incredibly talented. [SPEAKER_00] Right?

SPEAKER_02

[SPEAKER_00] So they took a little bit of risk and they made their profit. [SPEAKER_00] We're all taking more and more risk now. A week of revenue at a demo day. [SPEAKER_00] I did a million dollars my first week. [SPEAKER_00] It's amazing. [SPEAKER_00] What about the second week? [SPEAKER_00] I don't know. [SPEAKER_00] But as long as it all works out in the aggregate, and I think this is why nobody cares. [SPEAKER_00] To Harry's point, I cared about Manus. [SPEAKER_00] I added it to the list. [SPEAKER_00] I don't think anybody cares. [SPEAKER_00] We're all focused on getting a million dollars our first week.

SPEAKER_02

[SPEAKER_00] Just a good realization that the worst thing that can happen is not just losing your money. There are worse things than that. [SPEAKER_01] Speaking about cashing their shot and making billions of dollars, Steve Jervison tied his career to Elon very smartly. [SPEAKER_01] Not in any negative way in terms of the investments he has plowed, trebled, doubled, quadrupled, everything in between. [SPEAKER_01] Leaves California, buys most expensive home in Incline Village. [SPEAKER_01] And these were Jason's notes. [SPEAKER_01] Will anyone with liquidity be left in California?

SPEAKER_00

[SPEAKER_01] What if California is structurally bankrupt? Well, it's not a great sign when they keep leaving, is it? It's not a positive.

SPEAKER_02

[SPEAKER_00] But Rory's staying, Jason. Look, first of all, you're exactly right. All credit to Steve and more power to him. I've known him intermittently for 30 years.

SPEAKER_01

[SPEAKER_02] He made a brilliant call to align with SpaceX, been on the board of Tesla and SpaceX.

SPEAKER_02

Tesla for a while and then came off, obviously, back in the day. But SpaceX, too, yeah. He's put his money in a compounding machine, and now he's clearly hit the DPI moment. Right? But going back to the thing, yes. The truth is this: that's why we said last week, ultra-high net worth people have a high degree of mobility. And unfortunately, if you put the hammer up too high, they can leave and choose to go across the border to Incline Village and save 13% on any realized gains, plus 5% on all gains if this wealth tax passes. At the margin, why wouldn't you?

SPEAKER_02

It's not like you need to be in California to be a Tesla board member or a SpaceX board member, given they're down in Texas. So yes, actions have consequences. [SPEAKER_00] Well, it's interesting. [SPEAKER_00] This week, Washington State did pass their 9.9% state income tax for millionaires. [SPEAKER_00] And the governor said the reason to sign it, because there's a lot of folks who said don't do it. [SPEAKER_00] Right? [SPEAKER_00] Howard Schultz already left. [SPEAKER_00] He said today he said well, they just deserve to pay more. [SPEAKER_00] And that may well be true. [SPEAKER_00] Like, I don't want to debate that. [SPEAKER_00] This is not political.

SPEAKER_00

Right? I'm more concerned about the tipping point when we kill golden geese. Washington, California, and to a lesser extent New York have been the golden geese. Washington said they're going to lose money. They're not going to make money on this. It appears that most folks that are neutral or right have said California will lose money on the billionaire tax. Everyone's left. And the tax itself assumed massive amounts from Larry Ellison, who's been gone a half decade. Right? So no one's, it's just, I do worry. They're all leaving. Everyone that doesn't work at OpenAI or Anthropic.

SPEAKER_00

The golden geese. Washington said they're going to lose money. They're not going to make money on this. It appears that most folks that are neutral or right have said California will lose money on the billionaire tax. Everyone's left. And the tax itself assumed massive amounts from Larry Ellison, who's been gone a half decade. Right? So no one's, it's just, I do worry. They're all leaving. Everyone that doesn't work at OpenAI, Anthropic. On this show, we've done it 50. And I said in the beginning of this that you'll leave after the Series B. And now I see that used again and again by these folks who are on the right on it. They say all the founders will leave after the Series B, but it may happen by show 100.

SPEAKER_00

[SPEAKER_02] And one of the arguments I make is because the truth is this, articulating the argument to the activist on the other side as being, you're being mean to the billionaires is of genuinely no interest. And being mean to a billionaire is actually a feature, right? But I think the real articulation is this. If you actually are losing revenue that won't be available to California and the marginal dollar in California probably goes into payment for homelessness, payment for young kids, payment for foster homes, payment for marginal social welfare services that are easy to defund when times are tough, right? And by choosing to obtusely tax without any attention to ability to collect that money, you've actually reduced the revenue that's available to you, right? And that's the argument you have to make to someone on the other side of the table. You have literally chosen something. Instead of getting 250 million, I'll pick a number, 50 million from the Larry and Sergeys and the Jervisons of this world, you went for 200 million and now you're going to get zero. And what that means in real terms is somewhere down the line, long after all these changes have been made, somewhere in Sacramento, someone will zero out a line item on the budget. And let me give you a clue. It won't be payments to the teachers. It won't be payments to the firemen. It'll be marginal services to marginal people that your crass stupidity and desire to make a political point has ended up costing them money. And that's the only argument that moves the needle because it's true. And you're right, Jason, you're saying is that it will have a net negative return. Now do you feel good? Rory, if you were Steve, would you have left?

SPEAKER_00

[SPEAKER_02] I think from my perspective, I'm just so glad to be in California. It's so wonderful. I've moved around a lot early in my life. I have my friends here. I have my life here. At the margin, the whole point of having money is to be able to do what you want. And for three or four or five or even 13% of your income, do you really want to leave? Now, I will say that's why you can tax income relatively highly because it comes all the time and you can't control timing. And therefore, you have to uproot your whole life for the rest of your life to avoid it. And I don't think it's worth it. So I wouldn't move to avoid income tax. Conversely, if you have this pending capital event where literally in one year, you're going to sell all your SpaceX stock and realize a $2 billion gain and you're going to pay an extra 13% of that in California, which is $260 million. Maybe you turn to your wife and say, honey, for the next two years, why don't we live in Inclined Village 165 days? I'll pay for the plane. We'll go back every week. You won't lose contact with anyone and we will save $260 million. And you go, hmm, that's real coin. And that's the point about, that's not the life I live. That's not the situation I'm in. But that's the argument you make. It's not crazy.

SPEAKER_00

[SPEAKER_01] That's real coin, baby. That's real coin. Is there any story that I haven't hit on, guys, that we should hit on? I just have to bring up the Ron Conway, Matthew Prince one, because it was, I highlighted that one on Twitter. It was just the funniest thing in the world. And I don't know Ron Conway. But for context, you want to provide some context?

SPEAKER_00

Yeah, I don't know Ron Conway, but he's certainly viewed as one of the Silicon Valley gems, right, seed investor and so many leaders, always out there as an advocate everywhere, probably could have retired years ago, right, very founder-centric. And he wrote that he had helped Cloudflare navigate some very significant issues earlier in the day, I think on Jack Altman's podcast, yeah, on Uncapped. And they asked Matthew Prince, CEO of Cloudflare, the question he said, well, maybe, I don't remember any of that. And it's just, it's not, and he wasn't mean. Matthew can be fairly sharp, as Harry knows these days. It wasn't meant mean. The tweet was not mean. He literally just meant, he couldn't remember getting any help from this beloved VC. And I think it just said so much to me about VCs adding value, but also VCs thinking they add value. VCs possibly adding a modest amount of value, but founders not really thinking that modest value was consistent with the bravado of the VC. It just crystallized the whole value add idea to be in a single tweet. It wasn't mean. It's just, I don't remember any of that, I don't remember Ron helping, but maybe he did.

SPEAKER_00

[SPEAKER_02] Yeah, you're right, Jason. I did laugh at that. And I think it does. I think, actually, my bigger point to your point is both, to some extent, are right, is that, as a, we all want to have agency. We all want to feel we help and want to be good people. And you look and go, hey, I spent some of my time helping the CEO. I feel I helped, but from the company's perspective, they're founding a company. I don't remember Ron helping, but maybe he did. [SPEAKER_02] Yeah, you're right, Jason.

SPEAKER_01

[SPEAKER_02] I did laugh at that. [SPEAKER_02] And I think it does.

SPEAKER_00

[SPEAKER_02] I think, actually, my bigger heart to your point is both, to some extent, are right, is that we all want to have agency. We all want to feel we help and want to be good people. And you look and go, hey, I spent some of my time helping the CEO. I feel I helped, but from the company's perspective, they're founding a company. They're doing a million things on one or two things on a 10-year journey. You helped. You remember that vividly. They're like, dude, it just fades into the background of a hundred things. And you know better than me, Jason. They have to do every day, right?

SPEAKER_00

[SPEAKER_02] And the truth is this. One of the proofs of this, an interesting way to check it, is I often read business biographies and business stories of great companies, venture-backed companies, and how they're formed and what happened.

SPEAKER_02

And you know what I notice in them? Every single one of them, very few little mention of VCs. If you just read them, you eyeball them, says, oh, that's a biography. Yeah. And they crop in and come out a couple of times, right? And I think that's right because realistically, in the journey of what's going on, the only significant things we've done, I've said this before in the podcast, we put in the money and we put in more money when they need it. We decide to hire or not hire and fire the CEO. We agree to build a strategic direction and anything after that is at best an assist, right?

SPEAKER_02

And if you read the biographies of businesses, what you generally see is the only time the VCs come in as some version of those, right? And it's five pages of the journey early on, interspersed around 200 pages in the first five chapters. And by the time they get to the IPO, it doesn't even rise to the level of a thing, right? I was reading the OpenAI biography, a bunch of them recently, and that's just the way it is. Microsoft, same thing, right?

SPEAKER_02

So don't, I mean, and the VC can feel those five minutes of impact were amazing and they feel really good about them and you feel warm and fuzzy. But the only thing founders really remember for better or real is, oh my God, our backs were to the wall and no one would put in money and they put in money. They remember that. Sometimes. In my experience, sometimes. Sometimes they even forget that. [SPEAKER_00] But to your point, Jason. At least half the time they forget that.

SPEAKER_02

If they forget that, they're definitely going to forget the time you made that phone call to help them connect with XYZ and that helped them do something because that's something that happens 100 times a day. No, you're right. Yeah.

SPEAKER_00

[SPEAKER_01] Yeah. We're not the stars in the drama. We're bit players who get well paid for a part. Boys, as always, the most humbling 90 minutes of my week. I think you'll get more. You'll be humble tomorrow. I'd be surprised. I only have a tiny bit of information. But it appears to me, Manus is running mostly and smoothly as an application in a company. Now, I don't know if the founders are working at it. You know, I certainly feel strongly when you lose your founders, you lose your heart and soul of your company. But in the short term, I don't think it's a big deal for Meta outside of the founders because it's running smoothly. Right. That's my in the short term.

SPEAKER_00

It's not down. The team's functioning. They're running. And but it's crazy.

SPEAKER_02

And at the risk of being Pollyanna, but also wanting to assume the best of people, I would hope that the Meta management team and board, to the extent they do have any influence, can help these guys come to an amicable end. And if it requires a tax settlement or whatever, you know, just you don't want to leave. You don't want to leave people you just acquired in limbo. At some zoom out level, when you listen to the rhetoric on both capitals, you just have to realize that trying to tread between those two, these two countries is pretty hard right now. Right. You know, you know, we have China hawks in the US government.

SPEAKER_02

They obviously have a whole ton of US hawks or whatever the equivalent is. There's a real perception of competition. You know, we don't let them buy the Nvidia chips, et cetera, et cetera. You're playing with fire on that thing. And sometimes it bites you.

SPEAKER_00

I just think overall, it's natural in given the outcomes and given the growth that I think it's tied to taking the highest levels of risk we've also taken because the app seemed to be there. And when this deal happened, folks kind of thought this was aggressive. Benchmark's never done a deal like this. Why are they doing a deal like this? It's not even very cheap. Right. It seems a little crazy. And they're like, well, we've never seen anything grow like this and the team's incredibly talented. Right. So they took a little bit of risk and and they made their they made their profit.

SPEAKER_00

We're all taking more and more risk folks that, you know, now it's a week of revenue at a demo day. I did a million dollars my first week. It's amazing. What about the second week? I don't know. But as long as it all works out in the aggregate. And I think this is why nobody cares. To Harry's point, I cared about I cared about Manus. I added to the to the list. I don't think anybody cares. We're all focused on getting a million dollars our first week. Just good realization that the worst thing that can happen is not just, oh, you lose your money.

SPEAKER_02

There are worse than that.

SPEAKER_01

I mean, speaking about cooling their shot and making billions of dollars. Steve Jervison is tied his career to Elon very smartly. So that's not in any negative way in terms of the investments he has plowed, trebled, double, quadrupled, everything in between. Leaves California, buys most expensive home in Incline Village. And these were Jason's notes. Will anyone with liquidity be left in California? What if California is structurally bankrupt?

SPEAKER_00

Well, I mean, yeah. It's not a great sign when they keep leaving, is it? It's not a positive. But Rory's staying, Jason.

SPEAKER_02

I mean, look, first of all, you're exactly right. All credit to Steve and more power to him. I've known him intermittently for 30 years. He made a brilliant call to align with SpaceX, been on the board of Tesla and SpaceX. Tesla for a while and then came off, obviously, for those back in the day. But SpaceX, too, yeah. He's put his money in a compounding machine. And now he's clearly hit the DPI moment. Right? But, yeah, going back to the thing. Yes. I mean, the truth is this. That's why we said last week. High, ultra-high network people have a high degree of mobility. And, unfortunately, if you put the hammer up too high, they can leave and choose to go across

SPEAKER_02

the border to Incline Village and save 13% on any realized gains. Plus, as we pointed out, 5% on all gains if this wealth tax passes. At the margin, why wouldn't you? It's not like you need to be in California to be a Tesla board member or a SpaceX board member, given they're down in Texas. So, yeah, actions have consequences.

SPEAKER_00

Well, it's interesting. Also, this week, Washington State did pass their 9.9% state income tax for millionaires. And the governor said, the reason the governor said to sign it, because there's a lot of folks who said, don't do it. Right? I mean, already Howard Schultz left. He said today, he said, well, they just deserve to pay more. And that may well be true. It may well be true. Like, I don't want to debate that. This is not political. Right? I'm more concerned about the tipping point when we kill golden geese. You know, there have been Washington and California and to a lesser extent, New York have been the golden geese.

SPEAKER_00

It's, you know, Washington said they're going to lose money. They're not going to make money on this. It appears that most folks that are neutral or right have said California will lose money on the billionaire tax. Everyone's left. And the tax itself assumed massive amounts from Larry Ellison, who's been gone a half decade. Right? So no one's, it's just, I do, I do worry. They're all, they're all, they're all leaving. Everyone that doesn't work at open-air, an anthropic. You know, on this show, we've done it 50. And I said in the beginning of this, that you'll leave after the series B. And now I see that used again and again by these folks who are on the right on it.

SPEAKER_00

They say all the founders will leave after the series B, but it may happen by show 100.

SPEAKER_02

And one of the arguments I make is because, you know, the truth is this, articulating the argument to the, you know, the activist on the other side as being, you're being mean to the billionaires is of genuinely no interest. And being mean to a billionaire is actually a feature, right? But I think the real articulation is this. If you, you actually are losing revenue that won't be available to California and the marginal dollar in California probably goes into, you know, payment for homelessness, payment for young kids, payment for foster homes, payment for marginal social welfare services that are easy to defund when times are tough, right?

SPEAKER_02

And by choosing to obtusely tax without any attention to ability to collect that money, you've actually reduced the revenue that's available to you, right? And that's the argument you have to make to someone on the other side of the table. You have literally chosen something. Instead of getting, you know, 250 million, I'll pick a number, 50 million from the Larry and Sergeys and the Jervisons of this world, you went for 200 million and now you're going to get zero. And what that means in real terms is somewhere down the line, long after all these changes have been made, somewhere in Sacramento, someone will zero out a line item on the budget. And let me give you a clue.

SPEAKER_02

It won't be payments to the teachers. It won't be payments to the firemen. It'll be marginal services to marginal people that your crass stupidity and desire to make a political point has ended up costing them money. And that's the only argument that moves the needle because it's true. And you're right, Jason, you're saying is that it will have a net negative return. Now do you feel good? Rory, if you were Steve, would you have left? I think from my perspective, I'm just so glad to be in California. It's so wonderful. I've moved around a lot early in my life. I have my friends here. I have my life here.

SPEAKER_02

At the margin, the whole point of having money is to be able to do what you want. And for three or four or five or even 13% of your income, do you really want to leave? Now, I will say that's why you can tax income relatively highly because it comes all the time and you can't control timing. And therefore, you have to uproot your whole life for the rest of your life to avoid it. And I don't think it's worth it. So I wouldn't move to avoid income tax. Conversely, if you have this pending capital event where literally in one year, you're going to sell, quote, all your SpaceX stock and realize a $2 billion gain and you're going

SPEAKER_02

to pay an extra 13% of that in California, which is $260 million. Maybe you turn to your wife and say, honey, for the next two years, why don't we live in Inclined Village 165 days? I'll pay for the plane. We'll go back every week. You won't lose contact with anyone and we will save $260 million. And you go, hmm, that's real coin. And that's the point about, that's not the life I live. That's not the situation I'm in. But that's the argument you make. It's like, it's not crazy.

SPEAKER_01

That's real coin, baby. That's real coin. Is there any story that I haven't hit on, guys, that we should hit on?

SPEAKER_00

I just have to bring up the Ron Conway, Matthew Prince one, because it was, I highlighted that one on Twitter. It was just the funniest thing in the world. And, you know, I don't know Ron Conway.

SPEAKER_01

But for context, you want to provide some context?

SPEAKER_00

Yeah, I don't know Ron Conway, but he's certainly viewed as one of the Silicon Valley gems, right, seed investor and so many leaders, always out there as an advocate everywhere, probably could have retired years ago, right, very founder-centric. And he wrote that he had helped Cloudflare navigate some very significant issues earlier in the day, I think on Jack Altman's podcast, yeah, on Uncapped. And they asked Matthew Prince, CEO of Cloudflare, the question he said, well, maybe, I don't remember any of that. And it's just, it's not, and he wasn't mean. Matthew can be fairly sharp, as Harry knows these days. It wasn't meant mean. The tweet was not mean.

SPEAKER_00

He literally just meant, he couldn't remember getting any help from this beloved VC. And I think it just said so much to me about VCs adding value, but also VCs thinking they add value. VCs possibly adding a modest amount of value, but founders not really thinking that modest value was consistent with the bravado of the VC. It just crystallized the whole value add idea to be in a single tweet. It wasn't mean. It's just, I don't remember any of, I don't remember Ron helping, but maybe he did.

SPEAKER_02

Yeah, you're right, Jason. I did laugh at that. And I think it does. I think, actually, my bigger heart to your point is both, to some extent, are right, is that, you know, as a, you know, we all want to have agency. We all want to feel we help and, you know, want to be good people. And you look and go, hey, I spent some of my time helping the CEO. I feel I helped, but from the company's perspective, they're founding a company. They're doing a million things on one or two things on a 10-year journey. You helped. You remember that vividly. They're like, dude, it just fades into the background of, you know, a hundred things. And you know better than me, Jason.

SPEAKER_02

They have to do every day, right? And the truth is this. One of the proofs of this, an interesting way to check it, is I often read business biographies and business stories of great companies, venture-backed companies, and how they're formed and what happened. And you know what I notice in them? Every single one of them, very few little mention of VCs. If you just read them, you eyeball them, says, oh, that's a biography. Yeah. And they crop in and come out a couple of times, right? And I think that's right because realistically, in the journey of what's going on, the only significant things we've done, I've said this before in the podcast, we put in the money

SPEAKER_02

and we put in more money when they need it. We decide to hire or not hire and fire the CEO. We agree to build a strategic direction and anything after that is at best an assist, right? And if you read the biographies of businesses, what you generally see is the only time the VCs come in as some version of those, right? And it's five pages of the journey early on, interspersed around 200 pages in the first five chapters. And by the time they get to the IPO, it doesn't even rise to the level of a thing, right? I was reading the OpenAI biography, a bunch of them recently, and that's just the way it is. Microsoft, same thing, right?

SPEAKER_02

So don't, I mean, and the VC can feel those five minutes of impact were amazing and they feel really good about them and you feel warm and fuzzy. But, you know, the only thing founders really remember for better or real is, oh my God, our backs were to the wall and no one would put in money and they put in money. They remember that. Sometimes. In my experience, sometimes. Sometimes they even forget that.

SPEAKER_00

But to your point, Jason. At least half the time they forget that.

SPEAKER_02

If they forget that, they're definitely going to forget the time you made that phone call to help them connect with XYZ and that helped them do something because that's something that happens 100 times a day. No, you're right. Yeah.

SPEAKER_01

Yeah. We're not the stars in the drama. We're bit players who get well paid for a part. Boys, as always, the most humbling 90 minutes of my week. I think you'll get more. You'll be humble tomorrow. I'd be surprised.

People's got more. People's got more. People's got more. People's got more. People's got more. People's got more. !